Farm laws and ‘taxation’ of farmers -R Ramakumar
To show Indian agriculture as being net taxed to argue for the farm laws has poor conceptual validity
Over the past three decades, a major rationale offered in favour of liberalising Indian agriculture was that farmers were “net taxed”. In other words, incomes of farmers were kept artificially lower than what they should have been. It was argued that this “net taxation” existed because protectionist policies deprived farmers of higher international prices, and the administered price system deprived farmers of higher domestic market prices. If there were more liberal domestic markets and freer global trade, prices received by farmers would rise.
These arguments are raised again in the debates around the three farm laws. According to this view, farm laws are necessary to end the net taxation of agriculture. For this purpose, data on Producer Support Estimate (PSE) are used. A recent study found that PSE in Indian agriculture was -6% between 2014-15 and 2016-17. In contrast, PSE was +18.2% in the Organisation for Economic Co-operation and Development (OECD) countries, +19.6% in the European Union countries and +9.5% in the U.S. The farm laws would weaken restrictive trade and marketing policies in India and “get the markets right”. This, in turn, would eliminate negative support and raise farmers’ prices.
In these debates, a common example cited is that of milk. There is no Minimum Support Price (MSP) in milk, and a substantial share of milk sales takes place through the private sector, including multinationals like Nestle and Hatsun. Yet, India’s milk sector is growing faster than the foodgrain sector. If the milk sector can grow without MSP and with private corporates, why cannot other agricultural commodities? This article attempts a closer look at these claims.
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The Hindu, 15 February, 2021, https://www.thehindu.com/opinion/lead/farm-laws-and-taxation-of-farmers/article33845343.ece?homepage=true