Farm Laws Repeal: The Constitutional Design Of Factor Market Reform In India
Events surrounding the controversial farm laws, from their promulgation to the yearlong protests and eventual repeal, expose deep tensions between India’s federal compact and our frameworks for economic reforms. Understanding the dynamics of these tensions is critical to preserving India’s federal balance and charting pathways to sustained, long-term reform.
It is widely recognised that India’s factor markets—most of which (land, labour, agriculture) are State Subjects in our constitutional schema—are locked in deeply inefficient economic relations that serve limited private and public interest. The case for reform is urgent and well understood, even if their direction (degrees of market vs state intervention) remains a contested sphere. But state governments, driven by their own political economy and historical developmental trajectories, have often been recalcitrant reformers, especially when it comes to challenging entrenched social-economic relations. The result has been uneven, diverse reform trajectories, which have given way to disenchantment in national economic policy debates with state governments and their reform credentials.
A Federal Conundrum
This disenchantment raises an important federal conundrum. What is the role of the national government when state political economy is perceived as the binding constraint to reform?
Does federalism create tensions in coordinated national economic policy? And can states and their political realities be bypassed through centralised action?
The irony is that dismantling central government control over the economy and unleashing competitive sub-national federalism was a principal driver of growth dynamics in the 1991 framework of economic reforms. But when it comes to deepening factor market reforms, what we often refer to as second- and third-generation reforms—land, labour, power—the state-level political economy has set limits on the pace of reforms and in the breach the narrative of disenchantment has gained legitimacy alongside a policy approach that privileges stronger union government intervention in matters that are constitutionally state subjects.
In fact, this was one reason why then PM-candidate Narendra Modi crafted his image as a strong, reformist leader, capable of taking tough decisions in India’s elusive quest for growth, in the run-up to the 2014 elections. The lack of strong national leadership was projected as the binding constraint to growth.
Finding ‘Opportunity In A Crisis’
The 2020 farm laws were an imperfect outcome of precisely this conundrum. The uneven pace of agriculture market reform at the state level legitimised the narrative of disenchantment. To be clear, several states did initiate reforms, creating alternative private markets and enabling direct purchasing from farmers, but the pace of reform varied across states and together these did not add up to a significant overhaul of the existing system. The goal of establishing genuinely-competitive agriculture markets remained elusive. Crucially, the elephant in the room—the subsidy regime, price support, and procurement systems—remained largely untouched.
It is in this backdrop that union government intervention in agriculture, a matter that is constitutionally a state subject gained policy legitimacy. Over two decades efforts were made to ‘nudge’ states through model laws but in 2020, in the midst of the Covid-19 induced crisis, the temptation to ‘never waste a crisis’ emboldened the Modi government to use its brute majority to centralise control over agriculture markets and the reform process. It did so by riding roughshod over the federal schema and bypassing state governments by invoking the union’s constitutional powers to regulate inter-state and intra-state trade. Note the Act dealing with the Agricultural Produce Market Committees is titled the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act. The undermining of parliamentary procedure added to the problem by taking away the only check and balance against total centralisation of power – parliamentary deliberation.
One Size Doesn’t Fit All
Undermining the constitutional schema and bypassing states, proved to be the undoing of the farm laws. In fact, it is the failure to recognise the diversity of the very specific, localised nature of agriculture, linked to geo-climatic conditions, within which farmers have forged their compact with the state and the very specific local political dynamics this created that resulted in fuelling farmer anxieties and the yearlong protests. The Prime Minister spoke of his failure to ‘convince’ farmers and build consensus. But the question that needs to be asked is whether a centralised law is the right instrument to build this consensus in such a diverse reality.
As I have argued with agriculture markets expert Mekhala Krishnamurthy in a separate column, the dynamics of the relationship between farmers and government vary widely from deep dependence (leading to perverse outcomes) to complete abandonment. The goal of building genuinely competitive markets requires renegotiating these varied relationships.
In the pursuit of national interest, the Green Revolution led the then union government to strike a bargain with the farmers of Punjab, Haryana, and Western Uttar Pradesh that locked them into a political economy logic driven by expanded state subsidy and public procurement. Any attempt to renegotiate these politics will inevitably unleash anxieties, as was visible through the yearlong farm protest. Renegotiating these paths, as the Prime Minister has learnt the hard way, requires more than strong leadership that seeks to disrupt the status quo, it requires careful design of transition paths that signal credibility and commitment that are local and context-specific.
At the same time, in other parts of India like Bihar and Odisha, the bottleneck to infusing competition and giving farmers genuine choice is not excessive state intervention but rather the lack of it. The absence of physical market infrastructure, supply chains, building farmer cooperatives leaves farmers to the vagaries of local traders and cartels.
Still others, Maharashtra and Karnataka for instance have made significant progress towards encouraging greater private competition. Here the challenge is to sustain, scale and better regulate. None of this can be achieved through centralised law.
It requires responding to the pulls and pressures of state politics, the very things that our frameworks for national economic policymaking are losing patience with.
It is thus, worth asking whether an alternative process that focused on building trust and creating a deliberative platform, such as a national council for agriculture markets, aimed at persuading states to hasten reforms and synchronise state legislation, may have been more appropriate.
This challenge of negotiating the federal conundrum in factor market reforms is not unique to agriculture, six years ago the Prime Minister faced a similar challenge with the attempt to reform land acquisition laws.
But any argument for federalism has to recognise the powerful political role the centre plays in setting the terms of the policy agenda and in enabling inter-state coordination. It is no accident, regardless of its policy merit, that protesting farmers are now coalescing around the demand for a central legislation on the minimum support price, a demand that undermines the very logic of federalism which farmers fought for.
This makes the case for greater consensus building with states on broad national policy and investing in institutions the enable better centre-state coordination even stronger. But above all our frameworks for economic policymaking have to recognise that sustainable long-term reform cannot be achieved by undermining federalism. Rather it requires strengthening federal institutions and restoring the federal balance. Federalism and growth must co-exist.
Yamini Aiyar is the President and Chief Executive of the Centre for Policy Research.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.