Opinion
The government must avoid sending out mixed signals on farm reforms
Summary
- Recent interventions by the Indian government distort agricultural markets that are in need of a renewed push for reforms. It’s time to farmers and go for greater market orientation, not less.
The government on Friday lifted its ban on the use of sugarcane juice and B-heavy molasses for making ethanol less than a week after it was imposed in an attempt to ensure feedstock sufficiency for sugar. Instead, a cap on such use has been put in place, but the flip-flop seems an acknowledgement of concerns expressed by the industry. Sugar and sugar-based distillers had protested the ban as they risked losses on large investments made in cane-derived ethanol to serve demand boosted by India’s plan to increase its use as an input for biofuel. With the curb now eased, the ill-effects of the intervention may have reduced. But what is still worrying is this tendency to interfere in markets for agricultural commodities seen to have a bearing on retail inflation in the country. Lately, the administration has lowered import duties on farm items, slashed the stock limit for wheat by half, and deployed export bans—the latest being on onions after a minimum export price failed to contain prices. All this is aimed at boosting supplies so that our cost-of-living is held in check. With national elections nearing, the government looks ready to use any tool it can to minimize the risk of an inflation spiral, especially in essentials. But this means meddling with market forces of demand and supply, the distortion of which often has losers and can cause trouble in ways that are hard to foresee.
Ironically, this comes from a government that had made a bold move in trying to reform the country’s vast farm sector and free key aspects of it from state control. The three farm laws it brought in 2020 to enable bulk buying and storage by private parties, as well as contract farming, were broadly a step in that direction. These fell short on stakeholder consultation, had flaws that fanned mistrust among farmers, and faced protests that led to their withdrawal the following year. That failed attempt, however, ought not to put the whole cause in cold storage. Instead of operating under a grid-work of restrictions on a lattice of state props, farms need to become responsive to price signals sent by real conditions, so that what is grown and what’s needed match better. A long legacy of shackles, however, has meant cultivators see themselves as suppliers to the state rather than market. A reduced central role, many fear, will expose them to private exploitation. While there being too few big buyers around could result in a power asymmetry that hurts farmer interests, an open market that includes foreign procurers, grain storers and contract awarders should not suffer that problem. But then, if exports can arbitrarily be barred, that assurance would fall flat, for it implies food security and retail price concerns matter more to our policymakers than farms maximizing profits.
For the case for farm reforms to make headway in the country, we must avoid placing restraints on farmers that leave them worse off. Crucially, a reform path should be laid out for the sector and a proper consultative process pursued, with Parliament discussing every aspect of all proposed policy shifts, so that a healthy debate ensues and a popular consensus has a chance to emerge. No doubt, inflation control is also important for a stable economy, but this is a task best left to the central bank. For the sake of our agriculture, how policymakers envision its future needs to be made explicit. The free interaction of economic forces hasn’t yet got a fair chance to prove its worth. On the whole, we need greater market orientation, not less. This message must ring out loud and clear.
