Excerpt: Who are the vested interests?

Private sector players like Amul, Suguna, Nestle, Hatsun, and ITC work directly with farmers and set up storage and collection facilities to procure directly. This simplifies the supply chain and makes the overall costs cheaper. But this clearly is not a good deal for the middlemen, moneylenders and loan sharks. They have every interest in ensuring a reliable and efficient source of produce. They have a vested stake in farmer welfare and would harm their own supply chain by exploiting farmers.

The middlemen (arhatiyas) are the most hurt through the farmer law changes. They used to get away charging 2% commission to the farmers and charging between 8.5%-14.5% from the traders without adding any value. In Punjab alone, 400 arhatiyas make around 1600 crores a year which translate to each arhatiya making 40 lacs a year. This pay is way more than what a IIT-IIM graduate with 10-15 of work experience makes in an Indian MNC. A sweet gig indeed for the middlemen. The much pilloried GST act actually brought down the taxes paid by traders to the middlemen from 14.5% to 8.5%. Hence the consumer was the net beneficiary through the GST act.

I don’t blame the middlemen who hate losing their sinecure privileges. It would be interesting to look at data about how many of these rich arhatiyas actually end up immigrating to the west with all the excess income they have. 60% of Canada’s immigrants come from just one Indian state – Punjab. When I looked at statewide data of SUV car sales per capita and % of foodgrains procured under MSP, the correlation across states is 0.7. If anyone understands even a bit of statistics, it would be obvious that there is a strong correlation between the procurement price paid by the government and the price paid by farmers to buy fancy cars. The money lenders charge 60% rates of interest because the farmers are unable to reach the traders directly. Because national banks won’t lend to farmers and because farmers default regularly, moneylenders have increased their rates of interest from 24-36% to 48-60% rates of interest per year. Hence it is clear where a chunk of the farm loan waivers goes, straight to the hands of moneylenders and repayment of their usurious rates of interest. They will stand to lose a lot if the farmers and traders work directly with each other. When the CNN writes that “eight out of ten farmers are in debt, and the average amount a farmer owes is more than four times the average annual income”, the question nobody asks is why isn’t there any clampdown on the moneylenders.

Published by Vinod Aravindakshan

Engineer, Economist and Manager

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