While the current farm reforms are imperfect, the route to improvement is through amendments not repeal. These laws have their share of problems but it is still an improvement from the previous system.
In his article on Project Syndicate, Kaushik Basu criticises the recently passed farm bills on a variety of grounds. He argues that the laws are sufficiently flawed to require repeal. While some of his points have merit, the recommendation to repeal the laws is an overreaction.
Kaushik Basu makes four key criticisms of the agriculture reforms. He argues that the laws (i) assume ceteris paribus, (ii) Minimum Support Price (MSP), (iii) does not allow judicial redress and, (iv) could create monopsonies. In the following article, I will address each of these concerns.
Ceteris paribus is a phrase meaning “all other things being equal”. It is a frequently used assumption in economics to assess the impact of some change. Kaushik Basu argues that ceteris paribus, the farm laws, cannot hurt the farmer since it provides more choice without removing current markets. He argues that this assumption requires a level of trust in the government that farmers do not have. The government has not worked hard enough to build awareness or consensus about the farm laws. The government did not undertake the traditional steps of public consultations and stakeholder meetings to discuss the text of the law. This outreach and procedural failure eroded trust in the government. But this is not an argument against the content of the laws. A meaningful discussion needs to happen about procedural safeguards when passing laws, but that does not mean the law is flawed.
He also argues that without a legal guarantee of MSP, policymakers can effectively dismantle it by setting the price so low that no farmer will want to sell. Policymakers could also fail to provide accessible product collection centres. However, this objection is unchanged even if the government repeals the farm laws. It is, in fact, unrelated to the farm laws. If anything, the laws protect the farmers from this by ensuring options outside the government mandi framework. Laws that make inter-state trading easier will allow farmers from states with low procurement to sell to states that procure at better rates and higher quantities. Many states also provide a bonus on top of MSP to increase farmer income. Ease of inter-state trade would mean farmers can sell to the buyer that offers the best price.
He argues that the reforms do not allow redress in the judicial system. The law, as it stands, offers dispute resolution only through the bureaucratic system. A purely bureaucratic dispute resolution mechanism is a problem with the Act and must be addressed. But this can be fixed using amendments. There is no need for repeal. Lack of judicial redress is a problem for all parties in a contract.
Kaushik Basu ends his article by warning against the risk of corporate monopsonies. The concern about monopsonies is important, but a repeal of the laws would allow the current monopsony to continue. The new laws by allowing competition will reduce the risk of monopsony power since it allows for more people to buy. The law, as it stands, allows anyone with a PAN card to set up a market yard or purchase farm produce. Suggesting that the government should repeal the laws to reduce the chance of a monopsony is strange since there currently exists a monopsony in the market of many farm goods in the Agricultural Produce Market Committee(APMC) yards.
Like Dr Basu himself admits, the market for grains needs reform and openness. Repealing the law would mean taking many steps back from that goal. The current law is imperfect but an improvement over the previous system.