Politics of Farm Laws and the Curse of Imperfect Markets

Shankkar Aiyar
5 min readFeb 18, 2024

Nearly half the workforce is engaged in farming and survives on a sixth of national income. Viability rests on productivity. Effectively income = area x yield. Yields are low as the agri sector is haunted by controls, suffers from lack of forward and backward linkages. Context calls for a rethink on policy for India’s largest private enterprise which feeds 1.4 billion people.

Shankkar Aiyar | The Third Eye | Published: 18 Feb 2024

The Indian farmer has been shackled to tragic circumstances for over a century. The phenomenon has found expression in popular cinema — from Do Bigha Zameen to Peepli Live. In his 1925 classic book, The Punjab Peasant in Prosperity and Debt, Malcolm Darling wrote the peasant “is born in debt, lives in debt and dies in debt, and after death, bequeaths debt”. In 2024, over 45 percent or nearly half the workforce is engaged in agriculture and must survive on a sixth of the national income.

Farmers at the Punjab-Haryana border | The New Indian Express | PTI Photo

Agriculture has been afflicted by political notions and policy distortions. For the record, there has been no dearth of pious intent. As the political leadership prepared for eventual liberation, a sub-committee chaired by Jawaharlal Nehru, India’s first prime minister, was set up under the aegis of the National Planning Committee to focus on priorities.

India’s independence was preceded by the Bengal famine of 1942–43, which killed millions. Naturally, food security was listed as Priority No 1. A report published in September 1946 stated upfront, “In any well-conceived plan of national development, the provision of adequate food must be the most important item with the highest priority.” In February 1953, Nehru told parliament “real industrial development demands a sound agricultural economy”. Thereafter, Nehru famously told scientists “everything can wait, but not agriculture”.

Cognition, though, did not result in quantum change. India continued to be a net importer of food aid. Transformative change, the Green Revolution chronicled in my book Accidental India, was ushered in by Lal Bahadur Shastri and C Subramaniam in 1965–66 with the slogan Jai kisan. It arrived in the wake of a crisis — in 1965, the Lyndon B Johnson administration in the US pulled the plug on food shipments to India, coining the term ‘ship to mouth’ economy.

India has defied doomsayers to emerge as one of the largest producers of food grains touching 330 million tonnes. India also leads in perishables, producing 230 million tonnes of milk. However, income deprivation haunts farmers. Rural per capita income, at Rs 40,925, is less than half of the urban per capita income, and this is also visible in the income gap between industrialised and agrarian states. Readers would recall the farmers of Tamil Nadu protesting with skulls and bones for loan waivers at Jantar Mantar for weeks to no avail.

This week, the farmers are back protesting for better terms of trade. Their demand: a legally guaranteed minimum support price for crops at 50 percent more than weighted average cost of production, as recommended by the National Commission on Farmers chaired by M S Swaminathan in 2006. The timing of the protests has polarised debate even as polls reflect public sympathy for the farmers. There is the surround sound effect of counter-arguments and the ghastly sight of drones dropping tear gas on farmers. There is hope of a negotiated path as ministers confer with farmer organisations. The Congress, which did not implement the Swaminathan Commission’s recommendations between 2006 and 2014, is now all for it.

Shorn of jargon, the demand for a legally guaranteed MSP has serious economic implications — in costs to be borne by the government for procurement and for inflation management. The establishment view is that the demand comes with a tag of Rs 10 lakh crore. This is ostensibly the total spend on procurement of all items on the MSP list of all the produce. As of now, the government procures a fourth of the produce, mostly from six states, at under Rs 2.6 lakh crore.

The question is whether the government needs to procure all the produce. In theory, the MSP ensures a floor price for farmers to risk time and effort on a given crop. An analysis by Pushan Sharma of CRISIL suggests that if procurement for 16 crops (at 2023 rates) is limited to where the price dips below the MSP, the tag could be around Rs 21,000 crore. The figures may change if costs dip further and procurement is higher. The politics of the math defines the ongoing negotiations.

Viability of agriculture rests on productivity. Effectively, farm income is a function of area multiplied by yield. India trails on yield per hectare across crops — wheat at 3,507 kg per hectare is lower 7,900 kg/ha in the UK and 5,100 kg/ha in China, while rice at 2,809 kg/ha is lower than 6,700 kg/ha in China. Beyond the immediate, there is the need to recognise the shift to lower use of chemicals in food production and the challenge of climate change.

It is true that the advent of AI has delivered in horticulture and holds promise for other perishables and cereals. The induction of technology can enable decentralised geo-analysis of competitive advantages with the help of start-ups. This, though, will require opening up of agriculture to markets for linkages and price discovery. Can the transformation arrive in a landscape littered with price and export controls?

Seven decades after independence and three decades after the 1991 liberalisation of industry, farming lacks forward and backward linkages, ranging from inputs to market access. The government’s attempt to craft a new paradigm under the new farm laws flailed at the gate of politics. India’s agriculture is cursed by imperfect markets.The context calls for a larger debate on how India must design policy for its largest private enterprise that feeds 1.4 billion people.

Shankkar Aiyar, political economy analyst, is author of ‘Accidental India’, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’ and ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’.

You can email him at shankkar.aiyar@gmail.com and follow him on Twitter @ShankkarAiyar. This column was first published here. His previous columns can be found here

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Shankkar Aiyar

Journalist-Analyst. Author of ‘Accidental India, ‘Áadhaar: A Biometric History’ and ‘The Gated Republic’. Studying how politics rules the economics of people!