Back to Basics: Can the recent farm sector reforms prove to be a gamechanger for India?

Agriculture has been the mainstay of the human civilization, prior to the advent of industrial activities (read: manufacturing) and the emergence of the services sector. Plus, India is blessed with a tropical climate and multitude of rivers that crisis cross through its vast lands, availability of rich, arable soil, making agriculture a natural choice of occupation for many in the rural belt. An encouraging milestone reinforcing the innate strength of our agri sector was the record food grain production of 291.9 million tonnes in FY2019-20. In fact, for a country with a population of 1.3bn plus, ensuring food sufficiency and building a robust farm sector with adequate income support for farmers is an absolute necessity.
Agriculture is more than just farming

Agriculture is a complex domain in India, with a plethora of crops, varied regional practices, diverse income groups amongst farmers, heterogenous regional demand patterns and crop preferences and of course, the ever-present vagaries of the weather. Higher farm productivity with enhanced export of farm produce would open new income sources for farmers. Further, in the wake of the COVID pandemic, farm produce would need to comply with stringent phytosanitary norms of plant source produce. Accordingly, farm reforms have to be a continuous process, suited to the ever-changing needs and evolving market mechanism, including international market movements.

A ‘better late than never’ moment for the farmers

As a landmark step in the right direction, recently the Indian Government introduced significant changes in the agriculture ecosystem through the ordinance route, facilitating farmers to look beyond the Agriculture Produce Market Committees (APMCs) and sell farm produce to other States. Contract farming has also been allowed. Allocation of Rs 1 trillion out of the Rs. 20 trillion AtmaNirbhar Bharat reform, towards boosting agriculture infrastructure is a much needed step. It is expected that this would allow better price discovery for the produce based on the demand-supply dynamics, monetarily benefit the farmers, while opening up opportunities for market access. The Central Government has made doubling farmer income one of its main goals. It’s high time, agrarian distress is eliminated, once and for all, through targeted policy measures and structural reforms.

Towards a free and fair market

It is expected that liberalisation of the farm sector would discourage the formation of cartels with vested interests and provide higher margins for the farmers, that would make agriculture activity more viable for the Kisan. In case of surplus produce, the farmers can opt to sell bulk quantities to merchants.

Controlling the inflation monster

Broadly farm produce may be categorized into food crops, cash crops, horticulture crops and plantation crops across the kharif and rabi seasons. Food including horticulture products (fruits and vegetables), being essential commodities, related inflation or rise in prices, can seriously jeopardize the budget of the middle-class Indian family. Accordingly, food inflation is a very sensitive issue in India. Although, the lockdown and resultant lower demand along with subdued oil prices has managed to contain inflation within limits, the recent locust attacks (an occurrence after 26 years) have triggered worries of food inflation.

Wholesale price index: Price movement of select groups in WPI basket indicates a downward trend as far as the food basket is concerned

Wholesale price food inflation moderated to 3.2% YoY in April 2020 from 5.2% YoY in March 2020.

Consumer price Index: Retail inflation returns to RBI's upper target band of 6% in March 2020

Lower food prices primarily led the fall in overall inflation, especially a continued drop in vegetable prices. Inflation in food and beverages eased to 7.8% YoY in March from 9.5% YoY in the previous month. The inflation in vegetables fell to 18.6% YoY from 31.6% YoY in the last month.
There is no time like the present to strengthen the green revolution

Recognizing the latent potential of the agriculture sector in these COVID-19 times, these reforms come at an opportune moment. Reportedly over 50% of the livelihood avenues are supported by the agriculture sector. Further, the reverse migration by migrants from urban centres to rural areas would require creation of agriculture related jobs to support the rural economy.

Unemployment woes in the rural economy

Aiming for the low hanging fruit, first
India needs to seize the opportunity and urgently fast track agriculture reforms especially in strengthening related infrastructure, creating marketing channels, fast forwarding land reforms, encouraging higher private investment and improving logistics with efficient supply chains, to ensure minimal wastage during transit and proper storage conditions. As most other economic activities (non-farm) have been caught unaware in the COVID-19 storm and are into related firefighting efforts, agriculture can prove to be the low hanging fruit to put the economy back on track towards economic recovery.

Written by:

Guest Columnist

Sandhya Krishnan

[email protected]