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The Men in the Middle: Why Government's Direct Payment to Farmers Has Angered Arhatiyas

By: K Yatish Rajawat

Last Updated: April 14, 2021, 13:47 IST

Farmers protesting three agricultural laws in Delhi's borders with Haryana and Uttar Pradesh. (File Photo)

Farmers protesting three agricultural laws in Delhi's borders with Haryana and Uttar Pradesh. (File Photo)

Farmers' protest is funded by middlemen who saw new laws undoing the system that helped them. Direct transfer changes control of cash flow, makes income transparent.

The procurement of rabi crop has been progressing fast in Haryana; after a hiccup and more, it has also begun in Punjab. These are the states where farmers have been agitating to abolish the three farm laws proposed by the union government. The laws are: The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, The Essential Commodities (Amendment) Act, and The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act.

The first law is the one which is the most contentious—from the point of view agitating farmers, or rather their supporters— as it dismantles the control the arhatiyas have over the sale of farmers’ produce in states like Punjab and Haryana. These are the states where most of the procurement by the government of wheat, rice, mustard takes place. In these two states, a well-organised network of government mandis exists which is controlled by middlemen (arhatiyas) who buy/procure farmers’ produce on behalf of the government.

The first law effectively displaced their control over the sale process by allowing the farmer to sell from anywhere to anyone—buyers could buy it directly from the farm or sign a contract for purchase. The latter issue of contract buying from farmers is dealt by the third law. But as the laws are in abeyance due to a Supreme Court’s order, there was a question about how the procurement will happen this time. So far it is happening seamlessly in the mandis.

Punjab has nearly 45,000 arhatiyas according to the state association of arhatiyas. The arhatiyas have controlled the prices, procurement, and the mandis of Punjab. Most of them are large farmers or traditional traders who have a strong political base as they control the inflow of cash and resources in the rural economy.

The farmers’ agitation is funded by these arhatiyas as they saw these laws dismantling the system that has benefited them for several decades. The langars, medical huts, food, tents, and even diesel to agitating farmers was being provided by the arhatiyas who also participated in these protests. That is not to say that the farm laws cannot be amended or made better; they certainly can. But the vociferous arhatiyas do not want amendment, they want them to be abolished. Moreover, the Punjab government also found it convenient to harness and direct the farmers’ anger and target the opposition in the state, or the BJP, directly. Hence, they facilitated the shift of the agitation from Punjab to Delhi’s border. Once the Supreme Court gave a stay on the three laws in January 2021, in January 2021, there was a lot of uncertainty as to how the current rabi procurement would happen.

In the absence of the three laws, the central government made a major reform in the procurement process. This was the direct transfer of procurement amount into the account of the farmers, thus taking out the arhatiya from the cash flow. A major source of the arhatiyas’ income came from their control of the process. Farmers had to wait for days or months to get the money that was rightfully theirs from the arhatiyas. The arhatiyas also had a strong hold over the farmer and where he sold his produce. There is a strong arrangement among the arhatiyas including informal non-compete agreements so that they do not poach each other’s farmers. A farmer sells his produce to the same arhatiya year after year, sometimes going back a generation or two. This relationship includes borrowing from the arhatiya, which allows the latter to control the income flow to the farmer. An arhatiya is an easy lender; he does not ask many questions but charges a huge interest and then controls the sale of all the produce.


In effect, although there may be many buyers in the mandis, the farmer is limited to selling to just one buyer (arhatiya), limiting his choice and price. The law wanted to open up the number of buyers, though that does not necessarily mean a higher price for the seller, as increasing the number of buyers from one to three without any change in demand may not lead to a higher price. But what the direct transfer of procurement price to the farmer’s account does is something even better—it ensures that the full price, without any delay or deduction, is received by the farmer. The commission, labour, and the cost of sacks will be separately paid by the government to the arhatiyas.

This will make the arhatiyas’ income transparent and clear and make it easy for the government to tax it properly. The arhatiyas’ income is a commission and not agricultural income, and so it will be taxed accordingly. Currently a lot of arhatiyas would show the procurement income as sales income and declare it under agricultural income, thus bypassing the income tax that has to be rightfully expected from it.

The arhatiya would typically pay the farmer in cash and the government would never know to whom he paid and how much. There are times that the farmer would get 30% to 40% less than the minimum support price (MSP) and the arhatiya would justify it as past interest, or cost of seed, or anything. The farmer had no way to complain or argue against this to anybody.

The cash economy that the arhatiyas created found its way into land purchases, political donations, and other activities. Direct transfer will curtail this funding. In Haryana, the state government has linked the bank account of the farmer with his land details. Each farmer is being given a farmer registration number that is certified by the district agriculture officer for the crop and the land details are authenticated by the patwari/tehsildar. This is to prevent farmers from Uttar Pradesh, Rajasthan and other states from selling their produce in Haryana. There have been cases in the past of rice coming from as far as Bihar to be sold at MSP in Haryana, driving the total procurement volumes.

Punjab’s arhatiyas protested against the central government’s decision of transferring the procurement amount to the farmer’s account, and went on strike saying that they would not be part of the procurement process that started from April 1. The arhatiyas also tried to convince farmers to participate in the strike; initially some farmers did for a day or two but then realised this would harm them directly. The arhatiyas’ association also met the agriculture minister and union minister Piyush Goyal. When the government did not budge, they called off their strike on April 9. This explains the procurement delay in Punjab.

The other side of this issue is that now the farmers are becoming aware of the role of the arhatiyas and their control over their lives. The frustration of the arhatiyas can be gauged by the fact that they are asking farmers for blank cheques to their accounts. This distrust between farmers and arhatiyas, combined with the fact that the arhatiyas will not have tax-free income sloshing around in their bank accounts, means that the farmers’ agitation may soon start winding down.

(K Yatish Rajawat is CEO of Center for Innovation in Public Policy, a think and do tank that works on agriculture policy. He tweets @yatishrajawat. Views expressed are personal.)

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first published:April 14, 2021, 12:43 IST
last updated:April 14, 2021, 13:47 IST