Farm Bills and the PDS conundrum

Narendar Pani | Updated on November 03, 2020

PDS is a key urban policy instrument   -  Bloomberg

The complicated inter-play of demand, farmers’ crop choice and prices can leave ever more numbers hungry

The protests against the Farm Bills have largely been seen as a farmers’ issue, especially in the States that formed the basis of the original Green Revolution: Punjab, Haryana and western Uttar Pradesh. But if, as is widely feared, this affects the procurement system, it could well impact the availability of foodgrains in the public distribution system, at a time when India ranks 94 out of 107 countries in the Global Hunger Index. The consequences of this damage would extend far beyond the agricultural sector and engulf our cities as well.

With a growing number of urban households moving away from a dependence on the PDS, there is a tendency to dismiss the centrality of the public distribution of foodgrains in our cities. But for those who are vulnerable, ration wheat and rice continue to form an important part of the household budget. In times of crisis, particularly the loss of jobs and income, the dependence of the poorer households on the PDS can be acute.

The PDS also continues to be a critical urban policy instrument. As recently as the lockdown following the pandemic, the government provided 5 kg of rice and wheat free of cost to each holder of a ration card in the PDS. This was no burden on the government’s finances as it used grain that was already procured. In a quarter when the economy had contracted to just around three-fourths its size, the government would have struggled to find the resources to buy the grain in the open market. And, yet, such an open market is precisely what the government has ensured with its three Farm Bills.

The three Bills are designed to dismantle the basis of agricultural policy created during the Green Revolution. Following the near-famine conditions in the mid-1960s, the Green Revolution strategy was built around reducing uncertainty when farmers adopted new technologies. Farmers were given credit to adopt new farming practices, and their returns were assured through guaranteed procurement.

The fact that the farmers could only sell in the mandis went well with a system where the Food Corporation of India bought all the rice and wheat that was offered at the mandis at a procurement price. Farmers could then get the benefits of the Green Revolution technology without the risk of a crash in prices.

The government’s strategy is to now break down the centrality of the mandis. One Bill allows farmers to sell their produce anywhere they want and to whoever they want. The second Bill creates the conditions needed for farmers to enter into contracts with buyers, including the corporate sector, to sell their produce at a predetermined price. And to ensure there are no limits on these prices, the third Bill takes foodgrains out of the Essential Commodities Act.

Economists have rushed in to cheer the three Bills as much-needed reform. The Green Revolution based procurement system worked well as long as all that was procured by the FCI could be offloaded in the PDS. But once the demand in the PDS could not absorb all that was procured, the FCI was left with large unsold stocks that increased the food subsidy. Allowing farmers to sell elsewhere could reduce what the FCI has to buy, and hence the food subsidy.

Will farmers benefit?

The government insists that none of this will hurt farmers adversely. Farmers would benefit when prices are high and the State would buy at its Minimum Support Price when prices fall below a threshold. But farmers who have lived through this reality know, contrary to what economists believe, this rarely happens. When the price of a crop is high, a large number of farmers rush in to sow the same crop the next year, leading to a crash in prices. And a typically cash-starved government rarely, if ever, steps in in time to substantially reduce the extent of the crash. The government argues that long-term contracts would ensure the farmer gets the higher price decided before the crash. But the corporate executive, who has made a deal for such a higher price at a time when market prices have crashed, would himself be looking for another job.

In the next stage of the cycle, farmers would move away from the crop whose price has crashed. This would raise prices. With the third Bill removing foodgrain from the Essential Commodities Act, the government would not be able to intervene. Farmers would also prefer to now tap the higher prices in the open market rather than sell at the procurement price to the FCI. Without sufficient stocks, the Public Distribution System in our cities would collapse. India would then be in the odd position of a country that sees itself as an emerging global power, even as it slips closer to the bottom of the World Hunger Index.

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru

Published on November 03, 2020

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