On the endemic contradictions in India’s path to modernisation of agriculture

The escalating standoff between the peasantry and the government is not merely about dissent over isolated policy measures; it is also an expression of contending resolutions to the contradictions that are endemic to India’s path to agricultural modernisation.

Protesting farmers on G.T. Karnal Road on the Singhu border in New Delhi on December 11.

T he agrarian crisis in India is not, as is often suggested, an outcome of institutional apathy or incompetence. Instead, it has arisen from the conscious compromises the Indian state makes, serving the short-sighted interests of the ruling classes, which have imperilled social progress at large. It has thrust on millions untold miseries and loss of potentialities that poverty and discrimination occasion.

The three farm laws, which have drawn the wrath of the peasantry in the ongoing agitation, are no different. These laws, which ostensibly seek to “reform” agricultural marketing, serve to open new avenues of profit for big capital and the upper sections of the rural agrarian classes at the cost of large sections of the peasantry, workers, and small capital in retail supply chains. In doing so, they deepen the contradictions that have riddled and undermined India’s post-Independence development, perpetuating a narrowing social base for the market. However, the laws face stiff resistance from an emboldened kisan movement, which, in building a popular opposition to these contradictions, promises to evolve into a more imaginative, democratic and sustainable resolution to this long-simmering crisis.

The crisis and contradictions

The scope of the new laws, and the discussions around them, are primarily focussed on pricing mechanisms, procurement, and marketing of agricultural produce. These have been presented mainly from the vantage point of big capital seeking new business opportunities. However, the rot in agriculture begins further upstream. India is a prominent global player in the production of agricultural commodities in absolute terms, second only to China. India produced about 172 millionmetric tonnes(mmt) of paddy in 2018, according to the Food and Agriculture Organisation (FAO); it also produced 99.7 mmt of wheat. It is the global leader in pulses such as dry beans (6.2 mmt) and pigeon pea (4.3 mmt). However, this rather rosy picture arises largely from the geographical and human expanse of agriculture in India. The performance is far more humbling once these factors are set in appropriate context, in terms of relative yields—quantity of produce per hectare. Paddy yields in India are about 55 per cent of yields in China; in the case of wheat, it is 62 per cent of that of the yield in China. Indian yields of dry beans and pigeon pea are 26 and 60 per cent, respectively, of yields of the second largest producer, Myanmar.

Once the combined effect of quantity and prices is accounted for, and normalised for the size of its population, India’s performance proves pathetic. India’s annual gross value of agricultural production per capita in 2018 was a mere Int’l$305 (also known as Geary-Khamis dollar, that is, adjusted for exchange rates, purchasing price parity, and average commodity prices within the country), less than half of China’s Int’l$630 and just marginally above Pakistan’s Int’l$302 per capita per annum (FAO; World Bank). Though the implications are differentiated across agrarian classes and regions, this dire situation is an outcome of structural limits to progress posed by the restrictive social conditions engendered by the historical compromises made by the Indian state. The virtual abandonment of state support to agriculture has only exacerbated matters.

The post-Independence project of modernisation is tainted, and its outcomes continue to be moulded, by the backward social and economic conditions resulting from the state’s capitulation to the interests of the rural ruling class. The design and execution of land reforms—a militant demand of the anti-colonial struggle and a necessary condition for a broad-based post-Independence path to development—was sabotaged in order to preserve the material basis of the dominance of this ruling class. Any attempt to reform agriculture and rural society thus had to operate within these confines. The result was an agrarian structure that disincentivised investment, given a parasitical ruling class that was content with extracting a surplus from rents and suppression of wages. This resulted in a deeply differentiated peasantry, a large proportion of which only broke even through intensive application of unpaid family labour and consequently had little to add to the capital stock necessary for technical advance; and a class of workers, often drawn from historically dispossessed castes, subject to brutal abuse, violence and immiseration. This fettering economic impulse of rentier extraction, fragmented and unproductive farming, and suppressed wages, along with its sociocultural basis—what B.R. Ambedkar called the “sink of localism, den of ignorance, and narrow mindedness”— though transformed by the forces of capitalist development, continued to eviscerate all potentialities for modern development in the countryside. In effect, the rural elite consolidated its dominance at tremendous social cost, which also set limits to its own future accumulation.

The successes and limitations of the Green Revolution and its enabling institutional edifice, as well as its gradual unravelling under a neoliberal regime, must be understood in this context. The New Agricultural Strategy aimed to ease the tremendous structural supply side constraints resulting from this development path. A technocratic solution of adopting high-yielding variety of seeds for paddy and wheat was accompanied by public provisioning of credit, research and extension services and marketing. It led to massive gains in productivity and gave rise to a vibrant, politically assertive, rich peasant class. Notwithstanding its achievements, the social base of its accumulation remained narrow and lopsided, characterised by tremendous class, caste and regional imbalances. Its achievements had run their course by the end of the 20th century. In later years, its institutional support system was dismantled piecemeal under the ideological duress of neoliberalism with its compulsive purpose of ensuring continued profitability for industrial capital and allowing for speculative earnings for finance capital. The consequence of this withdrawal of state support essential in ensuring—not just in India but across the world—the economic viability of operations in agriculture is a deepening of a crisis of livelihoods in a large proportion of those dependent on agriculture. The broad-based opposition to the dismantling of the marketing framework, which has drawn not only sections of the rich agrarian classes but also labour dependent on them, is an indication of the generalised distress.

The implications of this fettered growth go far beyond agriculture, posing tremendous supply and demand side constraints on the wider economy. The demand for consumer goods, though large in absolute terms, remains minute when seen in per capita terms, and, therefore, restricts avenues of profit in the non-agricultural economy. More importantly, from the perspective of big capital, the backward and fragmented nature of Indian agriculture cannot service the demands of modern retail chains, which is a critical avenue of its future profits and in which it has already invested heavily. The marketing “reforms” being attempted obviously seek to aid capital’s advance in this segment. And, characteristic of its ethic, the Indian bourgeoisie would be content with extracting profits from a restricted market, which may limit its own progress, rather than ensuring a more durable path of sustainable profits over a much longer term.

The reforms

It is significant that the promulgated reforms do not deign to address any of these potent production-side constraints at the core of agricultural backwardness, but instead only seek to reform marketing. The simple reason is that these laws are intended not to serve the welfare of producers but to establish viable circumstances for the expansion of a fledging corporate retail network. There has been a concerted push by big capital in recent years to set up ventures and acquisitions in retail for major consumer goods such as electronics, appliances and apparel. However, the key prize in the sector is grocery retail, which has a far bigger market given the large share of food in the average Indian’s consumption basket. Though their consumer interface has gradually taken shape, supply chains are still fragmented along a string of outlets run by small capital operating within a publicly regulated system. The laws in the reform package are integrated and complementary, establishing an enabling framework for big retail to take control of this supply chain. In this scheme of things, the production system in Indian agriculture is merely an afterthought.

Under the earlier framework, in the first leg of this supply chain the larger agricultural producers and agents aggregated produce from smaller producers, for whom transport costs made access to agricultural produce market committees (APMCs) unviable, and then brought the produce to the market to be auctioned by commission agents. A range of buyers would then move their purchases to other traders or mandis for regional distribution. Purchase by organised retail and large wholesalers would be through canvassing agents who would aggregate produce from these auctions. The price discovery happened through this bargaining and was informed by the minimum support price (MSP) which, though inadequate, linked prices to the cost of production.

The reforms are likely to streamline this process into two sets of transactions. The first, between agricultural producers and a reformed class of arhatiya broker-aggregators; and the second between them and corporate retail, on-site or online, but outside the ambit of APMC regulations. The fragmented nature of agricultural production poses too many overheads for direct corporate acquisition; there are high transaction costs and little information or knowledge of local conditions. The contract farming law would enable the upper strata of the agrarian classes and/or some of the erstwhile arhatiyas to source “farm services” and “future produce” from the mass of smaller producers. There is also the possibility of some modern fintech enterprises playing this role in more advanced regions and sub-sectors in which such operations are viable. The second leg of this procurement transaction, between the broker-aggregators and corporate retail, may even evolve into a modern platform resembling other bigger aggregators in the modern service economy, a classic example of which would be Amazon.

The pricing mechanism in this reformed model is likely to exhibit strong monopsonist tendencies. While prices under the older regime are anchored to cost of production through the MSP, pricing in the reformed model is likely to flow in the opposite direction, set by netting of the cost of moving goods, storage, and expected profits from the price consumers may be likely to pay. This would mean far more flexibility in the negotiation of prices, the effects of which are likely to be borne disproportionately by those further up the supply chain and lower down the socio-economic hierarchy, given the inequality in bargaining power.

The vitality of this procurement model hinges on the winding down of the MSP, a prerequisite for predatory pricing in retail. The reforms have actively created a price discrimination in the market, whereby traders and/or producers have to pay a fee to exercise their “freedom of choice” in selling through the government channel, but none to sell to corporations. However, as long as the price fetched in the government markets—guided by the MSP—is high enough to cover these costs, the traders have no incentive to shift to the private procurement system. This is the reason for the intense clash on the issue of MSP and why it has come to be a battleground between corporates backed by the government and the agricultural producers, both having contradictory interests in the way prices are determined.

Once this private procurement channel is in place, the denotification of APMC applied to the sub-market storage warehouses would open them up for integration into corporate retail supply chains. The amendment to the Essential Commodities Act has removed stockpiling limits for all “value-chain participants” as long as stocks do not exceed “installed capacity”. This for corporate retail would be large enough to effectively manipulate price signals. From here, it is only a matter of feeding these stockpiles into the front end of the retail chains already in place and ready for aggressive expansion.

The cumulative effect of this supply chain reform will naturally include efficiency gains from streamlining. However, a large part of it would come from displacement of the string of small capital manning it. Unlike the imagery invoked by Bollywood of the 1980s and 1990s, the agricultural supply chain does not, in fact, consist of hoarding middlemen bent on making rentier profits. There are agents, transporters, small traders, and local vendors; their value addition accounts for a substantive part of the difference between farm-gate and retail prices. The linking of procurement to corporate retail is likely to displace a large section of this small capital. The possibility of these gains from efficiency being harnessed by agricultural producers is contingent on unequal bargaining between them and corporate retail operating through their agents, which they will engage in without any regulatory oversight or pricing signals linked to cost of production. There is also likely to be a second-round effect cascading from the retail market to production. It is quite possible that the retail giants would demand changes in cropping pattern, foreclosing any possibility of scientific land use. The downward pressure on prices would further suppress consumption, intensifying substitution of wage labour with unpaid family labour, increasing indebtedness, and, in the worst case, resulting in dispossession.

Even if these are somehow considered “optimal” outcomes of the market, it is unlikely that this organised form will extend uniformly across regions. Linking of rationalised supply chains are predicated on adequate infrastructure, which would ensure a relatively inexpensive and timely supply. Investing in this is beyond both the ability and responsibility of individual capitalists. Regions that are already part of integrated supply chains offer natural habitats for big capital to make gains in retail, while the backwardness of other regions poses a significant barrier without adequate incentives stemming from the production side to overcome them. With some foresight, or perhaps even a pittance of progressive ethic, the more rational profit-making strategy would have been to encourage more public expenditure on enabling infrastructure to open newer and deeper markets for profit, effectively on a publicly subsidised cost.

In short, these reforms, far from alleviating the ailments of the agrarian crisis, are likely to aggravate the entrenched structural contradictions that give rise to it, intensifying social and regional inequalities, imposing deflationary tendencies, and consequently imposing limits to progress in agricultural production and in suppressing demand—all for the purpose of immediate profits for big capital in retail. The kisan movement in India has long read this writing on the wall. Beholden as it is to the interest of the peasants and workers, and therefore of society at large, the movement sees no need to obscure the likely effects of these reforms, which neoliberal ideologues have dishonestly painted as a resolution to miseries in the agrarian sector.

The Alternative

The kisan movement has grown to assert itself far more than at any time since the 1960s. There are various strands within it, with substantive internal contradictions. Significantly, there is a palpable difference between the predominant social base of the Long March to Mumbai in 2018, which drew participants from tribal people, Dalits, and lower sections of the Other Backward Classes, and the current movement laying siege to Delhi. However, the latest wave of mobilisation is indicative of the pressing contradictions stemming from the agrarian crisis, resulting in the convergence of two strands within the peasant movement that have historically been separate and often antagonistic to each other. The cause for unity against the structural basis of this crisis and neoliberal reforms aggravating it are far more pressing at this point than the internal friction on issues such as land and wages. These movements, drawing from their learnings from furthering their class interests, have articulated a tangible alternative to the ideologues of the establishment.

The string of agricultural reforms advocated in official policy circles, of which marketing has been the most prominent, but which also demand the dismantling of cost subsidies (which, incidentally, are for the welfare of consumers, not producers), reform of land lease laws, and export trade reforms, are unimaginatively drawn from the handbooks of the World Trade Organisation (WTO) or the World Bank. The mechanical notion that liberalisation by and in itself results in welfare gains is an ideological myth that has no empirical validity. Based on this template, the academic advocates of these reforms obscure the conditions of global agricultural commodity markets and the limits they pose on resolving domestic agrarian issues within a neoliberal framework.

The agricultural revolution in the second half of the 20th century, propelled by mechanisation and motorisation of operations and by the widespread application of synthetic fertilizers, has pushed global productivity to unprecedented levels, resulting in a persistent glut in the global agricultural commodity markets and an accompanying downward pressure on prices. As per the United States Department of Agriculture, without parity price—the U.S. version of the MSP—commodity prices tended to slip below the cost of production per unit of produce, which, for American farmers, is among the lowest in the world. The net farm income of American farmers declined by 50 per cent between 2013 and 2017, while the median income was $-1,325. Suicide was twice as prevalent among American farmers as among war veterans.

The effect of this crisis on incomes of agricultural producers in the developed world has historically been offset on both the production and marketing sides. The U.S. government, for instance, spends nearly $20 billion on farm subsidies annually, ranging from insurance, price loss coverage, land improvement, marketing, and research and extension support. In Japan, with an agricultural economy dominated by small farms, the government support to producers is more than 40 per cent of gross farm receipts. In addition, the agricultural cooperative system (JA) is integrated into retail supply chains, assuring them high prices in exchange for product quality standardisation. Not surprisingly, the import tariff on rice in Japan stands at 778 per cent. In practice, agricultural policies in the advanced countries rest on carefully calibrated policy instruments in order to ensure the viability of the sector. The crucial thing to note is that the rules for determining viability are necessarily determined outside the pale of the market. Embedded in this pragmatic approach is the deep hypocrisy of the neoliberal logic that, for its own survival, it is happy to not practise what it preaches. Note that despite this kind of government “activism” sustaining high and stable farm incomes has remained a challenge in the advanced countries.

Global supply chains and mega profits

This does not mean there are no mega profits to be made from agriculture. But its site has in part shifted from production of raw agricultural commodities by large-scale producers. The veritable revolution in global supply chains in the past two decades has opened avenues of mega profits for agribusinesses. The organisation of production has also been transformed. In the case of commodities requiring time-sensitive processing and sourced from land-surplus regions, corporations have undertaken large-scale land purchases to set up fully mechanised farms that are vertically integrated with processing. In other cases, the corporations procure raw materials from large-scale family farms and aggregate or process them for sale through global supply chains. Significantly, it is this latter model of procurement and sale that Indian capital seeks to partly emulate.

It is evident from the learnings of the global conditions that the withdrawal of the state only stands to aggravate the crisis of production in agriculture, even in situations of rapid technical advance, not to speak of large parts characterised by backward agriculture. Furthermore, the export market does not offer a way out. It is nothing short of cruelty to expect the typical Indian agricultural producer, who relies heavily on unpaid family labour and who suppresses her own consumption, to match the prices set in the global market by highly mechanised and cost-efficient farms from across the world.

It is in the context of the intense domestic and foreign constraints that the demands of the All India Kisan Sangharsh Coordination Committee (AIKSCC) must be read. In their two-point charter, the peasants have argued for correct estimation of cost of production and its linking to an assured MSP; allocation of funds and implementation of the National Rural Employment Guarantee Act; setting up of Farmer Producer Organisations (FPOs) with collective marketing, storage, processing, and infrastructure; farm-loan waiver; expanded priority-sector lending; and review of trade agreements. The effect of these measures would be to spur both investment in agriculture to resolve its convoluted supply side constraints, while spurring rural demand and expansion of the home market with its accompanying multiplier effects for the rest of the economy. Within the rural sector, they would democratise the flow of income. The demand for FPOs envisages a more effective channel of retail linkages with the mass of small producers, keeping in mind the pressures of modern retail. The demands are informed by not only an understanding of the domestic dynamics of agricultural production, but also by an awareness of global experiences that reinforce the pressing need for state support in agriculture. These experiences highlight the dangerous pitfalls of exposing the domestic agricultural sector to the forces of global capital.

Notwithstanding the rigorous basis of these demands, neither their adoption by the government nor the resolution of the deeply entrenched issues of the agrarian crisis is a given. There are substantial contradictions within agrarian classes that pose difficulties for devising a radical alternative out of this crisis. This struggle will be a protracted one with some gains and many losses. The nature of revolutionising changes in economic conditions of agriculture and related sectors call for an imaginative approach that can devise a pro-people alternative based on cooperative gains, growing into a broad-based movement that challenges the current orthodoxy. To what degree that can be attained within the framework of the current state apparatus and its class imperative is, however, open to question.

Deepak K. is an economist working on issues of development.