Will India's new farm laws cause farmers economic pain?

The new laws ease the pricing, sale and storage of farm produce but experts argue the reforms are needed to modernise the ailing sector

Indian farmers listen to a speaker at a protest against new farm laws on the Delhi-Haryana state border. Getty Images

Thousands of protesting Indian farmers have been camping at the borders of New Delhi for more than two weeks now, blocking roads into the capital and calling for nationwide strikes in an effort to challenge new farm laws they say benefit big corporates. Some have even started farming on one of the national highways, where they have ploughed median strips and planted vegetables.

Enacted by Prime Minister Narendra Modi's government in September, the laws ease rules around the pricing, sale and storage of farm produce. Despite several rounds of talks with the government and its proposal to tweak the three new laws, farmers have refused to back down and argue that the reforms should be rolled back.

But industry insiders say India's agriculture sector, which has struggled with profitability and declined as a contributor to the country's gross domestic product in recent decades, is in need of major reforms to ensure its economic sustainability and bring in much-needed foreign investment – and that farmers will ultimately benefit.

“I don’t think the government is going to roll back the new farm laws,” says Amit Sinha, co-founder of Unnati Agritech, a platform that offers technology solutions for farmers. “The laws are very important to provide farmers the option to sell their produce to buyers of their choice. Indian farming is beset by the lack of technology and investment and low productivity. It desperately needs private investment in infrastructure and improving farming technology.”

In 1960, India's agriculture sector made up more than 40 per cent of the country's GDP, according to World Bank data. Although the sector today is responsible for the livelihoods of half of the population, it accounts for just 15 per cent of the country's $2.9 trillion economy.

“Agriculture in its current status in India is not sustainable,” Mr Sinha says.

But some farmers worry that the new laws could favour big corporates and food retailers, while cannibalising their income.

Farmers currently sell their produce such as wheat and rice at government-controlled wholesale markets, where they are assured of receiving what is known as a minimum support price for the crops, and they benefit from mandatory government purchases. But if farmers sell their produce directly to other buyers under the new laws, they worry that this could spell the end of the minimum support price system, leading to large corporates deciding prices.

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Amid the protests, which are mainly being staged by farmers from the grain-growing states of Haryana and Punjab, where growers are particularly dependent on the support price system, the government has been trying to assure them that minimum support prices will remain in place. But farmers are not convinced.

“We'll protest here for as long as it takes,” one farmer from Punjab, who is camped out on a national highway leading into New Delhi, told an Indian news channel on Saturday.

However, there are significant benefits for the sector under the reforms, analysts say.

“The farm laws now allow farmers to sell their produce to corporates directly, which the government says would be beneficial to farmers,” says Divakar Vijayasarathy, founder and managing partner at Chennai-based professional services firm DVS Advisers.

“On the other hand, corporates would have easy access to raw materials and, additionally, contract farming is permitted under the new laws, which would be an added sector of interest to corporates and value-add to existing businesses.”

The debate has become fiercely political, with several opposition parties siding with the farmers – a crucial vote bank in India that helped Mr Modi last year to sweep back into power for a second term.

Many farmers with small land holdings in the country have struggled to make ends meet and have taken out loans to invest in seeds, fertiliser and pesticides. Their income also comes under pressure because of the proliferation of middlemen in the supply chain and, worse still, in any given year, their crops can fail because of weather conditions or pests, leaving them heavily in debt. These conditions have led to a high rate of farmer suicides in India.

To address the deep-rooted problems within the sector, experts say improvements in efficiency are desperately required and many believe that the farm laws could facilitate this process. “The key to the success of these laws will lie in how effectively they are implemented,” says Kunal Arora, joint partner at corporate law firm Lakshmikumaran and Sridharan. “If implemented well, I feel this framework will give a lot of opportunities.”

If new businesses come up, there is definitely going to be foreign investment attracted into this space. In addition to the foreign investment, we may also see an inflow of improved technology

He believes “these laws have the potential to impact many other allied sectors, for example e-commerce, logistics and warehousing, packaging, agri-tech”, including businesses that are trying to find solutions to improve efficiency and reduce wastage in the supply chain, which could be facilitated by liberalisation of the sector.

With direct selling, farmers could potentially get a better price, and this could also improve efficiency in terms of transportation of produce, Mr Arora says.

There is also potential for start-ups to capitalise on opportunities that arise under the new framework and this could attract more investment, Mr Arora adds.

“If new businesses come up, there is definitely going to be foreign investment attracted into this space. In addition to the foreign investment, we may also see an inflow of improved technology,” he says.

Speaking at a virtual conference on Saturday, Mr Modi, said: “These reforms will give farmers new markets, access to technology, help bring investments in agriculture that will benefit farmers.”

MJ Khan, chairman of the Indian Chamber of Food and Agriculture, has engaged in lengthy discussions with stakeholders to assess workable and acceptable solutions to break the deadlock.

One of the conclusions of these discussions is that repealing the laws would “be a loss to the agriculture sector and to the 92 per cent non-minimum support price accessing farmers who are to be benefited by these acts”, Mr Khan says.

Meanwhile, Mr Sinha says “most of [India's] farmers are not against the law” and the reforms would lead to more private investment in agriculture infrastructure and help to modernise the sector.

“Corporates could start participating and engaging directly with farmers to help them produce the right crop with sufficient demand and with high quality,” he adds. “They would be able to train the farmers to produce crops which are more relevant for the market and can get better prices for the farmers.”

Protesting farmers fill cans with milk on a highway leading into New Delhi. Reuters

This, he says, could help to make India's agriculture industry more globally competitive.

Aside from talks with farm leaders, there are other steps being taken to address the stand-off and raise awareness of the potential benefits to farmers.

On Friday, local media reported that the ruling Bhartiya Janata Party plans to roll out a huge outreach campaign across the country, including 100 press conferences and 700 meetings with farmers to address their concerns about the reforms.

Given the importance of farmers to the country in terms of food security, and their large numbers, their voices will have to be heard, experts say.
"Maybe the government will come up with some amendments or comforts for farmers, which will find a middle path for both sides," Mr Arora says.

The pressure is mounting after farmers threatened to intensify their protests and call for another nationwide strike on Monday.

However, Mr Arora does not believe that rolling back the laws will ultimately solve the major problems that India's farming sector is facing.

“Practically nobody can say whether the government will be rolling back these laws or not,” he says. “But it may be very difficult because these farm reforms have been pending for a very long while. Not only this government, even the previous government spoke about reforms in the farm supply chain.”