Modi lost on farm laws due to farmers’ unity

Aunindyo Chakravarty

Senior Economic Analyst

IN his seven years as India’s Prime Minister, Narendra Modi has seen only two major defeats. The first was in 2015, when PM Modi had to withdraw amendments to the Land Acquisition Act, because, as he said in his Mann Ki Baat, “Farmers were being misled and a fear psychosis created.” And now, in what is, perhaps, an even bigger climbdown, the PM has cancelled the farm laws that he had pushed through Parliament. This time, he didn’t blame the Opposition, but the government itself for failing “to explain to some farmers such a sacred thing which is absolutely pure and for the benefit of the farmers.”

On the face of it, both these sets of laws were meant for farmers. The first, to let them monetise their land assets and exit agriculture if they wanted, and the second, to earn more by getting an unregulated and unmediated access to the market. In reality, neither had anything to do with farmers; they were meant for India Inc, especially Big Business. To understand this, we have to take a detour, outside agriculture, into the world of industry.

During the 10-year rule of the UPA, the value of new projects announced by the private sector averaged about 16 per cent of the nominal GDP. This includes a peak of 32 per cent during the boom years between 2006-07 and 2008-09, and a slide to just 4 per cent in the last two years of UPA-2. Since then, the value of new private projects announced has languished at less than 5 per cent of the GDP. Private investments began to drop from 2010-11 and have never picked up since then.

There is only one reason for this — Indians do not earn enough to buy the goods and services that our companies produce. In the mid-2000s, at the peak of the global financial bubble, money flowed into factories, offices, housing, roads, flyovers, airports, ports and power plants. The assumption was that the middle class was growing, and consumption demand would grow at a fast pace. So, there was a rush to build capacities to cater to the coming consumption explosion. This balloon was burst by the Global Financial Crisis of 2008-09, and since then, India Inc has had to deal with a full-blown demand crisis.

But capital cannot sit idle; it must constantly keep investing and expanding to survive. So, India’s captains of industry need avenues to invest their cash. One option was to export goods and services. ‘Make in India’ was one such attempt, but it failed because Indian companies didn’t have the experience or resources to compete with China when it came to high-value exports, and it wasn’t worth their while to compete with Bangladesh, Sri Lanka and Vietnam, in low-margin goods.

The other option was to target the top 5-7 per cent of Indians, who have some purchasing power. Now, the only thing the affluent buy, which is not produced by corporate India, is agricultural produce, because it has been historically barred from entering the farm sector. If Big Business could become dominant in India’s farm economy, then not only would it be able to control the distribution and retailing of food and vegetables, it could also reorient crop production to target the export market.

The three farm laws, which are now being repealed, were meant to do exactly that: open the doors for Big Business to enter agriculture and give it institutional and legal protection to gradually take it over.

The consensus in the commentariat is that these farm laws would have ultimately helped the farmer. The fit would have survived in farming, while the rest would have moved to better-paying professions within the wider agrarian sector, including things like food-processing, storage and retail. Even agricultural labourers were supposedly going to get a better deal from the corporatisation of farming.

The problem, according to most analysts, was that the Modi government’s arrogance made it steamroll the laws without consulting farmers or even trying to convince them that these laws were good for them.

But hubris alone cannot explain why these farm laws had to be withdrawn, especially since the Modi-Shah team always calculates the electoral fallout of policy decisions. What is more likely is that the Modi government assumed that small and marginal farmers would not be affected by the farm laws, because a majority of them do not have access to the APMC mandis or to government procurement at minimum support prices (MSP). The expectation was that the poor farmers would welcome the fact that the entry of corporates would weaken the hold of rich farmers, grain traders and moneylenders.

The BJP clearly underestimated the role of MSP in the lives of poor farmers. The government’s own data shows that while only 5.8 per cent of the paddy farmers and 3.6 per cent of the wheat farmers sold to government agencies in 2018-19, 41 per cent and 37 per cent, respectively, were aware of the MSP. Farmers know through experience that those who get the MSP or are able to sell to the agencies, get the best prices. They also know that crops where a large chunk is procured by the government — paddy and wheat — have the most stable prices. So, the farmers want an extension of the MSP and government procurement, rather than its withdrawal.

The farm laws were also brought by a government which had otherwise provided various ‘touch-points’ for the rural poor to access the state. The various schemes run by the Modi government have enabled the poorest to survive, at subsistence level, in an economic climate where getting work has become increasingly difficult. The poor, therefore, desire the presence of the government in their lives. Poor farmers would rather unite with rich farmers and traders who want government procurement to continue, instead of corporate ‘outsiders’ who could immiserise them.

It is this unexpected, cross-class unity of farmers that forced the Modi government to repeal the farm laws. In a sense, it is a political defeat of Big Business and its attempts to usurp the space occupied by landlords and big farmers.

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