Farm Follies: ‘Yes, But’ Economists Like Kaushik Basu Are Allowing Politics To Infect Their Critiques

There are simply too many 'yes-but' economists trying to make the ideal the enemy of the good when it comes to the Narendra Modi government’s farm sector reforms. One of them is Cornell University’s Kaushik Basu, who was Chief Economic Adviser (CEA) to the UPA (United Progressive Alliance) government between 2009 and 2012.

In an article written in The Times of India today (18 December) along with another non-resident Indian, Nirvikar Singh, economics professor at the University of California at Santa Cruz, Basu levels four main criticisms in the usual manner of yes-but economists, where he supports the idea of reform but not this specific one.

His main criticisms are:

One, reforms to expand choice and freer markets are welcome, but there are no risk-mitigation policies to make them beneficial to small and marginal farmers. The latter may end up losing from the new reforms.

Two, the amendments to the Essential Commodities Act, which enable private parties to stock more commodities without attracting punishment for hoarding, will enable big players to enter the arena and influence market trends.

Three, the scope for dispute resolution is not good under the new laws. The initial proposal to restrict dispute resolution to the level of sub-divisional magistrate (which is easy to implement) has been criticised by many, but Basu and Singh say that even if the courts are brought into the picture, litigation can be costly and time-consuming for farmers.

Four, the world over, farmers receive subsidies, including farmers in the US and China. India, therefore, cannot “dismantle much of the government’s marketing structure without concomitant risk-mitigation support.”

None of these criticisms is more than partially valid, and some are outright wrong.

Take the first one first. The reforms are not exactly being opposed by small and marginal farmers, for whom the hearts of Basu and Singh bleed profusely, but by the richest ones in Punjab, and also by some in equally rich Haryana and western Uttar Pradesh.

Quite apart from the fact that the government has repeatedly given assurances that minimum support prices (MSPs) will not be withdrawn, the Modi government has actually adopted other risk mitigation schemes, including cash payouts under PM Kisan, and Fasal Bima Yojana (low-cost crop insurance). PM Kisan and crop insurance will likely be expanded as agri-reforms gather pace. So, to claim that no risk-mitigation polices are in place is plain and simple wrong.

In any event, India’s problem relates to small farm sizes, where 86 per cent of farms are less than two hectares. The real risk-mitigation measure for small and marginal farmers is a steady increase in jobs in allied industries like fisheries, agro-forestry, cold chains, farm equipment servicing, etc. And, of course, migration to urban areas. The latter is what the new flexible labour laws are intended to achieve.

And let’s not forget the Mahatma Gandhi National Rural Employment Guarantee Act, or MGNREGA, which provides a safety net for 100 days a year for all households. That, too, is a risk mitigation measure that any poor farming household can take advantage of.

Second, there is no doubt that big buyers of agricultural produce will be more powerful compared to small and marginal farmers, and their ability to stock larger amounts of produce after the amendments to the Essential Commodities Act will indeed skew the power equation.

But consider the power skew that already exists. Are the arthiyas and middlemen at APMC mandis not already more powerful than small farmers when it comes to influencing prices?

The logical way to counter-balance the power structure is to create competition for the middlemen in mandis, and also organise farmers into stronger producer cooperatives so that buyer monopoly does not carry the day.

Additional protection, which allows corporate buyers to buy only from producers’ cooperatives or sellers’ consortia, can easily be written into the law without its wholesale repeal. But Basu and Singh do not even consider this possibility.

Third, the argument that court delays will impact small and marginal farmers because they cannot afford the time and cost delays involved in dispute resolution is valid. But is anyone really immune to this problem?

Are Basu and Singh suggesting that since only a handful of farmers may be able to afford long disputes in courts, farm reforms should be put off till the justice system can operate faster? That won’t happen in any foreseeable timeframe.

Farm reforms can’t be held hostage till the time we achieve an efficient legal system. This is about converting a workable dispute system that has been written into the law into an impossible-to-achieve ideal that cannot happen in one government’s tenure.

Fourth, it’s true that all countries subsidise farmers. But comparing the US to India, where one country is rich and has only 2 per cent of its population in farming, and India, where just under half the population is dependent on it, is foolish — and simply unaffordable.

You can subsidise 3, 5 and 10 per cent of the population with tax resources generated from the rest, but not nearly 50 per cent of the population on a taxpayer base of less than 3 per cent of the population. And yet, with MSPs and income support, and mostly free power, subsidised water, diesel, fertiliser, seeds, credit, and even complete loan waivers, this country has been subsidising farmers for some time now.

It is interesting that Basu, when he was chief economic adviser in the Finance Ministry, had this to say in his Economic Survey of 2010-11:

“The real challenge in (the) agriculture sector is to enhance capital investment in the sector both by public and private sector in a sustained way.

“There has been substantial increase in the MSPs of various crops over the last few years. This is considered necessary for incentivising farmers to increase production and productivity. At the same time, the MSP signals the floor price for the produce which, in turn, has the potential of increasing the prices. Addressing the welfare of the agricultural producers and of the consumers simultaneously poses a challenge. Further, the inability of a large number of small and marginal farmers to directly access the agri-market puts a question mark on increases in MSP actually benefiting such farmers. Record procurement of rice and wheat in the last few years has helped build up the buffer stock and strategic reserve of wheat and rice. There is, however, a huge cost involved in the process, which is met through budgetary sources in the form of food subsidy. The procurement operations linked with MSPs cause fiscal stress by way of increasing food subsidies.” (Italics mine).

Basu admits that small and marginal farmers cannot really benefit from higher MSPs, but this is often the main demand of farmers – including its extension to more and more produce. In short, he is batting for large farmers and fiscal imprudence.

While writing his Survey in 2011, he seeks more investment by the public and private sectors in agriculture, but in 2020 he frets about private players becoming too powerful.

This is what happens when economists suddenly write their pieces based on their political inclinations rather than what their economist instincts tell them to do.