With the Union government’s policy framework for agriculture back in the spotlight, NITI Aayog member Arvind Virmani maintains that the repealing of the three farm laws in 2021 constrained the country’s growth potential.
“Agriculture is completely under the state government. The Centre tried to do some agriculture reform policies which were constrained [by public protests]. This was a self-goal in my view. As an expert who has worked on growth for 50 years, I want to state it very clearly that it was a huge self-goal,” Virmani told Outlook Business.
Presently, multiple farmers’ bodies have launched protests against the Centre, including a march to New Delhi, asking for legal guarantees of a minimum support price (MSP) among other demands. This is largely viewed as a continuation of the 2022-21 farmers’ protest which eventually resulted in the Union government repealing three farm reform laws it had passed in September 2020.
The three laws sought to break the monopoly of government-regulated farm procurement, remove trade barriers and encourage private sector participation. The protesting groups had argued that the reforms would hurt farmers’ interests and take away the MSP regime.
“I have no doubt that reforms in the agricultural sector would result in wages rising. We need to lift protectionism, and we have to increase our competitiveness,” said Virmani, who also served as a chief economic advisor to the Government of India between 2007 and 2009.
Even though the farmers’ outfits had demanded legal guarantee for MSP-led government procurement in the earlier protests, they came to a settlement after the three laws were rolled back. According to the farmers, an MSP mechanism would give them a safety net against potential fluctuations in market prices of crops. On the other hand, the opening of the agricultural sector would expose it to market conditions with minimal government intervention.
“The effect of open agricultural trade would be that new products would come. The whole idea of these laws was to open up the system to get the trade in which will then promote production of things which are in demand. The idea is to make profit,” Virmani said.
One of the main criticisms against the MSP mechanism is that it encourages the overproduction of certain crops, such as paddy and wheat, which lead to additional issues in the procurement and storage processes. But citing concerns around market fluctuations and threat to their livelihoods, farmers gathering at various borders outside New Delhi want MSP procurement as laid down in the Swaminathan Committee report.
The report suggests ‘C2+50 per cent’ formula which requires the support price to be 50 per cent higher than the farmers’ total input costs which includes cost of capital and the rent on the land.
But such protectionist measures are a constraint on growth, according to Virmani. The current state of agriculture in India prevents inter-state trade and widens the growth divergence among states, the NITI Aayog member argued.
The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020—one of the three repealed farm laws—wanted to establish a unified agriculture market in India that would do away with inter-state trade barriers.
