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The economic impact of India’s new Farm Laws

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Shishir Deshpande, ACA
Shishir Deshpande, ACA
The author is a chartered accountant by profession, a writer by passion and is an avid supporter of free market economics. Nation above everything.


As part of the big-bang Aatmanirbhar package, several welcome structural reforms were introduced by the Prime Minister Narendra Modi-led government, which included mainly the labor reforms and the new farm laws. The new farm laws bring in new regulations as to how farmers can sell their produce, how farmers can transact & protect themselves and how the food produced by our ‘annadaatas’ can be regulated.

The Economic Survey of India 2020–21 underscored the importance of these laws, stating that the existing system “kept the Indian farmer enslaved to the local Mandi and their rent-seeking intermediaries”.


It would be an understatement to say that the introduction of these reforms was most challenging for the Centre. They attracted bouquets and brickbats from expected and unexpected corners and protests erupted across the highly agrarian states of Punjab and Haryana, with farmers’ union leaders exhorting millions of people to hit the streets against the legislations. All this in the middle of a pandemic (which, expectedly, are becoming super spreader events).

While IMF Chief Economist Dr. Gita Gopinath lauded the reforms saying, “Being able to sell to multiple outlets besides the Mandis without having to pay a tax. And this had the potential to raise, in our view, farmers’ incomes”, other agricultural “experts” such as adult actress, Mia Khalifa, waded into the controversial space in support of the protestors.

The protests ended up fanning secessionist flames so badly that the Ministry of External Affairs had to pitch in and say, “The temptation of sensationalist social media hashtags and comments, especially when resorted to by celebrities and others, is neither accurate nor responsible.”

The Annadaata Impact

For a comprehensive understanding, we will be analyzing the laws across three parts based on the three new laws i.e. (i) Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (ii) Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020 & (iii) Essential Commodities (Amendment) Act, 2020.

Where can the farmer sell

The first of the new laws (and the most contentious of these) empowers farmers and producer organizations to trade their produce across zonal, district and state lines, beyond the physical premises of the APMC yards or the “Mandi”, including via electronic means.

Local intermediaries and monopolists have been successful in using the previous laws’ legal infrastructure to create an intermediary system which enables them to prosper at the cost of the farmer. Cartelization by intermediaries, informal lending practices and lack of formal documentation at the Mandis has only worsened the issue.

It is saddening to note that a legislation was required to give farmers the freedom to sell and trade their produce as THEY deem fit while every other category of producer in India took that for granted, prospering beyond the farmers’ wildest dreams.

An RBI bulletin from 2019, cited studies using primary survey data, which showed farmers receiving only a minimal share of the price paid by the consumers, while the intermediaries got a large proportion of the consumers’ rupee. Farmers were taking home less than 30% of the final price in multiple cases; more than 6 in 10 of the farmers surveyed revealed that their selling costs were higher than their production costs, which is alarming to say the least.

The same RBI bulletin also mentions an interesting study, where direct selling of fruits and vegetables to consumers found that farmers received 15–40% more than wholesale prices and consumers paid 15–30% less than retail prices. In Karnataka, a Niti Aayog report stated that farmers have realized a whopping 38% more income in 2015–16 from direct-to-consumer sale of agri-commodities through the Unified Market Platform.

Clearly, the direct-to-consumer selling method warrants merit and it also makes us wonder why certain “Andolanjeevis” are opposing them.

To whom can the farmer sell

The second law empowers farmers to enter into farming contracts with buyers, corporate and otherwise. The legislation mandates that contracts cover at least one season or production cycle and guarantee a price to all parties involved. This legislation unshackles farmers from the quasi-license raj of APMCs, registrations & deposits.

The Niti Aayog observed that more than 100,000 dairy farmers in Moga, Punjab, have enjoyed a successful partnership with global food giant, Nestle, since 1961, benefiting in more ways than one, as Nestle provides technical guidance to producers and even supplies feed, medicines, vaccines, and veterinary services.

study by Braja Bandhu Swain, Centre for Development Studies, Thiruvananthapuram, made similar observations. Contract farmers in Andhra Pradesh earned more than double the non-contract farmers, with per-acre gross income of contract farmers exceeding that of the non-contract farmers by more than 60–90%.

Opposition “leader”, Rahul Gandhi may keep parroting his favorite phrase, “Adani-Ambani ka Sarkar”, however, the legislation strictly specifies that the buyers’ role is restricted to simply buying the produce and not leasing out the land or acquiring any other rights over farmers’ assets.

The government has also enabled a dispute resolution mechanism that aids the farmer. No action for recovery of dues can be initiated against the farmers’ land and if the buyer fails to pay the farmer, they may be penalized up to 1.5 times the amount owed. However, if a farmer reneges, the recovery shall not exceed the actual cost incurred by the buyer.

Regulation on produce

The third legislation empowers the Centre to regulate certain essential commodities such as food grains, petroleum etc. in case of famine, war, natural calamities, or other extraordinary circumstances, through price triggers rather than a whim of the governments or even an overly powerful constituency.

Agri-businesses across the country are familiar with the dangers posed by arbitrary stocking limits imposed by governments, which interfere with market forces and disincentivize investments in warehousing and storage facilities. Even those who can afford to purchase large stocks tend to buy far less than capacity due to this unpredictability, with farmers bearing the brunt during surplus harvests.

This reform in no way undermines the government’s right to intervene through the minimum support price guarantee. The PM, in the Rajya Sabha, categorically stated that, “MSP was there. MSP is there. MSP will remain in the future. Affordable ration for the poor will continue. Mandis will be modernized.”


If one simply goes by political aims and manifestos, these farm laws were required 15 years ago and imperative 10 years ago. UPA 1.0 and 2.0 simply put these reforms into their manifestos and dithered on them, either due to political convenience, lack of political willpower or both.

The new laws give farmers choice to sell their produce within the APMC markets or outside it and does not tamper with the MSP nor do they pose any threat to the existing Mandi system. In fact, by removing the training wheels, these laws will coax the Mandis to be more competitive and enter the 21st century.

The PM put it best when he said that those taking a U-Turn on the farm laws would perhaps agree with former PM Manmohan Singh, who had written that, “There are other rigidities because of marketing regime set up in 1930s which prevent our farmers from selling their produce where they get highest rate of return. It is our intention to remove all those handicaps which come in the way of India realizing its vast potential at one large common market”.

The lack of political willpower to execute these reforms, even when agricultural experts (including the key protestor, Bhartiya Kisan Union) pleaded for them, is a great disservice done by previous governments to the farmers. NDA 2.0 declared an ambitious target of doubling farmers’ income by 2022 and has taken the first step towards that by implementing these laws.

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Shishir Deshpande, ACA
Shishir Deshpande, ACA
The author is a chartered accountant by profession, a writer by passion and is an avid supporter of free market economics. Nation above everything.
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