The Future of India Depends on its Farmers
The Future of India Depends on its Farmers
Last week, India’s government passed major reforms that could have a profound impact on the future of India’s entire food system. Any change of this scale in India is automatically important for global agricultural markets, as India is an agricultural behemoth: India is the largest producer, consumer, and importer of pulses (a fancy word for edible seeds like dry beans and lentils) in the world, the second-largest producer of rice, wheat, sugarcane, cotton, and groundnuts, and is responsible for almost a tenth of global fruit and vegetable production.
But the importance of the Indian government’s proposed reforms goes beyond agricultural markets. Agriculture is the primary source of livelihood for roughly 58 percent of India’s entire population. 66 percent of India’s population still live in rural areas – and 70 percent of rural households are farmers, the vast majority of them small and relatively poor. India will always be an important global economic force simply by virtue of its size, but the extent to which India will become a more meaningful political actor on the world stage in the coming years will depend in large part on the extent to which Prime Minister Modi’s long-awaited agricultural reforms improve the daily lives of farmers and optimize India’s inefficient food supply chains. India’s future and the success of its farmers are in essence the same thing.
Without getting stuck too far down in the weeds, Modi’s government essentially de-regulated India’s entire domestic agricultural market overnight. While the Indian government will still retain the power to regulate food stocks in cases of war, famine, or other extraordinary circumstances, it will now allow the market to function unimpeded during all but the most serious of crises. Indian farmers can also now sell their crops to anyone, whereas before they had to sell directly to licensed traders in the Agricultural Produce Market Committee (APMC) mandis (markets) near them.
The Indian government is not abolishing the mandis – but by giving Indian farmers freedom to choose their customers, they are undercutting the mandis ability to collude and set artificially low prices. Removing these and other barriers to intra-and-interstate agricultural trade in India should help Indian farmers make more money. Crucially, the reforms suggest a philosophical change in the Indian government’s overall approach. In the past, the Indian government has generally tried to protect consumers at the expense of farmers by intervening to keep prices artificially low. Last week’s reforms are designed to protect Indian farmers at the expense of the consumers by letting the market, not the government or the mandis, dictate food prices.
That’s good because, for decades, Indian farmers have been getting the short end of the stick. After India experienced severe food shortages in the mid-1960s, the Indian government launched a series of largely successful policies to encourage a “Green Revolution.” From 1965 to 2015, India’s food production increased by roughly 4 times, resulting in a 45 percent increase in per capita food production. India’s focus on producing more food was hugely successful in aggregate and defied the generally accepted odds. As recently as the late 1990s, scholars were predicting serious cereal gaps (in the neighborhood of almost 40 million tons) in India by 2020.
One might expect that India’s farmers reaped financial windfalls from India’s increased food production. After all, India has gone from needing to import millions of tons of grains to feed its people to exporting millions of tons of grains for profit in a span of just 50 years. But this has not been the case. That India is technically food sufficient at the aggregate level and has even become a net food exporting country is a measure of the overall success of India’s Green Revolution. That almost 200 million Indians (roughly 15 percent of the population) are chronically undernourished and that more than 20 percent of India’s farmers live below the poverty line is the measure of how much further India has to go.
The Modi government has always talked a big game when it comes to helping India’s farmers. Modi has repeatedly sworn, for instance, to double Indian farmers’ incomes by 2022. In practice, however, Modi’s government has done relatively little compared to what he has promised. In both 2018 and 2019, tens of thousands of farmers protested against the Modi government. Rumors that India might seek to sign a trade deal to cement its relationship with the United States prompted angry criticism of Modi’s performance in February. Last year, to assuage the concerns of Indian farmers, Modi’s government announced a one-off Rs 6,000 payment to farmers, which considering over half of India’s farmers are indebted to the tune of an average of Rs 47,000 is a rather meager sum.
Modi and his Bharatiya Janata Party have not suffered at the polls due to their procrastination on prioritizing the plight of India’s farmers – despite the protests, the BJP increased its majority in the Lok Sabha by 21 seats during last year’s general election – but that may be more of an indictment of India’s political opposition than a testament to the enduring loyalty of India’s farmers to Modi at the ballot box. In any case, their faith may at last be vindicated. Back in April, NITI Aayog, the government’s policy think-tank, floated a temporary relaxation of APMC rules due to supply chain disruptions caused by COVID-19, but the reforms passed last week envision a more enduring overhaul of India’s food system that could potentially bring substantial benefits to India’s farmers in the long-term.
“Potentially” of course is the keyword there. Perhaps as important as the Indian government’s recent legal moves was the establishment of a $13.2 billion Agri-Infrastructure Fund to focus on modernizing India’s infrastructure and to improve supply chain bottlenecks. India wastes almost $14 billion worth of food each year and as much as 40 percent of India’s total food production is lost in transit each year. As much as 16 percent of India’s fruits and vegetables spoil each year due to a host of issues like lack of cold chain and proper storage facilities. That inefficiency is in part due to decades of low private investment in export infrastructure like warehouses and cold storage systems. Despite the Modi government making cold storage a top priority when it assumed power in 2014, total capacity continues to pale in comparison to required capacity. COVID-19 laid bare how truly inadequate India’s food supply chain infrastructure is, as lack of sufficient storage structures has wheat and rice stocks being stored in “open structures covered by tarpaulin sheets on wood plinth.”
Reforming the mandi system was a necessary first step towards solving India’s infrastructure woes. Now, the hard part begins. The Indian government will be battling entrenched interests who profit from the status quo while attempting a major transition during the height of a global pandemic and India’s worst locust invasion in decades.
Ironically geopolitics has a great deal to do with the structure of India’s current food system. Back in July 1966, then-Indian Prime Minister Indira Gandhi incurred the wrath of then-U.S. President Lyndon B. Johnson for signing a joint communique with the Soviet Union that criticized the U.S. bombing campaign in North Vietnam. Johnson considered the move a betrayal and for months afterward threatened to withhold American grain shipments to India, which was dealing with a famine at the time. That episode was what led in part to the Indian government sponsoring the policies that eventually led to the Green Revolution (however imperfectly realized) and 50 years of emphasis on ensuring cheap food access for Indian consumers. Now COVID-19 has spurred India’s government to action once more. If New Delhi can author another paradigm shift as successful as the Green Revolution, so that its farmers are as profitable as its sources of food are secure, the world will look back on the year 2020 not just as the year of COVID-19, but as the year India began laying the groundwork necessary to become a truly global power.