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What made Centre change its approach from incentivising states to forcing down reforms?

The Centre is within its rights to enact laws promoting barrier-free trade of farm produce (inter- as well as intra-state) and also dismantling stockholding restrictions. But that can be only after the farmer has sold.

Written by Harish Damodaran |
Updated: December 29, 2020 11:17:12 am
Farmers huddle together in the back of their tractor trailer early morning as they protest to abolish new farming laws, at the Delhi-Haryana state border. (AP)

In November 2019, the Fifteenth Finance Commission submitted its interim report, wherein it proposed special “performance based incentives” to states that carried out agriculture sector reforms.

These reforms specifically pertained to their enacting and implementing all features of the Union Agriculture Ministry’s Model Agricultural Produce and Livestock Marketing (Promotion & Facilitation) Act, 2017 and Model Agricultural Produce and Livestock Contract Farming and Services (Promotion & Facilitation) Act, 2018.

“We recommend that State Governments take preparatory action by securing the passage of these Bills in their respective legislatures in 2020-21 to become eligible to avail the grants awarded by us from 2021-22 onwards,” stated the report.

On February 1, Finance Minister Nirmala Sitharaman, in her Union Budget for 2020-21 speech, said that the Centre would “encourage those state governments who undertake implementation” of its model farm reform laws.

Note the tone, tenor and language used: Both the Finance Commission’s report and the Finance Minister’s budget talked about “incentivising” and “encouraging” states to liberalise their agricultural markets by promoting competition and allowing seamless trading of produce. This could be through enacting new or amending their existing APMC (agricultural produce market committee) legislation in line with the Centre’s model acts.

Cut to June 5, which was when the Narendra Modi government promulgated the Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, apart from a third Essential Commodities (Amendment) Ordinance, 2020. All the three Central ordinances were subsequently passed and enacted by Parliament in September.

The mystery question: What happened between February and June for the Modi government to discard its earlier plan of incentivising/encouraging states in favour of the so-called constitutional route of forcing reform via Central legislation?

Before answering this, it is necessary first to examine the very basis of the “constitutional route” that was taken.

Article 246 of the Constitution clearly places “agriculture” in entry 14 and “markets and fairs” in entry 28 of the State List. The Centre has powers to regulate “inter-state trade and commerce” falling in entry 42 of the Union List. A simple reading of these would indicate that laws relating to agricultural produce marketing can only be made by states. The Centre can encourage, incentivise, persuade and cajole states. However, it cannot legislate on its own.

That’s where some creative interpretation of the Constitution has been resorted to. Entry 33 of the Concurrent List covers “trade and commerce” in all foodstuffs, cattle fodder, raw cotton and jute. That includes not just inter-state, but also “trade and commerce within the state”. While intra-state trade in farm produce is ordinarily under entry 26 of the State List, being a Concurrent subject allows the Centre to also enact legislation. Further, in the event of any conflict between the two, the laws made by Parliament shall prevail over those of the states — their APMC Acts in this case.

Such interpretation is not unproblematic, though. To start with, one must ask what constitutes “agriculture”. Agriculture isn’t just about field preparation, sowing seeds, irrigation, applying fertilisers and crop protection chemicals, and harvesting. It encompasses everything that a farmer does, from production and harvesting to the sale of his/her crop.

The act of sale by a farmer — be it at an APMC mandi, private procurement centre, warehouse, silo, cold store, processing plant or even the farm gate — is very much part of agriculture. Such sale amounts to “agricultural marketing”, which is distinct from “trade and commerce”. “Trade” begins only after the farmer has finished with the “marketing” of his/her produce.

The upshot of this is that the Centre is within its rights to enact laws promoting barrier-free trade of farm produce (inter- as well as intra-state) and also dismantling stockholding restrictions. But that can be only after the farmer has sold. While the Essential Commodities (Amendment) Act exempting traders and processors from stocking limits passes the test, the same cannot be said of the other two Central farm laws. Regulation of first sale of agricultural produce by farmers — whether in mandis or via contract cultivation arrangements — is a “marketing” responsibility of the states, not the Centre.

That brings back the original question: What really changed after February to prompt the Modi government to go for the “constitutional route”? How did the incentive-based push (for a model agricultural produce “marketing” law to be adopted by states) give way to a shove from above (of a farmer’ produce “trade and commerce” ordinance)?

One popular theory is that the pressure for the sledgehammer approach, even at the cost of violating constitutional federalism principles, came primarily from the likes of Reliance, Adani and Amazon.

Truth be told, there was nothing in the existing APMC Acts preventing corporates from opening purchase centres to source produce from farmers, directly or otherwise. Many states issued unified or single licences allowing them to buy from any APMC mandi. All they had to do was pay the market fee applicable within the particular APMC’s jurisdiction. While charged even for transactions outside its physical mandi premises, it was never such a big deal.

Nor was it the case that billions of dollars were waiting to be invested in India’s agro-processing sector, predicated on the immediate passage of the three reform bills. No such deluge followed Bihar’s scrapping of its APMC Act in 2006. Why are corporates and large feed millers even today reliant on middlemen/aggregators there, when they can well procure corn straight from farmers’ fields?

It leaves the only plausible explanation for the Modi government’s shoving its farm bills through Parliament sans any deliberation or even proper drafting — that too, in the midst of a national pandemic. Remember, it wasn’t just the three agriculture bills, but also the three labour codes subsuming 25 existing laws that got passed in September. Both, together, were packaged as historic and pathbreaking reforms.

The context matters here. COVID-19, coupled with growing global investor interest in diversifying supply chains away from China, was seen as a possibility to convert “challenge into opportunity”. The intent and timing of the reforms may have been to market India as the next great investment destination.

But for now, it is angry farmers, more than eager investors, who are knocking on Delhi’s doors.

This article first appeared in the print edition on December 29, 2020, under the title “The Farm Law Mystery”.

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