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Farm Bills 2020: The history behind agricultural reforms in India6 min read

October 17, 2020 5 min read


Farm Bills 2020: The history behind agricultural reforms in India6 min read

Reading Time: 5 minutes

On September 20, the Parliament materialised into reality a radical change in the agricultural policy of the country by passing a series of three Bills. These changes, which were initially lost in the various tranches of the AatmaNirbhar Bharat package that Union Finance Minister Nirmala Sitharaman announced at the end of the lockdown in late May, are now at the centre of many protests by farmers, states and even political parties that were close allies of the current ruling government. 

To grasp the reasons for the protest and the government’s mission to pass these Bills into law, one must first understand the historical and social context of agricultural trade in India.

Agriculture is without a doubt, one of the most pertinent sectors of the Indian economy. It employs over 55 percent of the population and makes up for 15.4 percent of the GDP. 

During colonial rule, the main concern for agricultural produce was ensuring it was sold at an amount conducive to the consumers. A regulation on the prices was considered paramount to keep the industry in check. The first example of price regulation dates back to 1886. Raw cotton attracted the attention of the government who wished to make it available in the mills of Manchester at an affordable price. Thus, the British created a regulated market or karanja in Hyderabad, which was a kind of prelude to the Agricultural Produce Market Committee (APMC). 

After independence, India faced a challenge in the agricultural sector— even though 80 percent of the population was employed in agricultural activities, the yield was extremely low (55 million tonnes of grain per year) and farming methods were primitive compared to the advances of the West. Reform and innovation were crucial. 

Consequently, when the Five-Year plans were made from 1950 onwards, agriculture was given priority. This focus on agriculture led to leaps and bounds in the sixties and seventies, with many scientific advancements and revolutions becoming the face of agricultural innovation. But what often takes a back-burner are the important financial steps that the ruling government took to ensure the farmers were protected from exploitative middlemen and incentivised to increase their production. 

The Essential Commodities Act was passed in 1955 to ensure corrupt traders could not hoard supplies from the consumer. It ensured easy availability of food, drugs, cotton, coal, fodder, iron, steel and many other fundamental commodities a country required. By regulating the production, distributing and pricing of these commodities, the Act maintained the equity of the market.

In the 1960-70s, states enacted the Agricultural Produce Market Regulation (APMR) Acts and created well laid out physical spaces where organised agricultural marketing would take place with regulated pricing. These markets or mandis were controlled by the Agricultural Produce Market Committees (APMCs). Two-thirds of the APMC consisted of farmers to ensure fair practices by traders.

Around the same time, in 1959, Dr Frank W Parker, an American agriculturist who was an adviser to the Ministry of Food and Agriculture recognised the disadvantages the farmers faced due to low selling prices of the crops. To tackle this, the implementation of a Minimum Support Price (MSP) for crops was seen through by C Subramaniam, who became the Minister of Food and Agriculture in 1964. Subramaniam realised that the Green Revolution and the scientific leaps that came with it would only succeed if MSPs were declared before the produce was sold and farmers’ pay was ensured through government procurements. Ensuring an MSP was viewed as an option with no alternative as the country faced food insecurity with droughts in 1965-66 and 1966-67.

Subramaniam is credited with creating two major institutions to ensure that the MSP had a strong foundation. The first was the Agricultural Produce Commission, now known as the Commission for Agricultural Costs and Prices, which was responsible for conducting a detailed analysis on cultivation costs and set an MSP. In 1966-67, the first MSP was set for wheat at Rs 54 per quintal and hiked over the next two years to Rs 70 and Rs 72 per quintal respectively.

The second institution was the Food Corporation of India (FCI) which was tasked with procuring grains from farmers in the APMC mandis for the Government of India. In 1968, the FCI bought 6.8 metric tonnes of grain from the farmers of India, and this amount increased to 13.3 metric tonnes in 1975-76. As of 2019-20, the FCI purchased a staggering 90.22 metric tonnes of wheat and rice and the aggregate MSP for this was nearly Rs 2.15 lakh crore.

Over the years, the APMC and MSP empowered farmers to increase their agricultural produce and invest in modern and efficient agricultural methods and resources. Although middlemen found a way to exploit farmers even in the APMCs, the existence of these two elements in the agricultural sector have become a legacy that protected farmers, particularly in Punjab and Haryana, where the voices of dissent against the recently passed farmer bills happen to be the loudest.

But the benefits of the APMCs were balanced out by many shortcomings over the years. The biggest problem is the APMC mandis are still of an insufficient number to cater to farmer needs uniformly throughout the country. In Punjab, the density of the mandis is 114.78, whereas the density in Meghalaya is 11,215 The national average remains 487.40 despite a 2004 recommendation by the National Farmers Commission to ensure any farmer in the country has a mandi within a 5 km radius. Consequently, many small and marginal farmers sell to unlicenced exploitative traders outside the APMC market despite its illegality. 

The APMC markets also charge a market fee on both farmers and traders. A minimum cess of about 0.2 to 3 percent is paid by the buyers/traders, and a separate commission fee is imposed on the farmers themselves, thus resulting in higher transaction costs and lesser income for the farmer. The restriction of licencing within the market by already licenced traders has led to a monopoly of the APMC, with virtually no competition. 

However, the problem of agricultural stagnation is not restricted to the shortcomings of the APMC alone. 20 years after the Green Revolution, the World Bank and the International Monetary Fund (IMF) shifted its thinking from agriculture to industry. There was a global perception that an economy could grow only if the agricultural sector shrunk and the industrial sector grew. So, rather than improving small-scale agriculture, grains were pushed at highly subsidised rates from developed countries to developing countries. The farmer started facing the same threats again— limited income and subsequently a limited yield and therefore limited price. In a bid to earn more income, farmers shifted to growing high-value non-food crops, but this only increased the malnutrition and food insecurity problem of the country. 

Reforms in the agricultural sector have been long-incoming, but the current changes passed by the Parliament and signed to law by the President have garnered severe criticism and controversy. It became the cause of chaos and multiple opaque versions of proceedings. A major section of the farmers across the country have been dissenting, and debates and discussions about whether these changes are enough or are even the right changes continue.


Read Part 2 of the explainer- Farm Bills 2020: The unravelling of the present

Featured Image Courtesy: PTI File Photo

Edited by: Vibha B Madhava