There is an old saying — no one ever went broke under-estimating the intelligence of the American public. If you think about it further, it probably works better with over-estimation. If you think about it more, it fits almost all democracies. And if you are patient enough, and think some more, it fits best if the word American is switched with the word Indian. Especially, now with all the “debate” around the long awaited, long argued, and vastly overdue farm bills.
A little detail on these bills: The old farm produce laws (the creation of the Agricultural Produce Marketing Committee (APMC) came into existence almost 150 years ago to feed the colonial masters raw cotton for their Manchester mills. The output of these mills was then sold to the “natives” for a hefty profit. The farmer was obligated, required, forced to sell to the masters in a regulated market whose regulation was set by, you guessed it, the colonial masters. It is very likely that the people blindly supporting the “poor” farmers (who were recently seen distributing expensive dry fruit freely to all those coming to their “protest”) are unaware of some simple facts. By supporting these very (relatively) rich farmers, the protesters are in fact arguing for the perpetuation of colonial rule.
Some steps further in this historical lesson. The corrosive monopoly power held by the APMCs has been recognised by almost all political parties and farmer unions (for example, the Bharat Kisan Union took out a protest in 2008 arguing for the right of farmers to sell produce to corporates). The Congress party had these very same laws in its 2019 election manifesto.
Let us further follow this chain of logic of the farm protest supporters. In 1991, the government freed industry from its cage and the results are there for everybody to see, and applaud (except, of course, the wilfully blind). GDP growth in India doubled to an average of 6 per cent over the next 30 years, from the previous average of less than 3 per cent.
For reasons best known to the “political” economists, agriculture was not freed in 1991, or thereafter — until now. Farmers are forced to sell their marketable produce only through a mandi regulated by the government. The new reformed law allows the farmer to sell through the APMC, and to sell outside the APMC. It is her choice. The government procures all of its food through APMCs — only about 6 per cent of the farmers in India sell through the APMCs to the government. These 6 per cent are all large farmers, primarily residing in the two states of Punjab and Haryana. These two states typically account for close to 60 per cent of wheat procurement and close to a third of rice procurement. The government procures from these farmers in order to re-distribute the food via ration shops to the bottom two-thirds of the population. But there are leakages. This leakage was first openly discussed by former Prime Minister Rajiv Gandhi in 1985 when he stated that only 15 per cent of the food procured by the government reached the poor.
There are no more than two million farmers — total — in Punjab and Haryana and less than 5 per cent have holdings above 10 hectares. A rough back of the envelope calculation suggests that the protesting farmers from Punjab and Haryana total no more than 200,000 — that is two hundred thousand so there is no confusion with numbers. The number of all farmers in India, very small, small and large is 100 million. So about 0.2 per cent of all farmers in India have “reason” to protest. And what are they protesting for? Likely the licence to remain the richest farmers in India or the world because in addition to the exclusive APMC largesse, the income of these farmers is not taxed. The non-taxation of agricultural incomes does not benefit the poor farmer because she does not have enough income to be taxed.
Be honest — how many of you know a law in any of the 195 out of 200 countries in the world that prohibit an individual from selling her wares in the market? Count the countless street vendors in the world, in both developing and developed markets. Are they prohibited from selling who they want to sell to? Then why the demand that the APMC be the sole buyer for all farmers?
All these facts are well known, except to large elements of the ideologically motivated domestic and international media. “News” is making the rounds that the largest demonstration in the world has taken place in India and/or that 250 million workers have participated in that. Fake news can only be “influential” if there is some plausibility in the fakeness. What we are being asked to believe is that the richest 2,00,000 farmers are being supported by the considerably poorer 100 million farmers and all those who earn considerably less than the rich untaxed farmers! Remember the opening paragraph?
The political economy of the protest is also illustrated by the following comment from the former chief economic adviser to the government of India and former chief economist of the World Bank, Kaushik Basu. He recently tweeted: “I’ve now studied India’s new farm bills & realise they are flawed & will be detrimental to farmers. Our agriculture regulation needs change but the new laws will end up serving corporate interests more than farmers. Hats off to the sensibility & moral strength of India’s farmers.”
The sensibility part is understandable — the rich do not want to let their richness go, especially if such richness is undeserved. The moral part is not obvious but maybe some digging will illustrate. Let us abstract from moral philosophy and examine what India’s unreformed markets have done to the farm economies of Punjab and Haryana. These two states were the pioneers of the Green Revolution. Electricity to these farmers is subsidised (so that they can destroy the water table), as is their extensive use of fertiliser (so that they have a license to over-use and destroy the environment). But maybe the rich Punjab-Haryana (PH) farmers have provided agricultural growth at a faster rate and thereby helped the state, the country, and the poor.
A comparison of growth in output in states other than Punjab and Haryana indicates a much lower growth in these two states. Output growth for three important crops — rice, wheat and pulses — and two time-periods — the last 15 years (2004 to 2018) and the last eight (2011 to 2018) are presented in the table. Neither APMC, nor subsidies, nor “favouritism” has resulted in higher output growth in Punjab-Haryana. No matter which crop, or which time-period, the results are a sad reflection on the misguided policy. For both periods, output growth of wheat in other states was more than double the growth achieved in Punjab and Haryana; ditto the case for pulses (between 2011-2018, pulses production growth in Punjab and Haryana was at a -0.4 per cent per annum, compared to 5.7 per cent per annum in 10 other states). In rice, the other states do much better than Punjab and Haryana, but the excess growth is not double that of the two states; however, it is nearly double for 2004-18 — two per cent for Punjab and Haryana, and nearly double (3.7 per cent) for nine other states.
All the above facts have been known, and discussed, by learned people for decades. Which is precisely why the intellectual gymnastics played by many learned people defending the farmer protests is so shocking. The “demand” by intellectuals that the farm bill should have been discussed before being passed is well beyond the bounds of conventional dishonesty.
This article first appeared in the print edition on December 12, 2020 under the title ‘Socialism for rich farmers’. Bhalla is Executive Director IMF representing India, Sri Lanka, Bangladesh and Bhutan. Views expressed are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.