Three Farm Bills and India’s Rural Economy

With low levels of farmers' income and a lack of assured price mechanism, what impact will the three farm bills have in the long term on India's agrarian economy. Here's an analysis.

Last week, the Union government passed three bills to replace the three ordinances that were enacted during the COVID-19 lockdown. These three bills, expected to bring revolutionary changes to agrarian context and help double farmers’ incomes are: The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020; The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 and The Essential Commodities (Amendment) Bill, 2020.

Taken together, according to the prime minister, these bills are expected to usher in a revolutionary change in the arena of Indian agriculture and would go in some way, perhaps a long way, in doubling the incomes of the farmers. We need to understand these legislations and their long-term impact on the agrarian structure against the expectation outlined by the government to see to what extent this policy prescription will go in doubling of farmers’ incomes and what kind of revolution will now be on the anvil.

As per census 2011, 96 million cultivators enumerated farming as their main occupation, down from 103 million in 2001 and 110 million in 1991. Still 46% of the workforce is working full-time in farmlands. The size of the operational holdings for small and marginal farmers has shrunk from 1.15 hectares in 2010-11 to 1.08 hectares in 2015-16, according to provisional estimates of the 10th agriculture census 2015-16, and small and marginal holdings constitute almost 90% of our total agricultural land holdings.

Another striking feature of India’s agriculture is the continuing trend of increase in the numbers of small holdings in the country. The first agricultural census done in the beginning of the 1970s reported that figure at 71 million. In the last five decades, those numbers have grown exponentially from 138 million in 2010-11 to 146 million in 2015-16, as per provisional estimates of agriculture census 2015-16.

In other words, the average size of operational holdings has considerably reduced from 2.28 hectares in 1970-71 to 1.15 hectares in 2010-11, and 1.08 in 2015-16, shows data.

What is more worrying is the fact that the top 10%  of the households are now cultivating almost 50% of India’s total cultivable lands whereas the bottom 50% are cultivating less than 0.5% of India’s cultivable lands. The decline in the India’s bottom 50% land holdings is steady. The table below is rather self-explanatory of the plight of the farming sector households.

Table 1: Percentage of land cultivated by bottom 50% and top 10% of rural households
1987–88 1993–94 1999–2000 2004–05 2009–10 2011–12
bottom 50% 4.1 3.8 2.7 1.9 0.8 0.4
top 10% 48.6 47.9 49.6 48.9 50.3 50.2

Low income levels

Given the state of holdings and the fact that two-thirds of them are in dry land farming areas of the country it is not surprising that the average income levels for the farming households and individuals are extremely low. As per various estimates from governmental sources, the average income of a farming household stood at a mere Rs 8,931 per month in 2016-17.  This would roughly translate into slightly over one lakh rupees for a year.

What is alarming is the fact that almost 35% of the income has come from the wages. There is little reason to believe that the above figures have changed. Overall, we can safely state that almost 85% of our farmers fall in the category of marginal and small farmers with less than two hectares of land holdings. It is against this crucial factor that we need to understand the legislations passed and the impact they might have on the very structure of our agrarian edifice.

Farmers block a railway track as they participate in ‘Rail Roko Andolan’ during a protest against the farm Bills at village Devi Dass Pura, September 24, 2020. Photo: PTI

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill seeks to completely open up the sale of produce outside the Agricultural Produce Market Committees, or the APMCs. It not only creates an e-highway for trading and transactions, but also creates a structure for e-trading of agriculture produce. Farmers are allowed to sell their produce outside of the APMCs, and that creates a possibility for more competition and better pricing for farmers. In other words, the market is thrown completely open for the private players to come in the agriculture sector and deal directly with the farmers.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill creates a framework for contract farming. It provides a template at the national level of farming agreements, with regard to agribusiness, processing, and the entire range of services including wholesalers, exporters and large retailers for sale of farming produce at a mutually pre-agreed price.

The Essential Commodities (Amendment) Bill takes away cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. Therefore, these commodities are now free of the Essential Commodities Act restrictions and stand deregulated. However, the central government has retained the right to regulate them under extraordinary circumstances, such as in case of a war, famine, natural calamity, and impose stock limits if there is a steep rise in prices.

Put together, this package of legislations seeks to open up the farming at both ends production (through contract farming) and sale (through complete deregulation). So, what are the implications of such an act?

Also read: Farm Bills Will Create a Vacuum That May Result in Utter Chaos: P. Sainath

Trust deficit

Reforms are not new to the agrarian sector. According to eminent economist Himanshu, in almost 18 out of 36 states and Union territories, agricultural reforms in the form of permitting private markets have already been allowed. More than 20 states have allowed contract farming, and around 19 states have enabled direct purchase of agricultural produce from the primary producer by ‘processor/bulk buyer/bulk retailer/exporter’.

What is important to note is the fact that farmers have welcomed these changes in these states and many of them were suggested by the Centre in the past. The fear, therefore, of the newly enacted legislations being opposed just because the central government has proposed these are unfounded. Today the fear is that the complete opening up of the sector would throw all the marginal farmers, who incidentally are 85% of the total farming cohort, to the mercy of private players. There is also a crisis of confidence and a trust deficit between farmers and the government.

Farmers protest against the passage of new farm Bills in the parliament and land legislations proposed by the Karnataka government in Bengaluru, September 22, 2020. Photo: PTI/Shailendra Bhojak

The reasons for such a deficit to exist are not too far to seek. In 2015, the government in an affidavit filed in the Supreme Court in response to a public interest litigation stated that the recommendation of the Swaminathan Commission on the minimum support price (MSP) for agricultural produce to be more than 50% of the cost of production cannot be accepted. It stated: “A mechanical linkage between MSP and cost of production may be counter-productive in some cases. No comparison can be made about increase or decrease of price of one commodity as compared to other commodities as the same depends on demand and supply and market forces.”

It further added: “It may be noted that pricing policy i.e. the fixing of MSP is not a ‘cost plus’ exercise, though cost is an important determinant of MSP. The pricing policy seeks to achieve the objective of fair and remunerative price and is not an income policy.” So effectively the critical recommendation of the Swaminathan Commission stood rejected by the Union government as early as in 2015!

The Swaminathan Commission had recommended a 50% increase on the comprehensive cost borne by the farmer the C2, but the Union government had taken into account only the cash transactions and the payments made by the farmer on seeds, labour, pesticides and fertilisers (A2) plus unpaid value of family labour (FL)  the A2+FL. It completely ignored the rent on the owned land as well as the interest on the owned capital, which, if taken with A2 and FL would become the C2. Thus, even the existing structure is not as per the recommendation of the commission.

For more than four decades, more farmers are not able to recover even the basic cost of cultivation from their farms. The overall fiscal commitment to agriculture is drastically curtailed. The investments in the sector are at a standstill, and if one applies the factor of inflation, then these would stand in the negative.

Also read: Farm Bills, Small Farmers and Chasing the Agri-Dollar Dream 


Farmers are debt ridden, starved of funding and of assured price mechanism. The three legislations if taken together accentuate the crisis even further. In the absence of a guaranteed support price mechanism, the legislations even fail to mention a very strong support for the MSP as a benchmark price as a fundamental condition for open agriculture trade and winding up of mandis.

For years farmers have demanded statutory support price for their produce from the government. The question is what is the base level of that income that will be taken for it to double and to what?

There is a need to restore the shaken confidence of the agrarian sector. In order for that to happen the government of India needs to give an iron clad guarantee on holding the price line 100% over and above the inflation-linked cost of production to the primary producer and not allowing any players to offer a price below that line to them. Only such a guarantee will ensure the confidence of the farmers in the system.

We need to understand that if the country has to come out of her grave economic crisis, the answer does not lie in the economies of the urban or of the extractive economies of the capital. The answer decisively lies in the revival of the rural with dignity and respect. The country, it must be understood, cannot survive if the rural falls and chances of such an event happening today can only be averted with a considered policy response initiated with empathy and care.

Vijay Jawandhiya is a senior farmer leader and an avid commentator on the agrarian crisis and Ajay Dandekar is a historian and has worked on the issue of agrarian crisis.