That it has been undoing historical wrongs to boost the Indian economy is a key narrative of the current Bharatiya Janata Party (BJP)-led NDA government. When such moves are criticised, it is quick to portray its opponents as representing a group of vested interests. Prime Minister Narendra Modi, who is the bulwark of the BJP’s current popularity, leads such attacks from the front. This was seen in a big way during demonetisation and the roll-out of the Goods and Services Tax (GST). The same script is being replayed in the case of agricultural reforms. They were announced by the government in May, and are now facing protests not just from the Opposition but also partners within the National Democratic Alliance.
Are the current protests driven by vested interests?
Yes and no. Farmers in Punjab and Haryana, the richest agricultural states, which also account for the highest share of government procurement in India, are at the forefront of these protests. Both states are infamous for levying a large commission on sale of produce in Agricultural Product Market Committee (APMC) markets. If APMCs lose a large part of their business, this will lead to loss in what are essentially assured rents. So, why are farmers unhappy about the move? First, the logic of seeing farmers and local traders as mutually opposed to each other could be misleading. It is entirely possible that the traders who make a commission from APMC sales come from the same socio-economic group as large farmers. Second, the rent income from APMCs (it was around Rs 6,300 crore in Punjab last year), both to the government and private traders, is ultimately spent locally and therefore a source of income and employment. There is no such guarantee when it comes to profits of large corporations. Any loss in these incomes will adversely affect the local economy.
Is there a larger political economy objective?
Othering the local elite, both in urban and rural areas, has been an important ingredient of the BJP’s politics since 2014. Policies such as demonetisation and GST hurt local businesses the most. This othering has been accompanied by a stellar rise in the BJP’s funding from the corporate sector. The BJP’s corporate donations increased from Rs 437.4 crore in 2014-15 to Rs 743 crore in 2018-19. The short point is, the BJP does not need the financial backing of the local elite anymore, something which was the defining feature of political finance in India. The careful strategy of putting non-dominant caste chief ministers in BJP ruled states is another crucial component of this strategy. A non-Maratha Brahmin (Devendra Fadnavis) in Maharashtra, a non-Jat Punjabi Khatri (Manohar Khattar) in Haryana, a non-Ahom scheduled tribe (Sarbananda Sonowal) in Assam, and last but not the least, Narendra Modi’s own political rise as a non-dominant OBC leader at the cost of Patidars in Gujarat, are some such examples.
A weakened local elite, and hence weakened regional parties, only make the BJP’s onward march easier. The proposed agricultural reforms are aimed at hitting the agricultural elite. The rent-seekers in APMCs will lose their assured incomes and the landed elite will face a far more powerful buyer when it sells its produce. This is also the class which does not stand to gain from the government’s welfare policies and might have been vocal against the growing squeeze on farm incomes.
Is the Centre ensuring highest returns to farmers?
Earlier this week, the government announced a ban on exports of onions. It also plans to offload buffer stocks in the next two months. Both these moves are aimed at bringing down prices (which will hurt farm incomes). Inflation data until August shows that both retail and wholesale prices for onions were losing momentum for the past few months. Wholesale prices, had in fact been declining, that too at a growing rate. It was only in September that prices picked up again, and the farmers could have made up for some of these losses, but the government’s action will make sure it does not happen.
Why has the government done this?
It is worried about rising inflation. Headline retail inflation has been above 6%, the upper limit of RBI’s comfort level, for five consecutive months now. Food items have a share of 39% in the Consumer Price Index basket. This share is likely to be much higher for poor people. In a democracy, where majority of the population spends half its income on food, it makes eminent political sense to intervene when food prices are rising, even if this hurts farm incomes. That the government banned onion exports within a few months of announcing market-friendly reforms, is a clear reminder that it will continue to intervene and bring down prices. Farmers have long complained that there is no similar intervention when farm prices crash and farmers suffer losses.