A More Bountiful Crop

Context: Communicating the unfair trade practices farmers suffer under old laws to groups unhappy with the reforms will clear the way forward.

Issues faced by Indian agriculture:

• Low share in Gross Domestic Product: of only 16%, despite 42% of the workforce employed in agriculture.
• Income gap: An Indian engaged in the services sector earns, on average four times more than an agriculturist.
• Low profit: Farmers get only 40-60% of the final market price of their produce; Reserve Bank of India estimates that share of farmer in consumer prices is as low as 28% (potatoes) to 49% (rice).
• Huge losses: India loses 40% of its annual fruit and vegetables as it processes only 2.2% (China processes 23%) of its production. (Due to restriction under Essential Commodities Act)
• Narrow tax base supporting huge subsidies: as opposed to Europe which has inversely smaller safety nets (elderly population) and huge tax base (45% of direct taxes).
• Fragmented landholdings: 80% of India’s farms are small or marginal (under 2 hectares).
• Monopoly of Agriculture Produce Marketing Committees: which allowed them to extract a significant portion of the value of farm produce and, thereby, prevented farmers from receiving their fair share.

Issues faced by labour:

• Multiplicity of labour laws: Regulations like the Factory Act and Industrial Disputes Act entailed high compliance costs.
• Informalisation of work: Only 19% of India’s workers have formal wage employment. Economic growth in India has low employment elasticity.
• Low employment elasticity: For every 1% growth in India’s GDP, jobs grow at only 0.2%.

 Significance of agriculture reforms:

• Contract Framing Act:
  • Will enable agro-processing and logistics facilities along with the removal of stocking limits, to achieve economies of scale.
    • In Maharashtra, for instance, Sahyadri Agro Farms has set up a cold storage and directly markets to Tesco in Europe by aggregating 10,000 grape, vegetable and tomato farmers.
  • The Act provides for a speedy enforcement and conciliation mechanism through the sub-divisional magistrate, an alternative to civil courts already clogged with decades-old disputes.
  • Sets up Farmer Producer Organisation’s (FPOs) for consolidation of farming lands.
• The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020: provides choice to the farmers to sell their produce outside APMC, increasing their profit margins
  • E.g. In Karnataka, a unified agricultural market has led to the prices of many agricultural goods increased by up to 5.1%, and profit margins of small farmers increasing by 39-159%.

Significance of the latest labour reforms: Leverages India comparative advantage – labour abundance.

• Raising the threshold for prior government permission for laying off workers in industrial units, from 100 to 300, will enable capital and landlocked in sunset industries (e.g., closed textile mills) to shift to sunrise industries (e.g., electronics manufacturing).