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Last week, the Union government moved ahead to productionize its plans, announced in May, for creating a ‘One Nation, One Market’ for agricultural produce. Accordingly, it moved bills in the ongoing Monsoon session of the Parliament to replace the ordinances. It is positioned as a fresh burst of reforms in agriculture, which will dismantle laws, in vogue for decades, binding harvest, storage and sale of crops. In short, it is to set in motion an audacious plan to take the market to the farmer.

But now, this plan has run foul of a section of farmers—largely wealthy farmers, mostly from Punjab and Haryana. The thing is that they also pack considerable political clout—evidenced in the resignation of Harsimrat Kaur Badal, the Punjab MP representing the Shiromani Akali Dal, from the Union cabinet, and the activist campaign launched by the Congress chief minister of Punjab, Captain Amarinder Singh.

This is exactly the political economy of this policy change. It was designed to alter status quo, to replace the current trading system controlled by a clutch of people with a market-based system. Any change will create winners and losers.

Remember three out of four cultivators in India fall in the category of the small farmer. This, in turn, means accessing the mandi or the market for selling their harvest is a mini-project in itself; not to speak of the added cost burden of transport and pay-offs to middlemen. For them, the new regime offers hope. Just like it spells despair for the rich farmer.

The seeds of the challenge of the rich farmers of Punjab can be traced back to the green revolution initiated in the late 1960s. In a short period of time, it transformed Punjab and Haryana into the foodgrain bowl of the country; naturally the farmers, too, gained.

Subsequently, by the late 1970s, this economic power had translated into political clout with the rise of powerful farmer politicians, such as Charan Singh and Devi Lal, with a national footprint.

And, as Himanshu, associate professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, points out, this trend got a fillip with a fundamental shift in public policy towards agriculture.

Till the beginning of the 1980s, the approach was focused on public investment in agriculture—like in irrigation works.

Thereafter, it shifted focus to the idea of agricultural subsidies with its inexorable link to the minimum support price (MSP)—the basic minimum guaranteed on key crops like wheat and paddy—and an annual commitment to procure foodgrain.

Significantly, about 80% of the annual procurement comes from the states of Punjab and Haryana. The fear is that the new regime would endanger this arrangement.

It is true, the earlier system had its flaws. But let us not forget that it also helped mitigate risks to the farmer. By assuring a floor price—based on the cost of cultivation—the government was effectively underwriting the risk in the event of a disaster (like for example if the country missed its annual tryst with the monsoon).

Seen another way, a weakening of the existing regime will diminish this risk cover. The current agitation has got legs precisely because clever politicians have played on these fears of farmers to convince them that the market-based reform would eventually nix the MSP.

Given its role in risk mitigation, the farmers are naturally vulnerable to such a sotto voce campaign.

The problem is that after the 2008 global financial crisis, the demand for foodgrain contracted and so did the prices. In the Indian context, the monsoon, too, became unpredictable even as the traditional crop mix was undergoing a shift towards riskier but high value-added produce like horticulture.

The combination is what led to the phenomenon of rural distress and farm suicides. At present, the farm gate prices are either barely below or at the level of the Support Price—so even a whisper about eliminating MSP will set off alarm bells in the minds of the farmer.

Politics is always as important as economics. The agitation has put the spotlight on the risks underlying farming—an issue rarely discussed, leave alone addressed. The solution therefore is to address risk mitigation and not stoke chaos for short-term political gains.

Food for thought?

Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.

Comments are welcome at anil.p@livemint.com

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