The fact that broader the market larger is the scope for development can be disputed by those who are living in a pre-Galileouniverse where Sun still revolves around the Earth. The market for farm sector in India is caught in a web of barriers created ostensibly to protect the farmers. It did protect them from the big bad market through an interplay of market intermediaries who turned rich at the cost of the farmers. The vicissitudes of market economy bear two results – profit and loss. In the system that was allowed to develop in India the profit went to middlemen with the farmers burdened with loss in all cases.

To understand take example of potato growers in West Bengal. Farmers sell their produce immediately after harvesting since cold storage spaces are cornered by speculators and traders. Even white collar workers in and around Kolkata trade in cold storage bonds – buy when the harvest is stored and sell when price goes up later. The risk of such trading of bonds is much less compared to the risk of growing potato assumed by the farmers. But the return for farmer is restricted and paltry. Potato is a cash crop. Had farmers received better return the rural economy would have more disposable income, therefore would boost rural demand and the economy. Any system that removes the market restrictive middlemen and broadens the market will serve as an endogenous boost as Romer said.

The farm bills have attempted to create the same by allowing new entrants like corporates engaged in retailing, processing or exporting the farm produce. It has freed the farm products from the restrictive trade practice that of selling the output to the nearest market and that too within the narrow confine of the marker defined for that market. Without scratching the brain much even a simple person will accept that larger market will give better opportunity to farmers to sell their products, will lead to higher price discovery but chopping off the usurious middlemen’s earnings. Even these middlemen will get absorbed gainfully in the broader market but under supervision of corporates with deeper pocket and better access to information.

Farmers will have several benefits. First the expansion of market will give stability and better price realization for the growers. Second farmers can now enter in advance contracts with buyers ensuring risk coverage as well as a committed earning for the farmer. Third this will ease business environment for farmers as well as access to credit. In other words the lip service to market economy in India which eluded around 50 per cent of its population engaged in agriculture will now extend to the sector.

While economists will estimate how much this will boost GDP growth we can have a ball park assessment if as a result of the farm bills growth will get boosted and if yes by how much. The three benefits to a farmer listed here above will increase disposable income at the hand of the farmers - by reducing cost of funds, better farm guidance and therefore improved skills and no less important higher price realization. Even a modest calculation will tell us that for a farmer who was earning Rs 100 these benefits will add at least another Rs 30. A 30 per cent increase for the owner cultivator will be shared with farm laborers and other persons contributing to the cultivation. Assuming that half of the additional Rs 30 earned will go to these people – net gain for a farmer will be Rs 15 – that is 15 per cent increase in rural income. Half of population are engaged in agriculture – for the nation as whole this will mean a 7.5 per cent rise in income. This apart there is another gain for consumers due to marketization of essential agricultural products – price stability. Even if it is assumed that the profitability of middlemen will now move over to large corporates and therefore price may not fall sharply despite improved market system, consumers will be saved from sudden spikes and scarcities. Let us not try to monetize this benefit and accept that there will be no extra gain in GDP because of the ease of availability of agricultural produce.

How much of the estimated 7.5 per cent increase in income get reflected in GDP growth figure? There will be disruption in states like Punjab, Haryana, Rajasthan where farmers grow crops to dump on FCI at MSPs. They will need some time to adjust to the new opportunities and resort to crop diversification. Of course states like West Bengal which do not benefit from the system will reflect immediate boost in SGDP. Still assuming that a part of the 7.5 per cent gain will be eaten up by losses in these states, there certainly will be a decent rise in GDP growth.

The other way of ball park estimate can be from the 16 per cent contribution to national GDP by the farm economy. A 15 per cent rise in rural income will mean more than 2 per cent additional contribution to national GDP. These are just arm chair calculations. A detailed statistical analysis will give a better and perhaps higher figure for growth. This is reasonable to believe since at least since 1991 there have been discussions within the government think tank to opt for the reform of APMC and come out of the local market trap.

Sadly in political oratory and journalistic pressure for instant copy a logical analysis is always a casualty. (IPA Service)