Where reforms and federalism clash | Opinion
Days after Parliament passed the controversial agriculture bills, several state governments have begun crafting strategies to avoid its implementation. This is a predictable consequence of a process of law-making that undermines India’s federal consensus. Agriculture is a state subject. The passage of national laws, on a state subject, marks a rupture in India’s federal trajectory.
There is no argument that India’s agriculture markets, mandis in particular, have been stuck in a low-level equilibrium and need reform. Greater accessibility, transparency and competition are necessary goals. But even the most ardent supporters of the new laws recognise that liberalising agriculture markets requires negotiating knotty implementation issues. The Constitution assigned jurisdiction over agriculture markets to states due to the very localised nature of farm production. The first sale between the farmer and the trader is linked with the production process. This is location specific and it is states who are best placed to determine the contours of production and sale including, taxation, credit, building farmer producer organisations and physical markets.
The current laws upend this. They bypass states by drawing on the Centre’s constitutional powers to regulate inter-state and intra-state trade — note that the Act dealing with Agricultural Produce Marketing Committee (APMC) reform is titled The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020. But they leave a critical institutional vacuum about how state-specific implementation investments, crucial for running efficient markets, will be negotiated and managed, when states are bypassed. Moreover, they create an artificial distinction between “markets areas” (regulated by the mandi system under state governments) and “trade areas” (now under the central Acts), thus risking a regulatory maze.
Beyond implementation, the choice of bypassing states in the quest to reform raises questions fundamental to the federal bargain. Our national debates on agriculture, and indeed other factor markets, have been framed by a deep disenchantment with state governments. This is not unjustified. States have routinely failed to challenge political interests. Agriculture subsidies and minimum support price (MSP) systems are intertwined with vested interests in states. Punjab, for instance, has failed to challenge this regime despite significant fiscal and environmental damage. On markets, states have done more. Karnataka experimented with electronic market integration, Madhya Pradesh with private single-licence yards, Maharashtra built infrastructure for private markets. However, the pace was uneven.
State “failure” raises an important federal conundrum. What is the Centre’s role when state political economy is the binding constraint for reform? As the economy becomes more complex, there is a sound economic rationale for pursuing the goal of a common national market across factor markets. This requires consensus-building, a task that rests squarely with the Centre. But when states allow political concerns to override, should the Centre bypass states by bulldozing reforms?
Our disenchantment with states has legitimised the bulldozing approach. But this undermines reforms. For instance, the artificial distinction between “markets areas” and “trade areas” in these laws, has resulted in a new battleground as states are now expanding their market territory. Punjab has declared its intent to declare the entire state a market area. Haryana stopped trade from Uttar Pradesh.
Further bulldozing breaks trust. There is much more to agriculture reforms than mandis. Several elements of the production process including subsidy reforms and the vexed MSP question need untangling. As agricultural economist, Sudha Narayan, has noted, the Punjab farmers’ concerns with MSP are different from those of the Bihar farmers. Arriving at an appropriate pathway of subsidy, price support and procurement reforms will require extensive consultations. By riding roughshod over state-specific concerns, there is a real risk of foreclosing the possibility of future reforms on these issues, which are necessary to achieve the goal of infusing competition and giving farmers genuine choices. There is a delicious irony here. India’s reform successes, where reform efforts have broken ground, are entirely about state-led innovation. It is thus, worth asking whether an alternative process that focused on building trust and creating a deliberative platform, such as the proposed national council for agriculture markets, aimed at persuading states to hasten reforms and synchronise legislation, may have been better.
India’s federal project has often found itself in tension with the project of economic reforms. Policy narratives have been dominated by growing impatience with consensus-building and negotiating state politics. We look for reform champions and crises to push big ideas, thus legitimising, across political parties, central government encroachment on state subjects. The new agriculture laws are symptomatic of this larger federal conundrum. However, this government’s use of its brute majority and suspension of parliamentary procedure to push these bills have taken away the only institutional check and balance against total centralisation of power — parliamentary deliberation.
What was needed to reform agriculture was political statesmanship and consensus-building for genuine cooperative federalism. Instead, we got political bulldozing and have ended up with a poorly-drafted law, a broken reform process, and a weakened federal compact.