The situation in India is unfortunate, but it is not unique. Agriculture is a critical issue not only for India but for all economies struggling to achieve a balance between market and state.
I have long felt that the existing agricultural laws in India need to be changed and that the food grain market in the country needs to be more open. The new laws, among other things, will allow farmers to sell grain outside designated state-controlled areas known as ‘mandis’ in states that previously did not allow them. The government seems to be giving more choice to the farmers. Why should anyone object to that?
Then I read the fine print of the law. With their extraordinary grassroots intuition, farmers realized what many economists, including me, were missing.
If the government allows farmers to sell their produce outside Mandi, they will definitely benefit even if the market outside Mandi is not regulated. Since everything else is stable, they get an extra option. But Ceteris Paribus believes in the situation — everything else will not change — farmers need to trust the government. They clearly do not – and, on closer inspection, even for good reason.
Government subsidies are available to farmers around the world. In 2019, China spent $ 185.9 billion on agricultural subsidies, followed by the European Union ($ 101.3 billion), the United States ($ 48.9 billion) and India ($ 11 billion). But different countries give these concessions in different ways.
Indian farmers now have the right to sell their produce, mainly wheat and rice, to the government for a minimum support price (MSP), which is periodically determined each year. The MSP system mostly runs on trust. Policymakers can effectively demolish it by setting a price as low as any farmer wants to sell or by providing available product collection centers. In most parts of India today, farmers say they can sell their grain at a certain price, but there is nowhere near them to sell it.
If the government demolishes the MSP system instead of reforming it, millions of farmers will have to sell their produce to four or five large agribusiness corporations. This reveals a fine print of the new laws.
If a company violates a contract with a farmer, the new laws prohibit the farmer from seeking redress in ordinary court. The law will help big business by removing food grain storage restrictions placed to discourage companies from artificially raising prices.
I believe that large firms are needed in agricultural markets. I think the new laws of the Government of India would be more acceptable if policymakers were sensitive to the need for no-confidence enforcement to level the playing field for the millions of farmers competing against some large corporations. Even in the free-market tower of the US, eminent jurists such as Eric Posner, Suresh Naidu, Glenn Weil and Cass Sunstein have expressed concern about the need for no-confidence laws to regulate monophonies like large corporate buyers.
India’s agro-legal debate thus raises the relevant question: Is it always desirable to offer more choice? Apparently, in some cases it is not. The state of Louisiana in South America passed a law in 1859 granting people of color the freedom to choose slavery, often referred to as “warrantyism”. Today, countries like China give workers the opportunity to work in export-processing. Zones instead of basic labor rights. No one is forcing anyone to work under these circumstances, the attendee goes to the argument: it is an additional option available to workers.
Many explain these additional options. Government repression, on the other hand, often arises in knee-jerk objections. Fortunately, as I have shown in my book Beyond the Invisible Hand, we can apply a sophisticated argument rooted in the work of the philosopher Derek Perfit to these real-world contexts.
It goes back to the ancient Greek “psoriasis paradox”. According to a general formulation, if the sand grains are not piled up, the n + 1 grain must not be piled up. If we start with nothing and add one grain of sand at a time, eventually we will make a pile.
Similarly, the decision of every person to relinquish fundamental rights in lieu of employment in the export-processing zone enhances the welfare of that person. But when most people do this, all workers can be worse off.
What we need is not market fundamentalism, but a market that operates freely within the broader parameters determined by well-designed laws.
The Government of India should repeal its new agricultural laws, and through careful and deliberate process, the craft law, which stands as a rational test, will benefit the poorest farmers and consumers above all else. © 2021 / Project Syndicate
Kaushik Basu is a former Chief Economist of the World Bank and Chief Financial Adviser to the Government of India