Indian Farmers Protest Against Market Liberalisation

2 December 2020 Mervyn Piesse, Research Manager, Global Food and Water Crises Research Programme

Discussions between New Delhi and agricultural interest groups are unlikely to achieve consensus. The market reforms are likely to be implemented and will assist in improving food security outcomes.

Background

A series of controversial farm bills were passed by the Indian parliament in September. They seek to reform the way that farmers market their produce by allowing them to sell crops outside of wholesale markets (mandis). More than 300,000 farmers marched towards New Delhi on 26 November, to protest against the legislation that they fear will bring an end to price supports that set a minimum price for their produce. They plan to block the main roads into the capital for weeks if necessary, in a bid to get a meeting with government representatives.

Comment

Indian farmers are currently paid a minimum support price (MSP) for certain crops, mainly wheat and rice. Produce is currently sold at auctions organised by Agricultural Produce Market Committees (APMC) in each state. There are restrictions on who can purchase goods at those auctions. The reforms will dismantle the APMC structure and allow Indian farmers to sell their goods to anyone for any price, even to buyers from outside of their state. The opposition Congress Party fears that the legislation will weaken the MSP, leaving farmers in a weaker economic position. The Prime Minister, Narendra Modi, has consistently stated, however, that the MSP will not be rescinded, public procurement will continue and that farmers will be better off after the market reforms.

Farmers’ unions claim that the legislation will benefit corporate interests to the detriment of small farmers. There have been three rounds of talks between the government and representatives of farmers’ organisations. The government suggested that a committee be formed to discuss the concerns that the unions have with the legislation, so that a consensus can be reached. Farming organisations refused to join the committee, however, reiterating that they will not co-operate unless a bill that protects the MSP is drafted. The government has asked those organisations to identify specific issues ahead of a fourth meeting on 3 December. If the government is enact its legislation, it may have to introduce a bill that officially supports the continuation of the MSP.

Agriculture is the main source of livelihood for about 58 per cent of the Indian population and farmers are the biggest voter block in the country. Political parties aim to gain the agricultural vote due to the sheer size of the constituency. The ruling Bharatiya Janata Party (BJP) stated in its 2014 general election manifesto that all crop prices should be fixed at a minimum of 50 per cent higher than production costs. In 2016, Prime Minister Modi promised that the income of farmers would double by 2022.

The BJP is also worried about a return of double-digit food price inflation, which damaged the electoral fortunes of the previous government. Years of drought had reduced the supply of onion and legume crops, which rapidly increased consumer prices. After the drought broke in 2018, the supply improved considerably benefiting consumers but leaving farmers with much smaller profits. The government also reneged to purchase crops at prices at least 50 per cent above the cost of production.

Most Indian farmers do not benefit from the MSP as they are net buyers of food. They have to purchase food at market rates that are often substantially higher than their earnings. That situation has contributed to large debts, which is the predominant cause of farmer suicide in India. The reforms could allow farmers to negotiate better prices for their crops and reduce their need to go into debt.

It could also encourage more farmers to grow other crops that are not covered by the MSP, instead of wheat, rice or millet. That would help to improve nutritional diversity in India, which is one of the main impediments to greater food security in the country.

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