India’s Agriculture Reform Bills May Not Be Perfect, But They Can Help Fight Rampant Corruption

India’s farmers are up in arms, and have been for several months. In the midst of a cold Delhi winter, tens of thousands are braving tear gas, batons, and water cannons to protest a set of three new agricultural bills passed by the Modi government late last year. The government promises that these bills will bring about much needed reform in India’s agricultural sector, eliminating corruption in the state-run system and increasing the payout to farmers. Unfortunately, in its usual fashion, the Modi government opted to set aside federalist principles and run roughshod over democracy in introducing the reforms, contributing to the barrage of protests it now faces. And farmers have good reason to complain: the reforms signal an eventual, although not immediate, end to the government’s price floors (the “minimum support price” or MSP) for select crops. While India’s MSP system needs reform, the new bills offer insufficient protections and oversight, thus potentially enabling big business and middlemen, working with corrupt officials, to drive prices so low as to make small-scale farming impossible.

Despite these genuine and serious problems, the main reforms at the heart of these bills would do a lot of good—not least because these reforms would make major strides in addressing corruption as it exists now. And while the Modi government’s high-handed rollout of the bills has already done a great deal of damage, in terms of substance, a few key modifications to the bills could address the most serious concerns about the corrupt exploitation of farmers that the bill might otherwise foster. 

To understand what these bills would do, and how they would affect corruption in India’s agricultural markets, one must first understand how those markets are currently organized. Under the existing system, farmers in India are guaranteed the MSP if they sell their crops at designated state-run markets, known as mandis. In most states, this system is regulated through a body known as the Agriculture Produce Marketing Committee (APMC), which enjoys a monopoly over agricultural produce in the relevant market area. Within this system, state APMC commission agents (essentially licensed middlemen) broker agricultural sales, organize storage and transport, and even finance deals.

In principle, this arrangement is supposed to protect farmers from price fluctuations and exploitation by traders. In reality, the system is broken and beset with corruption—which India’s Supreme Court has described as “an unholy nexus between the transporters, the fair price shop owners and officials of the department of food and civil supply.” For starters, although on paper all Indian farmers should be able to get the MSP for their crops, in fact only six percent of farmers have access to the MSP based system, mainly due to the complicated red tape and license fees created by APMC committees. As a result, most small farmers have to rely on commission agents (who purchase crops from farmers and resell them at mandis, at a hefty profit for themselves). The APMC committees that create these barriers are dominated by the commission agents and larger landowners, who are better able to maneuver through the bureaucratic maze. Moreover, the commission agents often rig the bidding process while acting as auctioneers. Collusion and corruption between agents and traders (some of whom are unlicensed but pay bribes to be able to participate in the market) result in prices that are below the MSP, and farmers who refuse to sell at that price must either languish in wait for their turn to sell at the MSP or go home empty-handed. 

The new farm laws end the APMC monopoly, enabling farmers to sell directly to a range of buyers through private contracts rather than having to go through the mandis. This reform cuts out the corrupt middleman, and more generally enables farmers to strike better bargains.

But if that is so – if the existing system is rife with corruption that hurts small farmers, and if the bills would reform that system would ameliorate a central root cause of that corruption – why are small farmers protesting so vociferously?

There are a few reasons. One has to do with the geographic distribution of access to the state-run mandi system. As noted above, nationwide only 6% of farmers are actually able to sell their crops at the MSPs. But in two states—Haryana and Punjab—roughly 90% percent of agricultural procurement is at MSP levels. Unsurprisingly, the strongest opposition to the bills is in these two states. But that’s not the only explanation. In addition to the disproportionate impact on farmers from Haryana and Punjab, many farmers across the nation suspect that, notwithstanding the Modi government’s assurances to the contrary, the bills are the first step in a campaign to hollow out the mandi system, ultimately producing an unregulated market in which farmers to compete to be the lowest bidder. Furthermore, many farmers worry that these bills will only replace a corrupt state-run system with an even worse—and perhaps even more corrupt—market system. Corruption in the enforcement of the private contracts that the bills permit and encourage is of particular concern. Under the proposed legislation, if a private buyer violates a contract with a farmer, the farmer may not seek redress in a regular court. Instead, the legislation assigns dispute resolution over these private contracts to the sub-divisional magistrate—a feature of the legislation that the Bar Council of Delhi, among others, has strongly opposed on the grounds that it denies citizens their fundamental rights to legal recourse. Furthermore, this dispute resolution system leaves citizens at the mercy of local officials who are more vulnerable to corrupt influence than are the judges of India’s powerful and relatively more independent judiciary.

While that latter concern is understandable, there’s a good reason why the bills assign the resolution of agricultural sale contract disputes to the sub-divisional magistrate: India’s judiciary is notoriously slow, and small farmers’ limited resources may impede access to the courts. The best compromise may be to leave in place the sub-divisional magistrates as the first-instance decision-makers in these disputes, but to add an appeals process that enables the judiciary to review these decisions, especially when there are plausible allegations of corruption or other impropriety.

For all the problems with the agricultural reform bills in their current form, and notwithstanding the valid criticisms of the Modi government and suspicion about its motives, it cannot be gainsaid that India’s agricultural sector is currently a corruption-plagued behemoth in dire need of reform. To be sure, a headlong rush to an unregulated agricultural sector can and should be restrained. The government shouldn’t take away the MSP safety net without transitional support, perhaps including long-term direct income support to farmers, and India’s Competition Commission should be given a strong role in ensuring free and fair competition. And more safeguards should be added to guard against corruption in the administrative dispute resolution system for private sale contracts. But those who care about corruption in India, and the well-being of Indian farmers, shouldn’t turn a blind eye to the corruption that pervades the current system, or to the over-regulation and cronyism that are root causes of that corruption. The government’s controversial agricultural bills are far from ideal, but they are addressing a genuine problem.

8 thoughts on “India’s Agriculture Reform Bills May Not Be Perfect, But They Can Help Fight Rampant Corruption

  1. Fascinating post, Disha. To what extent will the reforms, as currently enacted, cause consolidation of farms or middlemen? And, if it will, is that contributing to the push-back?

    • Hi Sam, your instinct is on point here – the worry that small farmers have is that the new laws will enable corporations to stockpile initially, then slash down prices and drive them out of business. The result may well be consolidation, with small farmers paying the price.

  2. Hi Disha! I’m curious if there’s similar corruption at the sub-level magistrate tasked with dispute settlement. As there is substantial concern over the integrity of the judiciary and local governments alike, what sets the magistrates apart?

  3. Hi Disha! Thank you for this nuanced and thoughtful post — I particularly appreciated your proposal to address concerns about the sub-divisional magistrate/ensure that farmers have legal recourse. I’m curious about the fear that protestors have regarding whether the Modi Government’s actions are intended to hollow out the mandi system. Has this dynamic occurred in response to previously proposed legislation? Or have legislators tended to leave mandis alone despite corruption issues, because of the potential backlash?

    • I was also very curious about this. Considering farmers are already facing an uphill struggle in many developing nations, it seems like the fear of an unregulated market is a pretty natural one to have. I too would be worried about a system where I might already be struggling to make end’s meet, and then have to fear that prices might be pushed even further south.

      • I think part of the fear comes from this government being perceived as very pro-business, and having close ties with large corporate houses, as opposed to previous governments that had closer connections with farmers.

        There is also a recognition that the plot sizes in India are simply too small, and getting smaller. This is a source of concern for both farmers and the government. By opting down the path of unregulated markets, without any accompanying social support, the government is signaling it is more concerned with overall efficiency than who bears the burden. Farmers are rightfully worried about the long term implications of being able to hold on to their plots.

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