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M.A. ECONOMICS

Second Year

PAPER

AGRICULTURAL ECONOMICS

SCHOOL OF DISTANCE EDUCATION

BHARATHIAR UNIVERSITY,

COIMBATORE – 641 046.

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CONTENTS

AGRICULTURAL ECONOMICS

Lesson I Nature and Scope of Agricultual Economics 1

Lesson II Relationship between Agriculture and Industry 11

Lesson III Agricultural Development in India 17

Unit IV Subdivision and Fragmentation of Agricultural Holdings 29

Lession V Lands Reforms in India 39

Lession VI Green Revolution 62

Lession VII Irrigation in India 71

Lession VIII Farm Mechanisation 79

Lession IX Cooperatives and Agricultural Development 85

Lession X Crop Insurance 101

Lession XI Agricultural Labour 110

Lession XII Agricultural Marketing in India 127

Lession XIII Marketing of Agricultural Produce 147

Lession XIV Public Distribution System (PDS) 164

Lession XV Marketing and Marketable Surplus 182

Lession XVI Agricultural Prices 191

Lession XVII Agricultural Price Policy 204

Lession XVIII Role of Credit for Development of Agriculture 216

Lession XIX Capital Formation in Agriculture 227

Lession XX Regulated Market 239

Lession XXI Buffer Stock 248

Lession XXII Agricultural Inputs 259

Lession XXIII Plant Protection 269

Lession XXIV Agriculture Trade 284

Lession XXV New Agriculture Policy 297

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LESSION-1

NATURE AND SCOPE OF AGRICULTURAL ECONOMICS

1.0 Objectives

To study role of agriculture in Indian economy

To study causes of low productivity in India the agriculture

To suggestion remedial measures to overcome the problem of low productivity

Indian agriculture.

Contents

1.0 Objectives

1.1 Introduction

1.2 Agriculture

1.3 Agricultural Economics- Definition

1.4 Role of Agriculture in the Indian Economy

1.5 Features of Indian Agriculture

1.6 Causes of Low Agricultural Productivity in India

1.7 Remedial Measures to Raise Agricultural Productivity in India

1.8 Conclusion

1.1 Introduction

Agricultural economics emerged as a separate branch to study the allocation of

scarce resources in a farming context. However, the discipline grew in scope to

encompass issues of natural resource use, and rural and international development. More

recently, agricultural economics is a branch of the larger field of economics, and is

studied seriously after Independence in many universities and collages in India.

Agricultural economics began in the 19th century as a way to apply economic

principles and research methods to crop production and livestock management. The roots

of the discipline can be found in the writings of the classical economists of the 1700s and

early 1800s. The works of Adam Smith, Thomas Malthus and David Ricardo discussed

land as a factor of production and issues of human population versus its ability to

produce food. Agricultural economics applies principles of economics to issues of

agricultural production, natural resources, and rural development. It mainly focuses on

principles of microeconomics, which examines the actions of individuals, households and

firms. Agricultural economics is sometimes referred to as agronomics, defined as the use

of economic methods to optimize actions by farmers and ranchers.

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1.2 Agriculture

By and large the term „agriculture‟ refers to the production of goods through the

growing of plants and fungi and the raising of domesticated animals. The study of

agriculture is known as agricultural science. The related practice of gardening is studied

in horticulture. The word agriculture is the English adaptation of Latin agricultura, from

ager, "a field" and cultural, "cultivation" in the strict sense of "tillage of the soil". Thus, a

literal reading of the word yields "tillage of a field and of fields". Further, Agriculture is

the classification names for the farming industry, so the agricultural industry. If so

agriculture can be from fruit growers, dairy farm, wheat farm, cattle farm, wool etc.

'Agriculture' has a few senses or meanings: 1) the class of people engaged in growing

food; 2) a large-scale farming enterprise; 3) the agricultural department that administers

programs that provide services to farmers (including research and soil conservation and

efforts to stabilize the farming economy); 4) the practice of cultivating the land or raising

stock.

1.3 Agricultural Economics- Definition

The term „agricultural economics‟ can be defined as an application of economic

theories and principles, as well as marketing and organizational theory, to issues of farm

production and land use. Agricultural economists apply the economic theory of the firm,

which conceptualizes firms as profit-maximizing organizations that allocate their

resources so as to achieve the highest level of profit, to examine agricultural production.

There are some more definitions which we see one by one.

According to Prof. Goodwin, “Agricultural economics as a social science is

concerned with human behavior during the process of producing, distributing and

consuming the products on farms and ranches.”

According to Hibbard, “Agricultural economics as the study of relationships

arising from the wealth –getting and wealth–using activity of man in agriculture,”

because what we are going to study is just a part of the general field of economics, the

part applying to agriculture. Gray defined as “Agricultural economics is a science in

which the principles and methods of economics are applied to the special conditions of

agricultural industry.”

It is clear that Agricultural economics is concerned with farming as a business

and as an industry. In the limited sense of Farm Management, Agricultural economics

deals with the business problems of the farm as the producing unit of the agricultural

industry. In fact, it is originated as a study of firm Management and land tenure. Later,

during the last seventy years, it has developed to embrace all major areas or problems of

economic analysis associated with agriculture. In the wider sense of social science, we

are concerned with the general economic pattern of the agricultural industry as a whole,

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with the forces for moulding that pattern and also with the relation of agricultural

industry to other industries within the national economy as well as its place in the world

economy.

As far as India is concerned, the majority of the total population of India is living

in rural areas. Agriculture is considered as the only source of primary occupation as a

huge size of rural population of the country is solely depending on agriculture activities.

Thus, the development of the rural areas should receive top priority in our developmental

programmes. Accordingly, it requires development of agriculture, implementation of

land reform measures and development of co-operatives.

1.4 Role of Agriculture in the Indian Economy

Agriculture is considered as the backbone of the Indian Economy. More than 70

percent of our total population earns their livelihood from agriculture. Following are

some of the important points which explain the role of agriculture in the Indian economy

Major Contribution to National Income

From the very beginning, agriculture is contributing a major portion in our

National Income. In 1950-51, agriculture and allied activities contributed about 59 per

cent of total National Income. However, with the growth of other sectors, its contribution

has gradually declined to 48 percent in 1970-71 and further to 23 percent in 2004-05.

Source of Livelihood for Huge Population

In India, over two-third of our working population are engaged directly in

agriculture and also similarly depend for their livelihood. According to an estimate, about

66 percent of our working population is engaged in agriculture.

Agriculture and Industrial Development

Agriculture in India has been the major source of supply of raw materials to

various important industries of the country. About 50 percent of the income generated in

the manufacturing sector comes from the agro-based industries of the country.

Commercial Importance

Indian agriculture is playing a very important role both in the Internal & External

Trade of the country. Nearly 70 percent of India‟s exports are originated from

agricultural sector. Further, agriculture is helping the country in earning foreign

exchange to meet the required Import Bill of the country.

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Significant Sources of Government Revenue

Agriculture is one of the major sources of revenue to both the Central and the

State Government of the country. The Government gets a substantial income from raising

land revenue.

Helps Agriculture and Economic Planning

The prospect of planning in India also depends much on agricultural sector. A

good crop always provides impetus towards a planned economic development of the

country by creating a better business climate. Similarly, a bad crop leads to a total

depression in climate of the country, which ultimately leads to a failure of Economic

Planning. Thus, the agricultural sector is playing a very important role in the country like

India and the prosperity of the Indian Economy still largely depends on agricultural

sector. Agricultural development is the basic pre-condition of sectoral diversification and

development of the economy.

1.5 Features of Indian Agriculture

The agriculture in India was totally backward at the time of independence. There

are certain factors which are responsible for this poor condition of the Indian agriculture.

All these factors will broadly outline the features of the Indian agriculture in the

following manner.

Traditional Tenure System

The character of Indian agricultural production was totally feudal at the time of

independence. The land tenure systems were mostly of Zamindari, Mahalwari and

Ryotwari type.

Dualism in Labour Market

Dualism in the labour market became prevalent in India due to excessive pressure

of population on land. This started to exist in Indian labour market due to worker‟s

ignorance of better opportunities outside agriculture.

Capital with High Interest and Growing Indebtedness

In Indian agriculture, the use of usurious capital is quite high in volume and this

leads to growing indebtedness among the poor farmers.

Old Farming Techniques

Indian agricultural is still characterized by the use of orthodox farming

techniques. Major portion of the agricultural operations are still depending on biological

energy sources.

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Diversification in Indian Agriculture

Presence of agricultural diversities is another notable feature of Indian

agriculture. Besides difference in natural conditions indifferent regions, there exists a

considerable difference in land tenure system and labour relations among the various

states of the country.

Problems of Indian Agriculture

In spite of dominating among all the sectors, agricultural sector in India has been

subjected to a number of problems. The following are some of the major problems

responsible for the poor state of Indian agriculture.

Inequality in Land Distribution

The distribution of agricultural land in India has not been fair. Rather there has

been a considerable degree of concentration of land holding among the rich landlords,

farmers and moneylenders throughout the country. The vast majority of small farmers

own a very small and uneconomic size of land, resulting in higher cost per unit.

Land Tenure System

The land tenure system practiced in India has been suffering from a lot of defects.

Insecurity in tenancy was a big problem for the tenants, particularly during the pre-

independence period, which still prevails to some extent due to the presence of absentee

landlords and benami transfer of land in various states of the country.

Poor Farming Techniques and Agricultural Practices

The farmers in India have been adopting orthodox and inefficient methods and

techniques of cultivation. It is only in the recent years that the Indian farmers have been

started adopting improved implements in agriculture.

Inadequate Use of Inputs

Indian agriculture has been suffering from inadequate use of inputs like fertilizers

and HYV seeds. Indian farmers are not applying sufficient quantity of fertilizers on their

lands. Moreover, the supply of HYV seeds in the country is also negligible.

Inadequate Irrigation Facilities

Indian agriculture is still suffering from lack of assured and controlled water

supply through artificial irrigation facilities. Thus, Indian farmers have to depend much

upon rainfall which is neither regular nor even. The proportion of irrigated land to total

cropped area is only about 53 percent as per 1998-99 reports. Therefore, in absence of

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assured and controlled water supply, the agricultural productivity in India is bound to be

low.

Absence of Crop Rotation

Proper rotation of crops is very much essential for successful agricultural

operations as it helps to regain the soil fertility. As the Indian farmers are mostly

illiterate, they are not very much conscious about the benefits of crop rotation due to

which the land loses its fertility.

Lack of Organized Agricultural Marketing

Indian farmers are facing the problem of low income from their marketable

surplus crops in the absence of proper organized markets and adequate transportation and

communication facilities.

Rural Indebtedness

One of the greatest problems of Indian agriculture is its growing indebtedness.

The rural people are borrowing heavy amounts of loans regularly for meeting their

requirements needed for production, consumption and also for meeting their social

commitments. Due to crop failure, poor income arising out of low prices of crops, the

farmers fall into debt trap and cannot arrange for sufficient money to repay their debts.

Thus, the debt off armers gradually increases leading to the problem of rural

indebtedness.

Low Agricultural Productivity

The condition of Indian agriculture still largely remains backward although it is

considered as the backbone of the Indian economy.

Agricultural productivity which is composed of both productivity of land and

labour as well, is among the lowest in the world. Average yield per hectare in India is

quite below the world average in all crops. It is much lower as compared with even the

yield rates prevailing in less developed countries of the world.

1.6 Causes of Low Agricultural Productivity in India

Factors which are responsible for this backwardness or low agricultural

productivity in Indian agriculture can be convenient grouped under three broad headings:

a) General Factors b) Institutional Factors c) Technological Factors.

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General Factors

Following are some of the General Factors which are responsible for low

agricultural productivity in Indian agriculture:

Socio-Economic Factors

Various socio-economic factors like farmer‟s conservative outlook, ignorance,

illiteracy, superstition etc. stand in the way of adoption of modern technology in Indian

agriculture. Unless this discouraging rural atmosphere is changed, it is not possible to

improve the condition of agriculture in this country.

Lack of Adequate Finance

Indian agriculture still remains backward due to its inadequate financial

provisions. Until recent times, farmers had to depend much on village money lenders

who charged high rates of interest, to repay which the farmers had to part with their land

and become landless agricultural labourers. Other financial institutional though exists,

their contributions are almost insignificant in quantity.

Lack of Productive Investment

There is nearly absence of productive investment in India agriculture as the

investment in land is found to be less attractive than the alternative investments in

jewellary trade and money lending. This also adds up to be one of the causes of low

agricultural productivity in the country.

Institutional Factors

The following are some of the Institutional Factors which are equally responsible

for the backwardness of Indian agriculture.

Small Size of Holdings

The average size of agricultural holding in India is very small and uneconomic

and it is even less than 2 hectares or 5 acres. Besides, the agricultural holdings in India

are fragmented too. With such un economic and fragmented holdings, no scientific

cultivation with improved implements, seeds etc. are ever possible. This has resulted in

low yield in Indian agriculture.

Defective Pattern of Land Tenure

Land tenure system in India is totally defective & it is standing in the way of its

agricultural development. Even after the abolition of Seminary System and enactment of

Tenancy Legislation, the position of tenants is still far from satisfactory. The cultivators

have to pay high rent to the landlords and are subject to frequent ejectment by the

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landlords. All these have led to lack of incentives and confidence on the part of

cultivators to make provisions for any permanent development of their land.

Technological Factors

The following Technological Factors are responsible for low agricultural

productivity in Indian agriculture:

Lack of High Yielding Seeds

Indian farmers are still applying seeds of indifferent quality. They have no

sufficient financial ability to purchase good quality HYV seeds. The supply of HYV

seeds is also lower in the country. Thus, the farmers are mostly applying traditional

variety of seeds whose average yield is just half of the yield of improved variety of seeds.

Scanty Use of Fertilizers

The Indian farmers are not applying sufficient quantity of fertilizers on their

lands. Constant cultivation of land causes deterioration of the fertility of soil. For

revitalization of soil fertility, application of various types of fertilizers is much required.

But the poor cultivators cannot afford to purchase costly chemical fertilizers for applying

on their lands. Thus in India, these of both chemical fertilizers and even farm yard dung

manure is totally inadequate.

Inadequate Irrigation Facilities

Indian agriculture is still suffering from lack of assured and controlled water

supply through artificial irrigation facilities. Thus, Indian farmers have to depend much

upon rainfall which is neither regular nor even. The proportion of irrigated land to total

cropped area is only about 53 percent as per 1998-99 reports. Therefore, in absence of

assured and controlled water supply, the agricultural productivity in India is bound to be

low.

Lack of Agricultural Research

Agricultural research in India is still very poor in comparison to its requirements.

Whatever research is being conducted, its result is not even made available to the farmers

fully for its application. Thus, many chronic problems of agricultural operation faced by

the farmers still remain largely unattended.

Thus, we have seen that there is gross absence of many basic facilities in Indian

agriculture and all these have resulted in low agricultural productivity and also

backwardness of agricultural sector in the country.

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1.7 Remedial Measures to Raise Agricultural Productivity in India

The backwardness of agricultural sector and low agricultural productivity are the

two serious problems of the Indian economy. For improving the condition of the

agricultural sector and for raising the agricultural productivity in India, the following

measures should be undertaken.

Consolidation of Holdings

Consolidation of holdings is the first step towards the modernization of Indian

agriculture and this should be done immediately by enacting proper legislation required

in this regard. Uneconomic small farms should be properly consolidated and small

fragmented holdings should also be consolidated by forming co-operative farming

societies.

Overcoming Natural Factors

Proper steps should be taken to overcome various problems of agriculture

resulting from natural factors. All these steps include extensive flood control measures,

creation of adequate irrigation facilities etc.

Application of Modern Techniques

Indian farmers should apply modern techniques of cultivation by utilizing modern

implements, using HYV seeds, using scientific crop rotation and careful crop planning.

Agricultural research should be carefully intensified and its results should be made

available to the Indian farmers.

Economic Measures

Economic measures should be adopted in order to make the Indian agriculture

more remunerative. Proper steps must be undertaken for the improvement of farm

organization and land management. Besides, steps must be taken for the establishment of

different types of agro-based industries in rural areas. Provisions should also be made for

adequate credit and marketing facilities. Moreover, the Government must introduce

minimum price support policy, guarantee minimum prices of the agricultural produce of

the country and implement Crop Insurance Scheme to cover the various risks in

agriculture.

Human Development

For the improvement of agricultural productivity in India, the quality of farmers

should be improved and they should be imparted with adequate general & technical

education. Adequate public health measures should also be undertaken in rural areas.

Farmers should shed off their fatalism and adopt themselves with the changing ideas.

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1.8 Conclusion

Thus, the agricultural productivity in India can be improved with the adoption of

aforesaid measures in the agricultural sector of the country. Hence, from the above

discussion it can be brought out that although the Indian agricultural sector is subject to

certain limitations, and it has got enormous potential of growth and development with

some changes in certain fields, including methodology of agricultural production.

Questions

1. Explain the nature and scope of agriculture economics.

2. Discuss the role of agriculture in Indian economy

3. What are the causes for low productivity in Indian agriculture? Give some

suggestions to raise agricultural productivity in India.

4. What are the features of Indian agriculture?

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LESSON- 2

RELATIONSHIP BETWEEN AGRICULTURE AND INDUSTRY

2.0 Objective

To understand the sectoral linkages in the Indian economy

To study interdependence of agriculture and industry

To study the importance of mutual contribution of agriculture and industry

Contents

2.0 Objectives

2.1 Introduction

2.2 Sectoral Linkages in the Indian Economy

2.3 Interdependence of Agriculture and Industry

2.4 Agricultural and industrial progress in a closed economy

2.5 Mutual Contribution of Industry and Agriculture

2.6 Need for Balanced Development

2.7 Conclusion

2.1 Introduction

Agriculture and industry is not competitor, but go together for the development of

a country. In poor countries a large number of populations get employment in

agricultural sector, mean while it also provides raw material for industrial development,

for agriculture based companies. Due to development in agricultural sector demand for

industrial goods increases, saving increases and government revenue also increases. It

also provides foreign currency export and import become improved, so due to these

reasons the period of industrial development begins.

When agricultural development is initiated, it results in increasing the

productivity and efficiency. Such that when agricultural surplus is produced there is an

increase in contribution of agricultural-sector in income distribution. As the income of

farmer's increases the government revenue also increases, these increases in farmer's

income also leads to saving which can be increased more than before, these agricultural

saving create demand in industrial market. So that industrial sector also increases its

production and begins to develop. As the productivity in import of agricultural products

increase in agricultural sector there is an increase in export products by this foreign

income can be earned, in this manner when production of food crop, increase in

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agricultural sector, there is a reduction in import for food products. This will save foreign

reserves. This saving can be used to import heavy machinery for industrial development.

The inter-relationship between agriculture and industry has been a long debated

issue in the development literature. In the Indian context the issue has acquired interest

since industrial stagnation in the mid 1960s. Over the years the Indian economy has

undergone a structural change in its sectoral composition: from a primary agro-based

economy during the 1970s, the economy has emerged as predominant in the service

sector since the 1990s. This structural changes and the uneven pattern of growth of

agriculture, industry and service sector economy in the post reforms period is likely to

appear substantial changes in the production and demand linkages among various sectors

and in turn, could have significant implication for the growth process of the economy. At

the same time the growing integration with the rest of the world in the post-reform period

(post 1991 period) and the recent spurt of service sector led growth are also likely to have

significant impact on the linkages between the agriculture and industry. This has

triggered an interest in readdressing the analytical and methodological aspects of the inter

linkages between the two sectors.

2.2 Sectoral Linkages in the Indian Economy

Considering inter-dependence among the three sectors of an economy viz.

agriculture & allied activities (primary), industry (secondary) and services (tertiary), it

may be presumed that demand for one sector in a closed economy is a function of outputs

generated in the other two sectors. In an open economy, however, the relationship can be

captured by incorporating some other variables, which integrate the external economy.

To begin with, agriculture sector enjoys both production and demand linkages with

industrial and services sectors. Agriculture sector has demand linkage with the industrial

sector as it depends on the latter for agricultural implements and other inputs such as

fertilizers and pesticides. Thus, a good harvest (in turn giving a boost to agricultural

income) results in increased demand for industrial products. Similarly, a good

agricultural year is also likely to raise demand for services like trade, transport, banking

and insurance services. On the supply side, agricultural inputs are used in the production

of various chemical and pharmaceutical products; consumer items, especially non-

durable food products, etc. Thus, a fall in aggregate supply in agriculture sector is likely

to cause a serious constraint in production of the industrial sector. Similarly, there is a

positive and significant association between manufacturing and services sectors, which

becomes stronger at advanced stages of industrialization. With the expansion of the

economy, particularly in the manufacturing sector, demand for services like trade,

transport, hotel, banking and social services such as education, hospitals and other

infrastructure increases. In turn, the service sector growth depends on the development of

manufactured inputs. Given the high-income elasticity of demand for services, as the

economy develops with rising per capita income, the growth linkages between

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manufacturing and services sectors become stronger through increased demand for each

other‟s output. In recent years, there has been a phenomenal growth in respect of

distributive, communication and financial services. Abetted liberalization communication

sector has been one of the fastest growing sectors, which has enhanced the productivity

in the commodity producing sectors through sharing of recent and update knowledge

about the current market and demand conditions. Financial services have consistently

recorded double-digit growth in the last four years benefiting from substantial expansion

in the economic activity. Transportation sector also witnessed substantial expansion and

benefited from the burgeoning activity in commodity producing sectors as well as

growing external orientation of the Indian economy.

2.3 Interdependence Agriculture and Industry Between

Agriculture and industry are the two wheels of an economy. The development of

one sector depends on the development of the other sector. In a planned economy

agricultural development precedes industrial development. It is all due to the basic

character of agriculture. Similarly, the full development of agriculture depends on the

industrial development. Industry suppliers‟ agriculture with machines, tools, implements,

fertilizers and other latest inputs, the assistance of industry is obligatory for making fuller

modernization of agriculture with adequate supply of tractors, pumping sets and

agricultural machinery so that productivity in agriculture may be increased.

2.4 Agriculture and Industrial Progress in Closed Economy

In a closed economy, one of the most important pre-conditions of industrial

expansion is the achievement of the rate of increase in agricultural productivity. Rising

agriculture productivity supports and sustains industrial development by meeting the

increasing food needs of the non-agriculture sector to international trade, contribution of

rising agricultural productivity may diminish for the time being. But industrialization

provides a wider range of consumption goods, raising their level of wants, encouraging

greater productive efforts and better agricultural production which in turn directly raise

agricultural productivity per hectare or per man.

In mid-twentieth century, industrialization as a means to promote the economic

development has become magic word in underdeveloped countries. Pt. Nehru echoed the

belief of underdeveloped countries when he said, “Real progress must ultimately depend

on industrialization”. No doubt, these countries can catch up with the progress made by

the advanced countries by placing major emphasis on industrialization. But it should be

remembered that industrialization is simply one type of economic activity and it alone

will not prove to be panacea for curing all the economic ills. Recent experiences of

different countries have shown that there are limitations in placing over-emphasis on

industrialization unless proper attention is paid for the development of the agricultural

sector.

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2.5 Mutual Contribution of Industry and Agriculture

Instead of discussing the issue of industrial development versus agricultural

development, the need of the hour is that the current thinking may be devoted to consider

how best agricultural and industry contribute to each other and to study the inter-

relationships between the two. It has been realized that in the long run they are

complementary to each other. Their relationships should not be taken to be competitive

in the process of growth of country. Industrialization is inseparable from substantial and

sustained economic advance, because it is both a consequence of higher incomes and a

means of higher productivity.

Thus, it is true that improvement in the productivity of agriculture is one of the

most solid means of promoting industrialization. Thus unless agriculture is modernized

substantially, industrial expansion is likely to be cut short by the lack of markets and low

purchasing power with the majority of population. In short, agricultural improvements

cannot go very far unless there is industrial development to take up the released

manpower and to provide a solid technical base for the equipment and services essential

to modernized agriculture.

Thus, it appears from the above statement that it is neither the development of

agriculture alone nor industrialization that would bring about the required economic

development of a country. The rise in per capita income can more effectively be brought

about by improving productivity in both sectors simultaneously i.e. in agriculture and

industrial sectors. Thus improvement in the productivity of agriculture is one of the most

solid means of promoting industrialization. In fact, unless agriculture modernizes

substantially industrial development in most underdeveloped countries is likely to be cut

short by lack of markets. In this regard, rural industrialization is fully tied to agricultural

development. It is due to this that along with agricultural development, village and

cottage industries are being reviewed. Significantly both agriculture and industrial sector

should develop simultaneously. Moreover, manufacturing sector cannot remain

developed for a long period without the development of agricultural sector. It is on this

account that all the industrially developed countries have a most advanced and

modernized agriculture.

In short, the development and modernization of industry and agriculture should

take place side by side. All the developing countries have realized this fact and they are

planning for industrialization as well as for modernization and development of their

agriculture. National commission of Agriculture has rightly observed, the

interdependence between agriculture and industry clearly shows that the further growth

in agricultural production India, as elsewhere, is materially dependent on the rapid

increase in the production of inputs supplying industries. This will help intensive

application of modern techniques of agricultural production.

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2.6 Need for Balanced Development

Here the question is not to make a choice between the industrial or agricultural

development. We believe that there is no conflict between the two, but as a matter of

fact, the development of these sectors is closely interwoven and each must depend

heavily on the other. What is required is to aim at the balanced growth of the two. Prof.

Lewis has remarked that the secret of most development problems is to maintain proper

balance between different sectors. Different sectors of the economy should be given due

weight age in the process of economic development. The consequences of neglect of one

or the other sector will be distressing and hindering the prosperity of the economy on all

fronts.

The principal of balanced agricultural and industrial development appears to be

reasonable; but it is not easy to put into practice, particularly in underdeveloped countries

that have opted to launch the programme to sustain economic growth. Recognizing the

need of choice, there are two opinions of different economists. First argument has been

given by Prof. Jabob viner, coals and Hoover who advocated that efforts to increase

supply should get top priority due to high demand and need for additional food. They

have concluded by saying that very substantial progress in that most backward part of the

economy is a pre-requisite to successful development of the economy as a whole and that

if one sector limits the growth of the other, it is more likely to be a case of agricultural

growth limiting non-agricultural than vice versa. In the second category, economists like

Albert Hirschman, Lobenstein and Higgin have pointed out the necessity for raising

agricultural productivity by giving industrialization programme a top priority. Prof.

Higgin stated that the only means to a cumulative improvement in agricultural

productivity is a public policy designed to make labour relatively scarce in agriculture by

simultaneously shifting to a more mechanized and large scale agriculture and

encouraging a rapid rate of industrialization.

2.7 Conclusion

Admittedly no country is in a position to concentrate all of its investments on

either agriculture or industrial development. But the need of the hour is to achieve a

reliable food surplus, shift of large scale of farm population into non-farm employment

and labour saving devices in agricultural sector. To conclude the discussion, to quote the

views of Prof. Higgin, who has rightly noted, so far as industry versus agriculture is

concerned, it is not a question of balanced growth or unbalanced growth but one of

balanced growth or no growth at all.

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Questions

1. Explain the relationship between agriculture and industry in Indian economy.

2. How far the sectoral linkages between agriculture and industry in Indian

Economy?

3. Explain the major factors determining the sectoral linkages between

agriculture and industry.

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LESSION-3

AGRICULTURAL DEVELOPMENT IN INDIA

3.0 Objectives

To study the technical measures taken to develop Indian Agriculture by

Government of India.

To study the different phases of agriculture development in India.

Contents

3.0 Objectives

3.1 Introduction

3.2 Technical Measures Employed to Develop Agriculture

3.3 Progress of Agriculture

3.4 Government Measures

3.5 Elements of Progress

3.6 Trend towards Diversification

3.7 Modernization of Agriculture

3.8 Increases in Capacity

3.9 Improvement in Agrarian System

3.10 Improvement in the Conditions of the Poor

3.11 Unsatisfactory Features

3.12 Slow and Uneven Growth

3.13 Insufficient Modernization

3.14 Inadequate Capital

3.15 Unsatisfactory Land Reforms

3.16 Poor Living Conditions

3.17 Conclusion

3.1 Introduction

Agriculture in India has a significant history. Today, India ranks second

worldwide in farm output. Agriculture and allied sectors like forestry and fisheries

accounted for 16.6 percent of the GDP in 2009, about 50 percent of the total workforce.

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The economic contribution of agriculture to India's GDP is steadily declining with the

country's broad-based economic growth. Still, agriculture is demographically the

broadest economic sector and plays a significant role in the overall socio-economic fabric

of India.

Agricultural development is an integral part of overall economic development. In

India, agriculture was the main source of national income and occupation at the time of

Independence. Agriculture and allied activities contributed nearly 50 percent to India‟s

national income. Around 72 percent of total working population was engaged in

agriculture. These confirm that Indian economy was a backward and agricultural based

economy at the time of Independence. After 61 year of Independence, the share of

agriculture in total national income declined from 50 percent in 1950 to 18 percent in

2007-08. But even today more than 60 percent of workforce is engaged in agriculture. In

spite of this, it is also an important feature of agriculture that is to be noted that growth of

other sectors and overall economy depends on the performance of agriculture to a

considerable extent. Because of these reasons agriculture continues to be the dominant

sector in Indian Economy.

Since independence India has made much progress in agriculture. Indian

agriculture, which grew at the rate of about 1 percent per annum during the fifty years

before Independence, has grown at the rate of about 2.6 percent per annum in the post-

Independence era. Expansion of area was the main source of growth in the period of

fifties and sixties after that the contribution of increased land area under agricultural

production has declined over time and increase in productivity became the main source

of growth in agricultural production. Another important facet of progress in agriculture is

its success in eradicating of its dependence on imported food grains. Indian agriculture

has progressed not only in output and yield terms but the structural changes have also

contributed. All these developments in Indian agriculture are contributed by a series of

steps initiated by Indian Government. Land reforms, inauguration of Agricultural Price

Commission with objective to ensure remunerative prices to producers, new agricultural

strategy, investment in research and extension services, provision of credit facilities, and

improving rural infrastructure are some of these steps Notwithstanding these progresses,

the situation of agriculture turned adverse during post-WTO period and this covered all

the sub sectors of agriculture. The growth rates in output of all crops decelerated from

2.93 percent to 1.57 percent. The livestock declined from 4.21 percent to 3.40 percent.

The fisheries declined from 7.48 percent to 3.25 percent. Only, forestry witnessed a sharp

increase from 0.09 percent to 1.82 percent. The crop sector, which forms largest segment

of agriculture, showed poorest growth during post-WTO period in comparison to all

other periods. Further, within crop sector, all crops except sugar showed declining trend

between initial years of reforms and post-WTO period. This deceleration is very high in

Cereals, Corse Cereals, Pulses, Oilseeds, and Drugs and Narcotics. The growth rate

21

turned negative in the case of pulses. Since the dawn of independence, several steps have

been taken to develop the agricultural sector of the country. The major break through has

been achieved in food grains production. The production of food grains which was 550

lakh tonnes in 1950 substantially moved to 1991 lakh tonnes in 1995.

3.2 Technical Measures Employed to Develop Agriculture

Multiple Cropping

Multiple cropping aims at maximizing production per unit of land and per unit of

time by taking three or four crops in a year. By adopting multiple cropping, there are two

advantages as of getting increased returns and economy of the farm resources.

Expansion of Irrigation Facilities

Irrigation facilities have increased manifold over time. Several, minor, medium

and major irrigation projects have been launched in the country. At the inception of First

Five Year Plan, India had only 18 percent of total irrigated area which at present

increased to about 33.9 percent. Moreover, dry farming has also been introduced in those

areas where means of permanent irrigation cannot be installed. In 1994-95 the country

witnessed total irrigated area of 876 lakh hectares.

Use of HYV Seeds

HYV seeds have absolutely revolutionized Indian agriculture by increasing yield

per acre. Among these, mention may be made of dwarf varieties of wheat PU-18, Kalyan

Sona 227, Sona Lika, Hybrid maize, Vijay, Rice I R-8, Jhona 351, Padma and Jaya etc.

Plant Protection

Considerable efforts have been made to protect the crops from the insects and

pests. For this purpose, 14 Central Plant Protection Centres have been set up by the Govt.

Scientific Methods of Cultivation

In the planning period, stress has been laid on the scientific methods of

cultivation. It has been emphasized to adopt superior agricultural technology in

respect of crop rotation, selection of quality seeds, use of proper manure, treatment of

soil, selection of crops etc. In this regard, Govt has initiated Intensive Agricultural Area

Programme. Moreover, several Agricultural research centers and universities have also

been established. In this regard, Haryana Agricultural University Hissar, Punjab

Agricultural University Ludhiana, Himachal Agricultural University Palampur, Indian

council of agricultural research, Delhi is playing a pioneer role to develop agriculture.

22

Use of Mechanization

Mechanization is another noteworthy step employed to develop agriculture. Small

farmers are assisted with cheap credit facilities through co-operative societies,

community development blocks to purchase machinery and other modern equipments.

More Use of Chemical Fertilizers

Use of chemical fertilizers has also contributed significantly to the growth of

agricultural output. Several steps have been taken to encourage the use of cow-dung as

manure rather than as fuel. In 1950-51, 0.13 million tonnes of chemical fertilizers was

used which in 1980-81 increased to 5.52 million tonnes and further to 12.54 million

tonnes in 1990-91. In 1995-96, the use of chemical fertilizers was recorded to the tune of

15.7 million tonnes.

Development of Agricultural Land

Efforts have been made to develop agricultural land during the five year plans.

Major success has been achieved in the levelling of land, terracing of fields and contour

building. Land surveys are also being conducted.

Animal Husbandry

Animal husbandry has assumed a much broader role in the overall agricultural

development. Presently, this sector accounts for 25 percent of gross value of agricultural

output. India's vast livestock population offers tremendous potential for meeting

domestic demand for milk, egg, meat, wool, etc.

Land Reforms

In a bid to increase agricultural productivity, land reforms are of immense use.

Since the dawn of independence, Govt, of India has undertaken several land reform

measures. For instance, Abolition of zamidari system, Fixation of ceilings on Land

Holdings, Consolidation of Land Holdings, co-operative farming etc.

3.3 Progress of Agriculture

No doubt, agriculture is still backward in many respects. But it is also true that

some notable progress has been recorded in this sector. We discuss the various

developments that have improved upon the state of agriculture. We shall also refer to the

weaknesses that still persist. Such an evaluation of the agricultural performance can be

usefully taken up since the beginning of planning in 1951. Accordingly, the subject is

being dealt with in terms of the government's planned efforts to pull up agriculture made

in the last over five decades, the actual improvements in the various spheres of

23

agriculture, and the shortcoming/handicaps that still mar the agricultural science. All this

will give us a comprehensive view of the agricultural progress.

3.4 Government Measures

During the last many years of planning, government has played an active role in

the development of agriculture. Appropriate objectives have been laid down in the

various plans. Corresponding to these objectives, measures have been spelt out. And

required resources have been earmarked for this purpose. We dwell upon each one of

these elements of the planned efforts.

Expanding government's role right from the First Plan the government realized

that for the development of agriculture, government would have to play a crucial role. It

was thought inevitable because agriculture was very backward and the poor agriculturists

themselves could do very little in this regard. The various measures needed for the uplift

of agriculture could be undertaken by the government alone. The large resources needed

for the purpose too could be organized by the government. As such the government

through various plans undertook the big task of developing agriculture and improving the

conditions of those associated with it.

Keeping in view the important constraints of resources, priorities have been laid.

And with removal and reduction of these constraints, the thrusts in the government's

approach have changed from time to time. Besides, through time the government's policy

has become more comprehensive. In the beginning irrigation and flood control were

given higher priority. Alongside, and particularly at a later stage, emphasis on the

development of agriculture (through expansion of inputs, price incentives, etc.) became

prominent. In recent years the government's action has expanded to include programmes

for rural development, and special area programmes. As a result, almost all the facets of

agriculture have been brought within the purview of the government's policy. These, for

example, include: crop-raising, soil and water conservation, animal husbandry and

dairying, fisheries, forestry, agricultural marketing and rural godowns, agricultural

financial institutions, land reforms, cooperation, agricultural research and education,

special employment schemes etc.

Laudable objectives the government gave a concrete shape to its intentions in

terms of the objectives of the various plans. These objectives have, of course, varied in

the different plans, depending upon the situation that each plan had to face. However,

when these objectives are read together, one can describe them along three broad lines.

One is the aim of increasing substantially the agricultural production and productivity of

land. The emphasis has been on raising the agricultural growth rate in general. Special

attention has also been devoted to increase the production of certain crops, in particular

food grains. Improving the of land has been considered necessary as there is little scope

for extensive cultivation. The land reforms have been another important objective Since

24

the agrarian relations in were found to be such as caused to investments and hard work

on the actual cultivators, and entailed their exploitation. The change in the agrarian

system was considered essential both for raising production and doing justice to the

farmers. There is the objective of uplifting the weaker sections of population associated

with agriculture. These are, for example, the small and marginal fanners, landless

agricultural labourers, and many of those engaged in activities allied to agriculture such

as animal husbandry, fisheries etc. While these are supposed to benefit from the general

growth, it has been realized that these people are so handicapped in terms of income that

for the improvements of their conditions special programmes are called for.

Largely appropriate measures for the achievement of these objectives, many

measures have been undertaken. For example, to raise production and productivity three

main types of measures have been provided in the plans concerns the supply of inputs,

both traditional like extension of irrigation, and modern like laboratory -researched

seeds, chemical fertilizers etc. infrastructural facilities have been expanded. These

include credit, marketing, storage, extension services, transport, education, information

dissemination etc. money-incentives have also been given in a large measure and in

various forms. These are, for example, price- incentives through procurement of products

at pre-announced prices; supply of cheap and subsidized material inputs; confessional

credit, crop insurance etc.

As for the objective of land reforms the provisions touch upon the various weak

facets of the agrarian relations. These include: abolition of seminary system: securing

just and fair conditions for tenants; ceiling on land ownership and distribution of surplus

land among the weak farmers; and consolidation of small and scattered holdings. In

regard to the objective of raising the economic status of the poor, the measures consisted

of special programmes devised to provide work/assets/inputs to specified groups of

people/areas. These special programmes are: Integrated Rural Development Programme

(IRDP). National Rural Employment Programme (NREP) now merged in Jawahar

Rozgar Yojna etc.

Considerable resources In keeping with the objectives, large resources have been

devoted to agricultural development. These have been on the rise from plan to plan. The

amount of resources and funds for agriculture and allied activities (like animal

husbandry, fisheries etc.) were about Rs.300crores in the First Plan. During the Eighth

Plan these were 75 times more at Rs.22.467crores. The Ninth Plan (1997-2002) allocated

a much bigger sum of Rs.42,642 crore. It was further escalated to Rs.58.933crore for the

Tenth Plan period. To these if we add allocations for irrigation and flood control, as also

for rural development and for special programmes for the benefit of rural people, the

total becomes much large, even larger than that for industrial development.

25

3.5 Elements of Progress

Various changes have taken place in the agricultural sector since independence,

more particularly in recent years. Some are positive developments which point to the

emerging progressive character of this sector. There are, however, certain elements

which are not healthy. We take up first the spheres where the performance has been

somewhat satisfactory.

Increase in production and productivity. One such key sphere with somewhat

good results is production and productivity, where some increase has indeed taken place.

As far as production is concerned, the growth rate since the First Plan (1951-56) has been

of the order of 2.7 per cent per annum. This is much better performance when compared

to the historical growth rate before independence which stagnated at 0.3 per cent during

1900-47. The growth rate is also higher (though marginally) than the population growth.

As among various crops, there have been very large increases in the much needed crop

for the masses, namely, food grains. This has made India nearly self-sufficient in this

respect.

This is of great significance as there is very little scope for extensive cultivation.

The annual growth rate (compound) of yield for all crops was around 1.3 per cent till the

middle of the 1960's. Since then (i.e., after the inception of Green Revolution) it has been

higher at over 2.5 per cent. While this achievement is impressive, its importance lies

insofar as it has helped in overcoming the limitation of land area which has increased

little. This is evident from the fact that from the fifties to the nineties (1949-50 to 1992-

93) while the production grew at the rate of 2.7 per cent, the area grew at under 0.6 per

cent, and the yield at about 2.9 per cent. Then has been a discernible decline, in the rate

of growth in the recent past.

3.6 Trend towards Diversification

Another change indicative of progress is the tendency towards diversification of

agriculture. Three types of developments need to be mentioned in this context. The share

of output of the non-crop sectors (i.e. animal husbandry', forestry and fish- en) in the

total agricultural output is on the increase, slowly. Along with this shift in output, there is

an increase in the labour-force engaged in the non-crop sectors. Within the cropping

sector, there is an increase in the area under commercial crops. This is obvious from the

fact that there is a decline in the area sown under food grains (with a negative rate of

growth under coarse cereals ever since 1980-81) and a rise in that under non-food grains

crops (with a high rate of growth under cotton and sugarcane since 1990- 91). Further

within the food grains crops, superior cereals (wheat and rice) are being grown on a

larger area than before. At the same time; the area under the inferior cereals (pearl millet,

sorghum etc.) is on the decline.

26

These changes, though small, point to the movement of agricultural sector

towards development as has happened in the developed economies. When they were on

the way to an advanced economic stage, the rise in their incomes was accompanied by

shifts towards non-crop sectors, and within cropping sectors, towards commercial crops

and superior cereals.

3.7 Modernization of Agriculture

There are some qualitative changes too in the agricultural scene, such that this

sector is on the road to becoming a modem sector. This is evident from the following

three major changes. Further there is a part of agriculture that is becoming increasingly

science-based and industry-linked, through the use of laboratory-researched high yielding

varieties of seeds, chemical fertilizers, pesticides, sloughing and threshing machines etc.

This has reduced somewhat the uncertainties of Nature to which the traditional

agriculture. In some states agricultural practices have also undergone some changes in

case of some crops and some areas, with intensive cultivation, multiple cropping,

scientific water-management etc there is some improvement also in the knowledge and a

change in the attitudes of the farmers through the spread of demonstration farms etc.

3.8 Increases in Capacity

Another improvement of considerable significance is the additions to the

agricultural capacity for sustained growth. This is evident from the strengthening of the

several growth-promoting factors. Such factor, for instance, is irrigation. The irrigation

potential was at million hectares in 1950 has increased to million hectares (1999-2000).

Further, India is growing fast among the developing countries of the universe in respect

of irrigation facilities. Second factor of much importance is the establishment of and

increase in the facilities for agricultural education and research. Over the years a number

of central institutes, state agricultural universities and a few public, quasi-public and

private institutions have been set up. These have strengthened the capabilities for land-

surveys, vocational testing of research results, development of new high yielding seeds,

agricultural engineering, bio-teleology etc. A facilitative set-up providing strength to

agriculture is the large increase in the number and variety of institutions dealing with

marketing of produce, credit supply, purchase/distribution of inputs, storage etc. All

these changes have added to the muscle and brain power for further agricultural growth.

3.9 Improvement in Agrarian System

Through land reforms the agrarian relations have to an extent changed in favour

of the actual tillers. This change has been along the following lines. The zamindari

system (created by the British with intermediaries between the government and the

cultivators) has been abolished. As a result, more than two crores of cultivators came into

direct contact with the government, ending their exploitation through rack-renting etc. In

27

many cases ownership was conferred on the cultivators after payment of the price of

land. In some states tenancy conditions have improved through fixation of rents, security

of tenure, protection against eviction etc., under the land-ceiling policy, the maximum

land that a family can hold has been fixed. Some of the surplus land over the maximum

has been acquired. And some of the surplus has been distributed among the weak and

poor cultivators to reduce inequalities and to raise the earning-status of the fanners.

Consolidation of small and scattered lands has been achieved to the extent of 51.8

million hectares of land. This has been helpful in reducing the wastages/inefficiencies

associated with small and scattered holdings.

3.10 Improvement in the Conditions of the Poor

There are, again, some benefits that have accrued to the agricultural and rural

poor. Quite many of them have, as a result, crossed the line of poverty'. The benefits

have flowed through several channels. For example, through the supply of cheap and

subsidized material inputs, and confessional credit, many small and marginal fanners

have raised their output, Marketing facilities, government policy of procuring agricultural

products at predetermined prices etc. have been helpful in further raising the incomes of

these cultivators. Fixation of minimum wages has also been a helpful factor in increasing

the income of agricultural labourers. Seasonally unemployed and those under-employed

have benefited from special programmes of rural development like Integrated Rural

Development Programme, Jawahar Rozgar Yojana etc. Further, many small and marginal

farmers have gained from the various schemes of land reforms. For example, in case of

some land-size has increased as under the ceiling policy. Some tenants have become

owners of land under the policy of land to the tiller. In large many cases the tenancy

conditions have improved. For many cultivators the advantage has been in the form of a

compact piece under the policy of consolidation of small and scattered holdings.

3.11 Unsatisfactory Features

While there are some positive developments pulling agriculture up, there are

some unhealthy aspects that continue to keep it down. We mention the major weaknesses

as under.

3.12 Slow and Uneven Growth

The growth in production and productivity has not been much. The growth rates

are not sufficiently high to cope with the rising demands on account of fast growing

population, increase in incomes, and large needs for exports. In the case of certain crops

like pulses, oilseeds, fibres etc. the growth rates have been very small, necessitating large

imports. The agricultural performance is not antiphonally distributed among different

crops. As among different crops, there are imbalances in the growth rates, with certain

crops like wheat showing high growth rates, and crops like maize, jowar etc. suffering

28

from low growth rates. Again, as between food grains and non-food grains, the former

has experienced higher growth rate compared to the latter. There is also a regional imbal-

ance in the spread of growth. The growth has remained confined to certain areas like

Punjab. Haryana, western U.P., which have gone through the Green Revolution. A major

part of the land under cultivation, particularly the eastern region, has not as yet used new

agricultural technologies. The emphasis so far has been largely on agricultural crops,

with little attention/resources devoted to the development of animal husbandry, fisheries,

forestry etc.

3.13 Insufficient Modernization

A continuing big drawback of agriculture is that several of its operations remain

far from modernized. Intact, overall it is an old-style agriculture which dominates the

rural scene. This is evident from the cultivation practices followed in large many areas as

also the inputs used in several crops. As for cultivation-practices, the improvements

effected are very little indeed. For example, the pace of increase in the area sown more

than once has been very tardy. In the long period of over 43 years since 1950-51, only 44

million hectares have been added to the net area sown. Further, in large many areas, and

in a number of crops, old/primitive methods of sloughing, sowing, harvesting etc., are

still in vogue. Again, rain fed areas, constituting about two- thirds of the land under

cultivation, are still without appropriate dry-farming techniques.

No better is the state of affairs in respect of the use of inputs. As for water, only

39 per cent of the gross cropped area (net area sown plus area sown more than once) has

irrigation-facilities. Equally unsatisfactory is the picture in regard to the use of seeds. The

use of HYV (High Yielding Varieties) seeds is far from adequate. Except wheat, where

seeds cover about 93 per cent of its cropped area, there is not much by way of use of

these seeds. In case of the major crops, namely, rice, 23 per cent of its cropped area is

without HYV seeds. In Jowar as much as 21 per cent of its cropped area uses old farm-

seeds. In Bajra 26 per cent of land under it does not use HYV seeds. In all 24 per cent of

cropped area under cereals goes without HYV seeds. Further, considering the need and

the country's potential, there is little by way of researched and applied bio-technologies,

genetic engineering, tissue culture, bio-insecticides etc. Human factor too is still very

weak with little education/training, old unscientific attitudes widespread among many.

3.14 Inadequate Capital

Another weakness of agriculture is the deficiency of capital and slow rise in

capital formation. The capital stock (irrigation, devices for flood control, land

reclamation, prevention of soil erosion, storage, communications etc.) is far less than

needed for realizing the full potential of the country's resources as also for substantially

reducing the vulnerability of agriculture to weather-related shocks. The weakness is

obvious from the dismal fact that the rate of gross capital formation in agriculture has

29

been a modest one. As a result, in real terms, its share in the total gross capital formation

of the country has fallen from about 17 per cent in 1970-71 to around 6 per cent at

present (1998-99). This share has persistently tended to decline in the twenty-first

century also. Unfortunately, there is also a sharp fall in public investment, particularly in

irrigation. This can seriously limit efforts at raising water supply which is a vital

requirement for increasing productivity.

3.15 Unsatisfactory Land Reforms

The performance in the implementation of land reforms is also far from

satisfactory. This is evident from the following. The legislative measures in respect of

improvement in the conditions of tenants, ceiling on land-holdings and distribution of

surplus land, and consolidation of holdings, have not been completed in all the states.

The actual implementation of land reforms has been very small. For example, in the case

of land-ceiling policy so far only 7.2 million acres have been declared surplus, as against

much larger estimates of surplus land. Of the total declared surplus, only 5.6 million

acres have been taken possession of and only 4.4 million acres distributed. Under

Bhoodan movement 4.2 million acres of land has been received, but so far about 1.3

million acres have been distributed. In regard to the consolidation of land, with seven

states yet to pass laws on the subject, much remains to be done. Of the 15 states which

have enacted laws in this regard, the process of consolidation has been completed fully in

only two states and nearly completed in six states.

3.16 Poor Living Conditions

A big weakness of agricultural scene is the low level living of the large many

associated with agriculture. The number of the rural poor, despite decrease in it in the last

few years, continues to be very large, constituting 37 per cent of the rural population. Of

these poor a significant part belongs to tiny fanners, landless agricultural labourers, and

many of those engaged in activities allied to agriculture.

3.17 Conclusion

In India quite a large number in agriculture continue to suffer from seasonal

unemployment and underemployment. Large many suffer because they have small-sized

and poor quality lands and lack sufficient inputs. Unfortunately, these are also the people

who have to support large number per hectare, as compared to the big farmers. Apart

from the low productivity and low incomes and consumption of these people, there are

inadequacies in respect of drinking water, health and education facilities etc. In brief,

there are large many who are not able to meet fully their minimum needs. The objective

of growth with social justice is therefore far from being fully achieved. To sum up the

progress of agriculture, though fair in some respects, is far from satisfactory in key areas.

30

Important Questions

1. Bring out the areas times taken by the governments the improve capital formation

in Indian agriculture.

2. Explain government measures to develop agricultural sector in India.

31

LESSON-4

SUBDIVISION AND FRAGMENTATION OF

AGRICULTURAL HOLDINGS

4.0 Objective

To study causes of subdivision and fragmentation in Indian Agriculture

To find remedies for consolidation of holdings

Contents

4.0 Objective

4.1 Introduction

4.2 Agricultural Holdings

4.3 Optimum Holding

4.4 Economic Holdings

4.5 Farm size in India

4.6 Sub-Division and Fragmentation of Holding in India

4.7 Causes of Sub-division and Fragmentation

4.7.1 Laws of Inheritance

4.7.2. Rapid increase in population

4.7.3 Decline of Indigenous Industries

4.7.4. Land Reform Measure

4.7.5. Rural Indebtedness and Moneylenders

4.8 Evil Effects of Sub-division and Fragmentation

4.8.1 Increased cost of production or expensiveness in Agriculture

4.8.2 Waste of Factors of Production

4.8.3 Agricultural Improvement Impossible

4.8.4. Litigation

4.8.5. Poverty and Indebtedness

4.9 Remedy Consolidation of Holdings

4.10 Productivity in Agriculture

32

4.10.1 Natural Factors

4.10.2 Technological Factors

4.10.3 Institutional Factors

4.10.4 Economic Factors

4.10.5 Social Factors

4.11 Conclusion

4.1 Introduction

The small size of land in agriculture affects the income from agriculture and this

in turn causes backwardness in agriculture leading to poor productivity. In Industry, there

is a certain size for each unit which gives the maximum return to the entrepreneur under

certain conditions. In the same way, farming of certain size gives the maximum return to

the farmer. It is clear that, the size of the farm affects the cost of production. Many

economic surveys in our country have revealed that the average size of agricultural

holdings is very small as compared to other countries like China, Brazil and Russia.

4.2 Agricultural Holdings

Agricultural Holding is as all the land directly cultivated by a single person or

agency, managing and conducting agricultural operations, either by his own labour or

with the assistance of members of his family or of hired employees. Here, we can take

only the operational unit of cultivation and not the total area processed by the cultivator.

In large farms, they did not necessarily imply cultivation on a large scale, nor does a

wider system of ownership necessarily imply small cultivation. Before its abolition, a big

„Zamin‟ in those days was owned by a single individual, the Zamindar, but cultivated by

a number of small peasants. In this case, the zamindari has to be regarded not one big

farm, but as a number of small farms. On the other hand, landed property might be

minutely subdivided, but the cultivator might rent land from a number of owners and

thus operate a large holding. Again, all the land belonging to a holding need not be held

in one compact block. In India, the lands cultivated by a farmer are often scattered all

over the village. But they are to be regarded as single holdings, because all of them are

managed and cultivated by the same person. Again, a holding might consist of distinct

tracts of land held under different tenures.

4.3 Optimum Holding

The Optimum agricultural holding is a holding of optimum size which is neither

too big nor too small, but the right size required to get the maximum income by the

cultivator. For this, the holding ought to be large enough to occupy the reasonable

working time of the farmer and his family when they use the best and most efficient tools

33

and machinery known. When the holdings too large, the farmer loses, because

supervision becomes difficult when it is too small, he loses become it becomes unfit to

practice improved methods of cultivation with modern tools and implements. Hence, the

optimum size will vary from place to place depending on the fertility of the soil, crops

grown, methods of production and technology, availability of labour, proximity to the

market and the marginal ability of farmer.

4.4 Economic Holdings

Economic holdings have a special significance in India. It denotes a holding

which will yield the farmer at least subsistence. Technology and rightly speaking, an

economic holding is one which gives the maximum return to the farmer and enables him

to make use of the best methods of cultivation. But in India such an objective cannot be

realized easily as the farmers are too numerous and the land available is too limited.

Hence the term „ economic holding‟ has been modified to mean in a country like India,

not as the most profitable size, but a size which will give the farmer just enough income

to maintain his family at the subsistence level.

4.5 Farm Size in India

One of the important features in India agriculture is the small size of holdings.

According to Land Revenue commission (Bengal), otherwise called floud commission,

the average holding in 1940 in Bengal was 2.4 acres. Dr. Agarwal‟s estimate in 1945-46

in the villages of Kanpur district was 3.4 acres for right holders, and 2.96 for actual

cultivators. According to the agricultural labour enquiry committee, the average size of

holding of agricultural labour families was only 2.9 acres.

Another important feature is the marked variations in the size of holdings in the

various states on India. According to National Sample survey 17th

round in 1961-62, the

average size of the operational holding ranged from 1.8 acres in Kerala, 3.7 acres in

Tamil Nadu to 10.2 acres in Mysore and 13.7 acres in Rajasthan. The state averages in

other states were: Andhra Pradesh 7.7 acres, in Rajastha. The state average in other states

were: Andhra Pradesh 7.7 acres, Assam 3.8 acres, Orissa 4.9 acres, Bihar 3.8 acres,

U.P.4.4 acres, West Bengal 3.9 acres, Gujarat 11 acres, Maharashtra 11.5 acres and M.P.

9.9 acres. According to the Agricultural Census taken in July 1970 to June 1971 as the

reference year and released in December 1975, there are 7.02 crore operational holdings

in the country spread over an aggregate area of 16.2 crore hectares. The average size of a

holding is 2.30 hectares, out of which the net area under cultivation is 2.06 hectares. A

half of the holdings are less than one hectare, whereas 28 lakh holding are of 10 hectares

above. From these, we can infer that the average size of land holding in India is very

small. This small sized holding is not peculiar to India. Even in foreign countries like

Bulgaria, Belgium, Yugoslavia and Japan the average size of holding is very small. In the

34

foreign countries, the smallness of the size of holding may not be considered as a

problem in achieving higher productivity as they adopt advanced and superior

technology appropriate to the small size of the farms. But is India, the small farmers

could not adopt the appropriate superior technology due to many reasons stated already.

Hence, the small size of holding creates problems of productivity in Indian agriculture.

4.6 Sub-Division and Fragmentation of Holding in India

The uneconomic nature of the holdings in India is the root cause of most of the

other evils in the agricultural sector. When the holding is too small, the income provided

by it is insufficient and the farmer in often forced to borrow at high rates of interest.

Once in debt, the farmer always continues to be in debt and the sub division and

fragmentation of holding make them more and more uneconomic, and that is the root of

rural indebtedness. The defective agricultural marketing system is also due to this, as an

indebted farmer loses his liberty in the marketing of the crop.

Sub-division is the distribution of the land of a common ancestor among his

successors in interest. Thus, sub-division takes place when a landowner dies and the

property is divided among his sons. It also occurs when a land owner sells, or makes a

gift of a part of his land, or when the money lender takes a part of it in lieu of payment of

debt. In our country, the problem is not only that of sub-division of holdings, but worse

than this is the fragmentation of holdings. Fragmentation refers to the way in which the

land owned by an individual is scattered all over the village area in fields separated by

lands possessed by others. Thus, a farmer, holding 10 acres of land, may not have it is

one compact block, but in 15 or 20 different fields in different places in the village.

4.7 Causes of Sub-division and Fragmentation

The causes of sub-division and fragmentation are: (1) laws of inheritance; (2)

rapid increase in population: (3) decline of indigenous industries; (4) land reforms, and

(5) rural indebtedness.

4.7.1 Laws of Inheritance

The Hindu and Muslim laws of inheritance and succession have given free scope

for sub-division of holdings. Fragmentation is the result of interpretation of the law of

inheritance. If a farmer with three isolated fields of one acre each dies leaving three sons,

the latter will take, not one field each, but one-third of each field. The result is that the

three acres of land, originally held as one holding in three fragments, now becomes three

holdings made up of nine fragments. So the laws of inheritance and the interpretation of

the laws have given full scope for sub-division, fragmentation, etc. but strictly speaking,

these laws have not been the main cause of sub-division, but have been in the nature of

instruments which have facilitated sub-division. Prior to British rule, joint cultivation

35

was the general practice. But with the growth of the individualistic spirit, joint cultivation

gave way to sub-division, facilitated by the law.

4.7.2. Rapid increase in Population

The rapid increase in population has increased the number of right holders and

the land per head has diminished. The net cultivated area has not expanded in proportion

to the increase of right holders. This problem could have been solved, as the been the

case in many other countries, by a quick development of industries, so that the additional

population could be absorbed into alternative employments created by economic

development.

4.7.3 Decline of Indigenous Industries

According to Wadia and Merchant, the sub-division and fragmentation increased

due to land hunger created by a growing population, incapable of being absorbed in non-

agricultural operations. Indian villages in those days were self-sufficient and self –

dependent economic units; but the village handicrafts and industries declined, due to the

advent of industrial revolution and the import of machine-made goods. Consequently,

many people in rural parts were thrown out of employment and the pressure on

agricultural land had increased.

4.7.4. Land Reform Measure

Many land reform measures have indirectly helped in increasing the pressure on

land and in creating a large number of cultivators and owners. The abolition of

intermediary tenures and the transfer of surplus land from big owners have created a new

landowning class and also owners created by benami transactions. Moreover, as a result

of ceiling on land holding, and the redistribution of the land to landless labourers and the

voluntary donations for redistribution under the Bhoodan movement, have resulted in

further sub-division and fragmentation of lands.

4.7.5. Rural Indebtedness and Moneylenders

Village moneylenders by their malpractices have contributed to the severity of the

problem of sub-division. The easy borrowing facilities to farmers are only a guise to grab

their land. Many moneylenders acquire landed property only through these deceitful

methods.

4.8 Evil Effects of Sub-division and Fragmentation

The evil effects of sub-division and fragmentation are one of the principal and

fundamental handicaps of Indian agriculture. It makes efficient use of the land virtually

impossible. The disadvantages arising out of sub-division and fragmentation are as

follows.

36

4.8.1 Increased cost of Production or Expensiveness in Agriculture

Owning to sub-division and fragmentation, the size of the holdings becomes too

small and uneconomic, so that the cost of production in each holding becomes very high

when compared to the poor returns the holdings gives. There are several fixed costs to be

incurred by the farmer. As the size of the holdings falls below a certain minimum, such

fixed costs come to bear an increasingly larger proportion to the value of the produce

raised. The variable costs do not vary in exact proportion and it may be worthwhile

incurring such costs when the holdings are too small. The cultivator has to maintain a

pair of bullocks whose cost of maintenance does not diminish with small holdings.

4.8.2 Waste of Factors of Production

Cultivation on tiny plots of land leads to wastage of land, labour and time.

The cultivator has to go to the fields that are situated distant places, particularly at the

time of sowing, weeding, manuring and harvesting. According to Mr. Misra‟s enquiry in

Uttar Pradesh, the expenditure on cultivation increases by 5.3 per cent for every 5000

meters of distance for manual labour and ploughing, by 5.3 per cent for every 500 meters

of distance for manual labour and ploughing, by 20 per cent to 35 per cent for transport

of manure and by 15 per cent to 32 per cent for transport of crops. It has been estimated

that in Punjab 10 per cent land is wasted in creating bunds around the fragmented patches

of land and 6 per cent of land is wasted as the plots are too tiny to be cultivated. Further,

when fragments of land are far apart from each other, it is out of question for the

cultivator to stay on his holding. Thus the personal supervision, which is so essential for

profitable cultivation, is not possible. The existing livestock may not be fully used,

because of the fragmentation of land. Hence Dr. Mann observed that fragmentation

destroys enterprise, results in an enormous wastage of labour, leads to a very large loss of

land owning to boundaries, and makes it impossible to cultivate holdings as intensively

as would otherwise be possible.

4.8.3 Agricultural Improvement Impossible

Tiny holdings do not offer scope for agricultural improvement or mechanization

of agriculture. Field cannot be protected from stray cattle and proper drainage systems

cannot be maintained to prevent water-logging. Irrigation becomes almost impossible,

because water can only be taken through channels which have to cross other people‟s

fields. This may cause friction among the people. Sinking wells within the field of the

farmer is beyond imagination.

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4.8.4. Litigation

Sub-division and fragmentation give rise to quarrels, misunderstandings over

matters of the boundaries, fencing, cutting channels and bringing water through the fields

of others, etc. These quarrels lead to costly, never ending litigations.

4.8.5. Poverty and Indebtedness

The sub-division and fragmentation are at the root of all defects in Indian

agriculture. These tiny holdings have impoverished the cultivators and made them

perpetually indebted and this indebtedness and fragmentation are a vicious circle in rural

economy, one being the cause, and the other being the effect.

4.9 Remedy Consolidation of Holdings

Consolidation of holdings is the only effective remedy to the evils of sub-division

and fragmentation. There are two methods of consolidation of holdings; (i) by voluntary

co-operation of the cultivator on the initiative of the persons belonging to that locality;

and (ii) by compulsory methods adopted by the Government. Voluntary methods will be

very slow and in most cases it may not succeed. It compulsion is resorted to, the

cultivators may resent and refuse to co-operate with the administration.

However, legislation for consolidation of holdings and prevention of

fragmentation of land has been enacted in many states except Andhra Pradesh, Kerala,

Orissa and Tamil Nadu.

The work of consolidation is best with practical and psychological difficulties like (a)

lack of proper records of ownership (b) Peasant‟s sentimental attachment to the land, (c)

lack of technical personnel to do the work of consolidation,(d) cost of consolidation, etc.

Any good work of consolidation may be nullified if steps are not taken to prevent

fragmentation after consolidation.

4.10 Productivity in Agriculture

The basic malady of Indian agriculture is its amazingly low productivity.

Agricultural productivity can be viewed from two angles; land productivity or

productivity per acre of land and labour productivity or what a labour can produce on

land by his labour. In India, both land productivity and labour productivity are low.

Not only is the productivity low and poor in India when compared to foreign

countries, but also productivity had been declining from olden days. A survey carried out

by the F.A.O. points out that the rice yields per acre were 50 per cent higher during the

Mughal period than at present. For some time past, a stationary state had been reached in

India wherefrom no improvement was noticed. In Tamil Nadu, at the close of the 18th

century and in the early years of the 19th

century, the paddy yields were 30 to 50 per cent

38

higher than they are now according to reports of British Collectors of those days, Mr.

Place of Chengalpattu district and Mr. Harris of Thanjavur district. The recorded that

yields ranged from 2,400 to 2,800 Ibs. Per acre, and in Coimbatore, according to Mr.

Hogdson, 5,000Ibs per acre for the first crop and 3,600 Ibs per acre for the second crop.

The process of decline in productivity in agriculture continued in the post-war period

also. The first five year plan estimated that, as compared to the pre- 1939 period, the

average yield of cereal per acre during the period 1949-47 to 1949-50 had declined from

619Ibs to 565Ibs. Studies period 1946-47 to 1949-50 had declined from 619 Ibs to 565

Ibs. Studies conducted by I.C.A.R. and the conclusions of the Grow More Food Enquiry

Committee revealed a similar position.

The productivity trends during the planning period indicate that the rise in

productivity is neither continuous nor very large. Over the 15 years period from 1961-62

onwards the productivity increase was around 29 percentage points and this too had

taken place mainly after 1966-67 due to the introduction of new technology in agriculture

with high-yielding varieties. From 1970 onwards there was no significant improvement

in productivity trends. The progress made during the plan period in productivity cannot

be considered very satisfactory when compared to heavy investments made to increase

agricultural productivity. Apart from this, labour productivity per engaged worker in

agriculture is also very low in India. It is roughly one-third of the average productivity

per engaged worker in commercial establishments. The problem of agricultural

productivity in India is the outcome of cumulative and complex problems affecting

various activities in agriculture and as such poor productivity cannot be attributed to one

cause alone. The factors that retard the growth of agricultural production can be analysed

under five broad heads, viz., natural, technological, institutional, economic and social

factors.

4.10.1 Natural Factors

Agriculture in India is a said to be a gamble on the monsoon. It is dominated

mainly by nature, especially by rainfall. Nature plays have on agricultural production

either by insufficient rain, causing drought conditions, or by unwanted rain, floods,

cyclones, etc. causing widespread damage and destruction. Farm operations and

production cannot be quickly be as expected. In farming business, Nature is the master

who proposes or disposes, while the peasant is only a manager. In the absence of a well

developed irrigational system for supply of water or control of floods, the peasant will be

seriously handicapped in his effort to step up farm production.

4.10.2 Technological Factors

The soil in India is very exhausted ass cultivation is being carried in our country

for thousands of years right from vedic times. The land has lost all its fertility or

productive capacity from vedic times. The land has lost all its fertility or productive

39

capacity and to revitalize fertility, adequate does of fertilizers and manures have to be

applied. The Indian farmer is tradition bound and does not adopt advanced techniques of

production. Improved implements like steel ploughs, seed drills, water lifts, small pump

sets, etc., are used only on a limited scale. The Indian farmer selects his seeds

indiscriminately and consequently, the yield also becomes poor. Lack of irrigational

facilities, out – dated implements, inferior seeds, inadequate fertilizers, lack of plant

protection measures and poor and unscientific method of cultivation contribute to low

yield in agriculture.

4.10.3 Institutional Factors

The average size of holding in India is not only very small but fragmented in

many places. Due to the law of inheritance, the availability of cultivable land is

decreasing in the face of rising population. This leads to uneconomic holding in

agriculture, inability to adopt scientific methods of cultivation, loss of time and labour,

difficulty in the utilization of irrigational facilities, quarrels, litigations, etc., which will

not help in augmenting agricultural production. The tenurial system in India has many

defects and it dose not offer incentives to the cultivating farmer. Though Zamindari has

been abolished and many tenancy legislations enacted, the evils of absentee- landlordism,

insecurity of tenure, rack renting, etc., are found in many cases. Under these conditions,

the tiller of the soil cannot increase agricultural productivity.

4.10.4 Economic Factors

The Indian farmer is a hopelessly poor man who is always in debt. Lack of

financial facilities stand in the way of improving his agricultural technique. An average

cultivator is at the mercy of the money-lender for finance, not only for cultivation but

also for transporting and marketing his crops. Absence of productive incentive, lack of

marketing and godown facilities and the indebtedness of the farmer have led to the fall

in productivity.

4.10.5 Social Factors

There is excessive pressure of population on land leading to uneconomic activities

and poor production in agriculture. Besides, the farmers arc illiterate and ignorant people

will conservative and superstitious outlook. The rural atmosphere is surcharged with

backwardness, fatalism and stagnation, and agriculture is carried more as a mode of

living than a business. The Indian village presents a dismal picture of discontent,

bitterness, social tensions, group conflicts, rivalry, etc., which are important social

factors impeding agricultural production.

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4.11 Conclusion

In recent years, more so during Plan periods, there has been some improvement

in agriculture. But the conditions have not changed much. The twin problems, viz.,

instability and low productivity continue to be the main drawbacks in agriculture. The

causes for poor productivity suggest the remedies by themselves.

Important Questions

1. Explain the term subdivision and fragmation?

2. Explain causes for subdivision and fragmation?

3. What do your mean by economic holding?

4. Bring the factors determining agricultural production and productivity in india.

41

LESSON-5

LAND REFORMS IN INDIA

5.0 Objective

To under stand the concept of land reform.

To study the different kinds of intermediary system in Indian agriculture

To study various reasons for slow progress of land reforms in India.

Contents

5.0 Objective

5.1 Introduction

5.2 Land Tenure

5.3 Rayatwari system

5.4 Mahalwari system

5.5 Zamindari system

5.6 The Need for Land Reforms

5.7 Arguments for land reform

5.8 Arguments against land reform

5.9 Objective of Land Reforms

5.10 Economic efficiency

5.11 Social justice

5.12 Progress of Land Reform Measures

5.13 Abolition of zamindari system

5.14 Reasons for abolition

5.15 Economic and social effect

5.16 Heavy burden of compensation

5.17 Increase in the number of feudal landlords

5.18 Eviction on a large scale

5.19 Faulty records

5.20 Tenancy reforms

5.21 Fixation of rents

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5.22 Security of Tenants

5.23 Right of Ownership

5.24 Evaluation of tenancy reforms

5.25 Suggestions for improvement

5.26 Ceiling on land holdings

5.26.1 Unit of application

5.26.2 Level of ceiling or maximum limit

5.26.3 Exemptions

5.26.4 Recommendations of the chief minister's conference

5.26.5 Consolidation of holding

5.27 Impact of Land Reforms

5.27.1 Changing over to market oriented farming

5.27.2 End of feudalism

5.27.3 Leasing in of land by big owners

5.27.4 Emergence of modern entrepreneurs

5.27.5 Reduction of poverty

5.27.6 Use of institutional credit

5.28 Review of Land Reform Measures

5.29 Reasons for slow Progress of Land Reforms

5.29.1 Lack of political will

5.29.2 Absence of pressure from below

5.29.3 Negative attitude of the bureaucracy

5.29.4 Legal hurdles

5.29.5 Absence of correct and up-to-date land records

5.29.6 Lack of financial support

5.29.7 Land reforms have been treated as an administrative issue

5.30 Suggestions for Improvement

5.30.1 Breaking of landlord-tenant nexus

5.30.2 Restricted tenancy should be allowed

5.30.3 Effective implementation of ceiling laws

5.30.4 Control on land held by trusts and institutions

43

5.30.5 Distribution of surplus land

5.30.6 Simplification of legal procedure and administrative machinery

5.30.7 Voluntary surrenders should not be accepted

5.30.8 Higher rent should be curbed

5.30.9 Preparation of up-to-date land records

5.30.10 Ensure security of tenure

5.31. Conclusion

5.1 Introduction

A huge disparity in land holding pattern continues to exist in the country even

after four decades of independence. A series of land reform laws have been passed by the

State and Central Governments. Though the laws are very rosy and catchy but their

implementation is hope- less. However, people working with rural poor masses of India

must have an elementary knowledge about the existing land reform measures, operating

in 'the country. The stigma of Indian Agriculture is the highly defective structure of its

land holdings. The measures of land reforms aim at correcting it. The term 'land reforms'

involves procurement and redistribution of large holdings of agricultural land among the

small farmers and landless agricultural labourers. It is an instrument to bring about

improvements in the institutional framework of land. The responsibility of land reforms

is owned by the government with a view of benefiting those who either have petty

holdings or have no land at all. As big land owners are quite unlikely to share their

holdings with their landless counterparts, intervention by the government using force of

law/legislation is necessary to secure social justice for the masses.

5.2 Land Tenure

Land tenure may be defined as the system in which land is held by an individual

or the actual tiller of the land; it determines his rights and responsibilities in connection

with his holding. Obviously, land tenure system refers to law/rules and regulations which

confer ownership rights upon an individual or actual tiller of the soil. It determines the

status of the actual tiller of the land and his relations with the state. If actual tiller is not

the owner of the land it determines the relation between the owner and the actual tiller of

the land. It points out under what circumstances, the actual owner of the land may lose

his ownership right. It specifies rent to be realized from the tiller, its time and methods.

It specifies the conditions under which the actual tiller can sell or transfer his holding. It

specifies the conditions, whether a cultivator can mort- gage his land or not. There were a

large number of land tenure systems prevalent in India in pre-independence period. But

the following three were more prevalent in different parts of the country.

44

5.3 Rayatwari System

Under this system, every registered holder is recognized as its owner. The owner

cultivator or peasant proprietor is responsible directly to the government for the payment

of land revenues and other dues. There is no intermediary between the government and

the cultivator. This is perhaps the best system of land tenure. The peasant proprietor does

not fear ejection by the government so long as he pays the land revenue. He can make

permanent investments in his land as he is sure to reap its benefits. Thus, this system can

ensure an increase in agricultural productivity.

5.4 Mahalwari System

Under this system, land is held (owned) jointly by a collective body of village.

This body collects land revenues from the owners or cultivator peasants and is

responsible to the government. This system is found in some parts of U.P., Punjab and

Haryana. This system facilitates cooperative farming to get maximum yield from land.

The small holdings of peasant cultivators can be combined for this purpose. The main

drawback with this system is that it encourages absentee landlordism.

5.5 Zamindari System

In Zamindari system, there is a separation of ownership of land from its

cultivators. Under this system, one person known as zamindar owns a village and is

responsible for the payment of land revenues to the government. This system existed in

West Bengal, some parts of U.P., Maharashtra and Tamil Nadu. Now this system has

been abolished.

5.6 The Need for Land Reforms

As discussed earlier, the defects existing with Indian agrarian structure pointed

out by Planning Commission, highlighted the need for land reforms. The existing system

during the beginning of Planned Growth, allowed the landlord and intermediaries to

grow richer and they continued to flourish at the cost of the actual tillers. The cultivator

tenants had to live a very tough life. Tenant got little incentive to increase his output

since a large share went to the landowner. Very small margin was left for the actual

cultivator and this amount was quite insufficient to provide for a capital investment on

the land. The landlords grew richer, the intermediaries continued to flourish, the state

was deprived of its share of legitimate increase in revenue and the cultivator tenants were

in hand to mouth existence.

In order to remove the defects with existing agrarian structure, there was need of

institutional changes in holdings. A high powered committee in 1948 with Nehruji as its

Chairman recommended that “all intermediaries between the tiller and the state should be

eliminated and all middlemen should be replaced by non-profit making agencies like

45

cooperatives. The maximum size of holdings should be fixed and the surplus land should

be acquired and placed at the disposal of the village cooperatives. Small holdings should

be consolidated and steps should be taken to prevent further fragmentation".

5.7 Arguments for Land Reform

Land reforms need not be as dramatic in scale as Zimbabwe in African continent.

Today many arguments in support of land reform focus on its potential social and

economic benefits, particularly in developing countries such as India, China, Indonesia

etc., that may emerge from reforms focused on greater land formalization. Such benefits

may include eradicating food insecurity and alleviating rural poverty.

Arguments in support of such reforms gained particular momentum after the

publication of "The Mystery of Capital" by Peruvian economist in 2000. The poor, he

argues, are often unable to secure formal property rights, such as land titles, to the land

on which they live or farm because of poor governance, corruption and/or overly

complex bureaucracies. Without land titles or other formal documentation of their land

assets, they are less able to access formal credit. Political and legal reforms within

countries, according to De Soto, will help to include the poor in formal legal and

economic systems, increase the poor's ability to access credit and contribute to economic

growth and poverty reduction.

Many international development organizations and bilateral and multilateral

donors, such as the World Bank, have embraced de Soto's ideas, or similar ideas, about

the benefits of greater formalized land rights. This has translated into a number of

development programs that work with governments and civil society organizations to

initiate and implement land reforms. Evidence to support the economic and pro-poor

benefits of increased formalized land rights are, however, still inconclusive according to

some critics.

Other arguments in support of land reform point to the need to alleviate

conflicting land laws, particularly in former colonies, where formal and informal land

systems may exist in tension with each other. Such conflicts can make marginalized

groups vulnerable to further exploitation. For example, in many countries in Africa with

conflicting land laws, AIDS stigmatization has led to an increasing number of AIDS

widows being kicked off marital land by in-laws. While the woman may have both

customary and statutory rights to the land, confusion over which set of laws has primacy,

or even a lack of knowledge of relevant laws, leave many AIDS widows at a significant

disadvantage. Also, conflicting formal and informal land laws can also clog a country's

legal system, making it prone to corruption.

Additional arguments for land reform focus on the potential environmental

benefits of reform. For example, if reform leads to greater security of land ownership,

46

through either formal or informal means, then those that use the land will be better

stewards of it.

5.8 Arguments against Land Reform

Many of the arguments in support of land reform speak to its potentially positive

social and economic outcomes. Yet, as mentioned previously, land reform is an intensely

political process. Thus, many of those opposed to land reform are nervous as to the

underlying motivations of those initiating the reform. For example, some may fear that

they will disadvantaged or victimized as a result of the reforms. Others may fear that they

will lose out in the economic and political power struggles that underlie many land

reforms.

Other groups and individuals express concerns about land reforms focused on

formalization of property rights. While the economic and social benefits of formalized

land rights are often touted, some research suggests that such reforms are either

ineffective or may cause further hardship or conflict. Additional arguments against land

reform focus on concerns over equity issues and potential of land, particularly in regards

to reforms focused on greater land formalization. If improperly or inadequately

implemented, critics worry that such reforms may further disadvantage marginalization

groups such as indigenous communities or women. These concerns also lead to questions

about the institutional capacity of governments to implement land reforms as they are

designed. Even if a country does have this capacity, critics worry that corruption and

patrimonalism will lead to further.

In looking at more radical reforms, such as large-scale land redistribution,

arguments against reform include concerns that redistributed land will not be used

productively and that owners of expropriated land will not be compensated adequately or

compensated at all. Zimbabwe, again, is a commonly cited example of the perils of such

large-scale reforms, whereby land redistribution contributed to economic decline and

increased food insecurity in the country.

5.9 Objective of Land Reforms

The basic objective of land reforms in India has been the creation of a system of

peasant proprietorship. 'Land to the tiller' has been the motto. Through the redistribution

of land by applying ceiling on land holdings, the idea has been to build up a vigorous

independent peasantry consisting of small farmers and to help these farmers class with

extension of credit and distribution facilities, largely through a network of cooperative

service organization.The objectives of land reforms policy were set out by the planners as

"the removal of such institutional and motivational impediments to the modernization of

agriculture as were innate in the agrarian structure inherited from the past and the

47

reduction of gross inequalities in the agrarian economy and rural society which stemmed

from unequal rights in land".

The Planning Commission gave two basic objectives of land reforms, namely.

5.10 Economic Efficiency

The agrarian reforms should help in removing all obstacles to achieve high

agricultural productivity. They should help in creating conditions for evolving as speedy

as possible, an agricultural economy with high level of efficiency.

5.11 Social Justice

The agrarian reforms should help to eliminate all elements of exploitation and

ensure social justice within the agrarian system to provide security for the tiller of the

soil and assure equality of status and opportunity to all the sections of the rural

population. In order to achieve these objectives, the following policy measures were

envisaged:

Abolition of the prevalent intermediary system between the state and the actual

tillers;

Tenancy reforms such as conferment of ownership rights on the cultivating

tenants in the land held under their possession;

Imposition of a ceiling on agricultural land holdings as a measure contributing to

the modernization of agriculture and to eliminate parasitic absentee landlordism;

Rationalization of the record of rights in land so as to make the rights of tenants,

share croppers and other categories of insecure landlords;

Consolidation of holdings with a view to making easier the application of modern

techniques of agriculture; and Development of co-operative farming and co-

operative village management.

5.12 Progress of Land Reform Measures

The land tenure systems was introduced by the British in India, regardless of the

different juridical forms they assumed in different regions, were only variants of feudal

and semi-feudal land ownership. The British administrators altered these systems in a

manner as to facilitate the extraction of more rents from the cultivators by making the

landlord, who was earlier a rent collector, the absolute owner of land and by depriving

the actual cultivators of all their traditional rights. This was done in .forthright manner

under the zamindari system and in yield and indirect manner in the Raiyatwari system.

Although juridically no landlord or intermediaries were created and the settlements were

made directly with the raiyat, yet the fact was that, due to prevailing inequalities in land

holdings, the bigger raiyat landlords came to dominate the agrarian set up in many

48

respects and became the counter- parts of the landlords in zamindari areas. Like the

latter, they indulged in many semi-feudal forms of exploitation such as share cropping,

rack renting, ejectments, forced labour, usury, etc.

Under British rule, land reforms had a very limited scope and content. These land

reforms were motivated not by consideration of improving production, nor did they have

any sense of social justice. They were meant to safeguard British political influence in

the rural areas and save the rural market from being completely pauperized.Thus, the

structure of agrarian society evolved under British rule, created a socio-economic set up

in which parasitism flourished, land concentration in the hands of a few rural rich

continued to grow, and landlessness and land hunger of the peasants mounted at an over

increasing pace. Evictions and insecurity of tenancy and rack- renting became a general

phenomenon and the cultivators were ground down by a colossal burden of indebtedness.

Land reforms have been on the agenda of rural reconstruction since

independence. Number of land reform laws has been made by state and central

government after independence. The reforms have been undertaken along the following

lines:

abolition of zamindars and other intermediaries (jagirdars, inamdars, malgujars,

etc) between the state and the cultivator;

tenancy reforms and the reconstruction of the land ownership system;

fixation of ceiling on holdings and distribution of surplus land among the

landless;

reorganization of agriculture through consolidation of holding and prevention of

further fragmentation; and

development of co-operative farming and co-operative village management

systems.

5.13 Abolition of Zamindari System

Intermediary tenures like zamindaris, jagirs, inams, etc. which prevailed over

nearly 40 percent of the cultivated land have been abolished. These intermediaries were

responsible for the payment of land revenues to the government. The zamindars and

other intermediaries were merely rent receivers and were not bothered about the

improvements in land. They extorted high rents and exploited the poor tenants.

5.14 Reasons for Abolition

The general compulsion underlying the abolition of the intermediaries was the

concentration of land ownership in the hands of a parasitic class who played no positive

role in production while the vast mass of small peasants, who were the actual cultivators,

were divorced from the ownership of land. This discrepancy became the root cause of the

49

state of chronic crises in which the Indian agricultural economy was enmeshed for

several decades before the attainment of independence. It remained a completely stagnant

economy. The rate of growth was less than half per cent. It was not expected that an

utterly weak and unstable agriculture of this nature would meet the growing demands of

food and raw material of a new developing independent nation's economy. Thus the

abolition of feudal and semi-feudal vested interests became an essential step for

facilitating the growth of productive forces in the country. Besides, the intermediary

system was subject to high rent and rack-renting, share-cropping, exploitation and

demoralization of the actual tiller of the soil. Thus, immediately after independence a

strong voice was raised against the vested interests in land. As a result, top priority was

given to the abolition of zamindari system or the intermediary system as a whole.

Accordingly, every state enacted its own legislations for the abolition of intermediary

interests. Legislative measures for the abolition of intermediaries were initiated soon

after the independence, starting with Uttar Pradesh and being followed up in other states.

The whole process of legal enactments on this issue was completed in the country within

a decade, i.e. from 1950 to 1960. Since land reform was a state subject, actual enactments

abolishing intermediaries were marked by certain variations from state to state though the

salient features of most of those enactments were common.

5.15 Economic and Social Effect

Though the abolition of intermediaries was associated with many advantages, it

had the following economic and social undesired consequences.

5.16 Heavy Burden of Compensation

The compensation to be paid to the intermediaries amounted to Rs 670 crores as

compared to additional land revenues of only Rs 29.52 crores. This was a heavy burden

on state governments. The compensation received by the landlords was a waste of capital

resources by the state governments. This amount was not invested in agriculture but in

urban property or was spent in buying consumer durables.

5.17 Increase in the Number of Feudal Landlords

The acts abolishing intermediaries did not divest the feudal landlords of their

holdings. This is because owners were allowed to retain as much land as they themselves

can cultivate. Big land owners started cultivating lands by employing hired labour in any

form. Thus, the "feudal landlord" was permitted or rather encouraged to shift! their

position from rent receivers to self cultivators. It also encouraged "absentee landlordism"

in which many intermediaries and non-cultivators of soil became owners of land. They

retained as much areas as they could show under their personal cultivation. Before the

implementation of the act, the zamindars got the records manipulated into their favour in

connivance with the local bureaucrats.

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5.18 Eviction on a Large Scale

Since the intermediaries wanted to become owners of land under the garb of self-

cultivators, they evicted tenant cultivators before the implementation of the legislation.

The poor evicted tenants did not approach the court or the government because of

poverty, fear and lack of organization.

5.19 Faulty Records

The revenue records were faulty because of which many cultivators could not get

the benefit under the legislation of abolition of intermediaries.

5.20 Tenancy Reforms

The first phase of land reforms (1948-55) was mainly concerned with the

abolition of intermediaries. The tenancy reform which is the integral part of land reform

policy favored neither wholesale removal of landlordism nor the wholesale abolition of

tenant cultivators. Hence, the middle course was adopted. Thus certain amendments to

the existing tenancy laws were carried out along with the legislations for the abolition of

intermediaries. This extended the scope of protection to the tenants of intermediaries

particularly in areas of statutory landlord- dism. But the owners were allowed to resume

land for their personal cultivation. This led to the mass eviction of tenants, sub-tenants

and share-croppers through various legal and extra-legal actions. In fact, a big drive to

clear land of tenant occupants was started by landlords in order to obtain maximum

areas. Innumerable evictions were effected III the process of resumption of land by

landowners. But such evictions could not take place in U.P. and Union Territory of

Delhi. In fact, U.P. has the credit of having the best land reforms in India. To counteract

this, the law makers in most of the states tried to enact or amend tenancy laws in the

following decade (1955-65) and friends plug certain glaring loopholes in the existing

laws. The major aspects incorporated in tenancy legislation in different states to protect

the tenants can be identified as follows.

5.21 Fixation of Rents

Before the initiation of land reform measures the tenants were required to pay one

half of their produce or more as rent to the landlords. During the first plan period, it was

suggested that the rent should not exceed 1/4th or 1/5 of the produce in any case. During

the second and third plans also this suggestion was repeated and it was suggested that the

rent should be made payable in cash. Legislation along these lines has been enacted in all

the states. However; different states have prescribed different rates of rents. For instance

in Gujarat and Maharashtra the maximum rent stands at one-sixth of the produce. In

Assam, Manipur and Tripura maxi: mum rents vary between 1/4 to 1/5th of the gross

produce. In Orissa and Bihar, 1/4th of the gross produce has been fixed as rent. In

51

Rajasthan, fair rent is fixed at 1/6th of the gross produce but in case of cash rents, at

twice the ' land revenue assessment.

5.22 Security of Tenants

It was emphasized in the first, second and third five year plans that the tenants

should be accorded permanent rights in the lands leased in by them subject to a limited

right of resumption to be granted to land-owners. In accordance with this legislation

providing for security of tenure has been enacted in all states. This legislation has three

aims:

The ejectment of tenant should not take place except in accordance with the

provision of law;-the land may be resumed by the owner only for personal

cultivation; and

In the event of resumption, the tenant is to be assured of a minimum tenanted area

in his possession.

The legislation provided that the ejectment of tenant can take place only through

order of a revenue court. The grounds on which ejectment may be allowed include: (a)

non-payment of rent, (b) performance of an act which is destructive or permanently

injurious to land, (c) sub- letting the land, and (d) resumption of land for personal

cultivation by the landlord.

Legislations have been passed for granting security of tenure in different states on

the following patterns.

All tenants in possession of cultivated land, have been given full security of

tenure. The land owners have no right to resume land for personal cultivation as

in V.P. and Delhi.

In Assam, Maharashtra, Gujarat, Punjab, Rajasthan and Himachal Pradesh land

owners are permitted to resume a limited area for personal cultivation subject to

the condition that a minimum area or portion of the holding is left with the

tenants.

In West Bengal and Jammu & Kashmir, a limit has been placed on the extent of

land which a land owner may resume. But the tenant is not entitled to retain a

minimum area or portion of this holding in all cases.

5.23 Right of Ownership

Regulation of rents and security of tenure are treated as first stage in the tenancy

reforms. The ultimate goal is to confer rights of ownership on as many tenants as

possible and bring them in direct contact with the state. Legislations passed along these

lines provide for bringing tenants of non-resumable lands into direct relationship with the

state in the following three ways.

52

By declaring tenants as owners; the tenants were required to pay compensation to

owners in suitable installments;

Through the acquisition of right of ownership by the state on payment of

compensation and transfer of ownership to tenants; and

By protecting the interests of sub-tenants under the tenancy laws and bringing

them into direct relation- ship with the state.

The impact of these measures can be seen from the pattern of holding that has

now emerged in the country. Agricultural census report pointed out that out of the 70

million holdings in the country 64 million or 92 percent holdings are wholly owned or

self-operated, 3 million holdings are partly owned and partly rented and another 3 million

holdings are wholly leased accounting for 4 percent each. Out of 162 million hectares

under the holdings, 148 million hectares (91 percent) are wholly owned and self

operated; 10 million hectares (6 percent) are partly owned and partly rented and

the balance 4 million (3 percent) hectares are wholly leased. It is now obvious that the

most of the holdings are now under self-cultivation and the evil of share-cropping has

been reduced to a great extent. It is because of high re- turns in self-cultivation and the

owner cultivator does not find it profitable to lease out land on share cropping. In view of

increasing pressure of population on land and unemployment the leasing out of land is

expected to be a rare phenomenon in future. The practice of leasing out of land is

adopted by those cultivators' who do not possess required amount of labour and capitals.

Otherwise, in view of high returns from land, leasing out and share-cropping are

considered unprofitable by owner cultivators.

5.24 Evaluation of Tenancy Reforms

As a result of tenancy legislations in many states the tenants and sub-tenants have

been brought into direct relationship with the state. But the progress was very slow in

some states due to the following reasons.

The legislation has not been able to meet the objects laid down by the Planning

Commission. The fixation of statutory rent was very high in some states.

The term personal cultivation was defined in a loose manner. Because of this, the

lands ostensibly resumed by the land-lords on the pretext of personal cultivation

are cultivated through crop -sharing arrangements where the sharers are treated as

labourers.

The definition of the term 'tenant' excluded the share croppers who form a vast

majority of the tenant cultivators. Thus share croppers did not get any benefit.

The non-availability of correct and up-to-date land. Records has not allowed to

carry out the tenancy reforms properly.

53

The tenants can be evicted from their holdings on many grounds. This has been

termed as a continuing hang over of the feudal system.

5.25 Suggestions for Improvement

The following suggestions can be considered useful in achieving the aims of

tenancy reforms.

1. The resumption of land by the owner should be legal in cases where the owner

cultivates the land himself.

2. The ex-landlords who have retained excess holdings under the pretext of personal

cultivation should be brought under a ceiling limit.

3. Correct land records should be compiled and maintained so as to facilitate effective

application of tenancy land reforms.

4. There should be complete ban on letting and subletting of agricultural lands.

Exception should be allowed in cases where the owner is a widow, minor or

handicapped. The real purpose of land reforms can be served only if the cultivators

get financial support from the financial institutions for the permanent improvement

of their holdings.

5.26 Ceiling on Land Holdings

Ceiling on land holdings refers to the fixation of maximum size of a holding that

an individual cultivator or a household may possess. Beyond this maximum limit, all

land belonging to the landlords is taken away by the government to be redistributed

among the landless labourers. Thus the imposition of ceiling on agricultural holdings is

mainly a redistribution measure. The idea basically is to ration the land in such a way

that, above a certain level, the surplus land is taken away from the pre- sent holders and

is distributed to the landless or to the small farmers. This will reduce the wide disparities

of income and wealth found in the agrarian structure. The ceiling question gave rise to

more debate and arguments than any other reform issue. Legislations for ceiling on

existing holding and future acquisition were enacted in most of the states during the

second plan period.

The ceiling on agricultural holdings was intended to:

Meet the hunger of the landless;

Reduce the glaring inequalities in land ownership so as to pave the way for

development of co-operative rural economy; and

Increase self employment in owned land.

The ceiling laws were enacted and enforced actually in two phases: the earlier

phase covering the period from 1960-1972, before the national guidelines were laid

54

down, and the later since 1972 after the adoption of guidelines. However, provisions

related to ceiling laws can be analyzed under the following heads.

5.26.1 Unit of Application

In the beginning some states took 'individual' as the unit of ceiling, while some

others regarded 'family' as the unit. This led to widespread irregularities and big land

owners started transferring their land into pieces to their fake kiths and kins and managed

to keep unduly large holdings. However, since 1972, after suitable corrections, the unit of

land ceiling universally adopted by all the states is family having a father, a mother and

children. Parents having more than 5 children can be given a little exemption but in no

way the amount of exemption will exceed twice the prescribed limits.

5.26.2 Level of Ceiling or Maximum Limit

Under the old acts (prior to 1972) there were wide variations in the fixation of

ceiling on land holdings since ceiling was a state subject and each state enacted its own

ceiling laws. For instance the limit of ceiling prior to 1972 in Andhra Pradesh varied

from 27 to 234 acres, in Assam it was fixed at 50 acres, in Gujarat it varied between 10

to 132 acres, Haryana 30-60 standard acres, Kerala 15 acres, Madya Pradesh 25 acres,

Orissa 20-80 acres, Punjab 30-40, acres, Uttra Pradesh 40-80 acres, Tamil Nadu 30 acres

to 120 ordinary acres, and West Bengal 25 acres. Thus, there was a large gap between

minimum and maximum and from state to state permissible limits of land holdings. As

such, much land could not be achieved for redistribution. Since 1972 these limits have

been rationalized. Thus under the new policy, the upper limit of ceiling has been lowered

and the range between the lowest and the highest has been considerably narrowed. For

irrigated land where at least two crops are raised, the ceiling, depending on the

productivity of land and other factors, has been fixed at 10-18 acres. In places where

irrigation is done by private sources, for purpose of fixation of ceiling, 1.25 acre is

deemed to be equivalent to one acre of land irrigated by public sources. However, in both

cases, the upper, limit does not exceed 18 acres. In areas where there is a provision for

irrigation for the raising of only one crop, the upper limit of ceiling has been fixed at 27

acres. For, remaining types of land which are not so productive, the upper limit, is 54

acres.

5.26.3 Exemptions

There was a long list of other kinds of lands which f were exempted from the

purview of ceiling legislation before 1972. For instance, tea, coffee, and rubber

plantations, orchards, specialized farms engaged in cattle breeding, dairying, wood

raising etc., sugarcane farms, factories and efficiently managed farms which consist of

compact blocks on which heavy investment or permanent structural improvements have

been made were exempted. In those parts where cultivable wastes are available and

55

sufficient numbers of cultivators are not forthcoming, ceiling may not be imposed or may

be placed at a higher level. The land ceiling measures have been disappointing in the

country except in the states of Jammu and Kashmir and West Bengal. By the end of 1970

about 11 lakh hectares of land could really be taken over and again only a half of the

taken- over land could actually be distributed among the landless labourers. In some

states such as Bihar, Karnataka, Orissa and Rajasthan no land was declared surplus. The

situation did not improve even after 1970.

5.26.4 Recommendations of the Chief Minister's Conference

In 1972, a new national policy on land ceiling was evolved on the

recommendations of the chief minister's conference. The following guidelines were laid

down.

Taking into account the fertility of soil and other conditions, the best category of

land in the state with assured irrigation and capable of yielding atleast two crops a

year the ceiling should be fixed 10-18 acres.

In the case of land with assured irrigation for only one crop in a year, ceiling shall

not exceed 27 acres.

In case of owners with different types of holdings, after converting the better

categories of land into lowest categories, the ceiling should not exceed 54 acres.

The unit of application should be a family of 5 members. Where the members of

the family exceed additional land may be allowed for each member in excess of 5

in such a manner that the total area admissible to the family does not exceed

twice the ceiling limit for a family of 5 members. Where both husband and wife

hold land in their own names the two will have rights in the properties within the

ceiling in proportion to the value of land held by each before the application of

ceiling. Each major child is to be f treated as a separate unit for the purpose of

application of ceiling.

5.26.5 Consolidation of Holding

India is a land of very small, fragmented and uneconomical holdings. That is why

need of consolidating these fragmented holdings was felt in order to improve their

productivity and viability of investments. Legislations have been introduced by various

state governments, on these lines. Consolidation of land is a process of rearrangement of

land on the basis of existing rights. Most states have not shown any enthusiasm for

implementing such legislations. Only in Punjab, Haryana and parts of Uttar Pradesh this

programme has made desired progress. Orissa, Bihar, Hincc. etc. have also taken up

consolidation in a big way. An area of 584.72 lath hectares has so far been consolidated

all over India.

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5.27 Impact of Land Reforms

The impact of land reform measures on agrarian structure of the country can be

discussed under following heads.

5.27.1 Changing over to Market Oriented Farming

The analysis of pre-independence patterns of land systems reveals that the

agrarian and social structure which developed under the British tended to perpetuate a

back- ward and medieval economy in a state of stagnation for decades. The forces to

impede the production and development were very active. In contrast to this, National

Commission on Agriculture (NCA) pointed out that the essence of present situation is

that Indian agriculture is in a stage of transition from predominantly semi-feudal type of

agriculture characterized by large scale leasing of land and subsistence farming to a

commercialized agriculture and, thus, increasingly assuming the character of market

oriented farming.

5.27.2 End of Feudalism

The National Commission on Agriculture also pointed out that as a result of land

reforms that have taken place since the independence, the feudal and semi-feudal land

owning classes have lost their erstwhile domination over Indian agrarian economy as a

whole. Moreover, the decline in the semi-feudalistic relations has followed growth of

agriculture on commercial lines. However, some of the evils such as share-cropping,

extraction of high rates of rents, usury, eviction of tenants, social and caste oppression,

etc. still prevail in some parts of the country but the degree of their intensity is negligible.

5.27.3 Leasing in of Land by Big Owners

One of the important effects of land reforms is that, the subsistence farming is

changing over to commercial farming. In this context NCA has pointed out that under

commercial tenancy, leasing in of land by the big land owners from the small farmers

takes place and such tenancy prevails more in areas where agriculture is modernized. It is

common in Punjab and other areas where the impact of the green revolution has been

appreciable. It is almost absent in the eastern regions of the country where agriculture is

far less developed and where old type of tenancy still persists.

5.27.4 Emergence of Modern Entrepreneurs

As a result of land reforms a class of modem entrepreneur farmers has emerged.

These farmers have substantial land holdings and cultivate their land through hired

labour and new technology. They are drawn largely from the ranks of exfeudal landlords,

upper strata of privileged tenants and the bigger raiyots, moneylenders, f merchants and

various other categories of substantial landlords. Besides the growth of commercial

57

agriculture and the rise in the prices of agricultural commodities along with improvement

of techniques, have to strengthened the economic position of this class of big farmers.

They are also the main beneficiaries of governmental expenditure on agricultural

development. It is this class which has been treated as the main custodian of the 'green-

revolution'.

5.27.5 Reduction of Poverty

Besides several negative impacts, land reform measures have certainly reduced

the disparities in agricultural holdings. The surplus lands of big landlords have been

distributed among the tenants and small farmers. The exploitation of tenants by the land

owners has been reduced considerably. The cultivator-owner has been given assistance

by the credit institutions to increase the productivity of their lands. The cultivator-owner

has been brought in direct contact with state. They are no longer required to share their

produce with their landlords. All these steps have led to an increase in the income of the

small farmers and thus reduced poverty in the rural areas.

5.27.6 Use of Institutional Credit

Agrarian reforms have significant implications in facilitating the use of

institutional credit. The land re-form measures have influenced the working of financial

institutions viz. co-operative banks, regional rural banks and commercial banks, etc.

5.28 Review of Land Reform Measures

Though the land reform measures have been instrumental in bringing about some

desirable changes in Indian agrarian structure, yet, they have failed to secure a justice to

a large section of the rural population. The results of land reforms implemented so far

have been far from satisfactory. Because of certain loopholes in the reform policies and

implementation methodology, the progress has been very slow. In 1980.81 more then 54

percent holdings were less than 1 hectare each. Only 32 percent holdings were in the

range of 1 to 4 hectares. More than 70 percent of the cultivators still have to survive on

less than 30 percent of the total arable land of the country. These figures reveal the

existing wide disparities in agricultural holdings despite 40 years of planned economic

development.

Some of the glaring examples of weakness in land reform measures are listed as

under.

There has been no uniformity in execution of land reform policies and legislations

in different states. For example, the rent to be charged from the cultivators shows

a wide variation from 20 percent to 50 percent of the gross product.

Land reform measures have failed to prevent subletting and rack-renting.

58

The identification of self-cultivation was wrong which allowed the big landlords

to keep large holdings with them.

Ex-landlords and zamindars have showed on papers that they have been

cultivating the land. However, they get them tilled by hired labourers.

Eviction of tenants has occurred on a large scale out of the suspicion of land

being lost and under the guise of "voluntary surrenders".

Administrative arrangements for enforcement and: supervision of land reforms

have been fully inadequate.

Records of tenants did not exist in several states and often incomplete and out of

date records were used for the implementation purposes.

The several states the existing provisions of security of tenure were of an interim

nature and comprehensive measures to bring tenants into direct relation with the

state are yet to be adopted.

The rights to resumption widened the scope of ejectment.

To provide security of tenure to the tiller, the land lord tenant bond was to be

broken by the state inter posing between them to collect fair rents from the tenant

and pay it to the landlord after deducting land revenue and collection charges.

5.29 Reasons for Low Progress of Land Reforms

The task force on agrarian relations set up by the Planning Commission to

appraise the progress and problems of land reforms, identified the following reasons for

the poor performance of land reform measures.

5.29.1 Lack of Political Will

In the context of the socio-economic conditions prevailing in the country, no

tangible progress can be expected in the field of land reforms in the absence of requisite

political will. The sad truth is that this crucial factor has been wanting. In no sphere of

public activity in our country since independence has had such a big gap between precept

and practice i.e. between policy pronouncement and actual execution.

5.29.2 Absence of Pressure from Below

Except in a few scattered and localized pockets, practically allover the country,

the poor peasants and agricultural workers are passive, unorganized and inarticulate. The

basic difficulty in our situation arises from the fact that the beneficiaries of land reforms

do not constitute a homogeneous social or economic group.

59

5.29.3 Negative Attitude of the Bureaucracy

Towards the implementation of land reforms, attitude of bureaucracy has been

generally lukewarm and indifferent. This is, of course, inevitable because, as in the case

of men who wield political power, those in the high echelons of the administration also

are either big land- owners themselves or have close nexus with big land- owners.

5.29.4 Legal Hurdles

Legal hurdles also stand in the way of land reforms. The task force categorically

states: "in a society in which the entire weight of civil and criminal laws, judicial

pronouncements and precedents, .administrative procedure and practice is thrown on the

side of the existing social order based on the inviolability of the private property, an

isolated law aiming at the restructuring of the property relation in the rural area has little

chance of success. And whatever little chance of success was there, completely

evaporated because of the loopholes in the laws and protracted legislations".

5.29.5 Absence of Correct and Up-to-date Land Records

The absence of correct and complete land records further added a good deal of

confusion. It is because of this that no amount of legislative measures could help the

tenant in the court unless he could prove that he is the e actual tenant. This he could only

do if there were reliable, and up-to-date records of tenants. The main reason for the

unsatisfactory state of affairs are (a) many of the areas in the country have never been

cadastrally surveyed, (b) in some areas where cadestral surveys were done for a r long

time, no resurveys have been taken, (c) no machinery , of any kind existed for

maintaining village records, (d) even where records were kept by government officials,

there is no uniform system, and (e) it has been found that even official records in many

cases have not been correct.

5.29.6 Lack of Financial Support

Lack of financial support plagued the Land Reform Act from the beginning. No

separate allocation of funds was made in the fifth plan for financing land reforms. Many

states declined to include even expenditure of such essential items like preparation of

records of rights in their plan budget. The state plans which are nothing but aggregate of

expenditure programmes hardly made any reference to land reforms. Whatever funds

were needed for finalizing of this programme had to be provided in non-plan budgets. It

is because of this that the expenditure for land reforms was always postponed. or kept to '

the minimum.

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5.29.7 Land Reforms have been treated as an Administrative Issue

The implementation of land reforms is not an administrative issue, it is more of a

political issue. Therefore, it is necessary to strengthen the political will for implementing

land reforms. The task force of the Planning Commission in a very forthright manner

states: "it should, however, be clearly understood that the mere setting up of an efficient

administrative machinery will not by itself lead to any substantial improvement unless

the political and economic hurdles operating against the programme are removed."

5.30 Suggestions for Improvement

The land reform measures were thoroughly reviewed by Planning Commission

and other committees. Based on their findings, National Commission on Agriculture has

suggested following measures to reinforce the implementation of land reforms.

5.30.1 Breaking of Landlord-Tenant Nexus

The private owner who rents out land today is undoubtedly intermediary between

the tiller and the state and, as such, does not fit into the fundamental pattern of land

reforms. It is, therefore, high time that tenancy I reforms were directed towards the state

of finally breaking up the landlord-tenant nexus. A potent practice of agriculture i.e.

landlordism r f should be discouraged and ultimately curbed. Agriculture should be

treated as a family occupation of the peasant-cultivator and not a source of subsidiary

unearned income. In a normal peasant-proprietor economy absentee landlordism should

find no place.

5.30.2 Restricted Tenancy should be Allowed

Under the present land-man ratio existing in India, tenancy as such cannot be

banned though undesirable. Experience has shown that wherever such an overall ban has

been imposed, it has led to the emergence of concealed tenancy with all its evils. Hence,

until such time as socio-economic development in the country bring I about a radical

change in man-land ratio and create possibilities of transfer of population from the

agriculture to non-agricultural sectors on a big scale, tenancy shall have I to be permitted

in a restricted form. It will have to be strictly controlled and regulated. Leasing in of land

I should be permitted only in case of small farmers. Leasing in of land by big landowners

from small landowners should be discouraged. All tenants of landowners excepting such

landowners who possess land up to a marginal holding should be vested with proprietary

rights and simultaneously declared virtual owners on a date to be specified by the state

government. However, disabled persons, minors, widows and army personnel‟s are given

some concession, the nature of which may be decided by the state governments. This

provision shall not apply to those cases where a bigger landowner has leased in land from

61

a smaller landowner. Share-croppers who have so far been not treated as tenants should

be recognized and regarded as tenants and given all due protection as such.

5.30.3 Effective Implementation of Ceiling Laws

The studies have revealed that ceiling laws have not been able to make any

appreciable break-through in reducing concentration of land in the hands of a few big

farmers. These laws are devised to achieve the objective of substantially reducing the

present inequalities in land holdings. It is, therefore, suggested that present ceiling

legislations should be enforced vigorously. For instance, it is necessary to take firm

measures against fiction and benami transfers which have been deliberately manipulated

by big landowners in order to by-pass ceiling legislations. The state government should

conduct a proper inquiry into such transfers. If it is found that the transfers were made

purposely to evade the provisions of ceiling laws, the land so transferred should be

vested in the state after imposition of some penalty on the transferee. In cases where

fictions co-operative societies have been organized with a view to concealing the surplus

land, such co-operatives should be subjected to proper investigation. And where many

partners have been shown in a holding, but the holding as a whole is under a single

management, such cases should also be brought to lime- light and adequate actions

should be taken to undo it.

5.30.4 Control on Land held by Trusts and Institutions

The Planning Commission holds the view that the land possessed by trusts or

institutions used for religions, charitable or educational purposes should be brought under

ceiling laws. It would not be proper to give them a blanket exemption because a large

number of such institutions and trusts are fictions or have been deliberately created to

evade ceiling laws. Some of them are not being used for the purpose which on paper they

profess to serve. Arable lands held by such trusts and endowments should be brought

under the ceiling laws and more ceiling should also be made applicable to forests and

water areas held by such institutions.

5.30.5 Distribution of Surplus Land

For distributing the surplus land accumulated out of enforcing ceiling legislations,

opinions are different as to who should be preferred for allotment, landless labourers or

small farmers owing less land than minimum limit in order to make such holding viable.

There is enough force in the argument that land should be distributed. to I small peasants

owning less land than the economic holding or the minimum operational holding. Some

have also argued that it is not only important to fix a ceiling on land holding, but it is also

important to fix floor so that a large number of peasants may have at least a small

operational holdings. But in the view of massive landlessness, a serious lack of

employment opportunities and a subsistence level of, almost half of the rural population

62

below the poverty line, the land should be distributed to the landless labourer to whom

land, however small, is the source of employment and relief from destitution. Hence for a

long time to come a floor or ownership cannot be applied.

5.30.6 Simplification of Legal Procedure and Administrative Machinery

The Planning Commission has observed that ceiling legislations have suffered not

only because of certain political and economic constraints but also because of a very

inadequate and inefficient administrative machinery for enforcing it. The same is true for

other kinds of land reform measures. It means that existing administrative machinery has

generally failed to prevent the evasion of effected laws and has been functioning largely

in collusion with the vested interests, especially at the village and tensile levels. The

existing districts civil and revenue courts cannot properly discharge those functions being

already over- burdened with other kinds of litigations. Besides, the existing system

causes unnecessary delays and makes justice very costly. It often results in dispensation

of a doubtful nature. These courts are far away from villages and the poor man is

generally at a disadvantage. Hence, the restructuring of administrative machinery is

required.

5.30.7 Voluntary Surrenders should not be Accepted

Voluntary surrenders have generally been used to cover up forcible and illegal

eviction of tenants. Such surrenders should not be accepted as valid unless they are

certified as genuine by an appropriate authority. In this context, the commission

suggested that land surrendered should not revert to the landowner but should vest in the

state to be allotted to any other eligible person. It can also be argued that it should revert

to the owner if he possesses land less than the ceiling limit.

5.30.8 Higher Rent should be Curbed

Despite the fixation of rent in most states on lines recommended under various

plans, higher rent still prevails in many parts of the country. It is, therefore, suggested

that such rent receipts should be strictly enforced. The tenants should be entitled to remit

their rents through t moneylenders or deposit them in the tensile.

5.30.9 Preparation of up-to-date Land Records

Tenancy legislation cannot be properly implemented without adequate and proper

land records. Therefore, it is imperative that the preparation of land records should be

given top priority in the whole scheme of enforcement of land reforms. Tenants, tenants-

at will, and share- croppers should be promptly and properly identified and their names

should be recorded forthwith. It can, how- ever, be said that the interest of the owner

should not be ignored.

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5.30.10 Ensure Security of Tenure

So far as the tenure is concerned, the most important requirements would be:

Recording the names of all the persons who hold land including share-croppers in

the record of right;

Ensuring that not more than the legally stipulated share of crop is taken from the

share-croppers by land owners;

Ensuring that no ejectment takes place either on the basis of voluntary or through

other extra-legal or illegal methods;

Ensuring inheritance to the heirs of the share-croppers on their death where law

provides it; and providing supportive services including credit to share-croppers

to free them from the clutches of landowners and moneylenders.

5.31. Conclusion

Land reforms are aimed at bringing about a silent revolution in rural India. By

transforming agriculture society and holdings through peaceful and democratic method,

they are helping toe usher in a new era based on social fulfillment the reform measures

recently under have to some extent, helped to remove social injustice in the rural as and

to security to the fillers.

Important Questions

1. What are the objectives of land reforms in India?

2. Discuss why land reform measures failed to achieve its objectives in India?

3. Where do you mean by land reform?

64

LESSION-6

GREEN REVOLUTION

6.0 Objectives

To examine the factors responsible for green revolution.

To study the need for green revolution in India

To analyse the effects of green revolution in India

To study the measures to be adopted to over come the problem forced by Indian

farmers

Contents

6.0 Objective

6.1 Introduction

6.2 Worst food disaster

6.3 Experience of Green Resolution

6.4 Intensive Agricultural District Programmes- IADP

6.5 High Yielding Varieties Programme

6.6 Benefits

6.7 Statistical Results of the Green Revolution

6.8 Economic results of the Green Revolution

6.9 Sociological results of the Green Revolution

6.10 Political results of the Green Revolution

6.11 Limitations of the Green Revolution

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6.10 Needs of Green Revolution

6.10.1 Low Irrigation Facility

6.10.2 Conventional and Traditional Approach

6.10.3 Frequent Occurrence of Famines

6.10.4 Lack of Finance (credit)

6.10.5 Self-sufficiency

6.10.6 Marketising Agriculture

6.11 Measures Adopted in Green Revolution

6.12 Conclusion

6.1 Introduction

The introduction of high-yielding varieties of seeds and the increased use of

fertilizers and irrigation are known collectively as the Green Revolution, which provided

the increase in production needed to make India self-sufficient in food grains, thus

improving agriculture in India. Hybrid high-yielding wheat was first introduced to India

in 1963 by Dr. Norman Borlaug. Borlaug has been hailed as the Father of the Green

Revolution. The methods adopted included the use of high yielding varieties (HYV) of

seeds. The production of wheat has produced the best results in fueling self-sufficiency

of India. Along with high yielding seeds and irrigation facilities, the enthusiasm of

farmers mobilized the idea of agricultural revolution and is also credited to M. S.

Swaminathan and his team had contributed towards the success of green revolution. Due

to the rise in use of chemical pesticides and fertilizers there were many negative effects

on the soil and the land such as land degradation.

6.2 Worst Food Disaster

The world's worst recorded food disaster occurred in 1943 in British-ruled India.

Known as the Bengal Famine, an estimated 4 million people died of hunger that year in

eastern India (which included today's Bangladesh). Initially, this catastrophe was

attributed to an acute shortfall in food production in the area. However, Indian economist

Amartya Sen (recipient of the Nobel Prize for Economics, 1998) has established that

while food shortage was a contributor to the problem, a more potent factor was the result

of hysteria related to World War II, which made food supply a low priority for the British

rulers. When the British left India in 1947, India continued to be haunted by memories of

the Bengal Famine. It was therefore natural that food security was one of the main items

on free India's agenda. This awareness led, on one hand, to the Green Revolution in India

and, on the other, legislative measures to ensure that businessmen would never again be

able to hoard food for reasons of profit.

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6.3 Experience of Green Resolution

The Green Revolution, spreading over the period from1967-68 to 1977-78,

changed India‟s status from a food-deficient country to one of the world's leading

agricultural nations. Until 1967 the government largely concentrated on expanding the

farming areas. But the population was growing at a much faster rate than food

production. This called for an immediate and drastic action to increase yield. The action

came in the form of the Green Revolution. The term „Green Revolution‟ is a general one

that is applied to successful agricultural experiments in many developing countries. India

is one of the countries where it was most successful. The area of land under cultivation

was being increased from 1947 itself. But this was not enough to meet the rising demand.

Though other methods were required, the expansion of cultivable land also had to

continue. So, the Green Revolution continued with this quantitative expansion of

farmlands.

Double cropping was a primary feature of the Green Revolution. Instead of one

crop season per year, the decision was made to have two crop seasons per year. The one-

season-per-year practice was based on the fact that there is only one rainy season

annually. Water for the second phase now came from huge irrigation projects. Dams

were built and other simple irrigation techniques were also adopted. Using seeds with

superior genetics was the scientific aspect of the Green Revolution. The Indian Council

for Agricultural Research (which was established by the British in 1929) was reorganized

in 1965 and then again in 1973. It developed new strains of high yield variety seeds,

mainly wheat and rice and also millet and corn. The Green Revolution was a technology

package comprising material components of improved high yielding varieties of two

staple cereals (rice and wheat), irrigation or controlled water supply and improved

moisture utilization, fertilizers, and pesticides, and associated management skills.

6.4 Intensive Agricultural District Programmes- IADP

While the old rural programmes continued under the third plan, a new programme

was initiated on a trial basis in selected districts with high production potential. This

programme was sponsored during 1960-61 as an “Impact Programme”, one that would

provide the concentration of enough effort in selected areas to bring about a real

breakthrough in agriculture. This intensive agricultural district programme (IADP)

attempted to introduce to farmers the most effective package of practices and inputs for

their individual farm conditions and to improve the input supply system, extension

services and district administrations were geared up, so that farmers could derive the

greatest benefit from the recommended package. Hence this is also called „Package

Programme‟ and this strategy was tried as a pilot project in 7 IADP districts in 1960-

1961 in selected districts, one in each state when the country was facing serious food

shortage as a result of successive bad harvests. The avowed twin in order to meet

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shortage as well as to provide the base for more rapid economic development, (ii)

demonstrating the most effective ways of increasing food production through the

concentration of resources, both human and material, and setting a pattern of extending

such intensified agricultural programme to other favourable areas having irrigation or

assured water supply.

After some initial success, the programme was extended to other areas covering

15 districts having a total number of 305 blocks, 29,700 villages, and a cultivated area of

7.81 million hectares. During 1974-75, 15 more districts were covered under this

scheme; 2 each in Bihar and Karnataka, 4 in Punjab and 7 in Madhya Pradesh. The

I.A.D.P programme implemented districts playing a significant role in popularizing the

high-yielding varieties of food grains. The adoption of high yielding varieties by the

farmers has been more rapid and widespread in these districts than in the country as a

whole. However, it was soon realized that both the existing technology and the available

supply of skilled manpower placed severe limits on the programme‟s utility. For

example, I.A.D.P. emphasized the use of chemical fertilizers, but the available crop

varieties were relatively unresponsive to fertilizers. Though yield could be raised by 15

or 20 per cent, many farmers considered this an inadequate return for the extra effort and

risk involved. All these factors drove to the necessity of finding and developing food

grain varieties which would be yield-responsive to the package of inputs, particularly

fertilizers.

6.5 High Yielding Varieties Programme

In 1963, the Indian Agricultural Research Institutive in New Delhi imported a

selection of dwarf wheats from the international wheat research centre in Mexico for its

own breeding programme. Extensive trials in various locations were conducted and soon

it was found that these Mexican wheat varieties like Larma Rajo and Sonara- 64

responded with splendid results. Meanwhile, from 1960 onwards many useful paddy

varieties also were tested and introduced by the I.C.A.R., with the join venture of F.A.O

and Rice Hybridization project. This was successfully done in Tamilnadu (ADT 27). The

high yielding varieties in paddy are Taichung I, Taichung 64, Tainan 3, IR 8 and ADT

27. In addition to these many wonder seeds have been introduced which registered

incredible yields. Mention may be made about wheat PV-18, Kalyansona 227, (S-308)

Hybrid varieties of maize, sorghum and millets, which gave encouraging results, were

also introduced. For bajra, HB-1, for hybrid maize Vijay, for sugarcane CO-1148, CO-67

and Mungfal 145, and for cotton J-34 wer introduced; the use of these wonder seeds

increased the yields by more than 50 per cent. The credit for having introduced these

wonder varieties of cereals primarily goes to the Indian council of agricultural Research

and many agricultural universities in India, Particularly at Ludhiana, Pant Nagar (U.P)

and Coimbatore (Tamil Nadu).The green revolution, in essence, is a technological

quadrigeminous drive of which one part forms the high yielding wonder seeds. The other

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three parts of the process are fertilizers, improved water supplies, and better cultural

practices.

6.6 Benefits

With the new seeds, tens of millions of extra tonnes of grain a year are being

harvested. The Green Revolution resulted in a record grain output of 131 million tonnes

in 1978/79. This established India as one of the world's biggest agricultural producers.

Yield per unit of farmland improved by more than 30% between1947 (when India gained

political independence) and 1979. The crop area under high yielding varieties of wheat

and rice grew considerably during the Green Revolution. The Green Revolution also

created plenty of jobs not only for agricultural workers but also industrial workers by the

creation of related facilities such as factories and hydroelectric power stations.

6.7 Statistical Results of the Green Revolution

The Green Revolution resulted in a record grain output of 131 million tons in

1978-79. This established India as one of the world's biggest agricultural

producers. No other country in the world which attempted the Green Revolution

recorded such level of success. India also became an exporter of food grains

around that time.

Yield per unit of farmland improved by more than 30 per cent between 1947

(when India gained political independence) and 1979 when the Green Revolution

was considered to have delivered its goods.

The crop area under HYV varieties grew from seven per cent to 22 per cent of the

total cultivated area during the 10 years of the Green Revolution. More than 70

per cent of the wheat crop area, 35 per cent of the rice crop area and 20 per cent

of the millet and corn crop area, used the HYV seeds.

6.8 Economic Results of the Green Revolution

Crop areas under high-yield varieties needed more water, more fertilizer, more

pesticides, fungicides and certain other chemicals. This spurred the growth of the

local manufacturing sector. Such industrial growth created new jobs and

contributed to the country's GDP.

The increase in irrigation created need for new dams to harness monsoon water.

The water stored was used to create hydro-electric power. This in turn boosted

industrial growth, created jobs and improved the quality of life of the people in

villages.

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India paid back all loans it had taken from the World Bank and its affiliates for

the purpose of the Green Revolution. This improved India's creditworthiness in

the eyes of the lending agencies.

Some developed countries, especially Canada, which were facing a shortage in

agricultural labour, were so impressed by the results of India's Green Revolution

that they asked the Indian government to supply them with farmers experienced

in the methods of the Green Revolution. Many farmers from Punjab and Haryana

states in northern India were thus sent to Canada where they settled (That's why

Canada today has many Punjabi-speaking citizens of Indian origin). These people

remitted part of their incomes to their relatives in India. This not only helped the

relatives but also added, albeit modestly, to India's foreign exchange earnings.

6.9 Sociological Results of the Green Revolution

The Green Revolution created plenty of jobs not only for agricultural workers but

also industrial workers by the creation of lateral facilities such as factories and hydro-

electric power stations as explained above.

6.10 Political Results of the Green Revolution

India transformed itself from a starving nation to an exporter of food. This earned

admiration for India in the comity of nations, especially in the Third World.

The Green Revolution was one factor that made Mrs. Indira Gandhi (1917-84)

and her party, the Indian National Congress, a very powerful political force in

India (it would however be wrong to say that it was the only reason).

6.11 Limitations of the Green Revolution

Even today, India's agricultural output sometimes falls short of demand. The

Green Revolution, howsoever impressive, has thus not succeeded in making India

totally and permanently self-sufficient in food. In 1979 and 1987, India faced

severe drought conditions due to poor monsoon; this raised questions about the

whether the Green Revolution was really a long-term achievement. In 1998, India

had to import onions. Last year, India imported sugar.

However, in today's globalised economic scenario, 100 per cent self-sufficiency

is not considered as vital a target as it was when the world political climate was

more dangerous due to the Cold War.

India has failed to extend the concept of high-yield value seeds to all crops or all

regions. In terms of crops, it remain largely confined to foodgrains only, not to all

kinds of agricultural produce. In regional terms, only Punjab and Haryana states

showed the best results of the Green Revolution. The eastern plains of the River

70

Ganges in West Bengal state also showed reasonably good results. But results

were less impressive in other parts of India.

Nothing like the Bengal Famine can happen in India again. But it is disturbing to

note that even today, there are places like Kalahandi (in India's eastern state of

Orissa) where famine-like conditions have been existing for many years and

where some starvation deaths have also been reported. Of course, this is due to

reasons other than availability of food in India, but the very fact that some people

are still starving in India (whatever the reason may be), brings into question

whether the Green Revolution has failed in its overall social objectives though it

has been a resounding success in terms of agricultural production.

The Green Revolution cannot therefore be considered to be a 100 percent success.

6.12 Needs of Green Revolution

6.12.1 Low Irrigation Facility

The well irrigated and permanent irrigated area was only 17 percent in 1951. The

major part of area was dependent on rainfall and, consequently, agriculture suffered from

low level of production.

6.12.2 Conventional and Traditional Approach

The use of conventional inputs and absence of modern techniques further

hampered the agricultural productivity.

6.12.3 Frequent Occurrence of Famines

Famines in India were very frequent during the period 1940s to 1970s. Further,

due to higher growth rate of populations, agriculture failed to grow at the same speed.

6.12.4 Lack of Finance (credit)

Small and marginal farmers found it very difficult to get finance and credit at

cheap rate from the government and banks, hence, fell an easy prey to the money lenders.

6.12.5 Self-Sufficiency

Due to the traditional agricultural practices, low productivity, and to feed growing

population, often food grains were imported that drained away scarce foreign reserves. It

was thought that with the increased production due to Green Revolution, government can

maintain buffer stock and India can achieve self-sufficiency and self-reliable.

6.12.6 Marketising Agriculture

Agriculture was basically for subsistence and, therefore, less amount of

agricultural product was offered for sale in the market. Hence, the need was felt to

71

encourage the farmers to increase their production and offer a greater portion of their

products for sale in the market.

6.13 Measures Adopted in Green Revolution

Use of high yielding varieties (HYV) of seeds

Irrigation

Use of insecticides and pesticides

Consolidation of holdings

Land reforms

Improved rural infrastructure

Supply of agricultural credit

Use of (chemical) fertilizers

Opening of agriculture colleges

6.14 Conclusion

The major benefits of the Green Revolution were experienced mainly in northern

and northwestern India between 1965 and the early 1980s; the program resulted in a

substantial increase in the production of food grains, mainly wheat and rice. Food-grain

yields continued to increase throughout the 1980s, but the dramatic changes in the years

between 1965 and 1980 were not duplicated. By Financial year 1980, almost 75 percent

of the total cropped area under wheat was sown with high-yielding varieties. For rice the

comparable figure was 45 percent. In the 1980s, the area under high-yielding varieties

continued to increase, but the rate of growth overall was slower. The eighth plan aimed at

making high-yielding varieties available to the whole country and developing more

productive strains of other crops. Further, the Green Revolution created wide regional

and interstate disparities. The plan was implemented only in areas with assured supplies

of water and the means to control it, large inputs of fertilizers, and adequate farm credit.

These inputs were easily available in at least parts of the states of Punjab, Haryana, and

western Uttar Pradesh; thus, yields increased most in these states. In other states, such as

Andhra Pradesh and Tamil Nadu, in areas where these inputs were not assured, the

results were limited or negligible, leading to considerable variation in crop yields within

these states. The Green Revolution also increased income disparities: higher income

growth and reduced incidence of poverty were found in the states where yields increased

the most and lower income growth and little change in the incidence of poverty in other

states.

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Important Questions

1. Explain the term green revolution?

2. Explain the technological change under science based inputs and the production

enhanced since the adoption of green revolution.

3. What are the benefits and limitations of green revolution programme in India?

4. Is green revolution in India green?

5. Bring into the factors responsible for green revolution.

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LESSON-7

IRRIGATION IN INDIA

7.0 Objectives

To study different kinds of irrigation system in India

To study the major irrigation projects in India

To bring out the problems faced by the farmers in irrigation sector

Contents

7.0 Objectives

7.1 Introduction

7.2 Means of Irrigation

7.2.1 Tanks

7.2.2 Wells

7.2.3 Tube-Wells

7.2.4 Canals

7.2.5 Dams

7.3 Multipurpose Power Projects

7.4 Bhakra Nangal Project

7.5 Hirakud Dam

7.6 Damodar Valley Project

7.7 Tungbhadra Project

7.8 Kosi Project

7.9 National Water Policy

7.10 Employment and Income Impact

7.11 Problems of Irrigation Sector

7.12 Problems in Surface Irrigation

7.13 Problems in Groundwater

7.14 Conclusion

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7.1 Introduction

India is one of the few countries in the world endowed with abundant land and

water resources. The average rainfall in the country is estimated to be over 4000 cubic

km spread over the geographical area of 328 m ha of which 185 m ha is culturable. Due

to tropical climate conditions, India experiences vast spatial and temporary variation in

the rainfall. About one third of the country‟s area is drought prone. The Southern and

Western parts of the country comprising States of Rajasthan, Gujarat, Andhra Pradesh,

Madhya Pradesh, Maharashtra, Tamil Nadu and Karnataka are drought prone. On the

other hand, the areas subjected to periodic floods are mainly in the Northern and North

Eastern parts of the country comprising States of Uttar Pradesh, Bihar, West Bengal,

Assam and the seven North Eastern States. There is wide variation in the average per

capita availability of water in the various river basins. It is ashigh as 14000 cubic metre

in Brahmaputra and Barak valley to as low as 300 cubic metre in Sabarmati, whereas

some of the river basins like Mahi, Tapi and Pennar are already water stressed. The

availability of less than 1000 cubic metre per capita is considered as scarcity as per

International Standards and remedial measures, as possible, need to be planned. Thus, a

scarcity condition already exists in some parts of the country which needs to be

mitigated.

The rainfall of our country is dependent on the monsoons. Rainfall controls our

agriculture. But the agriculture of our country is said to be, "the gambling of the

monsoon" as the monsoon rainfalls are uncertain, irregular and uneven or unequal. So

irrigation is essential for agriculture. The following are the primary reasons of irrigation

in our country. (i) About 80 per cent of the total annual rainfall of India occurs in four

months, i.e. from mid-June to mid-October. So it is essential to provide irrigation for

production of crops etc, during the rest of the eight months. (ii) The monsoons are

uncertain. So irrigation is necessary to protect crops from drought as a result of uncertain

rainfall. (iii) It does not rain equally in all parts of the country. So irrigation is necessary

for agriculture in less rainfall areas. (iv) Soils of some areas are sandy and loamy and

therefore porous for which a major portion of rainwater sinks down very quickly. So,

sandy and loamy soils can't retain water like the alluvial soil and the black soil. That is

why irrigation is essential for farming in the areas having, sandy and loamy soils. (v) The

rain-water flows down very quickly along the slopes of hillsides. So irrigation is neces-

sary to grow crops in such areas. (vi) India is an agricultural and populous country.

About 70 per cent of people depend on agriculture. In order to grow food-crops and

agricultural products in large quantities to feed the growing millions, intensive farming

and rotation of crops are essential. Extensive irrigation is, therefore, necessary for more

production. When our country got freedom, there was provision of irrigation only in 17

per cent of the total farm lands. More attention was paid to irrigation in order to make the

75

country self-sufficient in production of food-crops, as a result of which about 37 per cent

of the total farm lands have been provided with irrigational facility by now.

7.2 Means of Irrigation

7.2.1 Tanks

Rain water collects in the low lands in the form of tanks and ponds. This is

perhaps the oldest means of irrigation in India. This means of irrigation is used in the

Deccan Plateau and in the States of Andhra Pradesh, Karnataka and Tamil Nadu. The

land is uneven and rocky. It can store water for irrigation. Huge tanks have been

constructed for irrigating the land. About 12 percent of the agricultural land is being

irrigated by tanks in India.

7.2.2 Wells

Most of the rain water flows down the rivers and streams. Some of the water gets

soaked by the soil. It goes on collecting on the hard rocky bed under the soil. This

underground water is brought to the surface by wells and tube-wells. A large and deep

hole is made in the earth's surface upto the water level. These are known as artesian

wells. The water collects in the wells. This water is used for drinking as well as for

irrigating the land. This water is drawn out of the well by means of a pulley, wheel or

lever. Various names have been given to the wells with these devices. Persian wheel was

used for irrigating the fields for a long time. It is an old device now.

7.2.3 Tube-Wells

This is the means of irrigation of about 40 percent land in the plain areas. A deep

bore is made in the earth's surface upto the water table. A pipe or a tube is fixed in this

bore. An electric pump-set or a diesel pump-set is used to pump out water through this

tube or pipe. It is known as a tube-well. This is the most commonly used means of

irrigation in the Gangetic Plain or the Northern Fertile Plain. The underground water is

available there because the land is even and soft. A bore hole can be made easily and

electricity is available. Tube-wells are mostly used for irrigation in Punjab, Haryana,

Uttar Pradesh, Bihar and West Bengal.

7.2.4 Canals

Canals are a means of irrigation of almost 40 percent of agricultural land in India.

The rivers in the Northern parts of India flow down the Himalayas and have water

throughout the year. This water is taken through canals to irrigate the land in far away

areas. Canals are used for irrigating the land in Punjab, Haryana, Delhi, Uttar Pradesh,

Bihar and Northern - Rajasthan.

76

7.2.5 Dams

Dams are huge and high walls, which are built across the rivers to hold water.

The water of the river collects in the form of a lake, it is taken through canals to irrigate

the fields when required. Such dams have been built across many of the rivers in

Northern as well as Southern parts of India. The water in these dams is used to generate

electricity. This electricity is then supplied to nearby places. Electricity generated from

water is called Hydro-electricity.

7.3 Multipurpose Power Projects

There are some 600 projects big and small in India. Some of these projects serve

more than one purpose. They control floods, store water for irrigation and generate

hydro-electric power. The water of the dam forms a lake, where fish is reared. It is

developed as a tourist resort and boating is done. Since they serve a number of purposes,

they are known as the Multipurpose Power Projects. Some of the most important

multipurpose projects are the Bhakra Nangal Project, Damodar Valley project, Hirakud

Dam, Nagarjuna Sagar Dam, Krishna Sagar Dam, Farakka Barrage, Pong Dam, Thein

Dam, Tungbhadra Project, Kosi Project, Sone Canal Project and the Rajasthan Canal

Project.

7.4 Bhakra Nangal Project

This is the biggest multipurpose river valley project in India. It has been built

across the river Sutlej at a place called Bhakra in Himachal Pradesh. It is a joint project

of Punjab, Haryana, Himachal Pradesh and Rajasthan costing about 175 crores. It is the

highest dam in Asia and the second highest in the world. If is 226 metres high. The dam

forms a huge lake called the Gobind Sagar behind it. It is the biggest man made lake in

the world. Some power houses have been built on both sides of the dam which produce

electricity. At Nangal which is about 13 km. downstream from Bhakra Dam, a 29 metre

high barrage has been built. It is called the Nangal Dam. It supplies water to Bhakra

Canal, which carries water to Punjab, Haryana and Rajasthan. This canal is about 1100

km. long and the length of its distributaries is about 3000 km.

7.5 Hirakud Dam

This dam has been built across the river Mahanadi. It is the longest dam in the

world. It has been built for the prosperity of Orissa. It controls floods, supplies water for

irrigation and generates hydro-electric power.

7.6 Damodar Valley Project

Damodar was the most- turbulent river in Bihar. It caused great havoc through

floods in Bihar. A number of dams have been built across the tributaries of this river

77

which control floods, produce electricity and supply water for irrigation to Bihar and

West Bengal.

7.7 Tungbhadra Project

Tungbhadra is a tributary of river Krishna. A dam has been built across

Tungbhadra. If produces electricity and stores water for irrigation of land in Karnataka

and Andhra Pradesh.

7.8 Kosi Project

River Kosi is a tributary of the Ganga. The Kosi Project across the river Kosi,

benefits Nepal and Bihar. Some environmental scientists and social workers are

protesting against the construction of new dams. They fear that the construction of dams

will disturb the environmental balance. A large area of the land under the forests and a

large tract of fertile land along with villages and towns will be submerged in water. This

will add to the miseries of the people living in those areas. Activists like Sunderlal

Bahuguna and Medha Patekar are protesting against the construction of Tehri Dam and

Narmada Project.

7.9 National Water Policy

The National Water Policy as adopted by National Water Resources Council in its

Fifth meeting on 1 April 2002 describes: “Water is a prime natural resource, a basic

human need and a precious national asset” – hence planning, development and

management of water resources need to be governed by national perspective. It

emphasizes the need of well-developed information system for water related data at

national and state level for resource planning through which water resource available to

the country should be brought within the category of utilizable resources to the maximum

possible extent. It recommends, economic developments and activities including

agriculture, industrial and urban development should be planned with due regards to the

constraint imposed by the configuration of water availability. There should be water

zoning of the country and the economic activities should be guided and regulated in

accordance with such zoning. To implement this broad principle, it is necessary to create

awareness about water as a scarce resource commodity and create conservation

consciousness amongst people through regulations, incentives and dis-incentives.

Agriculture Sector, being the biggest consumer of water, has to be sensitized to the need

of respecting water as a scarce resource, even where it is plenty, at present. Efficient

water use in crop production is indeed an inter-disciplinary subject and requires inputs

from engineers, agriculture scientists, social scientists and farmers.

78

7.10 Employment and Income Impact

Irrigation is playing an important role in generating employment in rural areas.

Since, employment and income dynamics of irrigation extend far beyond farm sector,

irrigation expansion plays a vital role in regional development. The additional

employment generated due to irrigation is estimated at 8.7 million person-years (MPYs)

including 2.6 MPYs in works and 6.1 MPYs in farm and non-farm activities. It is also

estimated that irrigation helps to induce 5 per cent increase in additional output in

manufacturing and 14 per cent in the tertiary service sector.

7.11 Problems of Irrigation Sector

Despite its remarkable agricultural and micro economic contributions, the

irrigation sector faces many problems both from within and outside the sector. Problems

now faced are not only sectoral issues but economic within their ramifications, as well.

Solution to the irrigation sector problems will have a strong bearing on agricultural

sustainability and economic stability.

7.12 Problems in Surface Irrigation

The surface irrigation projects would continue to play a stronger role. The weak

physical, financial and institutional foundation on which the irrigation sector is operating

makes it doubtful whether the sector can continue to deliver production, income,

employment benefits at the present level. Although, surface irrigation projects have

brought prosperity, the projects themselves have tended to remain unviable with the

water rates covering less than 5 per cent of Operation and Maintenance (O and M) costs.

Water logging, salinity and alkalinity is one fall out of poor management of the system

and the others being distressed tail ender farmers. It is expected that the present surface

irrigation systems are woefully inefficient causing many environmental and ecological

problems. Nevertheless, if these resources are well-managed, better-planned and

optimally- and efficiently-utilized, the potential presently created would be adequate to

meet the future demand of irrigated agriculture without investing in new projects.

7.13 Problems in Groundwater

Although, the groundwater works, which are individually owned, have better

efficiency and productivity, the main problem is of developing an adequate and potent kit

of policy instrument that can enable policy makers to bring a modicum of order in its

present chaotic development under private initiatives. Free or highly subsidized

availability of power has caused more damage to groundwater. The urgent need,

therefore, is to check pumping an overdraft of groundwater keeping in view the

groundwater dependent agricultural economy. Besides, declining water levels,

groundwater is also confronted with the problem of chemical quality. Capital intensive

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technology available to elite and influential farmers has created iniquitous development

and emergence of informal water markets, thus treating water as a tradable commodity in

absence of effective legislation.

7.14 Conclusion

Water is a scarce natural resource, fundamental to life, livelihood, food security

and sustainable development. Water demand is increasing rapidly due to population

growth, urbanization and changing lifestyle. Owing to increasing demand of water for

domestic, industrial and energy uses, there is a severe constraint in the availability of

water for agriculture. Climate change might complicate further the existing temporal and

spatial variation in availability of water. Extreme events like floods and droughts are

occurring more frequently and affecting livelihood and food security. Low water use

efficiency, poor maintenance of irrigation systems and poor recovery of water charges

are some of the major problems associated with the management of water resources in

the country.

Inadequate and sub-optimal pricing of both power and water is promoting the

misuse of groundwater. The decline in the water table across the country is a matter of

serious concern. There is a need to promote participatory management of aquifers to

ensure sustainable and equitable use of water. Promotion of micro-irrigation techniques,

alignment of cropping pattern with the availability of water and greater involvement and

empowerment of Water Users associations in the command areas could lead to

improvement in water use efficiency. The ultimate irrigation potential in the country is

estimated at about 140 million hectares. Of this, about 58.5 million hectare is from major

and medium irrigation sources, and 81.5 million hectare is from minor irrigation sources

(about 64.1 million hectare from groundwater irrigation and 17.4 million hectare from

surface water). Groundwater provides about 70 percent of irrigation and 80 per cent of

the drinking water supplies. The widening gap (about 15 %) between irrigation potential

created and that being utilized is also a matter of concern. This gap needs to be narrowed

within the shortest possible time. Inefficient water use in irrigation is also leading to

environmental degradation via water logging and induced salinity. Micro-irrigation

technologies like drip and trickle systems, surface and subsurface drip tapes, micro-

sprinklers, sprayers, micro-jets, spinners, rotors, bubblers, etc. have great potential in

improving water use efficiency. However, despite wide promotion, only about 0.5

million hectare are currently under micro-irrigation. Modern techniques such as micro-

irrigation, watershed management, rainwater harvesting and groundwater recharging are

vital in utilizing the existing resources and expanding the irrigation system in a viable

manner. Major investment in research and development that enhance water use efficiency

is required. Extension services that reach out to farmers to help boost the speed of

technology-adoption as well as develop specialized skills and knowledge related to water

application are necessary.

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Important Questions

1. Explain different kinds of irrigation system in India?

2. How National Water Policy helps to improve the irrigation facilities in India?

3. What are the problems faced by the irrigation sector in India?

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LESSON- 8

FARM MECHANISATION

8.0 Objectives

To understand the importance of farm mechanization

To analyze the scope of farm mechanization in India

To study case for and case against farm mechanization

Contents

8.0 Objectives

8.1 Introduction

8.2 Farm Mechanization - Meaning and Scope

8.3 Importance of Farm Mechanization

8.4 Scope of Mechanization

8.5 Case against Farm Mechanization

8.6 Case for Farm Mechanisation

8.1 Introduction

The technological improvements in Indian agriculture since mid sixties have

brought about revolutionary increase in agricultural production. Interestingly, the growth

rate of food grain production particularly in case of wheat and rice was much higher than

the growth rate of population. The country was facing acute food shortages till eighties

has now become not only self sufficient but also a net exporter of food grains. This has

been made possible due to evolution of high yielding crop varieties, increased use of

chemical fertilizers, development of irrigation facilities and plant protection measures

accompanied by effective price support programmes of farm products. The increased use

of purchased inputs in agriculture necessitated to raise their use efficiencies though

mechanization. The increase in the use of human and bullock labour and rising wage

rates and cost of up-keep of bullock further made the case of farm mechanization still

stronger.

8.2 Farm Mechanization - Meaning and Scope

Use of machinery in Agricultural sector replaced human and animal labour.

Improved farm implements and machinery are used for different farm operations to

increase productivity of land and labour through timeliness of operations, efficient use of

inputs, and improvement in duality of produce, safety and comfort of farmers and

reduction in loss of produce and drudgery of farmer.

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8.3 Importance of Farm Mechanization

The efficiency of mechanization can be judged from the fact that modern plough

is about 200 to 300 percent efficient than indigenous plough, efficient machinery helps in

increasing productivity by about 30 percent besides, enabling the farmers to raise a

second crop or multi crop making the Indian agriculture attractive and a way of life by

becoming commercial instead of subsistence. There is a need to double the food

production by 2020. This will call for raising more crops in a year thus limiting the turn

around time. Increased production will require more use of agricultural inputs and

protection of crops from biotic and biotic stresses. This will call for greater engineering

inputs which will require development and introduction of high capacity, precision,

reliable and energy efficient equipment. Earlier, it was considered that mechanization

creates unemployment. The myth has been broken and it has been observed that,

agricultural mechanization besides increasing production and productivity, also generates

income and employment opportunities. Several studies conducted in different parts of

India have shown that mechanization has helped in increasing production, productivity,

generation of income and employment. Punjab, a highly mechanized state, employs 7.0

lakh laborers from adjoining states, out of which 3.5 lakh are employed on a regular basis

and remaining during the main cropping season.

Total farm power availability has increased from 0.25 kW/ha in 1951 with

animate power contributing 97.4 percent to 1.15 kW/ha in 1997 with animate sources

contributing only 22.7 percent, mechanical sources 43.5 percent and electrical sources

33.8 percent. The availability of draft animals is reducing, thus shortfalls have to be met

mostly through electromechanical power sources. The number of land holdings is

increasing and holding size has declined from 2.30 ha in 1970-71 to 1.57 ha in 1990-91.

Small (1 to 2 ha) and marginal (below 1 ha) farms numbering 78 per cent of the total

number of holdings, cultivate only 32.1 percent of the area; whereas 20.4 percent

medium farms (2 to10 ha) account for 50.4 percent of the cultivated area and 1.7 percent

large farms (above 10 ha) account for 17.5 percent of the cultivated area. However, it is

heartening to note that average emerging land holdings are large enough for mechanized

farming as evidenced in Punjab and Haryana.

As discussed in the earlier paragraph, one of the major constraints of increasing

agricultural production and productivity is the inadequacy of farm power and machinery

with the farmers. The average farm power availability needs to be increased from the

current 1.15 kW/ha to at least 2 kW/ha to assure timeliness and quality in field

operations, undertake heavy field operations like sub soiling, chiseling, deep ploughing,

summer ploughing, handling agricultural produce and byproducts efficiently, process

them for value addition, income and employment generation. All these works in

agricultural operations is possible to be attended only when adequate agricultural

mechanization infrastructure is created.

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8.4 Scope of Mechanization

Farm mechanization has been helpful to bring about a significant improvement in

agricultural productivity. Thus, there is strong need for mechanization of agricultural

operations. The factors that justify the strengthening of farm mechanization in the

country can be numerous. The timeliness of operations has assumed greater significant in

obtaining optimal yields from different crops, which has been possible by way of

mechanization. For instance, the sowing of wheat in Punjab is done up to the first

fortnight of November. A delay beyond this period by every one week leads to about

1.50 quintals per acre decrease in the yield. This is also correct in the case of other crops

and for other farm operations like hoeing, irrigation, harvesting, threshing and marketing

which need to be performed at appropriate time otherwise the yield and farm income is

affected adversely. Secondly, the quality and precision of the operations are equally

significant for realizing higher yields. The various operations such as land leveling,

irrigation, sowing and planting, use of fertilizers, plant protection, harvesting and

threshing need a high degree of precision to increase the efficiency of the inputs and

reduce the losses. For example, sowing of the required quantity of seed at proper depth

and uniform application of given dose of fertilizer can only be possible with the use of

proper mechanical devices. However, when such operations are performed through

indigenous methods, their efficiency is reduced. Thirdly, the time taken to perform

sequence of operations is a factor determining the cropping intensity.

So as to ensure timeliness of various operations, it is quite inevitable to use such

mechanical equipments which have higher output capacity and cut down the number of

operations to be performed. This has helped in increasing area under cultivation and

increase in cropping intensity. Higher productivity of land and labour is another factor,

which clearly justifies farm mechanization. Not only the output per hour is more, the

total labour requirement is also reduced. The displaced labour may of course be absorbed

in the other alternatives created by the increased mechanization such as manufacturing,

repair and service shops and the sale services. Thus, it only results in the shifting of the

labour from one vocation to the other. As production increases with mechanization of the

farm operations, it creates a good scope for commercialization of agriculture. Normally,

there are good chances to reduce the cost of production if farm operations are

mechanized as it saves labour, both human and bullock. In the absence of mechanization,

the ever-increasing wage rate of human labour and cost of upkeep of draught animals

could have increased the cost of production much higher. Further, large scale production

means less per unit cost on the farms. Moreover, it reduces the weather risk and risk of

non-availability of labour and thus wastage is minimized. Timely marketing is also made

possible by quick mechanical transportation, cleaning and handling. Further, the area

under fodder and feed for draught animals could be reduced due to decline in their use.

The land thus released can be brought under commercial crops. The use of farm

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mechanization enlarges the employment opportunities both on farms and in non farm

sectors through increase in area under plough, multiple cropping, development of agro-

industries and related services. On the other hand, displacement of human labour does

take place and demand for semiskilled labour in place of unskilled labour is increased.

Also, the drudgery for human labour is reduced and unhygienic operations such as

handling of farm yard manure can be done with machinery.

8.5 Case against Farm Mechanization

A number of arguments have been advanced against farm mechanization such as:

1. Small size and scattered holdings of the farmers stand in the way of mechanization.

As a result of this, farm machinery generally remains underutilized.

2. Majority of small cultivators are poor who are not in a position to purchase the

costly machinery like tractors, combine harvesters etc.

3. The use of tractor operated machinery may render some of the draft cattle

population surplus. Studies on Energy Requirement indicate that tractor owning

farms do use draft animals for certain jobs. Like-wise farms using animate sources

of farm power, use tractor on custom service for certain jobs.

4. The farm machinery have large turning radius and thus require comparatively larger

farm for economical use. Mechanization may lead to structural change in agriculture

in respect of the occupational distribution in the rural economy. No doubt, the

increasing farm mechanization is going to increase employment in secondary and

tertiary sectors but it does displace labour in farm operations.

5. Lack of proper knowledge of farmer to purchase farm machinery, operate and

maintain it properly leads to wrong choice, makes it uneconomical and risky too.

6. There is great shortage of diesel in the country as a whole. Thus, to use so extensive

oil based farm machinery is not desirable.

7. The lack of repair and replacement facilities especially in the remote rural areas is

another hindrance in efficient small farm mechanization.

8. Due to the seasonal nature of the agriculture, the farm machinery remains idle for

much of the time. Thus, idle machinery means unnecessary high costs unless proper

alternate use of such machinery in the off-season is made. According to Verma,

Singh and Mittal (1994), the chief bottlenecks of farm mechanization can be cited

under following three heads:

(i) Research Development and Testing of Farmmachinery and equipment,

particularly suitable to small farms, dry farming, for operations such as paddy

transplanting, sugarcane and fodder harvesting, spraying tall plants such as fruit and

forest trees, cotton, sugarcane etc., sugarcane planter, cotton picking and so on.

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(ii) Manufacture, Standardization and Quality Control: Poor quality and lack of

matching and standard designs of equipment and acute shortage of testing facilities.

(iii) Education, Training and Popularization of Farm Equipment: Inadequate

training facilities for farmer-users and artisans, inadequate service centers and lack of

regulations on custom hiring services.

8.6 Case for Farm Mechanization

The traditional farm tools and implement mainly relied on use of animate power.

Improved farm tools, implements and machinery, which use both animate and

mechanical power were devised from time to time. The average size of farm holding

being small, animate power is widely used in many parts of the country. Mechanical

power is making its impact in Indian agriculture with steady increase in land and labour

productivity. The traditional animal operated country plough although give low output

and require higher number of field operations are still being used by majority of the

farmers. Animal drawn cultivator and puddler have gained popularity showing an annual

growth rate of 3.11 percent and 7.93 percent respectively due to higher output and better

quality of work. Improved implements such as M.B. plough, puddler, disc harrow, peg

tooth harrow, spring tine harrow and patella harrow, being more efficient, have been

adopted. Use of sowing and planting devices for line sowing have also shown a growth

rate of 6.5 percent as it helped the farmers in better management of costly inputs of seed

and fertilizers. The growth in the number of sprayers and dusters for plant protection has

also been significant. The number of draught animals has shown decline during the past

few decades as a consequence of farm mechanization and high cost of animal upkeep.

Irrigation is one of the major energy-intensive operation. With the increase in

gross irrigated area, the number of irrigation pumps has swelled from 20 thousand in

1950-51 to about 12.51 million in 2000-01. Electric pumps are preferred than diesel

engine operated pumps due to lower cost and higher energy-use efficiency. Therefore,

the growth rate of electric pumps was 8.20 percent as against 4.89 percent in diesel

pumps. One of the major problems has been the lack of adequate and timely availability

of electricity in rural areas due to which the diesel engines are kept as standby source of

irrigation. The farmers are increasingly using power sprayers and dusters. The estimated

population during 1995-96 was 0.25 million and is expected to be 0.31 million in 2000.

Tractor is the basic machine on which most of the farm mechanization depends. The

number of tractors was just 8000 in 1950-51, which steeply went up to 2.64 million in

2000-01 showing a growth rate of 10.3 percent. Power tiller was introduced in the

country in the sixties, but could not gain popularity like tractor due to its limitation in the

field and on the road. The power tillers are being used presently in rice and sugarcane

producing areas of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, West Bengal, Bihar

and Maharashtra. Prime movers for irrigation are also used for operating threshing, chaff

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cutting, cane crushing equipment. Tractors are also used as stationary power source for

such purpose. Use of power thresher, especially for wheat crop, became very popular in

the seventies even among small farmers.

Important Questions

1. What is the importance of farm mechanization?

2. Explain the scope of farm mechanization in India.

3. Analyse case far and case against farm mechanization in Indian context.

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LESSON- 9

COOPERATIVES AND AGRICULTURAL DEVELOPMENT

9.0 Objectives

To study importance of cooperatives in India

To study the recent trends in cooperatives in India

To analyse the merits and weakness of cooperatives in India

Contents

9.0 Objectives

9.1 Introduction

9.2 Meaning and Features

9.3 Features

9.4 Importance of Cooperatives

9.4.1 Organisation for the Poor

9.4.2 Mutual help and Sharing

9.4.3 Softens Class Conflict

9.4.4 Lessens Bureaucratic Evils

9.4.5 Overcomes Handicaps of Agriculture

9.4.6 Helpful for Small and Cottage Industries

9.4.7 Instruments for Planning

9.4.8 Growth and Structure

9.5 Recent Trends

9.6 Rapid Growth

9.7 New Directions

9.8 Participation of Government

9.9 Cooperative Structure

9.10 Primary Societies

9.11 Central and State Banks

9.12 Apex Banks

9.13 Land Development Banks

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9.14 Review and Reform

9.15 Serious Shortcomings

9.16 Several Failures

9.17 Several Weaknesses

9.18 Important Achievements

9.18.1 Economic Benefits

9.18.2 Moral, Political and Educative Benefits

9.18.3 Social Benefits

9.19 Causes of Slow Progress

9.19.1 Interference of Government

9.19.2 Lack of Awareness

9.19.3 Inadequacy of Trained Personnel

9.19.4 Functional Weaknesses

9.19.5 Restricted Coverage

9.19.6 Limited Placing

9.20 Measures for Reform

9.20.1 Reorganization of Primary Societies

9.20.2 Ensuring Efficient Functioning

9.20.3 Spreading the Movement

9.21 Conclusion

9.1 Introduction

Cooperatives, inspired as they are by the laudable principles of self-help and

community or group-efforts, are of great relevance and importance for the people of

India, in particular for the rural poor. Such organizations put together men and their

means for the fulfillment of social ends, otherwise unattainable individually.

9.2 Meaning and Features

Broadly speaking cooperation refers to an institutional framework to organize

self-help among those who participate in it. In general, such and organization consists of

persons of small means. Unable to face powerful market forces like competition, these

people get together and organize themselves into cooperatives. They pool their resources

and thereby enlarge them beyond what they would be if used separately. Thus, weak

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individuals, through this institution, acquire strength to perform tasks which they would

not be able to do otherwise.

9.3 Features

The organization of cooperatives is characterized by three main features. One is

that its membership is entirely voluntary. Those in-tending to come together are under no

pressure to join a cooperative organization. It is thus a voluntary institution. Two, the

management of this organization is fully democratic. All members are treated as equals.

Individuals are not distinguished on the basis of property, status or any such thing.

Everyone has equal rights and opportunities. The principle of “one individual, one vote”

is at the basis of the functioning of a cooperative organization. Thus this institution

embodies the principles of equality and democracy. Three, its objectives include

economic, political and social aims. It is not merely an organization to secure economic

gains, but is also functions in the political and social interest of its members. An

institution, it caters to the humane needs of the society. It is not an organization of

capitalists or profit-seekers. Its members are not motivated by the desire to enrich

themselves by exploiting others. This is an institution whose basis is self-help through

mutual help. It seeks the help of its members and works for their benefit, and through

them for larger good of the community. Thus, cooperatives function for the welfare of

society.

The cooperative organization which emerges as a result of voluntary association

of individuals, in terms of resources, is able to stand up to big private institutions. But

from the angle of membership and objectives, this organization is basically different

from private bodies. It is a voluntary association of individuals for the furtherance of

predetermined economic and non-economic objectives. In the words of the Draft fifth

plan, cooperative represents institutionalization of the principle and impulse of mutual

aid. It has the merit of combining freedom and opportunity for the small man with the

benefit of large-scale management and organization. Cooperation is, therefore,

conveniently suited to bring about the desired socio-economic changes in the context of

the existing conditions in the country.

9.4 Importance of Cooperatives

Cooperation is of great significance, particularly for economically backward

countries like India. Its importance is clear from the following:

9.4.1 Organisation for the Poor

For people with small means, this is the only self-respecting method to increase

their resources and to carve out a place for themselves in this world of ruthless

competition. By pooling their resources, individuals can undertake large-scale operations

and realize it s advantages. In the absence of such an organization individuals cannot

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benefits fully even from their own resources. But when these resources are used together,

they result in greater gain than if they were used individually and separately.

9.4.2 Mutual help and Sharing

It is an institution which makes it possible to organize resources on the basis of

mutual help and for sharing benefits rather than on the basis of exploitation of one

another which characterizes the exploitation of one another which characterizes the

prevalent system of the use of resources. In the system of imperfect competition that

actually prevails, every individual is busy in his game of amassing wealth in utter

disregard of what happens to fellow men and society. The rules of market-play are such

that people who have more wealth succeed in seizing more of the community‟s resources

for their personal benefit. On the other hand, people with meager resources, unable to

play the market game, find themselves increasingly squeezed. This point is of special

relevance to poor countries like India where the size of national income and the amount

of wealth to be distributed are very small and where there are gross inequalities between

the poor and the rich. Cooperatives, by bringing together people of small means, enable

them to reap benefits for themselves and at the same time harmonize their aims with

those of the society. This organization thus does away with the exploitation of the

imperfect market.

9.4.3 Softens Class Conflict

Class conflict can be considerably toned down with the help of this institution.

If we succeed in basing the entire functioning of the economy on the principle of

cooperation and thus eliminate cut-throat competition and monopoly, we can hope to

reduce the intensity of class-war between labourers and capitalists. Even if the

distribution of income continues to be determined by the extent of property owned and

the amount of work performed by people, cooperation among different classes for

purposes of production and for welfare activities of the people would be to the benefit of

all. As a result, the forces of the class-conflict will be weakened.

9.4.4 Lessens Bureaucratic Evils

This institution is also helpful in curbing the evils of bureaucracy. In capitalist

countries, where governments regulate market, or countries where resource-use is

determined by centralized planning, there have emerged many evils of bureaucracy.

Time-con-summing procedures of officials, form-filling, graft, administrative snobbery

etc., have adversely affected the enterprising spirit, and enthusiasm of the people. As a

result, there is little desire and will left with people to work hard, to save and to invest.

Cooperative institution is an ideal way to end bureaucracy. Under this institution, worker,

investors and savers get together, decide matters and work according to decisions taken

jointly. In such a context, there is obviously no need for bureaucracy.

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9.4.5 Overcomes Handicaps of Agriculture

Being an agricultural country, cooperation is of special relevance to India.

Agriculture is an occupation where a very large number of agricultural workers are

scattered over a very large area. As against this, non-agricultural businesses are

concentrated in a limited space. Many people come to work and go back home after work

is over. Not so in the case of agriculture. Scattered over large areas, agriculturists have

their homes near their place of work. In the context of this, one may mention two special

features of Indian agriculture which have kept this occupation in a state of backwardness.

The farmer in India looks upon agriculture not as a business, but as a way of life and,

therefore, runs it on the basis of old and traditional values of an agrarian society. Further,

Indian farmers, by the large, are very small and poor. They are chronically short of land,

capital, know-how, etc. They conduct agriculture on a small-scale and use old and

primitive farm-practices. On account of the defective institutional arrangements, they

have no incentives for putting in hard work or for making improvements in agriculture.

In the light of the above mentioned features of agriculture, the adoption of the principle

of “cooperation” is essential because it is the only peaceful method that can overcome the

drawbacks of Indian agriculture.

9.4.6 Helpful for Small and Cottage Industries

Cooperation can also be of great help in running small-scale and cottage

industries. Even if the entire working of these industries is not based on the principle of

cooperation, some of its aspects can be usefully organized on this basis. Such activities as

the purchase of raw materials and marketing of finished goods can be profitably

undertaken on a cooperative basis.

9.4.7 Instruments for Planning

Cooperative institutions can functions as instruments of great significance in the

promotion of planned growth of the country. This they can do in two ways. In the first

place, their establishment will increase the resources of each one of those sectors where

they are adopted. Secondly, it will become very easy to formulate policies and to

implement them. The reason is that these institutions will provide channels for

consultation with and participation of people on a voluntary and democratic basis.

9.4.8 Growth and Structure

The cooperative movement started in the beginning of the 20th

century. It has all

along been mostly confined to agriculture, and largely for the supply of credit. Non-

agricultural cooperatives, and those located in urban areas have progressed very slowly.

Overall the growth of cooperative movement remained unsatisfactory before

independence. Since then its pace has become fast.

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9.5 Recent Trends

In recent years there have emerged certain tends which are noteworthy these are

indicative of the right direction the movement has taken, and which also point to bright

prospects for its future growth. Among these developments, the major ones are the

following.

9.6 Rapid Growth

Overall the cooperative movement, both in the rural and the urban areas, has

made large strides forward. There is a large increase in the number of cooperative

societies serving various purposes such as supply of credit, marketing of produce,

processing of raw materials etc. There is also a large jump up in the membership of these

societies. Very substantial progress has also marked the movement in respect of finances

both in respect of capital and advances. Most of the progress has, however, taken place in

the sphere of agricultural credit. The numbers of primary agricultural credit societies,

supplying short-term credit, and the land development banks, extending long-term loans,

have increased very considerably. These agencies cover almost all the villages in the

country. The credit extended to agricultural has increased massively from a mere Rs. 24

crore in 1950-51 to as much as Rs. 26,959 crore in 2003-04. The share of cooperative

credit stands high in the total institutional credit (i.e., by cooperatives, commercial banks,

and regional rural banks) with its share at about 31 percent.

9.7 New Directions

During the past few years, some beneficial and important changes have taken

place in the cooperative movement which has given it quite a new and progressive slant.

Among major changes are the following: (a) The scope of cooperative societies, which

till recently was limited, is being extended. An increasing stress is being laid on the need

to diversify its activities. In addition to the provision of credit, cooperative societies have

been organized for various other purposes such as for farming, for supply of inputs, for

distribution of consumer goods, etc. (b) In place of single-purpose societies, emphasis is

now being laid on multipurpose societies. These societies laid on multipurpose societies.

These societies are being designated “service cooperatives”. In a similar way, instead of

tackling each rural problem separately, an integrated view of problems is being taken (c)

The maximum number of societies is being run on the basis of limited liability. In this

way the size of societies is being extended on the basis of scientific principles, and (d)

the cooperative movement now is no longer a movement for the solution of certain

agricultural problems; it has now become a powerful instrument of rapid growth. The

cooperatives have been given a very important position in the fulfillment of certain

objectives such as procurement of food grains for fair-price shops etc.

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9.8 Participation of Government

Right from the beginning of the movement, the government has been actively

promoting it. In the last few years, however, it has undertaken some very important steps

in several directions towards its further development. In addition to giving greater

financial and other help, the government has in various ways extended its assistance in

strengthening the quality of the cooperative movement. One is the efforts made by the

government to provide to cooperative institutions educated personnel and the right type

of leadership. Two, it is adding to the responsibilities of these institutions by entrusting

them with the work of distributing several commodities. Three, the government is

seeking its participation in the performance of national tasks. For example, the

implementation of the policy of procurement of food grains is being partly done through

these institutions. Four, the laws relating to cooperatives and the rules about their

working are being modified to make these institutions strong both quantitatively and

qualitatively. Besides giving large financial help, the reserve bank of India contributes a

lot to the promotion of a healthy cooperative movement through its several activities,

such as supervision, research, training facilities, etc. there has also been a large increase

in the financial help extended by the state bank of India and the big commercial banks

after their nationalization. In addition, some new institutions have been set up at the

national and state levels to promote cooperatives on healthy lines. As a result there is

now more of cooperation and coordination among the different constituents of the

cooperative structure.

9.9 Cooperative Structure

The cooperative structure in the country consists of different constituents. At the

base of this structure are primary societies which render various types of services. Of this

a large number, about 80 percent, is concerned with agriculture. Most of these societies,

about 60 per cent, deal with credit. Thus a large proportion of primary societies is related

to agriculture and credit. This feature of the country‟s cooperative structure is natural.

The reason is that India is an agricultural country and the problem of credit has all along

been a serious one, mostly for farmers. In fact, the cooperative movement in the country

was initiated to solve this problem of credit for agriculturists. In the sphere of

cooperative credit, there are, over and above the primary societies, central banks at the

district level and above them are banks at the state level, known as apex banks. The

function of supplying long-term credit though credit cooperatives is performed by

separate institutions, called land mortgage or land development banks.

9.10 Primary Societies

Primary cooperative societies, which form the base of the structure, perform

various functions relating to such things as credit, irrigation, marketing, transport, etc.

these are generally divided into two groups: (i) credit societies; and (ii) non-credit

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societies. Each one of these two groups is further split up into two subgroups; (a)

agricultural societies, and (b) non agricultural societies. Agricultural societies, credit and

non-credit, are to be found in rural areas and non-agricultural societies, credit and non-

credit, in urban areas. At least ten persons are required to form a primary society. The

working committee, whose members are elected annually, conducts its activities. The

capital of the society is drawn from several sources, like entrance fee from members,

deposits, issue of shares, and money received from the government and other institutions.

Different societies undertake different functions. Credit societies advance short-term and

medium-term credit. A part of the profit from the working of societies has to be kept in

reserve. These societies are given certain concessions by the government with regard to

income tax, registration fee, etc.

9.11 Central and State Banks

As noted above, the supply of credit is the most important service being rendered

by the cooperative movement. For supervision, and financial assistance to cooperative

credit-societies, there are central banks and state cooperative banks. Central banks

supervise the functioning of primary societies of a district or a part of district and offer

financial assistance to them. In addition to primary societies, individuals can also become

members of these banks. Their capital is drawn from public deposits, share capital and

loans from other sources. Because of a variety of sources from which these banks draw

money, they act as a link between cooperative societies and the money market. By

diverting funds of surplus societies to the needy societies, these banks function as

balancing centres. Central banks also perform ordinary banking functions such as

accepting deposits, transacting through cheques, etc.

9.12 Apex Banks

At the top of cooperative credit is the state cooperative bank at the state level,

known as the apex bank. It controls the working of central banks and finances them, and

through them helps primary cooperative societies. It also acts as a link between the

Reserve Bank of India from which it borrows and central banks and primary societies. It

directs the cooperative movement in its state. Ordinary cooperative societies are its

members. But in certain states individuals have also been permitted to become its

members. Its capital comes from share-capital, public deposits, and loans and advances

from the State and the Reserve Bank of India, in addition to matters connected with the

cooperative movement, it performs other banking functions also.

9.13 Land Development Banks

The above mentioned institutions are concerned with short- and medium-term

credit. Long-term loans are given by land development banks. In most states the struc-

ture of these banks consists of two parts. At the state level there is a central land

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development bank and below it at the block, tensile, sub-division and district levels,

there are primary land development banks. In some states it is not so. In these states

there is a unitary structure; a central bank at the state level which has branches through

which it functions. Land development banks obtain their funds from share- capital,

reserves, deposits and issue of bonds, and .debentures. However, the major part of their

resources is drawn from the floating of ordinary debentures in the market. The investors

in these debentures are the Life Insurance Corporation, Commercial Banks, the Reserve

Bank of India, Cooperative Banks and Central and State Governments.

Besides the three-tier structure of cooperatives at the state level, there are other

credit agencies specially established for this purpose. These are: the National Bank for

Agriculture and Rural Development (NABARD) to supplement the long- term resources

of certain institutions, like the land development banks, state cooperative banks and

scheduled commercial banks; the Rural Electrification Corporation to promote and

finance the setting up of rural electric cooperatives; and the National Cooperative

Development Corporation for promoting programmes for production, processing, storage

and marketing of agricultural produce through cooperative societies.

9.14 Review and Reform

The cooperative movement has been in existence for over 100 years. The

progress it has made during this period needs to be evaluated with a view to obtain a

correct picture of its present position and formulate policy for its future growth.

Diametrically differing views exist about the progress made by the cooperative

movement. There are some who (denounce it as a total failure. Others, though they do

not regard it as a complete failure, point out many weaknesses and shortcomings in the

movement. There are still those in whose opinion the cooperative movement has been a

success. Before we finalize our view about the progress of the movement, let us take up

these differing assessments.

9.15 Serious Shortcomings

Those critics of the cooperative movement who regard its progress unsatisfactory

point out the following major failures.

9.16 Several Failures

Cooperative has not fulfilled the main purpose for which the movement was

initially launched, namely, supply of credit to the farmers and to save them from the

clutches of the moneylenders. It has not much to show in the field of non-credit spheres.

In this connection they point to the tardy growth of cooperatives in the field of

processing of agricultural produce, marketing, distribution of consumer products etc. It is

pointed out that the movement is very inadequate and that it has performed very poorly

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in urban areas. The cooperatives have not as yet covered all the areas, particularly the

backward areas of the north-eastern region. Many weaker sections of the population such

as scheduled castes and scheduled tribes continue to suffer from the gross inadequacies

of cooperatives.

9.17 Several Weaknesses

Another set of critics do not regard it a failure. But they opine that in view of

certain weaknesses of the movement, it has not made satisfactory progress and that its

working leaves much to be desired. They point to the following main weaknesses of the

movement. Cooperative societies do not command adequate resources. There is no

worthwhile increase in saving by members. Even from the point of view of the use of

resources, it is pointed out that the working of these societies is so deficient that very

often the loans advanced by the Reserve Bank of India are not fully utilized. Further

farmers are not adequately supplied with credit for all their needs. As a result, many

farmers, in particular small farmers are unable to get out of the clutches of

moneylenders. It is for this reason that farmers do not become full supporters of the

cooperative movement. Because of its preoccupation with the supply of credit, the

movement has not done much in the non-credit spheres. The movement is neither

properly managed, nor does it find the right type of leadership. Evils like favouritism,

nepotism, etc., have emerged, particularly in connection with the distribution of its

resources among members. The management of these institutions often passes into the

hands of big landlords who use them for their private gains. The principle of self-

reliance, which is basic to the movement, is not promoted. For a considerable part of

their finances, these institutions depend upon outside sources. Their own resources, viz.,

share money and deposits, do not show much increase. There is then the weakness in the

financial working of the credit societies, with large overdue in some years rising to as

much as 45 per cent of loans. It is pointed out that even after its existence for over 100

years, people have not developed much faith in the movement. They still regard it as a

government agency for the grant of loans and other services, and they do not come

forward to promote it and treat it as their own. Thus, it is argued that the cooperative

movement has not succeeded in fully solving any problem. It has succeeded in doing, in

the context of the large number of problems of this big country, amounts merely to

scratching the surface of the earth.

9.18 Important Achievements

The criticisms that regard cooperative movement a total failure or replete with

weaknesses seem to be rather exaggerated. One should not forget that despite failures

and weaknesses, it has produced a beneficial impact on the country. One should,

therefore, keep this in mind before one makes a balanced assessment of the movement.

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9.18.1 Economic Benefits

The cooperative movement has resulted in many economic benefits. A large

amount of credit at low interest is now available in villages. Credit advanced by

cooperative societies and land development banks is definitely cheaper than that given

by moneylenders. Besides, the credit given by moneylenders too is now available at

lower rates of interest than before. To an extent the dependence of farmers on

moneylenders has also been reduced. The habit to save and use the banking media for

ordinary transactions has received a fillip among the people in general and among rural

people in particular. As a result, a part of the hoarded wealth has also begun to be used

for productive purposes through banks. Many benefits have accrued from non-credit

cooperative societies. Farmers have benefited in respect of marketing of agricultural

produce, purchases of agricultural inputs, supply of irrigation facilities, etc. In the non-

agricultural sector craftsmen engaged in small and cottage industries, small producers

and consumers have gained much from this movement. Of course, it needs to be

admitted that as compared to the agricultural sector, the progress made by the

cooperative movement in the non-agricultural sector is rather very limited.

9.18.2 Moral, Political and Educative Benefits

There are then benefits which show themselves in terms of the uplift of the

morals, polity, and the education of the people. Of course, these cannot be put into

statistics. But there is no doubt that the people have gained much in these respects too.

For example, at the time of enrolment of members, it is insisted that individuals seeking

membership should not be of bad reputation, should not be addicted to gambling or

liquor, and should be those who care about one another's interest. This does help in

raising the moral stature of the people as also of the movement. Further, the requirement

of regular elections to the offices of the cooperative institutions inculcates a healthy

political awareness among the members. Again, the experience in working the

movement has the educative influence of knowing how strength emanates from unity

and cooperation among members. Besides, members also feel the need for receiving

appropriate education and training for the administration of these bodies in respect of

the maintenance of accounts, dealing with the government, and interacting with other

people and institutions.

9.18.3 Social Benefits

The cooperative movement has contributed a great deal in changing and

improving the traditions and customs of the people, curbing wasteful expenses and

furthering the habit of keeping expenditure within the limits of income. Besides,

cooperative institutions have made arrangements in many villages for drinking water,

drainage, hospitals, entertainment, etc. Taking an overall view, it can be said that the

cooperative movement, has not been a total success. It has failed in some important

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respects. It has also developed some serious weaknesses. But it must also be stressed

that it has some successes to its credit also. As such the picture of its performance is a

mixed one, with the overall impression that the movement has recorded limited

achievements.

9.19 Causes of Slow Progress

Despite recent rapid growth, the overall progress of the cooperative movement

during over 100 years of its existence is unsatisfactory. It is, therefore, necessary to

know the causes of weak performance of the movement and on that basis take such steps

as would promote a fast growth of the cooperative movement.

9.19.1 Interference of Government

The cooperative movement in India was initiated in 1904 under the auspices of

the British Government. Right from the beginning the government had adopted an

attitude of patronising the movement. Cooperative institutions were treated as if these

were part and parcel c\f the administrative set-up of the government. The government

interference thus became an essential element in the working of these institutions As a

result, people's enthusiasm for the movement did not grow. The movement's

independence and self-reliance existed only on paper. After the attainment of

independence, in particular after the beginning of planning, some healthy changes in the

attitude of the government did take place. But even then the cooperative movement has

not become a full-fledged people's movement. Even now quite often cooperative

societies are imposed upon the people. This does bring about an increase in the

membership of the societies. But the spirit of cooperation cannot flower fully in these

circumstances.

9.19.2 Lack of Awareness

People are not well informed about the objectives of the movement, the

contributions it can make in rebuilding society, and the rules and regulations of

cooperative institutions. Unfortunately, no special efforts have been made in this

direction. People look upon these institutions as means for obtaining facilities and

concessions from the government. So long as people expect to get something from the

government, they see to it that societies somehow continue to function. Lack of

education, dirty politics of the village, caste-ridden elections to the offices of

cooperative societies, bureaucratic attitude of government officers at the lower rank are

some of the hurdles in spreading correct information about the cooperative movement

and in educating the people about its true character and vital role.

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9.19.3 Inadequacy of Trained Personnel

The working of this movement on right lines has also suffered from the

inadequacy of trained personnel right from its inception. Lack of trained personnel has

been caused by two major factors. In the first place, there has been for long a lack of

institutions for the purpose of training personnel. Secondly, because of the unsatisfactory

working of cooperative institutions, efficient personnel did not feel attracted towards

them.

9.19.4 Functional Weaknesses

The functioning of cooperative societies, too, suffers from several weaknesses.

Some of these are: taking no care of the needs of credit seekers or their repaying

capacity at the time of granting loans; making no adequate provision for the return of

loans; unsatisfactory keeping of accounts; faction politics in management; lack of

coordination among the various divisions of the cooperative structure; too much

dependence on outside sources for finance; lack of adequate auditing etc. Such

weaknesses have prevented them from progressing on healthy lines.

9.19.5 Restricted Coverage

The cooperative movement has also suffered on account of two important

limitations on its working. The size of these societies has been very small. Most of these

societies are confined to a few members and their operations extended to a village or

two. As a result, their resources remained limited, which make it almost impossible for

them to expand their resources and to extend the area of their operations. Most of the

societies have been single- purpose societies. For this reason, these societies are unable

to take a total view of the persons seeking help, nor can they analyze and solve problems

from different angles. The help these societies extend thus cannot be adequate. By

assessing the person and the problem only from one angle, these societies neither help

properly the person, nor make a desirable use of their resources. Under these

circumstances it has not been possible for these societies to make much progress.

9.19.6 Limited Placing

Another reason for its slow growth is that the movement has not been given a

proper placing in the economy as per its important role. For example, the cooperative

movement was never conceived as part of a bigger plan. At the most it was looked upon

as another institution through which the government could function. As a result, this

movement never reached people in the right manner. Neither its growth took place

according to any plan, not did it become a people's movement. It just grew at its own

pace and that too haphazardly.

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9.20 Measures for Reform

Despite many and serious deficiencies of the movement, it is necessary to

emphasize that it remains the only hope for the vast masses of the country. It is,

therefore, essential that it is so reformed that it performs its great role in a satisfactory

manner. With this in view, the reforms need to be such as overcome its shortcomings,

consolidate its gains, and strengthen its working so that it can spread further along

healthy lines. For all this the following reforms are called for.

9.20.1 Reorganization of Primary Societies

The first and the foremost improvement concern the reorganization of primary

societies so that they can function properly. For this reorganization three steps are called

for. weak and inefficient societies should be wound up or merged with strong and

efficient societies. Such a step will no doubt reduce the number of societies, but this is

by itself not a bad thing. Otherwise the weak societies would undermine people's

confidence in the movement and cause a setback to it from a long-term point of view.

Small societies should be merged to organize large societies. With large amounts of re-

sources at their disposal, big societies can avail of certain facilities which small societies

cannot secure. For example, these societies can afford to engage highly trained and

competent personnel and thus conduct their business efficiently. Besides, these societies

can, to some extent, face some deficits or bear the burden of overdue of their members.

Small societies cannot do either of these. It is for these reasons that so many societies in

India are idle. It can, of course, be said in favour of small societies that they have more

intimate knowledge about their members and their problems. But because of the

smallness of resources, these societies neither function efficiently, nor are they able to

do much for their members. With regard to the size of a society, it is necessary that the

size should not be so large that members cease to have any communication with one

another or that it becomes difficult to keep proper control over the functioning of the

society. In view of these, it is being emphasized that in general the size of societies be

fixed on the basis of "one village, one society." The Mehta Committee and the National

Development Council have also supported this view. Instead of single-purpose societies

multipurpose societies need to be organized. Superficially single-purpose societies

appear to be more useful because each one would concentrate on a specified function.

But experience suggests that unless problems of the people are viewed and solved in an

integrated way, the cooperative movement can make only limited progress. Mul-

tipurpose societies can take a balanced view about the needs of its members and can

meet them accordingly. As a result, the resources of such societies are utilized efficiently

and at the same time members derive the greatest possible advantage from the resources

placed at their disposal. In the last few years the cooperative movement has gained much

from the formation of such societies.

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9.20.2 Ensuring Efficient Functioning

The management and working of cooperative institutions are conducted

efficiently. For this there are at least three important measures which need to be under-

taken. The loans from credit societies should be granted in such a manner and under

such conditions that these are used productively and not misused. It is in this way that

the resources of the movement will be correctly used and their repayment ensured. And

it is only then that the problem of overdoes can be properly tackled. It is necessary that

relations among the different constituents of the cooperative structure, i.e., primary

societies at the base, and organizations at central and state levels are of the right type,

and that there is close coordination among their activities. Their relations and the

coordination among their working should be so institutionalized that they work together,

mutually helping, instead of opposing one another. Similarly, there should be close

integration among cooperative institutions, the Reserve Bank, the State Bank, the

nationalized commercial banks, the National Bank for Agriculture and Rural

Development, and the government. It does not mean that the government or any other

institution should adopt a patronizing attitude towards it. What is needed is that relations

among them should be so arranged that every institution, with a view to raising its

contribution and promoting the cooperative movement, works in collaboration with

others.

To impart efficiency to its working and to humanize its functioning, it is

necessary to enlist the services of trained administrators and devoted workers. For the

provision of such personnel, adequate arrangement should be made. Alongside this, it is

essential that the procedures of work of these institutions are made simple, straight and

convenient; in other words, the hold of bureaucracy should be done away with.

9.20.3 Spreading the Movement

The measures suggested above to improve upon the present situation of the

cooperative movement will at the same time help speed up its rate of growth and its

spread throughout the country. But there are other steps which must be taken to quicken

the pace of its extension along the right lines. It should be recast into a people's

movement so that people start owning it, and cease regarding it as a government

department. For this, arrangements should be made to provide facilities for educating

people about the movement. Educational institutions at various levels, radio,

newspapers, posters, television and other mass media can be used for this purpose.

Greater participation of the right type by the government is essential for the

spread of the movement. In this connection, it needs to be stressed that government

participation should not take the form of interference or domination, but as something

that promotes the development of the movement along healthy lines. Of course, it can be

contended that it does not behove such a movement, to seek government help. But in a

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backward country like India, where most people are illiterate and tradition bound,

government help in a healthy way is necessary for the growth of the movement at a rapid

rate and along right lines. The cooperative movement should be conceived and

developed as a part of the national economy. Along with public and private sectors, it

should also be treated as a separate sector in its own right. In fact, of the three sectors

(namely, the public sector, the private sector, and the cooperative sector), the

cooperative sector alone can claim to be a socialist one. Therefore, for its extension,

more resources should be allotted to it under the plans.

There is the need for extending the activities of the movement in different

regions of the country. As yet the movement has spread only in a few states, other states

in particular those in the north-eastern region are lagging far behind. To bring about

regional equality, the pace of its growth in backward regions needs to be made specially

faster. There is the urgent need for helping the weaker sections like the scheduled castes

and scheduled tribes to form cooperatives. For this appropriate concessions and facilities

need to be given to such societies. For improving the working of cooperative institutions

and to promote its future growth on healthy lines, it is essential to arrange for its

continuous inspection and research into its problems. These measures will help to

uncover the difficulties of the movement and will enable us to remove them.

9.21 Conclusion

The above-mentioned suggestions, if implemented fully, will put the cooperative

movement on a sound basis, and make it important enough to influence the Indian

economy along healthy lines. With the Panchayat system in place in most of the states,

there is a greater scope for extending the sphere of cooperative movement. Local re-

sources can be directed towards development of the infrastructure as well as economic

activities at the local level. Rural development can certainly receive a greater impetus

from this movement and by extending it to larger area.

Important Questions

Explain to term cooperatives.

What are the functions of cooperatives?

Explain importance of cooperatives

How cooperatives help agricultural sector and to enhance the farmers living

conditions in India?

Explain the causes slow progress of cooperatives in India.

Explain the benefit of cooperatives in India

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LESSION-10

CROP INSURANCE

10.0 Objectives

To understand different kinds of crop insurance

To bring out National Agricultural Insurance Scheme

To analyse Benefits expected from crop insurance Scheme

Contents

10.0 Objectives

10.1 Introduction

10.2 Crop-yield insurance

10.2.1 Crop-hail insurance

10.2.3 Multi-peril crop insurance (MPCI)

10.2.4 Crop-revenue Insurance

10.3 History of Crop Insurance in India

10.4 Crop Insurance

10.5 Recent trends in India

10.6 National Agricultural Insurance Scheme

10.7 The Scheme covers following crops

10.8 Loanee Farmers Coverage

10.8.1 Compulsory Coverage

10.8.2 Optional Coverage

10.8.3 Non-Loanee Farmers Coverage

10.9 Premium

10.10 Claims under NAIS

10.11 Benefits expected from the Scheme

10.12 Conclusion

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10.1 Introduction

Crop insurance is an insurance arrangement aiming at mitigating the financial

losses suffered by the farmers due to damage and destruction of their crops as a result of

various production risks.

10.2 Crop-yield Insurance

There are some classifications of crop-yield insurance.

10.2.1 Crop-hail Insurance

Is generally available from private insurers (in countries with private sectors)

because hail is a narrow peril that occurs in a limited place and its accumulated losses

tend not to overwhelm the capital reserves of private insurers. In early 1820s, crop-hail

insurance were available to farmers in France and Germany. That is among the earliest

forms of hail insurance from an actuarial perspective. It is possible to implement the hail

risk into financial instruments since the risk is isolated.

10.2.3 Multi-peril Crop insurance (MPCI)

Coverage in this type of insurance is not limited to just one risk. Usually multi-

peril crop insurance offers hail, excessive rain and drought in a combined package.

Sometimes, additional risks such as insect or bacteria-related diseases are also offered.

The problem with the multi-peril crop insurance is the possibility of a large scale event.

Such an event can cause significant losses beyond the insurer's financial capacity. To

make this class of insurance, the perils are often bundled together in a single policy,

called a multi-peril crop insurance (MPCI) policy. MPCI coverage is usually offered by a

government insurer and premiums are usually partially by the government. U.S.

Department of Agriculture is known to implement the earliest Multi Peril Crop Insurance

program in 1938. Federal Crop Insurance Corporation managed this multi-peril insurance

program since then. The Risk Management Agency (RMA) is active in calculating the

premiums based on individual risk factors since 1996.

10.2.4 Crop-revenue Insurance

Crop-yield times the crop price gives the crop-revenues. Based on farmer's

revenues, crop-revenue insurance is based on deviation from the mean revenue. RMA

uses the futures prices on harvest-times listed in the commodity exchange markets, to

determined the prices. Combining the future price with farmer's average production gives

the estimated revenue of the farmer. Accessing the futures market offers enables revenue

protection even before the crop planted. There is a single guarantee for a certain number

of dollars. The policy pays an indemnity if the combination of the actual yield and the

cash settlement price in the futures market is less than the guarantee. In the United States,

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the program is called Crop Revenue Coverage. Crop-revenue insurance covers the

decline in price that occurs during the crop's growing season. It does not cover declines

that may occur from one growing season to another.

10.3 History of Crop Insurance in India

In India a multiperil crop insurance called National Agriculture Insurance Scheme

(NAIS) was implemented. This scheme is being implemented by Agriculture Insurance

Company of India, an Indian government owned company. The scheme is compulsory

for all farmers who take agricultural loans from any financial institution. It is voluntary

for all other farmers. The premium is subsidized for farmers who own less than two

hectares of land. This insurance follows the area approach. This means that instead of

individual farmers, a specific area is insured. The area may vary from gram panchayat

(an administrative unit containing 8-10 villages) or block or district from crop to crop or

state to state. The claim is calculated on the basis of crop cutting experiments carried out

by agricultural departments of respective states. Any shortfall in yield compared to past 5

years average yield is compensated

In a country like India, where crop production has been subjected to vagaries of

weather and large-scale damages due to attack of pests and diseases, crop insurance

assumes a vital role in the stable growth of the sector. An All-Risk Comprehensive Crop

Insurance Scheme (CCIS) for major crops was introduced in 1985, coinciding with the

introduction of the Seventh-Five-year Plan and subsequently replaced by National

Agricultural Insurance Scheme (NAIS) with effect from 1999-2000. These Schemes have

been preceded by years of preparation, studies, Planning, experiments and trials on a

pilot basis.

10.4 Crop Insurance

In pursuance of the announcement made in the Union Budget, 2002-03 for

setting-up of an Agriculture Insurance Corporation for farmers, a new Company, viz.,

Agriculture Insurance Company of India Ltd. (AICI) was established in 2002 with the

authorised and paid up capital of Rs.1,500 crore and Rs.200 crore, respectively.

NABARD and General Insurance Company (GIC) have contributed 30 and 35 per cent,

respectively, and four other Insurance Subsidiaries, at 8.75 per cent each to the equity.

One of the objectives for the formation of AICI was to act as the implementing agency

for the Government's 'National Agriculture Insurance Scheme' (NAIS). The company has

obtained Certificate of Registration from Insurance Regulatory and Development

Authority (IRDA). The Pilot Scheme on Seed Crop Insurance that was implemented

through GIC has also been transferred to AICI.NAIS is in operation since 1999-2000 and

is being implemented by 23 states and 2 UTs. So far, 590.55 lakh farmers have been

covered under the scheme. The salient features of NAIS are as follows;

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The premium rates in respect of food crops and oilseeds are determined on the

basis of flat rates of premium or actuarial rates whichever is less as per the scheme in

accordance with the decision of Government of Inida. The rates are ranging from 1.5-3.5

percent of sum insured in respect of these crops under both kharif and rabi.

i. In respect of annual commercial and horticulture crops, the premium rates are

charged on actuarial basis.

ii. The actuarial premium rates are worked out on the basis of yield of the past ten

years as per the data provided by the State Government concerned. The variation

is high due to high variation in the yield during the specified period i.e. ten years.

The premium rates, for example, are high in the case of groundnut and cotton

(risky crops) because of high variation in yield whereas in case of sugarcane and

wheat, the rates are comparatively low since these are stable crops.

iii. The scheme stipulates transition of premium rates from flat to actuarial in case of

cereals, millets, pulses and oilseeds in a period of five years and till such periods,

claims beyond 100 percent of premium are borne by the Government.

iv. In the case of annual commercial and horticulture crops, the implementing agency

is to bear all normal losses i.e. claims up to 150 percent of premium in the first

three years and 200 percent of premium thereafter subject to satisfactory claim

experience.

v. The small and marginal farmers are entitled to a subsidy of 50 percent of the

premium charged.

vi. The scheme provides for compulsory coverage in respect of loanee farmers

whereas non-loanee farmers may opt for insurance cover on voluntary basis.

The AICI has introduced, on a pilot basis, a new rainfall index based insurance

product called Varsh Bima in four states, namely., Andhra Pradesh, Karnataka, Rajasthan

and Uttar Padesh covering 21 rain gauge stations and crops like cereals, pulses and

oilseeds during kharif 2004. NABARD is actively involved through its concerned

officials successful launching and marketing of the scheme.

10.5 Recent Trends in India

Agricultural insurance is primarily covered under the National Agricultural

Insurance Scheme (NAIS) implemented by the Agricultural Insurance Company (AIC) of

India Ltd. This scheme is available to both loanees and non-loanees. During 2010-11, the

Crop and Insurance Schemes covered about 25 percent farmers and crop area in the

country. Further, there is a heavy regional and crop bias in its coverage. Since the

beginning of the scheme in 1999, till the rabi season of 2010-11, 176 million farmers

were extended insurance cover. Out of these, 15.90 percent were in Maharashtra, 14.20

percent in Andhra Pradesh, 12.5 percent in Madhya Pradesh, 10.60 percent in Uttar

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Pradesh, 8.55 percent in Rajasthan, 6.5 percent in Orissa, 6.30 percent in Gujarat and

6.25 percent in Karnataka. These eight States accounted for 76 percent of the total

insurance claims, and 80 percent of insured area under the NAIS. The private sector has

come out with financially viable insurance products in agriculture based on weather

parameters such as the weather index. One such product is the rainfall insurance which

has been developed by the ICICI- Lombard General Insurance Company and by the

IFFCO- Tokio General Insurance Company. Efforts have been made to bring more

farmers under the fold of Crop Insurance by introducing a Weather-based Crop Insurance

Scheme (WBCIS) from the Kharif, 2007 season in selected areas on a pilot basis.

WBCIS is intended to provide insurance protection to the farmers against adverse

weather incidence, such as deficit and excess rainfall, high or low temperature, humidity,

etc. which are deemed to impact adversely the crop production. It has the advantage of

settling the claims within the shortest possible time. Apart from Agricultural Insurance

Company (AIC) of India Ltd. the private insurance companies with experience in rural

insurance and possesing good infrastructure have been allowed to undertake Pilot

WBCIS. Since the Kharif 2007 season, 13 million farmers have been covered under the

Scheme.

A Joint Group was constituted to study the improvements required in the existing

crop insurance schemes and to develop broad parameters of an appropriate and farmer

friendly crop insurance scheme. The Group made an indepth study of crop insurance and

risk mitigation programmes and submitted its report in December, 2004. Based on the

recommendations of the Joint Group and views and comments of various stake-holders, a

Modified National Agricultural Insurance Scheme (MNAIS) has been approved by the

government of India for implementation on a pilot basis in 50 districts during the

remaining two years of the 11th five year plan from the Rabi 2010-11 season. It has

improved features over NAIS as for example: actuarial premium with subsidy in

premium ranging from 40 percent to 75 percent offered to all farmers; only upfront

premium subsidy being shared by the central and state governments on a 50 : 50 basis; all

claims liability to be on the insurance companies; unit area of insurance reduced to

village and village panchayat level for major crops; indemnity for prevented sowing and

planting risk and for post harvest losses due to cyclone; on account payment up to 25

percent advance of likely claims as immediate relief; more proficient basis for calculation

of threshold yield; minimum indemnity level of 70 percent instead of 60 percent;

underwriting by private insurance companies along with AIC.

10.6 National Agricultural Insurance Scheme

From 1972-73 to 1978-79, crop insurance schemes for crops such as cotton,

groundnut, potato etc, was implemented in selected places on "individual approach"

basis. During the period from 1979 to 1984-85, a pilot crop insurance scheme was

implemented for Food crops and Oilseeds on "Area approach" basis. Based on the

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experience of the pilot scheme, a Comprehensive Crop Insurance Scheme (CCIS) was

implemented from Kharif 1985 till Kharif 1999. The present crop insurance scheme, i.e.,

National Agricultural Insurance Scheme (NAIS), launched by the Hon'ble Prime Minister

on 22nd June 1999 replaced the CCIS from Rabi 1999-2000 seasons.To provide

insurance coverage and financial support to the farmers in the event of failure of any of

the notified crop as a result of natural calamities, pests & diseases so as to restore their

credit worthiness for ensuing season. To encourage the fanners to adopt progressive

farming practices, high value in-puts and higher technology in Agriculture to help

stabilize farm incomes, particularly in disaster years.

10.7 The Scheme Covers following Crops

Food crops (Cereals, Millets and Pulses): Some of the crops covered in various

States are Paddy, Wheat, Jowar, Bajra, Maize, Ragi, Korra, Kodokutki, Green

gram, Black gram, Red gram, Horse gram, Gram, Moth etc.

Oilseeds: Some of the crops covered in various States are Groundnut,

Sunflower, Soya bean, Safflower, Castor, Sesamum, Niger etc.

Annual Commercial and Annual Horticultural crops: Sugarcane, Cotton, Potato,

Onion, Ginger, Turmeric, Banana, Pineapple, Jute, Tapioca, Chilli, Cumin,

Coriander, Isabgol, Methi etc.

The crops are selected for insurance if the past yield data for 10 years are

available, and the State Govt agrees to conduct requisite number of Crop Cutting

Experiments (CCEs) during the proposed season.

At present there are 35 different crops during Kharif and 30 different Rabi season

are being insured under National Agricultural Insurance Scheme in the country.

10.8 Loanee Farmers Coverage

10.8.1 Compulsory Coverage

The amount of crop loan availed for the notified crop is the minimum amount of

sum insured covered on compulsory basis.

10.8.2 Optional Coverage

If the loanee-farmer so wishes he may insured his crop for a higher Sum Insured

i.e, upto the value of Threshold Yield (i.e.,guaranteed yield) which is called normal

converge even go for additional coverage upto 150 percent value of average yield in the

notified area. However, for additional coverage, the farmer has to pay premium at

actuarial rate as notified by the State Government.The value of Sum Insured in such

cases is arrived at by multiplying the threshold yield and average yield with the latest

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available Minimum Support Price (MSP) announced by the Govt. or the market price

provided by the State Govt. in case the MSP is not announced.

10.8.3 Non-Loanee Farmers Coverage

Coverage at normal rates of premium is available upto the value of Threshold

Yield Additional coverage upto 150 percent of the value of Actual Yield can be obtained

by payment of premium at actuarial rates.

10.9 Premium

For Kharif crops Premium is 3.5 percent of Sum insured for all Oilseed crops

and Bajra and 2.5 percent for all others foodcrops including pulses.

For Rabi crops Premium rates are 1.5 percent for wheat and 2 percent for all other

foodcrops including pulses and oilseeds.

However, of the above flat rates and the actuarial rate whichever is lower shall

apply.

For Annual Cmmercial and Horticultural crops atuarial premium rates are

charged.

The premium for Small and Marginal farmers is subsidised to the extent of 10

percent which is shared by the State Govt. and Govt. of India.

10.10 Claims under NAIS

In case of widespread calamities leading to damage and loss of crops, claims are

settled on area approach basis. Any insured crop in a notified area recording lower actual

yield than the guaranteed yield as per the crop estimation surveys conducted by the state

governement., shall automatically become eligible for compensation and claim. The

shortfall in yield is determined for each crop and is the difference between the guaranteed

yield and the current season's actual yield. Shortfall percentage is determined by

expressing the shortfall as a proportion of guaranteed Yield. Claim is then computed by

multiplying the sum insured with the shortfall percentages. Therefore no claims would be

admissible and payable in case the current season's actual yield is more than the

threshold yield. Applicable amounts of claims so arrived at are routed to the farmers

through the banks in case of those farmers who are covered through the banks. Even in

case of non-loanee farmers who approach AIC directly for insurance coverage, the claim

amounts are paid by way of cheques or through designated bank branches such that claim

amounts get credited to their accounts. The claim assessment and payment would be

done after receipt of the requisite yield data from the concerned agencies. The

methodology of claim assessment based on individual approach shall be intimated to all

concerned upon finalising the areas and modalities.

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10.11 Benefits Expected from the Scheme

This Scheme is expected to Be a critical instrument of development in the field

of crop production, providing financial support to the farmers in the event of crop

failure.

Encourage farmers to adopt progressive farming practices and higher technology

in Agriculture.

Help in maintaining flow of agricultural credit.

Provides significant benefits not merely to the insured farmers, but, to the entire

community directly and indirectly through spillover and multiplier effects in

terms of maintaining production and employment.

Streamline loss assessment procedures and help in building up huge and accurate

statistical base for crop production.

10.12 Conclusion

With a view to encourage the farmers to adopt progressive farming practices,

high value inputs and higher technology and to stabilize farm incomes, insurance

coverage in the event of failure of the notified crops as a result of natural calamities,

pests and diseases, the National Agricultural Insurance Scheme (NAIS) has been

introduced in the country from Rabi 1999-2000 season. Under the scheme, at present, 10

percent subsidy in premium is available to small and marginal farmers which is shared

by the Central and respective State Government on 50 : 50 basis along with claims for

normal sum insured and indemnity level for food and oilseed crops. To improve further

and make the NAIS easier and more farmer friendly, Modified National Agricultural

Insurance Scheme (MNAIS) has been implemented on pilot basis in 50 districts from

Rabi 2010-11 seasons. Besides the NAIS and MNAIS, Pilot Weather Based Crop

Insurance Scheme (WBCIS) and Pilot Coconut Palm Insurance Scheme (CPIS) are being

implemented by the government. Despite the various schemes launched by the

government from time to time, agriculture insurance coverage in terms of area, number

of farmers and value of agricultural output insured is very small as compared to the total

number of holdings ajnd farmers (137.8 million as per agriculture census 2010-11), the

total cultivated area (159.2 million hectares) and the value of agricultural output. A

broader base both in terms of area covered and crops insured is necessary for the

viability.

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Important Questions

1. Write short notes on

(i) Crop-hail insurance

(ii) Multi-peril crop insurance

(iii) Crop revenue insurance

2. What is crop insurance? Explain Crop insurance really enhance the farming

practices in India.

3. Point out about National Agricultural Insurance scheme.

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LESSON-11

AGRICULTURAL LABOUR

11.0 Objectives

To study meaning and definition of Agricultural Labour

To study different Categories of Agricultural Labourers

To study Causes of Poor Economic Conditions of Agricultural Labourers

Contents

11.0 Objectives

11.1 Introduction

11.2 Meaning and Definition of Agricultural Labour

11.3 Characteristics of Agricultural Labour

11.4 Organization among agricultural worker

11.5 Agricultural workers are basically unskilled

11.6 Agricultural labour is migratory

11.7 A person of low means

11.8 Lack of legal protection

11.9 Nature of employment

11.10 Indebtedness per household

11.11 Seasonality in employment

11.12 Distribution of additional labour force by sector of activity

11.13 Hours of work

11.14 Housing conditions

11.15 Categories of Agricultural Labourers

11.15.1 Small Farmers

11.15.2 Tenants

11.15.3 Share-Croppers

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11.16 Present Position of Agricultural Labour in India

11.17 Magnitude of Agricultural Labour

11.18 Causes of Poor Economic Conditions of Agricultural Labourers

11.18.1 Low social status

11.18.2 Unorganized

11.18.3 Seasonal employment

11.18.4 Paucity of non-agricultural jobs

11.18.5 Rural indebtedness

11.18.6 Increase in population

11.19 Government Measures Pertaining to Agricultural Labour

11.20 Indian Constitution

11.21 Minimum Wages Act

11.22 Other legislative measures

11.22.1 Organization of labour cooperatives

11.22.2 Employment Guarantee Scheme

11.22.3 Special Area Programme

11.22.4 Land reclamation and settlement

11.22.5 Abolition of bonded labour

11.22.6 Provision of housing sites

11.23 Other measures

11.24 Suggestions for Improvement

11.24.1 Better Implementation of Legislative Measures

11.24.2 Improving the Bargaining Position

11.24.3 Resettlement of Agricultural Workers

11.24.4 Creating Alternative Sources of Employment

11.24.5 Improving the Working Conditions

11.24.6 Public Work Programmes

11.24.7 Raising the Standard of Living

11.24.8 Social Security

11.25 Conclusion

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11.1 Introduction

The most disquieting feature of Indian rural economy has been the growth in the

number of agricultural labourers engaged in crop production. They get unusually low

wages, conditions of work put an excessive burden on them and employment which they

get is extremely irregular. This lesson deals with these major aspects of the agricultural

labour. It is widely known to every body that the agricultural workers are the most

neglected class in the Indian masses. Growth in the number of agricultural workers-

including the cultivators and agricultural labourers engaged in crop production, has been

the most disquieting features of the rural economy of India. The phenomena of

underemployment, under-development, feeling of want, poverty etc. are simultaneously

lives of agricultural labourers. They get unusually low wages for the work done under the

worst conditions put in excessively burdens on hard work. The opportunity to work is

extremely irregular; hence their income is also low. Since, they possess no skill or

training, they have no alternative employment opportunities either. Socially, a large

number of agricultural labourers belong to schedule castes and schedule tribes. Hence,

they are an oppressed class. They are not organized and cannot fight for their rights.

Because of all these reasons, their economic lot has failed to improve even after four

decades of developmental efforts.

Hence, the problems of agricultural labour are manifold and are mainly centered

round the basic problems of rural economy which include low income, low productivity

and lack of continuous employment. There is a need to tackle these problems

successfully through the more intensive programmes of development in order to improve

the socio-economic conditions and prospects of agricultural labourers.

11.2 Meaning and Definition of Agricultural Labour

Agricultural Labour Enquiry Committee defined agricultural labour as a person

who, for more than half of the total number of days, worked as an agricultural labour. An

agricultural labour may be the small or marginal farmer or an artisan, but when a person

derives his main earning by doing some agricultural work on others farm is called an

agricultural labour.The First Agricultural Labour Enquiry Committee (ALEC) in 1950-

.51 defined this as "those people who are engaged in raising crops on payment of wages."

The basis of this definition was thus the quantum of hired employment during the period

of any year. Accordingly, the Committee laid down that those people should be regarded

as agricultural workers who worked for 50 percent or more days on payment of wages.

The committee also defined on agricultural labour household. If the head of household or

50 percent or more to: the earners report agricultural labour as their main occupation, that

family should be classified as an agricultural labour household.

The Second Agricultural Labour Enquiry Committee (1956-.57) adopted income

as a criterion for demarcating agricultural labour families. As person was deemed to be

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an agricultural labourer and family agricultural house hold if his or her or families major

source of income during the previous year was from agricultural wage. The changeover,

from "work" to "income" seemed more scientific. However, even this was not without

flaws. It is difficult to define the term "agricultural labour" in precise terms. The reason

is that unless capitalism develops fully in agriculture, a separate class of workers

depending wholly on wages does not come up. Since the capitalist relations are in an

under-developed state in India, such clear-cut class of agricultural workers has not yet

evolved. Difficulties in defining agricultural labour are compounded by the fact that

many small and marginal farmers also work partly on the farms of others to supplement

their income. To what extent should they be considered agricultural labourers are not

easy to answer.In the context of Indian conditions the definition is not adequate because

it is not possible to completely separate those working on wages from others. There are

people who do not work as wages throughout the year but only for a part of it. Hence, the

first A.L.E.C. used the concept of "agricultural labour household". This concept was

based upon the occupation of the worker. But the second A.L.E C. substituted income

criteria and said that an "agricultural labour household" is one whose main source of

income is wages from agriculture."

According to National Commission on labour, an agricultural labourer is one

"who is basically unskilled and unorganized and has little for his livelihood other than

personal labour", Thus, agricultural workers whose main source of income is in the form

of wages obtained as a result of working on land fall in this group. These workers have

nothing except their labour to earn livelihood, they are unskilled and unorganized, It

consist of two sub-categories: i. landless agricultural labour, and ii, very small cultivators

whose main source of earnings, due to their small and sub-marginal holdings, is wage

employment. Landless labour in turn can be classified into two broad categories: a,

permanent labour attached to a cultivating household, and b, casual labour. The second

group can again be sub-divided into three subgroups: cultivators, share-croppers and

lease holders. Permanent or attached labourers generally work on annual or seasonal

basis and they work on some sort of contract. Their wages are determined by custom or

tradition. On the other hand, temporary or casual labourers are engaged only during peak

period for work. Their employment is temporary and they are paid at the market rate.

They are not attached to any landlord. Under the second group come small farmers who

possess very little land and therefore, have to devote most of their time working on the

lands of others as labourers. Share-croppers are those who, while sharing the produce of

the land for their work, also work as labourers. Tenants are those who not only work on

the leased land but also work as labourers.

The Agricultural Labour Enquiry Committee differentiated between the

"attached" and "casual" labourers. The former are those who are employed for a period of

times i.e., on annual or seasonal basis by the assignment of lodging on the farm, who are

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under some sort of contract with the employers, and in whose case the mode of payment

is determined by custom and tradition. They are to work for their employers and are not

ordinarily free to seek employment elsewhere, while the latter, ie., the casual are engaged

in peak period and attend to rush work only. Such labourers are free to leave one job for

another whenever they please and they are paid at the market rates. In most cases, the

difference between the two classes is stated initially in terms of period for which a man is

engaged and whether or not he receives daily wages.

According to the First Agricultural Lahour enquiry (1950- 51), 90 percent of the

total agricultural labour families were 10 percent attached and 90 percent casual workers.

The corresponding figures for the second enquiry (1956-57) are 27 percent and 73

percent respectively. The percentage of agricultural labour in rural population was 30.4,

of which 50 percent were without land at the time of first enquiry. During the second

enquiry these figures were 24.5 percent and 57 percent respectively. This brief analysis is

enough to prove that even the experts are not agreed upon the definition of agricultural

labour. Accordingly, we must remain content with a working definition. All those

persons who derive a major part of their income as payment for work performed on the

farms of others, can be designated as agricultural workers. For a major part of the year

they should work on the land of others on wages.

11.3 Characteristics of Agricultural Labour

There are certain peculiar characteristics of agricultural labour that help us to

distinguish them from industrial labour.

11.4 Organization Among Agricultural Worker

Agricultural labour is unorganized. Unlike industrial units, agricultural workers

need not work in unions. A lack of contact between workers makes it impossible to

develop any meaningful organization. Industrial workers protect their interest by

organizing themselves into trade unions, but agricultural workers could not organize

themselves because they live in distant places and do not work in large number at one

place. It was suggested that workers should organize themselves through cooperative

societies. It should be noted that conditions in this respect are improving with the

agricultural development, spread of education and political consciousness among

agricultural workers.

11.5 Agricultural Workers are Basically Unskilled

They may not be skilled even in the art of cultivation. Consequently, their supply

is perfectly elastic, and therefore, whatever, they earn is in the nature of transfer earnings.

The employer often uses this position to his personal gain by contracting to pay less than

what the market forces would have warranted otherwise.

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11.6 Agricultural labour is Migratory

It can be drawn from a distant place to the place of work during a busy season.

11.7 A person of low Means

This will be a situation when a small farmer employs another small farmer who

may not have sufficient work to do by himself. A direct contact, therefore, between the

employer and the worker is a distinct characteristic of agricultural labour.

11.8 Lack of legal Protection

Agricultural labor is though covered by agricultural minimum wages rules and

regulations, but usually they are flouted more often than observed in rural areas.

11.9 Nature of Employment

During 1974-75, there has been an all round decrease in the estimated number of

days of wage employment. Where as; in self-employment a definite trend in Rural

Labour households taking up more and more self-employment are evident despite the

fact that there have been fewer opportunities for the labourers to earn their wages from

the non-agricultural operations. Men worked for more days as compared to women and

children. However, the children remained engaged in wage paid employment for more

days as compared to women labourers (table 1 & table 2).

Table- 1

Employment (Number of full days in a year) of Agricultural Labourers (All India)

Sl.No

Agricultural All Rural

Labour

1964-65

Household

1974-75

Labour

1964-65

Household

1974-75

1 Men

a. Wage Employment 242 215 245 214

i. Agricultural 217 193 219 192

ii. Non-Agricultural 25 22 26 22

b. Self-Employment 25 28 25 28

2 Women

a. Wage Employment 160 149 172 148

i. Agricultural 149 138 161 137

ii. Non-Agricultural 11 11 11 11

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b. Self-Employment 18 24 18 24

3 Children

a. Wage Employment 224 194 223 193

i. Agricultural 207 178 207 177

ii. Non-Agricultural 17 16 16 16

b. Self-Employment 22 39 22 39

Table 2 reveals that average daily earnings of all the labourers (men, women and

children) engaged in agricultural and non-agricultural operations recorded sharp increase

(in money terms) during 1974-75 over the earnings reported in the previous enquiry. The

average daily earnings of men for all agricultural operations increased by about 127

percent, for women about 139 percent and that for children about 153 percent during

1974-75 as compared to the last enquiry. How- ever, there was no remarkable variation

between the average earnings for all agricultural and non-agricultural operations as also

between the agricultural and all rural labour households. However, there is a notable

difference between the earnings of men in agricultural and non-agricultural operations

and be- longing to all rural labour households.

Table- 2

Average Daily Earnings in Agricultural and Non-Agricultural Operations

Sl.No

Agricultural All Rural

Labour

1964-65

Household

1974-75

Labour

1964-65

Household

1974-75

I All Agricultural Operations

i. Men 1.43 3.34 1.41 3.26

ii. Women 9.95 2.27 0.89 2.27

iii. Children 0.72 1.82 0.76 1.82

II Non- Agricultural Operations

i. Men 1.54 3.27 1.88 4.09

ii. Women 0.92 2.12 1.18 2.34

iii. Children 0.74 1.84 0.81 1.84

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11.10 Indebtedness per Household

It is evident from the Table 3 that the percentage of households in debt increased

from 60.6 in 1964-65 to 66.4 in 1974- 75. The corresponding figure for all rural labour

households stood at 65.4 in 1974-75 as against 59.2 during 1964-65. As regards the

average debt per indebted household, the situation corresponding became grave by

registering an increase of about 139 and 141 percent in respect of agricultural and all

rural labour households respectively. This table further reveals that money lenders

continued to be the traditional source of borrowing. Borrowings were largely made for

consumption purposes and the average debt per indebted household raised for production

purposes was the lowest.

Table 3: Indebtedness among the agricultural labourers

Sl.No

Agricultural All rural

Labour

1964-65

Household

1974-75

Labour

1964-65

Household

1974-75

1 All agricultural operations

Percentage of households

in debt 60.6 66.4 59.2 65.4

2 Average debt per

household (Rs) 148 387 148 395

3 Average debt per indebted

household (Rs) 244 584 251 605

Recent Trends in India

At the all-India level, approximately 60 percent of the rural labour force and 45

percent of the urban labour force is self-employed. Rural casual labour constitutes the

single largest segment of the total workforce in India. Among rural casual labourers,

agricultural labourers occupy a predominant position. Most of the workers engaged in

agriculture are highly under-employed with very low levels of income. Agricultural

Wages reflect the well being of labour in rural India. The rural agricultural wage rate,

hence, is considered as one of the most robust indicators of economic well-being, not

only of agricultural labourers, but also of the overall rural population. Agriculture is a

labour intensive activity. Cost of cultivation data shows that labor accounts for more than

40 percent of the total variable cost of production in most cases. Therefore, availability of

labour to work in agriculture is crucial in sustaining agricultural production. Raising the

wage levels of casual workers both in agriculture and non-agriculture sectors needs

adequate policy attention. In this regard, stricter implementation of the Minimum Wages

Act, 1948 and targeted employment generation programmes are important.

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Agricultural wages have been traditionally low due to low productivity, large

disguised unemployment in agriculture due to lack of sufficient employment

opportunities elsewhere. However, in recent years there is a perceptible change in this

trend due to rapid economic growth and adoption of policies for employment generation

including promotion of self employment opportunities. Major policy measures

influencing the wage increase are MNREGA and Minimum Wages Act implemented by

the government. There is a steady increase of agricultural wages in all major the states of

India in recent years. The annual average wage in Andhra Pradesh for unskilled

agricultural labor has increased by 28.6 percent in 2009 compared to 2008 and further

increased by 22.5 percent in 2010. Similarly in Orissa the wage increase has been 20

percent in 2009 over 2008 and 30.7 percent in 2010 over 2009. In Punjab the increase has

been 22.2 percent in 2009 and 20.3 percent in 2010. In Tamil Nadu the increase has been

20.4 percent and 27.6 percent, respectively, in 2009 and 2010 in comparison to the

respective previous years. Similar trend has prevailed in all the other States with double

digit growth in wages even exceeding the rate of inflation that prevailed during this

period. Rural wages in Kerala were the highest in the country in the range of Rs.216-305

during 2008-10, followed by Tamil Nadu, Andhra Pradesh and Karnataka in that order in

the Southern Region. In the Northern region, Haryana recorded the highest agricultural

wages in the range of Rs.121-182 during 2008-10 period followed by Punjab in the range

of Rs 110-162, and Rajasthan in the range of Rs.105-139 West Bengal and Uttar Pradesh

followed in that order. Employment opportunities under MGNREGA have made a

significant impact in the rural areas by providing assured minimum employment and

increasing the rural wages. Wages for rural households under the MGNREGA have

increased in Maharashtra from Rs.47 to Rs.72, in Uttar Pradesh from Rs.58 to Rs.100, in

Bihar from Rs.68 to Rs.100, in West Bengal from Rs. 64 to Rs. 100, in Madhya Pradesh

from Rs.58 to Rs.100, in Jammu and Kashmir from Rs.45 to Rs.100 and in Chhattisgarh

from Rs.58 to Rs.100 to name a few states during 2007-10. At the national level, the

average wages paid under the MGNREGA have increased from Rs.75 in 2007-08 to

Rs.93 in 2009-10. In order to optimize synergies to bring convergence between

MGNREGA and schemes of Ministry of Agriculture guidance have been issued to all

State Governments.

11.11 Seasonality in Employment

National Commission on Labour has pointed out that intensity of employment

varies according to seasons. Shortage of lahour is actually felt during peak agricultural

seasons in several areas and a large proportion of labour remains unemployed or under-

employed during the slack season. However, the trend towards reduction in under-

employment has strengthened since 1961. The extent of improvement is not uniform. In

areas where farmers have to take advantage of new agricultural labour has been provided

with work more or less throughout the year.

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11.12 Distribution of Additional labour force by Sector of Activity

National Commission on Labour pointed out that in the 15 years between 1961

and 1976 increase in the non-agricultural working force will have to be 102 percent

against a corresponding increase of only about 36 percent between 1951 and 1961. This

means that the rate of absorption of labour outside agriculture between 1961-1976 will

have to be roughly double of that witnessed in the year 1951-1961. The commission

further pointed out that the number of workers depending on agriculture for their

livelihood will increase substantially, from 116.5 millions in 1961 to 138.6 millions in

1976, that is by 22 millions.

11.13 Hours of Work

The hours of work of agricultural labour are not regulated by legislation. Hours of

work vary from place to place, crop to crop and season to season. It should be noted that

the working hours of agricultural labourers are not very long. Generally, agricultural

labourers work for about 8 hours a day with a break of two hours. There are few

occasions when an agricultural labour has to work for longer hours, that is, during

harvest season; but during this time he is also paid well. It has also been found that piece

workers often work for lesser number of hours while they earn more.

11.14 Housing Conditions

The housing conditions of agricultural labourers are miserable and deplorable.

Their houses are generally situated at places where insanitary conditions of highest order

are found. They are not well built and worst of its kinds. Thus, because of insanitary

conditions, lack of accommodation and poor standard of living, the agricultural workers

are subjected to diseases which are infectious in nature.

11.15 Categories of Agricultural Labourers

In respect of agricultural labour, National Commission on Labour, stated that,

workers in agricultural sector are distributed into three main categories: i) cultivators, ii)

agricultural labour, and iii) workers engaged in forestry, fishing and live- stock, etc. In

the Indian context, the basic classification, attached labourers are attached to some

cultivator household on the basis of a written or oral agreement. Their employment is

permanent and regular. Accordingly, whenever, the master wishes, they are ready to

work on his land. Normally, they are not free to work at any other place. In many

instances, attached labourers also do the task of domestic servants in addition to working

on land. The hours of work are very lengthy and in some cases, attached agricultural

labourers have to work from dawn to dusk in the houses and farms of their employers.

While the casual workers, are free to work on the farm of any farmer and payment is

generally made to them on a daily basis. There are broadly three types of casual

agricultural workers in India:

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11.15.1 Small Farmers

Who have very small holdings and are thus forced to work on the farms of others

to make both ends meet.

11.15.2 Tenants

Who work on leased land but this is not their main source of income (the main

source of income being work performed on the land of others); and

11.15.3 Share-Croppers

Who besides sharing the produce of land cultivated by them, also work as

labourers.

11.16 Present Position of Agricultural Labour in India

Agricultural labour is provided mostly by economically and socially backward

sections; poor sections from the tribes also fall in this rank. The first group of agricultural

workers has been more or less in the position of serfs or slaves; they are also known as

bonded labour. They do not normally receive wages in cash but are generally paid in

kind. They have to work for their masters and cannot shift from one to another. They

have to provide beggar or forced labour. In some cases, they have to offer cash and also

supply fowls and goats to their masters.

11.17 Magnitude of Agricultural Labour

Accurate figures about the number, income, standard of living, etc. of rural labour

are not available. But some information is available in the form of the reports of

committees and commissions. According to the second agricultural labour enquiry

published in 1960, agricultural labour families constituted nearly 25 percent of all rural

families. According to this, more than 85 percent of the rural workers are casual, serving

any farmer who is willing to engage them and only in percent of agricultural labourers

are attached to specific landlords. More than half of the workers do not possess any land,

and even the rest of them own only very little of land. Agricultural labourers

predominantly belong to the scheduled castes, scheduled tribes and other backward

classes. (Between 75 and 80 percent scheduled castes).

It has been seen that agricultural labourers who numbered .31 million in 1961

have increased to 59 million in 1981 this has to be seen in the background of the increase

of total rural labour force which increased from 174 million in 1964-65 to 226 million in

1981. As a proportion of the total rural labour force, the percentage of landless labourers

has increased from 18 percent in 1964-65 to 25 percent in 1981. Another finding has

shown that the days on which an agricultural labourer is employed have declined.

Official data about land distribution indicate that 61 percent of the rural households

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either own no land or small fragments of land or marginal uneconomic holdings of less

than 1 hectare. Taken together, 61 percent of households own barely 8 percent of

cultivated area. Out of them, 22 percent households own no land at all; another 25

percent own less than half a hectare (1.2 acre). Thus, these marginal farmers are the

recruits in the army of landless labourers, since, they subsist at the border of the poverty

line and have been gradually slipping below poverty line.

11.18 Causes of Poor Economic Conditions of Agricultural Labourers

There are a number of factors responsible for the continuous and enormous

increase in the number of agricultural labourers in India. The important ones are given

here.

11.18.1 Low Social Status

Most agricultural workers belong to the depressed classes which have been

neglected for ages. The low caste and the depressed classes have been socially

handicapped and they had never the courage to assert themselves.

11.18.2 Unorganized

Agricultural workers are illiterate and ignorant. They live in scattered villages.

Hence, they cannot easily be organized in unions.

11.18.3 Seasonal Employment

The agricultural workers do not have continuous work. On an average a farm

labourer finds employment for about 200 days in a year and for the rest of the year he is

idle. Unemployment and underemployment are two important factors responsible for low

income and consequently low economic position of the agricultural workers in India.

But, the nature of agricultural work is such that a farm is seasonal and intermittent.

11.18.4 Paucity of Non-Agricultural Jobs

Paucity of non-agricultural occupations in village areas is another important

factor for their low wages and poor economic conditions. The growing pressure of

population is increasingly felt in rural areas and the number of landless labourers is

steadily increasing.

11.18.5 Rural Indebtedness

Agricultural labour is heavily indebted Normally, the farm labourers borrow from

the landowners under whom they work. Since, they have no security to offer, they pledge

themselves to the moneylenders and rich landlords and become bonded labourers in

many areas. Naturally, they will be forced to accept lower wages.

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11.18.6 Increase in Population

With the increasing population, it is generally not possible to provide increasing

employment opportunities in these sectors, and thus, increase in the number of

agricultural labourers.

11.19 Government Measures Pertaining to Agricultural Labour

Soon after Independence, the centre as well as the State Government has taken

some measures to improve the economic condition of agricultural labour.

11.20 Indian Constitution

The Indian constitution has declared the practice of serfdom an offense. It has

abolished agrarian slavery including forced labour by law but it will take some time

before it is removed in practice.

11.21 Minimum Wages Act

The Minimum Wages Act was passed in 1948, according to which every State

Government was asked to fix minimum wages for agricultural labour within three years.

The minimum wages are fixed keeping in view the total costs and standard of living.

Since, conditions in various parts of the country are different and even within a state the

law allows different rates of wages to be fixed. In practice minimum wages are very

difficult to enforce effectively. In many states, the rates are fixed even below the current

rates of wages. In practices, it has failed to increase the wages and earnings of

agricultural labour.

11.22 Other Legislative Measures

The Zamindari system has been abolished by law in all the states and with that all

the exploitation associated with the system has been removed. Besides, tenancy laws

have been passed in most of the states protecting the interests of the tenants and labourers

and enabling them to acquire the lands they cultivate. Many states have passed legislation

fixing ceiling on agricultural holdings by which the maximum amount of land which a

person can hold has been fixed by law.

11.22.1 Organization of Labour Cooperatives

During the Second Five-year plan, efforts were made to encourage the formation

of labour co-operatives. These cooperatives whose members are workers undertake the

contract of government projects, such as, construction of roads, digging of canals and

tanks, afforestation etc. They provide employment to agricultural workers during off-

season and also eliminate the possible exploitation of workers by the private contractors.

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11.22.2 Employment Guarantee Scheme

The Government of Maharashtra introduced in 1977 the Employment Guarantee

Scheme under which any able bodied person in rural areas can apply for a job. The rate

of wages will not be such as to attract agricultural workers from their normal

employment in agricultural operations. The Maharashtra Employment Guarantee Scheme

is being adopted by other states as well Jawahar Rozgar Yojana launched by the Central

Government in 1989 is a further step in this direction.

11.22.3 Special Area Programme

During the earlier stages, the Government had conceived of community

development programmes as instruments of rural transformation that would include

agricultural lahourers too. Subsequently, however, it was found more viable to carry out

such programmes more intensively in selected districts and areas. With this view a

number of special area programmes were conceived among them a specific mention need

to he made of small farmers 'Development Agency, Marginal Farmers' and Agricultural

Labourers' Development Agency Programme, etc.

11.22.4 Land Reclamation and Settlement

Land reclamation measures have been intensified in different parts of the country.

Land so secured has been distributed among the landless agricultural labourers.

Similarly, resettlement schemes have included provision of land 10 this class of workers,

credit facilities and other schemes which can prove effective instruments of their

upliftment. Among these schemes, a specific mention needs to be made of the Bhoodan

movement. This movement aimed at a solution of the problem of landless agricultural

labourers by a redistribution of land on a voluntary basis. The movement, however, failed

to solve the problem in a big way.

11.22.5 Abolition of bonded labour

The Bonded Labour System (Abolition) Act, 1976, has been enacted. Under this

act, every bonded labourer stands liberated and discharged all obligations to render

bonded labour. As with other legislative measures, this piece of legislation has also fallen

through because of lack of enforcement.

11.22.6 Provision of Housing Sites

Laws have been passed in several states for providing house sites in villages to

agricultural workers. A number of steps were undertaken during the Second Plan to

provide house sites free or on a subsidized basis. During Fourth Plan a scheme was

introduced under which financial assistance was given to the states for provision of house

sites with an area of 91 sq. meters to cover, where necessary, the cost of acquisition and

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development of house sites. The Minimum Needs Programme (MNP) and the 20-point

programme give a high priority to the rural house site-cum-house construction scheme.

11.23 Other Measures

Various other measures adopted by the government tram time-to-time have either

directly or indirectly sought to improve the condition of agricultural workers. For

instance, promotion of small and cottage industries and village handicrafts and

development of industrial estates in rural areas have created job opportunities for

agricultural workers.

11.24 Suggestions for Improvement

The following suggestions can be made for improving the position of agricultural

workers.

11.24.1 Better Implementation of Legislative Measures

Though the Minimum Wages Act was passed as far back as in 1948, yet its

implementation leaves much to be desired. There is no administrative machinery worth

the name to implement effectively the provisions of the Minimum Wage Act. Even other

wise, fixation of minimum wages in an era of continuous and exorbitant rise in prices

carries no consolation for the starved masses of agricultural workers. Hence, it is

necessary to provide for periodical revision of minimum wages keeping the changing

price trends in view.

11.24.2 Improving the Bargaining Position

Special efforts should be directed towards organizing agricultural workers. It is

only such organisation that can improve their bargaining power and ensure better wages

and better conditions of work for them. This is not easy because the large farmers and big

landlords are economically and socially very powerful. Because of their unlimited power

they have succeeded in pinning down whatever little attempts were made by agricultural

workers to organize themselves in some parts of the country.

11.24.3 Resettlement of Agricultural Workers

The surplus land and newly reclaimed land should be allotted only to agricultural

workers. However, there are physical limitations to this programme. The supply of land

is very much limited in relation to the number of agricultural workers. To cope with this

problem, steps can be taken to set up cooperative farms or state farms where employment

at fair wages can be provided to the agricultural labourers.

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11.24.4 Creating Alternative Sources of Employment

The best policy is to create ample employment opportunities outside the field of

agriculture. Because of the pressure on land of increasing population it is becoming more

and more difficult to absorb additional labour on farms and unless other sectors of the

economy create ample employment opportunities it will not be possible to solve the

problems of agricultural workers. Perhaps, the best strategy would be to promote labour

intensive industries in rural areas. For this purpose facilities of power, finance and

training rural youth should be provided in the villages. This will reduce the dependence

of agricultural workers on land and increase their incomes.

11.24.5 Improving the Working Conditions

It is necessary to improve the working conditions of agricultural workers. Their

hours of work should be statutorily fixed and strictly enforced. Incase of work beyond

the stipulated hours, overtime payments should be made. Child labour should be totally

banned.

11.24.6 Public Work Programmes

A major problem of many agricultural workers is that they are employed only for

a part of the year, for example, during sowing and harvesting. For the remaining part of

the year they remain unemployed. The period of inactivity may vary from three months

to six months. During this period, it is necessary to organize rural works programme like

construction of roads, school buildings, digging of canals, wells, etc. so that employment

can be provided to agricultural workers all the year round.

11.24.7 Raising the Standard of Living

The state can, if it wishes, organize special programmes to improve the standard

of living of agricultural workers. Since a large proportion of such workers belong to

scheduled castes, they are not allowed to take water from village wells. State can arrange

for drinking water for them. State can also provide housing sites to agricultural workers

so that they do not remain houseless. State can organize fair price shops in rural areas to

save agricultural workers who generally sell goods at high prices. To improve the socio-

economic environment in which agricultural labourers work, State can provide amenities

of rural life like health centres, maternity wards, sports facilities, clubs, etc. special

programmes for vocational and technical training of agricultural workers can also be

arranged.

11.24.8 Social Security

Agricultural labour has no social security, no earned leave, no sick leave and no

pension or gratuity. Substantial efforts should be directed in this field. Since, these

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labourers are not permanently attached to any employer, the task of providing social

security is indeed a complex one. Thus, this responsibility has to be borne by the State.

These measures can go along way in solving most of the problems of agricultural

workers. As stated earlier, the basic task is to distribute surplus land amongst agricultural

workers and provide additional employment opportunities in villages through the

development of small and cottage industries. General improvement in the working

conditions, enforcement of legislative measures, provision of social security, etc. ate all

secondary to the above two measures.

11.25 Conclusion

Agriculture is a labour intensive activity. Cost of cultivation data shows that

labour accounts for more than 40 percent of the total variable cost of production in most

cases. Therefore, availability of labour to work in agriculture is crucial in sustaining

agricultural production. Agricultural wages have traditionally been low, due to low

productivity, large disguised unemployment in agriculture sector, and lack of sufficient

employment opportunities elsewhere. However, in recent years there has been a

perceptible change in this trend due to economic growth and adoption of employment

generation policy like the MGNREGA and increase in minimum wages under the

Minimum Wages Act. The average daily wages for agricultural field labour for

ploughing and harvesting at all India level have increased at the rate of 8.7 per cent and

9.2 per cent per annum during 2001-02 to 2010-11 respectively as against the average

wages paid for industries covered under Annual Survey of Industries (ASI) at 6.3 per

cent per annum. However, agricultural wages, in general, are still much lower than the

industrial wages. With skill development this gap will narrow down, putting further

pressure on availability and cost of agricultural labour. This further strengthens the

necessity for agricultural mechanization in a manner that is inclusive and suitable for

Indian conditions.

Importance Questions

1. Define the term agricultural labour.

2. What are the characteristics of agricultural labour in India?

3. What are the causes of poor economic conditions of agricultural labourers in

India?

4. What are the government measures to overcome the problems faced by

agricultural labourers in India?

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LESSON- 12

AGRICULTURAL MARKETING IN INDIA

12.0 Objectives

To understand the Importance and Objectives of Agriculture Marketing

To study Inadequacies of Present Marketing System

To study Agricultural Marketing in India perspective

Contents

12.1 Introduction

12.2 Importance and Objectives of Agriculture Marketing

12.3 Facilities Needed for Agricultural Marketing

12.4 Inadequacies of Present Marketing System

12.5 Improper Warehouses

12.6 Lack of grading and standardization

12.7 Inadequate transport facilities

12.8 Presence of a large number of middlemen

12.9 Malpractices in unregulated markets

12.10 Inadequate market information

12.11 Inadequate credit facilities

12.12 Characteristics of Agricultural Product

12.13 Methods of Sale and Marketing Agencies

12.13.1 Under cover or the Hatta System

12.13.2 Open auction system

12.13.3 Dara system

12.13.4 Moghum sale

12.13.5 Private agreement

12.13.6 Government purchase

12.13.7 Marketing agencies

12.14 Agricultural Marketing in India

12.14.1 Sale to moneylenders and traders

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12.14.2 Hats and shanties

12.14.3 Mandies or wholesale markets

12.14.4 Co-operative marketing

12.15 Improvement of Agricultural Marketing System

12.16 Marketing surveys

12.17 Grading and standardization

12.18 Organization of regulated markets

12.19 Provision of warehousing facilities

12.20 Dissemination of market information

12.21 Directorate of marketing and inspection

12.22 Government purchases and fixation of support prices

12.23Cooperative Marketing

12.23.1 Increases bargaining strength of the farmers

12.23.2 Direct dealing with final buyers

12.23.3 Provision of credit

12.23.4 Easier and cheaper transport

12.23.5 Storage facilities

12.23.6 Grading and standardization

12.23.7 Market intelligence

12.23.8 Influencing marketing prices

12.23.9 Provision of inputs and consumer goods

12.23.10 Processing of agricultural produce

12.24 Warehousing in India

12.25 Kinds of warehouses

12.26 Benefits of the warehouses

12.27 Progress

12.28 Ideal Marketing System

12.29 Scientific Marketing of Farm Products

12.29.1 Always bring the produce for sale after cleaning it

12.29.2 Sell different qualities of products separately

12.29.3 Sell the produce after grading it

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12.29.4 Keep abreast of market information

12.29.5 Carry bags and packs of standard weights

12.29.6 Avoid immediate post-harvest sales

12.29.7 Patronize co-operative marketing societies

12.29.8 Sell the produce in regulated markets

12.30 Conclusion

12.1 Introduction

The term agricultural marketing is composed of two words -agriculture and

marketing. Agriculture, in the broadest sense means activities aimed at the use of natural

resources for human welfare, and marketing connotes a series of activities involved in

moving the goods from the point of production to the point of consumption.

Specification, the subject of agricultural marketing includes marketing functions,

agencies, channels, efficiency and cost, price spread and market integration, producers‟

surplus etc. The agricultural marketing system is a link between the farm and the non-

farm sectors. In India Agriculture was practiced formerly on a subsistence basis; the

villages were self sufficient, people exchanged their goods, and services within the

village on a barter basis. With the development of means of transport and storage

facilities, agriculture has become commercial in character; the farmer grows those crops

that fetch a better price. Marketing of agricultural produce is considered as an integral

part of agriculture, since an agriculturist is encouraged to make more investment and to

increase production. Thus there is an increasing awareness that it is not enough to

produce a crop or animal product; it must be marketed as well.

Agricultural marketing involves in its simplest form the buying and selling of

agricultural produce. This definition of agricultural marketing may be accepted in olden

days, when the village economy was more or less self-sufficient, when the marketing of

agricultural produce presented no difficulty, as the farmer sold his produce directly to the

consumer on a cash or barter basis. But, in modem times, marketing of agricultural

produce is different from that of olden days. In modem marketing, agricultural produce

has to undergo a series of transfers or exchanges from one hand to another before it

finally reaches the consumer. The National Commission on Agriculture, defined

agricultural marketing as a process which starts with a decision to produce a saleable

farm commodity and it involves all aspects of market structure of system, both functional

and institutional, based on technical and economic considerations and includes pre and

post- harvest operations, assembling, grading, storage, transportation and distribution.

The Indian council of Agricultural Research defined involvement of three important

functions, namely (i) assembling (concentration) (ii) preparation for consumption

(processing) and (iii) distribution.

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12.2 Importance and Objectives of Agriculture Marketing

The farmer has realized the importance of adopting new techniques of production

and is making efforts for more income and higher standards of living. As a consequence,

the cropping pattern is no longer dictated by what he needs for his own personal

consumption but what is responsive to the market in terms of prices received by him.

While the trade is much organised the farmers are not Farmer is not conversant with the

complexities of the marketing system which is becoming more and more complicated.

The cultivator is handicapped by several disabilities as a seller. He sells his produce at an

unfavorable place, time and price.

The objectives of an efficient marketing system are:

to enable the primary producers to get the best possible returns,

to provide facilities for lifting all produce, the farmers are willing, to sell at an

incentive price,

to reduce the price difference between the primary producer and ultimate

consumer, and

to make available all products of farm origin to consumers at reasonable price

without impairing on the quality of the produce.

12.3 Facilities Needed for Agricultural Marketing

In order to have best advantage in marketing of his agricultural produce the

farmer should enjoy certain basic facilities.

He should have proper facilities for storing his goods.

He should have holding capacity, in the sense, that he should be able to wait for

times when he could get better prices for his produce and not dispose of his

stocks immediately after the harvest when the prices are very low.

He should have adequate and cheap transport facilities which could enable him to

take his surplus produce to the mandi rather than dispose it of in the village itself

to the village money-lender-cum-merchant at low prices.

He should have clear information regarding the market conditions as well as

about the ruling prices, otherwise may be cheated. There should be organized and

regulated markets where the farmer will not be cheated by the "dalals" and

"arhatiyas".

The number of intermediaries should be as small as possible, so that the

middleman's profits are reduced. This increases! the returns to the farmers.

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12.4 Inadequacies of Present Marketing System

Indian system of agricultural marketing suffers from a number of defects. As a

consequence, the Indian farmer is deprived 'of a fair price for his produce. The main

defects of the agricultural marketing system are discussed here.

12.5 Improper Warehouses

There is an absence of proper ware housing facilities in the villages. Therefore,

the farmer is compelled to store his products in pits, mud-vessels, "Kutcha" storehouses,

etc. These unscientific methods of storing lead to considerable wastage. Approximately

1.5 percent of the produce gets rotten and becomes unfit for human consumption. Due to

this reason supply in the village market increases substantially and the farmers are not

able to get a fair price for their produce. The setting up of Central Warehousing

Corporation and State Warehousing Corporation has improved the situation to some

extent.

12.6 Lack of Grading and Standardization

Different varieties of agricultural produce are not graded properly. The practice

usually prevalent is the one known as "dara" sales wherein heap of all qualities of

produce are sold in one common lot Thus the farmer producing better qualities is not

assured of a better price. Hence there is no incentive to use better seeds and produce

better varieties.

12.7 Inadequate Transport Facilities

Transport facilities are highly inadequate in India. Only a small number of

villages are joined by railways and pucca roads to mandies. Produce has to be carried on

slow moving transport vehicles like bullock carts. Obviously such means of transport

cannot be used to carry produce to far-off places and the farmer has to dump his produce

in nearby markets even if the price obtained in these markets is considerably low. This is

even more true with perishable commodities.

12.8 Presence of a Large Number of Middlemen

The chain of middlemen in the agricultural marketing is so large that the share of

farmers is reduced substantially. For instance, a study of D.D. Sidhan revealed, that

farmers obtain only about 53 percent of the price of rice, 31 percent being the share of

middle men (the remaining 16 percent being the marketing cost). In the case of

vegetables and fruits the share was even less, 39 percent in the former case and 34

percent in the latter. The share of middle- men in the case of vegetables was 29.5 percent

and in the case of fruits was 46.5 percent. Some of the intermediaries in the agricultural

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marketing system are -village traders, Kutcha arhatiyas, pucca arhatiyas, brokers,

wholesalers, retailers, money lenders, etc.

12.9 Malpractices in Unregulated Markets

Even now the number of unregulated markets in the country is substantially large.

Arhatiyas and brokers, taking advantage of the ignorance, and illiteracy of the farmers,

use unfair means to cheat them. The farmers are required to pay arhat (pledging charge)

to the arhatiyas, "tulaii" (weight charge) for weighing the produce, "palledari" to unload

the bullock-carts and for doing other miscellaneous types of allied works, "garda" for

impurities in the produce, and a number of other undefined and unspecified charges.

Another malpractice in the mandies relates to the use of wrong weights and measures in

the regulated markets. Wrong weights continue to be used in some unregulated markets

with the object of cheating the farmers.

12.10 Inadequate Market Information

It is often not possible for the farmers to obtain information on exact market

prices in different markets. So, they accept, whatever price the traders offer to them.

With a view to tackle this problem the government is using the radio and television

media to broadcast market prices regularly. The news papers also keep the farmers

posted with the latest changes in prices. However the price quotations are sometimes not

reliable and sometimes have a great time-lag. The trader generally offers less than the

price quoted by the government news media.

12.11 Inadequate Credit Facilities

Indian farmer, being poor, tries to sell off the produce immediately after the crop

is harvested though prices at that time are very low. The safeguard of the farmer from

such "forced sales" is to provide him credit so that he can wait for better times and better

prices. Since such credit facilities are not available, the farmers are forced to take loans

from money lenders, while agreeing to pledge their produce to them at less than market

prices. The co-operative marketing societies have generally catered to the needs of the

large farmers and the small farmers are left at the mercy of the money lenders. Thus it is

not possible to view the present agricultural marketing system in India in isolation of

(and separated from) the land relations. The regulation of markets broadcasting of prices

by All India Radio, improvements in transport system, etc., have undoubtedly benefited

the capitalist farmers, and they are now in a better position to obtain favourable prices for

their "market produce" but the above mentioned changes have not benefited the small

and marginal farmers to any great extent.

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12.12 Characteristics of Agricultural Product

Agricultural products differ in nature and contents from industrial goods in the

following respects.

1. Agricultural products tend to be bulky and their weight and volume are great for

their value in comparison with many industrial goods.

2. The demand on storage and transport facilities is heavier, and more specialized in

case of agricultural products than in the case of manufactured commodities.

3. Agricultural commodities are comparatively more perishable than industrial goods.

Although some crops such as rice and paddy retain their quality for long time, most

of the farm products are perishable and cannot remain long on the way to the final

consumer without suffering loss and deterioration in quality.

4. There are certain agricultural products such as mangoes and grapes which are

available only in their seasons but this condition of seasonal availability are not

found in the case of industrial goods.

5. Agricultural produce is to be found scattered over a vast geographical area and as

such its collection poses a serious problem. But such is not condition in the case of

industrial goods.

6. There are various kinds and varieties in farm produce and so it is difficult to grade

them.

7. The farmers especially in countries like India have low holding-back. Therefore he

has to sell his produce immediately after the harvest at whatever price he can fetch

because of his pressing needs.

8. Finally, both demand and supply of agricultural products are inelastic. A bumper

crop, without any minimum guaranteed support price from the government may

spell disaster for the farmer. Similarly the farmer may not really be in a position to

take advantage of shortages or deficit crop. These benefits may pass on only to the

middleman.

12.13 Methods of Sale and Marketing Agencies

The marketing of agricultural produce is generally transacted in one of the

following ways.

12.13.1 Under cover or the Hatta System

Under this system, the sale is affected by twisting or clasping the fingers of the

sellers agent under cover of a cloth. The cultivator is not taken into confidence until the

final bid is cleared.

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12.13.2 Open auction System

Under this system the agent invites bids for the produce and to the highest bidder

the produce is sold.

12.13.3 Dara System

Another related system is to keep the heaps of grains of different quantities and

sell them at fiat rates without indulging in weightment etc.

12.13.4 Moghum Sale

Under this system, sale is based on the verbal understanding between buyers and

sellers and without mentioning the rate as it is understood that the buyers will pay the

prevailing rate.

12.13.5 Private Agreement

The seller may invite offers for his produce and may sell to one who might have

offered the highest price for the produce.

12.13.6 Government Purchase

The government agencies lay down fixed prices for different qualities of

agriculture commodities. the sale is effected after a gradual processing for gradation and

proper weightment. This practice is also followed in co-operative and regulated markets.

12.13.7 Marketing Agencies

The various agencies engaged in the marketing of agricultural produce can be

classified into two categories, viz., (i) government and quasi private agencies like the co-

operative societies and (ii) private agencies. A chain of middlemen may be found

operating both in Government and private agencies. The more important among these are

as follows:-

Merchant is the most usual purchaser of the produce, he deals in his individual

capacity.

Itinerant Beoparis (merchants) visit different villages collect the produce, and

take to the nearest market.

Take the weighing men from the villages to the dealers in town.

Agents are concerned with the assembling and distribution of agricultural

produce.

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12.14 Agricultural Marketing in India

The existing systems of agricultural marketing in India are as briefly described

here.

12.14.1 Sale to Moneylenders and Traders

A considerable part of the total produce is sold by the farmers to the village

traders and moneylenders. According to an estimate 85 percent of wheat, 75 percent of

oil seeds in U.P., 90 percent of jute in West Bengal and 60 percent of wheat, 70 percent

of oil seeds and 35 percent of cotton in Punjab are sold by the farmers in the villages

themselves. Often the money lenders act as a commission agent of the wholesale trader.

12.14.2 Hats and Shanties

Hats are village markets often held once or twice a week, while shanties are also

village markets held at longer intervals or on special occasions. The agents of the

wholesale merchants, operating in different mandies also visit these markets. The area

covered by a "hat" usually varies from 5 to 10 miles. Most of "hats" are very poorly

equipped, are uncovered and lack storage, drainage, and other facilities. It is important to

observe that only small and marginal farmers sell their produce in such markets. The big

farmers with large surplus go to the larger wholesale markets.

12.14.3 Mandies or Wholesale Markets

One wholesale market often serves a number of villages and is generally located

in a city. In such mandies, business is carried on by arhatiyas. The farmers sell their

produce to these arhatiyas with the help of brokers, who are generally the agents of

arhatiyas. Because of the malpractices of these middlemen, problems of transporting the

produce from villages to mandies, the small and marginal farmers are hesitant of coming

to these mandies. The arhatiyas of these mandies sell off the produce to the retail

merchants. However, paddy, cotton and oilseeds are sold off to the mills for processing.

The marketing system for sugarcane is different. The farmers sell their produce directly

to the sugar mills.

12.14.4 Co-operative Marketing

To improve the efficiency of the agricultural marketing and to save farmers from

the exploitation and malpractices of middlemen, emphasis has been laid on the

development of co-operative marketing societies. Such societies are formed by farmers to

take advantage of collective bargaining. A marketing society collects surplus from it

members and sell it in the mandi collectively. This improves the bargaining power of the

members and they are able to obtain a better price for the produce. In addition to the sale

of produce, these societies also serve the members in a number of other ways.

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12.15 Improvement of Agricultural Marketing System

Government of India has adopted a number of measures to improve agricultural

marketing, the important ones being - establishment of regulated markets, construction of

warehouses, provision for grading, and standarization of produce, standarisation of

weight and measures, daily broadcasting of market prices of agricultural crops on All

India Radio, improvement of transport facilities, etc.

12.16 Marketing Surveys

In the first place the government has undertaken marketing surveys of various

goods and has published these surveys. These surveys have brought out the various

problems connected with the marketing of goods and have made suggestions for their

removal.

12.17 Grading and Standardization

The government has done much to grade and standardize many agricultural

goods. Under the Agricultural Produce (Grading and Marketing) Act the Government has

set up grading stations for commodities like ghee, flour, eggs, etc. The graded goods are

stamped with the seal of the Agricultural Marketing Department -AGMARK The

“Agmark" goods have a wider market and command better prices. A Central Quality

Control Laboratory has been set up at Nagpur and eight other regional laboratories in

different parts of the country with the purpose of testing the quality and quality of

agricultural products applying for the Government's "Agmark" have been created The

Government is further streamlining quality control enforcement and inspection and

improvement in grading.

12.18 Organization of Regulated Markets

Regulated markets have been organized with a view to protect the farmers from

the malpractices of sellers and brokers. The management of such markets is done by a

market committee which has nominees of the State Government, local bodies, arhatiyas,

brokers and farmers. Thus all interests are represented on the committee. These

committees are appointed by the Government for a specified period of time. Important

functions performed by the committees can be summarized as follows.

fixation of charges for weighing, brokerages etc.,

prevention of unauthorized deductions, underhand dealings, and wrong practices

by the arhatiyas,

enforcing the use of standardized weights,

providing up to date and reliable market information to the farmers, and

settling of disputes among the parties arising out of market operations.

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The system of regulated markets has been found to be very useful in removing

fraudulent practices followed by brokers and commission agents and in standardizing

market practices. The committee is responsible for the licensing of brokers and

weightmen. It is nested with powers to punish anyone who is found guilty of dishonest

and fraudulent practices. 1t is the policy of the government to convert all markets in the

country into the regulated type.

Regulated markets aim at the development of the marketing structure to have the

following.

ensure remunerative price to the producer of agricultural commodities,

reduce non functional margins of the traders and commission agents, and

narrow down the price spread between the producer and the consumer.

To achieve these objectives, the government would go in for comprehensive and

rapid expansion of regulated marketing systems. The success achieved in states like

Punjab and Haryana, where regulated markets have been established in major producing

areas with linked up satellite markets in the rural growth centres would be aimed at, in

other areas where intensive production is taken up. The regulating marketing system has

also proved a good source of generating income for the marketing boards and for use in

rural infrastructure. The regulated market complex will also include facilities for grading

and for monitoring of prices.

The development of regulated markets is proposed especially in areas where

commercial crops like cotton, jute, tobacco and important non-traditional crops are

produced and sold in weekly markets and hats. Co-operative marketing and distribution

and banking will also be linked with the regulated markets. These markets will cover all

the major crops. Separate market yards are proposed for livestock, fish, fruits and

vegetables. There are more than 6,050 regulated markets with the establishment of these

regulated markets. The malpractices in mandies have disappeared and the market charges

have been rationalized. As much as 70 percent of agricultural produce is now sold in

regulated markets. In this connection, the steps taken to standardize the weight and

measures in the country should be mentioned. The government has successfully replaced

the different systems of weights and measures prevalent in the country with the metric

system.

12.19 Provision of Warehousing Facilities

To prevent distress sale by the farmers, particularly the small and marginal

farmers, due to prevailing low prices, rural go downs have been set up. The government

has done much to provide warehousing in towns and villages. The Central Warehousing

Corporation was set up in 1957 with the purpose of constructing and running go downs

and warehouses for the storage of agricultural produce. The states has set-up the State

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Warehousing Corporations with the same purpose. At present the Food Corporation is

constructing its own network of go downs in different parts of the country. The total

storage capacity in the country was 27 million tonnes at the end of the sixth plan.

12.20 Dissemination of Market Information

The government has peen giving attention to the broadcasting of market

information to the farmers. Since most villages have radio sets, these broadcasts are

actually heard by farmers. The newspapers also publish agricultural prices either daily or

weekly accompanied by a short review of trends.

12.21 Directorate of Marketing and Inspection

The directorate was set up by the Government of India to co-ordinate the

agricultural marketing of various agencies and to advise the Central and State

Governments on the problems of agricultural marketing. Activities of the directorate are

the following.

promotion of grading and standardization of agricultural and allied commodities;

statutory regulation of markets and market practices;

training of personnel;

market extension;

market research, survey and planning and

administration of Old Storage Order, 1980 and Meat Food Products Order, 1973.

The directorate has so far formulated grade specification for 142 agricultural

commodities. It enforces compulsory quality control before export on as many as 41

agricultural commodities. It is extending financial assistance to selected regulated

markets for providing grading facilities for important commodities like tobacco, jute,

cotton, groundnut and cashew nut at the producers level. An allied task is the one related

to marketing research and survey. This should aim at determination of best handling

methods of produce to minimize losses, damage and costs, improved methods of

wholesaling and retailing and planning for new marketing facilities at appropriate

centres. With this aim in view, the Directorate is currently implementing two schemes.

-Market research and planning.

-Market planning and design.

Under the former scheme, the Directorate has been carrying out country-wide

marketing surveys on live-stock and important agricultural and horticultural commodities

to identify and study the problems of agricultural marketing. Under the latter scheme, the

Directctorate has set up a Marketing Planning and Design Centre at Faridabad and a

training centre and Workshop at Nagpur to study the packaging grading and marketing of

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selected fruits and vegetable and also advise the authorities on the designing of fruits and

vegetable markets.

12.22 Government Purchases and Fixation of Support Prices

In addition to the measures mentioned above, the Government also announces

minimum support price for various agricultural commodities from time to time in a bid to

ensure fair returns to the farmers. These prices are fixed in accordance with the

recommendations of the Agricultural, Price Commission.

If the prices start falling below the declared level (say, as a result of glut in the

market), the Government agencies like the Food Corporation of India intervene in the

market to make direct purchase from the farmers at the support prices. These purchases

are sold off by the Government at reasonable price through the public distribution

system.

12.23 Cooperative Marketing

Though the above measures have improved the system of agricultural marketing

to some extent, a major part of the benefits has been derived by large farmers, who have

adequate marketable surplus. However, the small and marginal farmers continue to sell a

major part of their produce to moneylenders to meet their credit needs and these

moneylenders offer them very low prices. Therefore it is essential to form cooperatives

of the small and marginal farmers to enable them to obtain fair prices for their produce.

The advantages that co-operative marketing can confer on the farmer are multifarious,

some of which are listed below.

12.23.1 Increases Bargaining Strength of the Farmers

Many of the defects of the present agricultural marketing system arise because

often one ignorant and illiterate farmer (as an individual) has to face well-organised mass

of clever intermediaries. If the farmers join hands and form a co-operative, naturally they

will be less prone to exploitation and malpractices. Instead of marketing their produce

separately, they will market it together through one agency.

12.23.2 Direct Dealing with Final Buyers

In cases, the co-operatives can altogether skip the intermediaries and enter into

direct relations with the final buyers. This practice will eliminate exploiters and ensure

fair prices to both the producers and the consumers.

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12.23.3 Provision of Credit

The marketing co-operative societies provide credit to the farmers to save them

from the necessity of selling their produce immediately after harvesting. This ensures

better returns to the farmers.

12.23.4 Easier and Cheaper Transport

Bulk transport of agricultural produce by the societies is often easier and cheaper.

Sometimes the societies have their own means of transport. This further reduces cost and

botheration of transporting produce to the market.

12.23.5 Storage Facilities

The co-operative marketing societies generally have storage facilities. Thus the

farmers can wait for better prices. Also there is no danger to their crop yield from rains,

rodents and thefts.

12.23.6 Grading and Standardization

This task can be done more easily for a co-operative agency than for an individual

farmer. For this purpose, they can seek assistance from the government or can even

evolve their own grading arrangements.

12.23.7 Market Intelligence

The co-operatives can arrange to obtain data on market prices, demand and

supply and other related information from the markets on a regular basis and can plan

their activities accordingly.

12.23.8 Influencing Marketing Prices

While previously the market prices were determined by the intermediaries and

merchants and the helpless farmers were mere spectators force to accept, whatever was

offered to them, the co-operative societies have changed the entire complexion of the

game. Wherever strong marketing co-operative are operative, they have bargained for

and have achieved, better prices for their agricultural produce.

12.23.9 Provision of Inputs and Consumer Goods

The co-operative marketing societies can easily arrange for bulk purchase of

agricultural inputs, like seeds, manures fertilizers etc. and consumer goods at relatively

lower price and can then distribute them to the members.

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12.23.10 Processing of Agricultural Produce

The co-operative societies can undertake processing activities like crushing seeds,

ginning 'and pressing of cotton, etc. In addition to all these advantages, the co-operative

marketing system can arouse the spirit of self-confidence and collective action in the

farmers without which the programme of agricultural development, howsoever well

conceived and implemented, holds no promise to success.

12.24 Warehousing in India

Warehousing facilities are necessary to prevent the loss arising out of defective

storage and also to equip the farmers with a convenient instrument of credit. Both the

Agricultural Finance Sub-Committee (1945) and the Rural Banking Enquiry Committee

(1950) emphasized the importance of ware housing as a method of promoting rural

banking and finance in India. All India Rural Credit Survey Committee (1954)

recommended a three tire system of warehousing: at the national level, state and district

level, village and rural level. At present there are three main agencies in the public sector

which are engaged in building large scale storage/warehousing capacity. They are: the

Food Corporation of India (FCI), Central Warehousing Corporation (CWC), and State

Warehousing Corporation (SWC). FCI provides storage capacity for food grains. It has

its own go downs and it also hires storage capacity from other sources such as CWC,

SWC's, State Governments and private parties. In 1960-61, there were only 40 general

warehouses in the countries with a total capacity of less than 0.1 million tonnes. By the

end of 1988-89, the three public sector units has a storage capacity of nearly 32 million

tonnes. Besides, public sector agencies, co-operatives have also constructed warehouses

in rural areas for storage of their members' produce, for stocking of fertilizers and other

inputs and consumer articles. To avoid unfair competition with the go downs of the co-

operative marketing societies, the state warehousing corporations do not open

warehouses at any place below the sub divisional level. By 1987-88, a total storage

capacity of over 10 million tonnes in the co-operative sector was available.

12.25 Kinds of Warehouses

There are broadly speaking four kinds of warehouses.

They are:

private warehouses which are usually maintained by joint-stock companies, firms

and individuals;

Duty-paid public ware houses which are maintained by dock authorities or port

trust authorities at port

Bonded warehouses which are maintained either by dock authorities or by the

Government and

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Licensed warehouses which are private warehouses run by co-operative societies

or by private agencies, after obtaining license from the Government.

12.26 Benefits of the Warehouses

The following are some of the benefits of the warehouses.

It gives withholding power to the agriculturist to tide over difficulties and helps

them to secure better prices for their produce.

It gives purchasing power to traders.

It tends to cushion the price fluctuation and stabilize prices as it equates supply to

demand.

It facilitates future trading.

It plays a very important role in implementing the agricultural price policy of the

Government

It obviates the need for unnecessary cross-transport.

Huge wastages which occur owing to improper storage of agricultural produce

will be minimized if warehousing develops on a large scale.

Warehouses render various subsidiary services, such as sorting and packing

commodities for shipment, cleaning and drying goods and preparing them for the

market, acting as forwarding agents for exporters of good, purchasing goods on

behalf of clients, and collecting and disseminating marketing intelligence.

12.27 Progress

Storage and warehousing facilities for agricultural crops on a commercial basis

are available both in the public and the private sectors. The public sector dominates and

accounts for a significantly large share of the total capacity available in the economy.

The main institutional agencies providing these facilities are summarized here as Central

and State Warehousing Corporations, the Food Corporation of India and the

cooperatives.

The Central Warehousing Corporation was set up in 1962 to do the following

functions:

acquire and build go downs and warehouses at suitable places,

arrange facilities for the transport of agricultural produce .and inputs,

subscribe to the share capital of State Warehousing Corporations, and

act as agent of the Government for the purpose of purchase, sale, storage and

distribution of agricultural produce and crops.

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The State Warehousing Corporations have been set-up at places of state and

district importance. Their functions are the same within a state as those of CWC at the

national level.

12.28 Ideal Marketing System

The ideal marketing system is one that maximizes the long run welfare of society.

To do this, it must be physically efficient, otherwise the same output could be produced

with fewer resources, and it must be electively efficient, otherwise a change in allocation

could increase the total welfare and where income distribution is not a consideration. For

maximum physical efficiency, such basic physical functions as transportation, storage,

and processing should be carried on in such a way so as to achieve the highest output per

unit of cost incurred on them. Similarly an ideal marketing system must allocate

agricultural products in time, space and form to intermediaries and consumers in such

proportions and at such prices as to ensure that no other allocation would make

consumers better off. To achieve this condition, prices throughout the marketing system

must be efficient and must at the same time be equal to the marginal costs of production

and marginal consumer utility.

The following characteristics should exist in a good marketing system.

There should not be any government interference in free and market transactions.

The method of intervention include, restrictions on food grain movements,

restrictions on the quantity to be processed, or on the construction of processing

plant, price supports, rationing, price ceiling, entry of persons in the trade, etc.

When these conditions are violated, the inefficiency in the market system creeps

in and commodities pass into the black market. They are not then easily available

at the fair prices.

The marketing system should operate on the basis of the independent, but

systematic and orderly, decisions of the millions of the individual consumer and

producers whose lives are affected by it.

The marketing system should be capable of developing into an intricate and far-

flung marketing systems in view of the rapid development of the urban industrial

economy.

The marketing system should bring demand and supply together and should

establish an equilibrium between the two.

The marketing system should be able to generate employment by ensuring the

development of processing industries and convincing the people to consume more

processed foods, consistent with their tastes, habits and income levels.

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12.29 Scientific Marketing of Farm Products

The tendency among the farmers to market their produce has been increasing.

Production is complete only when the produce is marketed at a price remunerative to the

farmer. Increasing specialization in production of higher marketable/ marketed surplus of

the produce and alternative channels of marketing have increased the importance of the

marketing activity for the farmers. However, marketing activity should be guided by

certain basic principles which are briefly explained. The farmers can gain more if they

follow the following principles of scientific marketing.

12.29.1 Always Bring the Produce for Sale after Cleaning it

Impurities, when present, lower the price offered by the traders-buyers in the

market. The fall in price is more than the extent of impurity present in the produce would

warrant. Clean produce attracts more buyers.

12.29.2 Sell different Qualities of Products Separately

The produce of different varieties should be marketed separately. It has been

observed that when different varieties of products are marketed separately, the farmers

get a higher price because of the buyers‟ preference for specific varieties.

12.29.3 Sell the Produce after Grading it

Graded produce is sold off quickly. The additional income generated by the

adoption of grading and standardization is more than the cost incurred in the process of

grading and standardization. This shows that there is an incentive for the farmers for the

production of good quality products.

12.29.4 Keep Abreast of Market Information

Price information helps him to take decisions about when and where to sell the

produce, so that a better price may be obtained.

12.29.5 Carry bags/packs of Standard Weights

Farmers should weigh their produce and fill each bag with a fixed quantity.

Majority of the farmers do not weigh their produce before taking it for sale and suffer

loss by way of a possible malpractice in weighing, or they may have to make excess

payments in transit (octroi, transport costs, etc.).

12.29.6 Avoid Immediate Post-harvest Sales

The prices of the produce touch the lowest level in the peak marketing season.

Farmers can get better prices by availing of warehouses facilities existing in their areas.

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Farmers can meet their cash needs by pledging the warehouse receipt to nationalized

banks.

12.29.7 Patronize Co-operative Marketing Societies

Farmers can get better prices by sales through a cooperative and marketing

society and can avoid the possibility of being cheated. The cost of marketing particularly

the transportation cost for farmers having a small quantity of marketable surplus, is

minimized, for transportation is arranged co-operatively by the society and the profit

earned by the society is shared among its members.

12.29.8 Sell the Produce in Regulated Markets

The farmers should take their produce for sale to the nearly regulated markets

rather than sell them in village or unregulated markets. In regulated markets marketing

charges are on very few items. They get the sales slips in the regulated markets, which

show the quantity of the produce marketed and the amount of charges deducted from the

values of the produce. Sales slips protect farmers against the malpractices of deliberate

erroneous accounting or unauthorized deductions.

12.30 Conclusion

A good marketing system is one, where the farmer is assured of a fair price for

his produce and this can happen only when the following conditions are obtained.

the number of intermediaries between the farmer and the consumer should be

small;

the farmer has proper storing facilities so that he is not compelled to indulge in

distress sales,

efficient transport facilities are available,

the malpractices of middlemen are regulated,

farmers are freed from the clutches of village moneylenders and

regular market information is provided to the farmer.

The two institutions such as co-operative marketing societies and regulated

markets, together can assure, the presence of all these conditions. Further, if cooperative

marketing societies are developed on the lines indicated above (along with regulated

markets), the Indian agricultural marketing system can be considerably improved.

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Important Questions

1. What are the importances of agricultural marketing in India?

2. Explain characteristics of agricultural product.

3. Explain different methods of sales and marketing agencies in India.

4. How to improve the agricultural marketing system in India?

5. Explain the role of warehouses to help agricultural marketing system in India.

LESSON-13

MARKETING OF AGRICULTURAL PRODUCE

13.0 Objectives

To study the significance of marketing of agricultural produce

To study the short coming marketing of agricultural produce

To find the evil consequences of the agricultural marketing

To study the cooperative marketing and regulator marketing

Contents

13.0 Objectives

13.1 Introduction

13.2 Importance and Present State

13.3 Significance of marketing of agricultural produce

13.3.1 Functioning of Economy

13.3.2 Economic Development

13.3.3 Welfare Considerations

13.4 Short comings of marketing of agricultural produce

13.4.1 Inadequate Storage

13.4.2 Inadequate Means of Transport

13.4.3 Inadequate Facilities of Credit

13.4.4 Lack of Grading and Standardization

13.4.5 Non-Availability of Market Information

13.4.6 Malpractices of Buying and Selling

13.4.7 Inadequacy of Institutional Marketing

13.5 Evil Consequences

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13.5.1 Meager Earnings

13.5.2 Little Incentive:

13.5.3 Low Marketable Surplus

13.5.4 Obstructs Innovative Farming

13.5.5 Difficulties for Planning

13.5.6 Improvements and Progress

13.5.7 Cooperative Marketing

13.6 Regulated Markets

13.7 Godowns and Storage Facilities

13.8 Uniform and Standard Weights

13.9 Grading and Standardization

13.10 Availability of Credit

13.11 Efficient Transport Arrangement

13.12 Stabilization of Prices

13.13 Arrangements for Market Information

13.14 Market Inspection, Research and Training

13.15 Cooperative Marketing

13.16 Important Role

13.17 Larger Returns for Producer

13.18 Providing Market Infrastructure

13.19 Linking credit, Processing and Farming

13.20 Supplying Inputs and Consumer Goods

13.21 Contributions to Growth

13.22 Some Progress

13.23 Conclusion

13.1 Introduction

An important problem of Indian agriculture concerns the marketing of its

produce. We discuss its various aspects by first taking up its significance for the

economy as also its present state. We then detail out the progress so far made in this field

and the improvements needed to make the marketing system a sound one. An important

agency for this purpose, namely, cooperatives, has also been dealt with separately. At the

end we explain the government policy in this regard.

13.2 Importance and Present State

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Marketing is a process whereby the producer and the buyer are brought together.

The producer refers to all those engaged in farming land. The conditions of farming may,

however, differ with some areas under peasant-proprietorship system, some under

landlord-tenant system, some under cooperatives, such as (i) and some under state farms.

The buyers are classified under three main categories: consumers who buy for their

direct consumption such products as wheat, rice, pulses etc.; (ii) producers who buy

agricultural products for use as intermediate goods for processing and manufacturing (iii)

traders who buy agricultural products, raw or processed, for sale in the domestic market

and for export. The marketing of agricultural produce involves several activities such as

collecting and storage of agricultural goods, their transportation to sale points and

mandies, their gradation, settlement of bargains etc.

13.3 Significance of Marketing of Agricultural Produce

In facilitating the sale-purchase of agricultural products, a marketing system

renders valuable service to an economy on several counts.

13.3.1 Functioning of Economy

A proper marketing system is the basic essential for a healthy functioning of an

economy. It is more so far the Indian agriculture which is becoming increasingly

dependent upon exchange through the sale of its products and purchase of inputs and

consumer goods. The number of farmers with surpluses to sell is on the increase.

Besides, their need for cash is also going up. The existence of a good marketing system

is an assurance to the farmer that his produce will be taken off the field. Equally

importantly, such a system will indicate to the fanners the type of goods for which

demand exists and the quantities in which these goods are needed. This will help in an

optimum use of the land. As such a suitable marketing system will thus not only

complete the process of production by providing a link between the producer and the

buyer, it will fulfil the needs of the farmers, and the buyers.

13.3.2 Economic Development

A good marketing system is helpful in the development of agriculture, which is

the major contributor to the gross domestic product of the Indian economy. A proper

marketing arrangement can organize surpluses from this sector. These are required to be

used in the non-agricultural sector to feed the industrial labour and urban population, as

also to provide raw materials for industries and goods for exports. A marketing system in

its role in a passive form as provider of trade channels and distributive agencies) can help

much if the cost per unit of the traded product is the least or minimum. This has

relevance for both the existing products with existing demands and for the new products

with new demands.' This stimulates earnings and surpluses in the sphere of production,

which in turn act as incentives to producers. Marketing, playing an active role, can be so

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designed (through a set of organizations and practices) that it helps in maximizing the

rate of growth of the agricultural sector. In this frame it offers attractive and profitable

opportunities to producers to produce a variety of products. For example, in the USA, the

large-scale food retailers have been effective in encouraging the supply of the kinds of

food-products which are suited to mass-merchandizing and mass-consumption. The

profitable opportunities also increase tremendously as the market can bring in the foreign

demands at the doorsteps of the domestic producers. This is of key importance for an

economy which is open and out to globalise itself as in the case of India at present. The

impulses of progressive agriculture can also be transmitted more rapidly through a well-

integrated market set-up. This happens because the products, emanating from technologi-

cally advanced areas of production (such as Green Revolution areas in India), when

traded, carry with them the modern knowledge and the latest technologies of producing

them.

13.3.3 Welfare Considerations

A well-designed marketing set-up is of considerable help in the promotion of the

well-being of the people. The first and the foremost beneficiary is the farmer himself. He

will get the highest possible price for his produce. He will be induced to produce those

goods and in such quantities as bring him the maximum revenue. With marketing

agencies taking over the job of selling the produce, the farmer will have enough time at

his disposal to devote fully to the many tasks of agricultural operations. A good

marketing system will align properly the agricultural prices with those of non-

agricultural prices. This will do good to both the farmer who not only sells, but also buys

a number of goods and services, as also to the non-agriculturist insofar as he is asked to

pay the right price for the agricultural goods, and receives the right price for the sale of

his non-agricultural goods. This promotes efficiency and an optimal trading scenario.

13.4 Short comings of marketing of agricultural produce

There are, as described above, several important advantages of a marketing

system. However, these do not accrue to the country, as its marketing system is beset

with serious shortcomings.

13.4.1 Inadequate Storage

The facilities for proper storage of agricultural produce are very" inadequate and

the few that are available are not scientific. Generally the produce is kept in carts, pits,

kaccha storehouses etc., where it is not safe. Quite a significant part of the produce is lost

because of dampness, rats, ants, etc. According to one estimate 10 to 20 per cent of the

agricultural produce is destroyed in this way. Besides, the quality of the produce also

deteriorates. Because of the inadequacy of warehousing facilities and the possibility of

its being damaged, the farmers' capacity to hold stock is reduced. They are very keen on

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disposing it off in the shortest possible time. In these circumstances they do not get fair

price and make the best of the market opportunities. Over and above this, the country

suffers because of the reduction in supply.

13.4.2 Inadequate Means of Transport

Transport facilities are also grossly inadequate. There are so many parts of the

country untouched by rail or road; at certain places even roads do not exist. Water

transport too is underdeveloped. For this reason farmers experience a lot of difficulty in

carrying produce from fields to their homes and from villages to markets. Apart from

inadequate transport, the country suffers from a shortage of fast moving vehicles. This

stands in the way of moving quickly a large quantum of produce and perishable goods to

the market. As a consequence, the cost of carriage of goods increases; a part of the

produce is spoilt on the way; farmers fail to get a good market for their produce; and at

many places a sizeable part of the agricultural produce does not reach markets.

13.4.3 Inadequate Facilities of Credit

Facilities of credit to farmers to tide over the period between the time the crop is

harvested and the time it is sold are very inadequate. As a result, the holding capacity of

farmers, particularly of small farmers, is considerably weakened. Immediately after har-

vesting the crop, farmers are forced to sell it. And since almost all the farmers bring their

supplies together, this in itself gluts the market and depresses prices. In such a situation,

it is not possible for farmers to get a fair price for their goods. While taking loans from

moneylenders, farmers usually agree to sell their produce to them and generally at less

than market prices. Thus, because of inadequate credit, farmers are not only unable to

sell their products at fair prices, but they also cease to be free with regard to the sale of

their produce.

13.4.4 Lack of Grading and Standardization

Another defect of the present marketing system is that agricultural produce of

different varieties is not graded properly. There are inadequate arrangements for the

grading and standardization of products. Whatever little has been done in this regard is

not practised fully. As a result, the produce that comes to market consists of a variety of

qualities and grades. It becomes difficult to assign prices to these goods as per their

quality. This means that prices, production and quality of the produce bear no relation to

one another. As such farmers find it difficult to secure higher prices for their superior

quality products. The producers engaged in the production of quality goods thus get

discouraged. Consumers too get no satisfaction from such transactions. Only function-

aries of and intermediaries profit from this chaos about the grading and variety of

agricultural products.

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13.4.5 Non-Availability of Market Information

Farmers are neither fully posted, nor supplied with correct information about

market prices, demand, international trends, government policies, etc. There is no

adequate agency in the country to disseminate information relating to markets. As a

result, farmers who visit markets occasionally base their decisions on the information

supplied by moneylenders, traders and other functionaries and intermediaries. This

information is generally wrong and biased in favour of purchasers and against the

interest of farmer-sellers.

13.4.6 Malpractices of Buying and Selling

The secret methods of buying and selling, use of defective weights, existence of a

large number of intermediaries conducting transactions, and large deductions made from

seller's dues etc., make marketing defective from many angles. Many intermediaries

secretly settle prices among themselves and play fraud on innocent farmers with regard

to the payments they make for their purchases. Despite the fact that the government has

made the use of standard weights compulsory, there are still some places where different

types of weights are used. At a few places stones are used as weights which generally

weigh less than standard weights. In the case of some small mandis and markets often two

types of weights are to be found, one to make purchases which are generally heavier in

weight and the other to conduct sales which are lighter in weight. Sometimes even

weighing is not done properly. Besides, the number of intermediaries between the

producer and the consumer is unnecessarily large. In addition to such functionaries as

village traders, arhatiyas, brokers, wholesalers and retailers, moneylenders and big

landlords also take part in buying and selling of agricultural produce. As a result of the

large number of intermediaries, the cost of marketing goes up and the sale of the produce

is not conducted properly. A big share of the price of goods is generally pocketed by

these intermediaries. There are again many manipulations done by the functionaries of

mandis and markets. Many unjustified deductions are made such as those for temples,

dharamshalas, other religious and social activities and functions, etc. All these practices

make marketing defective.

13.4.7 Inadequacy of Institutional Marketing

Another weakness of agricultural marketing in India is that in general farmers sell

their produce separately on individual basis. As against powerful intermediaries, these

farmers possess no or very weak bargaining capacity. Consequently they do not get fair

price for their produce. The bai reason is that arrangements for institutional marketing in the

country are grossly inadequate. The number of cooperative marketing societies is small;

government arrangements to buy agricultural produce are also inadequate; only a few

regulated markets are found functioning properly. As a consequence of such deficiencies,

farmers are being exploited. This difficulty would have been got over had farmers been

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properly organized to face the large number of powerful intermediaries. But

unfortunately they are not organized and are, therefore, in no position to look after their

interests.

13.5 Evil Consequences

Various deficiencies in agricultural marketing in India have led to many evil

consequences. Among them the major ones are the following:

13.5.1 Meager Earnings

Low receipts from the sale of agricultural produce on account of low price of

goods their low weighing, sale of superior and inferior quality produce at the same price,

many unfair deductions, costly transport, etc. This keep the income of farmers low. Thus,

despite hard labour, large many agriculturists remain poor.

13.5.2 Little Incentive:

In view of the small income received from their produce, the various difficulties

faced by them in the market, and the compulsions which force them to sell their produce

to moneylenders, farmers generally do not feel induced to increase their production.

They try to produce the minimum needed for their own use, bartering a part of it for

certain essential goods for their consumption. Thus a defective marketing system acts as

a positive disincentive to increase in production.

13.5.3 Low Marketable Surplus

Marketable surplus too is adversely affected by defective marketing. Since prices

obtained in the market are unremunerative and since there are many hurdles and

malpractices prevalent in markets, farmers generally prefer to dispose of a major part of

their produce in villages. This by itself acts as a disincentive to produce more, which in

turn reduces the surplus. Thus, both because farmers do not like to go to markets with

surplus and because of low production, the quantity of the marketable surplus gets

reduced.

13.5.4 Obstructs Innovative Farming

The defective markets have also obstructed the spread of innovative agriculture,

as also its fruits throughout the country. In a recent World Bank Report, it has been

pointed out that a lack of market (and infrastructure) is a key reason for the slow spread

of Green Revolution to eastern Uttar Pradesh, Bihar and Orissa. In the absence of

integrated markets, the information about the revolutionary agriculture, as embodied in

its products, could not reach rapidly enough in areas of traditional agriculture. Even in

the areas of progressive agriculture, the farmers could not do their best for fear of gluts.

13.5.5 Difficulties for Planning

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Unsatisfactory marketing is also an obstacle in the way of efficient planning for

the development of the country. For example, the provision in regard to the amount of

marketable surplus for the non-agricultural sector cannot be made with any certainty.

Nor can prices received by farmers for their agricultural products and incomes earned by

them be made a reliable indicator and measure of the growth of the agricultural sector or

the welfare of the agriculturist. The exchange transactions of the country too cannot be

fitted in any analytical frame for a healthy development of the economy. As a result it

becomes difficult to plan properly and with certainty.

13.5.6 Improvements and Progress

In view of the harmful consequences of the defective agricultural marketing

system, it is of utmost importance that the system is speedily reformed. Among the many

measures needed to improve it, the major ones are mentioned below. Along with the

description of the measures, we shall also take up the progress made in the

implementation of these measures.

13.5.7 Cooperative Marketing

In a country of small farmers, cooperative marketing is perhaps the best

organization for this task. Such an agency can give to the innumerable and scattered

small farmers the advantage of a big institution. Their bargaining power vis-a-vis market

functionaries can improve a great deal. This agency can arrange to collect products from

small farms, grade them, store them, transport and sell them as and when it is most

advantageous. During these marketing operations, cooperatives can provide to their

farmer- members necessary credit to hold on till fair prices can be obtained for them.

In recent years some attention has been given to these cooperatives and some

progress has been made in this sphere. The value of agricultural produce handled by

cooperatives has been increasing over the years albeit slowly. Food grains, sugarcane,

cotton, oilseeds, etc., are the important agricultural commodities covered by these

institutions. In view of the very important role that cooperatives can play in putting

agricultural marketing on a sounder basis, we shall take it up detail in a separate section

later in this chapter.

13.6 Regulated Markets

The second important measure is related to the establishment of regulated

markets. These regulated markets can, to a very large extent, remove the ills of the

present marketing system. For example, these can be of great help in

reducing/eliminating the unjustified charges by the intermediaries, thereby lowering the

transaction-costs for the farmers. The farmers can also be ensured of a fair price for their

produce because the buying and selling in such markets will be subject to set rules and

procedures. Some steps have in fact been taken in this direction, and as a result the

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number of regulated markets has increased sharply for example, the number of such

markets was 265 in 1950-51 which by March 1999 rose to 7,062. Thus registering an

increase of more than 30 times. Quite a number of markets have also been set up in the

backward regions of the country. For the management of these markets, committees have

been set up. These committees represent different interests like those of state

governments, local institutions, traders, brokers or commission agents and farmers.

Because of this composition of committees, almost all the viewpoints are taken care of

while making decisions. These committees deal with the various activities concerned

with the buying and selling of agricultural produce. They issue licences to the

functionaries of the market and fix charges for weighing, brokerage etc.. Thereby

eliminating uncalled for deductions. They ensure the use of standard weights and provide

for the supervision and check- up of proper weighing. Arrangements are also made for

providing reliable and up- lo-date market information.

The network of regulated markets has, however, achieved very limited success as

they failed to achieve their goals of remunerative prices to the growers, smooth raw

material supplies etc. The Department of Agriculture and Cooperation was suggested a

model Act (2003). This Act provides for prohibition of Commission agency in any

transaction of agricultural Commodities. Marketing Boards for promoting

standardisation, constitution of State Marketing Standard Bureau etc.

13.7 God owns and Storage Facilities

To earn agricultural produce outside villages and to hold it till it is sold, it is

necessary to provide godowns and storage facilities. Proper warehousing for the produce

is of great importance. This enhances the bargaining power of the fanner. On the security

of goods kept in godowns. Farmers can seek loans from cooperative societies and

commercial banks. They will thus be in no hurry to unload their produce in the market

immediately after harvesting it. This will enable them to get reasonable prices for their

produce. Besides, such facilities will save a lot of the produce from being damaged and

destroyed. The produce in godowns can be kept safe for a long period of time.

The government and cooperative societies have in recent years taken some

important steps towards the provision of such facilities. As a result, main godowns and

warehouses have been built at the village and mandi-town level, increasing rapidh the

storage capacity in the country. There is in all a covered storage capacity of about 43

million tonnes available with the public agencies like the Food Corporation of India.

Central Warehousing Corporation, and State Warehousing Corporations. In addition

rural godowns, with a storage capacity of about 1.2 million tonnes, have been built.

There are, again, private storage facilities although all of which are not of modern type.

13.8 Uniform and Standard Weights

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The need for using uniform weights throughout the country is obvious. Lack of

uniform standards in weights will continue to keep marketing in an unsatisfactory state.

Unscrupulous traders alone can benefit from this state of affairs. To improve upon this

aspect of marketing, the government has been making efforts over the last many years.

As far back as 1939 the Standard Weights Act was passed, under which the state

governments made efforts to promote the use of standard weights. But not much

headway could be made in the situation and the chaotic conditions in weights used in

different places and for different products continued. Later on, with a view to introducing

uniformity in weights, the government enacted legislation and prepared a time-bound

programme to introduce the metric and decimal system in the country. Since 1962 the

use of metric weights has been made compulsory. In view of the use of the metric system

of weights, the situation in this regard has considerably improved.

13.9 Grading and Standardization

Grading of goods according to their quality is essential so that prices appropriate

to various qualities can be fixed and dishonest functionaries of mandis are unable to mix

inferior goods with the superior quality goods to cheat producers and consumers. On the

one hand, grading of goods will induce farmers to grow quality products, and on the

other consumers will find it easy to identify and pay the right price goods. Categorizing

various products accord- ig to grades will make inspection and testing easy and possible.

This will enable sellers to maintain the purity of product and to guarantee its quality to

buyers. Grading and standardization of goods will be useful not only for internal trade,

but also for international trade where deals are generally struck on the basis of grade of

goods or their samples.

Some progress has been reported in this field. In 1937, the Agricultural Produce

(Grading and Marketing) Act was passed under which graded goods are issued

certificates of grades. Goods with ach certificates are listed as AGMARK goods. At

present grading standards for several commodities have been laid down. Among the

goods included for this purpose are rice, wheat, coffee, tobacco, oilseeds, cotton, leather,

etc. It is intended that in the near future all the important food grains would be covered

by it. There is again a great emphasis on the strengthening of the existing Agmark

laboratories and opening of new regional laboratories in various other places.

13.10 Availability of Credit

It is also necessary to -take arrangements to supply credit to farmers to tide over

the period between production and sale of the produce. It is only when farmers are able

to meet the expenses for their daily requirements life that they can have sufficient

holding capacity to make the best of market opportunities. Further, it needs to be stressed

that the organization of credit should be such that the farmers feel on difficulty in taking

his produce to the market and selling it freely. Cooperative credit societies are the best

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way to meet the requirements of agriculturists. The most appropriate thing to do would

be to ensure simultaneous development of cooperative credit and cooperative marketing.

Credit should be linked with marketing arrangements. At the time of extending credit, it

should be seen that farmers sell their produce through cooperative marketing societies.

This will ensure the return of the loan. At the same time it will be possible to direct the

use of credit into productive channels. Considerable progress has been made in this

sphere of credit. Cooperative credit societies have, for example, been set up in almost all

the villages. There are, besides, large many branches of the commercial banks, as also

regional rural banks supplying credit to the farmers. However, the entire community of

farmers is yet far from fully covered. The credit for marketing continues to be very inad-

equate. In particular the delivery of credit (amount and timing) is very unsatisfactory.

Further, very little progress has been made in linking the various activities like

production, storage, sale etc. because of the inadequacy of multipurpose societies.

13.11 Efficient Transport Arrangement

An essential requirement for improving India's marketing system is the

availability for transport which can carry goods to markets at low cost, easily and

speedily. For this purpose there should be all- weather roads in villages. Besides,

bullock-carts with rubber wheels and trucks run on petrol and diesel are needed. Rail and

water transport should also be further developed, keeping in view the special features of

agricultural goods. In this field, too, some progress has been made. The length of surface

roads has increased considerably. So is the case in regard to the route length of the

railways. The shipping tonnage has also risen. Some improvements have also been

effected in designing the transport set-up so that it suits the special characteristics of

agricultural products (such as bulkiness, perishability etc.). While all this is

commendable, there is still a large leeway to be made up. For example, the number of

villages connected with all weather roads is still very small, at 46 per cent. Again, there

is very little of organizational efforts at a proper rural road planning, construction and

maintenance. Further, there is still much that needs to be done in improving the loading

and unloading arrangements by the railways. The linkages between the road transport

and the railways are far from adequate for handling agricultural produce.

13.12 Stabilization of Prices

To ensure stability in the income of farmers, to provide a reliable basis for

decisions concerning production as also to supply goods to consumers at fair prices, it is

very important that the price-level be kept stable. For price-stabilization, i.e., evening out

undesirable fluctuations in prices over a period, two types of measures are essential. One

is that prices of agricultural goods be announced before harvesting, and two, after

harvesting the government should undertake buying and selling operations to maintain

the announced price level.

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The government follows this policy and has taken certain steps towards price-

stabilization through the Agricultural Cost and Price Commission. The Commission

announces from time to time prices of certain agricultural goods like principal

foodgrains, sugarcane, cotton, jute, etc. and the government operates through buffer-

stock operations to keep these prices stable. In 1973, the government also tried the

method of nationalization of wholesale trading in wheat, but because of inadequacy of

administrative personnel and the pressure of vested interests, gave it up in 1974. Since

government experience in this field is not as yet much, its impact has not been wholly

satisfactory. As such much remains to be done.

13.13 Arrangements for Market Information

In order to improve upon the existing marketing system, another essential

requirement is that farmers, functionaries, and final buyers be regularly posted with the

latest information about market conditions, prices, domestic and foreign demand, etc. For

this arrangement needs to be made to collect and disseminate information about agricul-

tural products. With this information farmers can organize their work in accordance with

the requirements of the market. Consumers too will benefit from this.

This aspect of marketing also is being attended to by the government. Weekly

data on market arrivals, sales, prices, etc. are being regularly collected from large

number of reporting agencies. Data on retail prices are being regularly made available

through the government. Besides, daily prices of important agricultural commodities are

being broadcast from all the regional stations of the All-India Radio. Television is also

being pressed into service for this purpose. Market intelligence reports are displayed in a

number of markets throughout the country. Even the newspapers of the country are doing

much in the dissemination of information about market prices. As a result, information

regarding agricultural marketing is on the increase. But as yet information does not reach

every farmer, nor does it cover all agricultural products.

13.14 Market Inspection, Research and Training

Finally, one may stress the need for making adequate arrangements for market

inspection, research and training. Occasional surveys of markets can help us in

identifying problems and finding solution for them. Again, the need to investigate

marketing methods, changing demands, costs, prices, etc. is no less important. Research

and study of these problems will help in formulating correct policies and rules and laws.

Further, it is essential to train properly the personnel to man efficiently the various

institutions connected with the marketing of agricultural products. The government has

also taken steps to attend to these requirements for improving the marketing system. The

Directorate of Marketing and Inspection undertakes from time to time inspection of

major agricultural goods throughout the country. It also conducts research into various

aspects of agricultural marketing. Steps have also been taken towards training of

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personnel. Arrangements for training personnel of various categories have been made at

places like Nagpur, Sangli, Hyderabad, etc.

The above suggested measures will be of great help in reforming the marketing

system. As described above, some necessary steps along these lines are being taken.

Also, it is imperative that this package of programmes be speedily extended to cover all

agricultural goods and all farmers.

13.15 Cooperative Marketing

In view of the preponderance of small farmers in the country and the existing

defects in the marketing of agricultural produce, cooperation appears to be the only and

right solution to the problem of marketing.

13.16 Important Role

Cooperative marketing is of great significance in the context of Indian conditions.

The objectives of economic development and social justice can be furthered by

channeling agricultural produce through cooperative institutions. Some of the important

ways, through which this agency can promote growth of agriculture and welfare of

farmers, may be briefly listed below:

13.17 Larger Returns for Producer

Cooperative marketing will increase the receipts of farmers from the sale of their

produce. This will result from certain advantages which will flow from the pooling of the

produce of small farmers. Further, there will be an increase in the bargaining power of

farmers vis-a-vis functionaries of the market. Instead of each small farmer marketing his

produce, there will be one organization on behalf of many farmers doing the job.

Strength in the unity aptly describes the collective bargaining that will result from the

coming together of large number of farmers. Cooperatives can deal with final buyers

directly, and thereby reduce substantially, if not eliminate altogether the number of

intermediaries. This will mean that a part of the price which is at present pocketed by

intermediaries will go to producers. The bulk handling of the produce will enable farmers

to reap the cost- reducing benefits of large-scale selling. The cost of collecting produce,

their storage, transportation, etc. will be lower than when the same produce is handled in

many units, each unit of small quantity.

13.18 Providing Market Infrastructure

Cooperatives, with large resources, can provide infrastructural facilities

appropriate to the handling of the agricultural produce. For instance, special types of

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godowns and warehouses can be built up. These can b§ located in villages and mandies.

Transport-vehicles (including bullock- carts) can be so designed as to suit the products

which, being bulky, require more space per unit of value. Similarly, arrangements can be

made to handle perishable products which require quick transport. Cooperatives can also

have their own facilities for grading of goods so as to fetch the right price for the right

products. The arrangement for the regular supply of up-to-date information about prices,

demand, production, etc. can be made by cooperatives. Thus the infrastructure needed

for the marketing of agricultural goods can be easily built by cooperatives and at low

cost.

13.19 Linking credit, Processing and Farming

Cooperation in the field of marketing can either expand to cover such other

aspects of agriculture as credit, processing and farming, or the operations of cooperative

marketing societies can be linked with other societies- dealing with these activities. In

the former case, there will be multipurpose societies which are superior to specific

purpose societies because of the need and ease of dealing with different activities of

farming, processing, credit and marketing. In the latter case, there will be a coordination

of activities of societies. Cooperative marketing can enable credit institutions to grant

loans to farmers on the security of produce entrusted to cooperatives for sale. Since in

respect of many products the sale of processed produce, e.g., oil, bales of jute and cotton,

etc. fetches higher prices, cooperatives can also undertake processing activities like

crushing oilseeds, ginning and pressing of cotton, processing jute into bales, etc. Farming

can also be linked with marketing by assuring the farmer of the sale of his produce at

reasonable prices, helping him to produce goods needed in the market, etc. Thus

marketing can be so institutionalized that all other stages get linked up with one another

to form a strong chain.

13.20 Supplying Inputs and Consumer Goods

Cooperative marketing societies can also easily and cheaply undertake the supply

of inputs like seeds, fertilizers, pesticides, implements, etc., and consumer goods needed

by farmers like cloth, matches, kerosene, radios, etc. These societies can finance

purchases by farmers from the sale price of their produce. The credit extended by

cooperative societies can be deducted from the receipts of the sale of the produce.

Besides, the bulk buying of inputs and consumer goods by the marketing society at

wholesale rates will benefit member-farmers through the cheapening of these goods. An

important hurdle in the way of raising productivity of land is the non-availability of

certain crucial inputs like better quality seeds, chemical fertilizers, pesticides, etc. This

difficulty is particularly experienced by small farmers who can neither afford time, nor

resources to hunt for these inputs. Cooperative societies can fully devote themselves to

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arrange them (and even undertake to produce them) and to ensure their even distribution

to small farmers.

13.21 Contributions to Growth

Cooperative marketing societies can help a lot in promoting rapid growth of the

country. They can arrange for the collection and sale of marketable surplus of foodgrains

and raw materials. Also, through various incentives such as supply or production of

inputs at low prices and consumer goods, these institutions can encourage farmers to

produce more and part with a greater proportion of their produce as marketable

surpluses. Quite a large part of the produce which is currently going to waste because of

the inadequacy of storage facilities, defective transportation, rodents, etc. can be saved

and used for development.

Apart from increasing the marketable surplus, these cooperatives can promote

development of agriculture. Being the end-points in the production-chain, these societies

can act as powerful factors in determining output and crop-pattern. Through the supply

of inputs and linking production with the requirements of the buyers, cooperative

marketing societies will become an important organ in the promotion of a sound

agricultural development.

13.22 Some Progress

Cooperative marketing has been in existence for long. Even prior to

Independence, some sporadic efforts were made in this direction. However, the position

in this respect remained far from satisfactory till 1951. The agricultural produce handled

by the cooperatives was just over one per cent of the produce sold to all the agencies.

The pace, however, quickened after the report of the Rural Credit Survey Committee

(1951). It recommended the establishment of primary marketing societies in all the

important markets. Since then the number of societies and the sale of agricultural

produce handled by them, have increased at an accelerated pace. The cooperative market

structure is now well designed. It is comprised of general purpose primary cooperative

marketing societies (number 2,633) at the mandi level, covering all the important mandis

in the country, specialized primary marketing societies (number 3,290) for oilseeds etc.,

and District and Central Federations (number 172) and the National Marketing

Federation of India at the national level. The value of produce handled is worth over Rs

7100 crores (1991-92) whereas it was just about Rs 180 crores in 1960-61.

An important aspect of the development of agricultural marketing is that the

societies engaged in this work have diversified their activities. They are also supplying

inputs like fertilizers, seeds, agricultural implements and machinery and pesticides and

insecticides, through an expanding network of about retail outlets. The total value of

agricultural production-requisites like fertilizers supplied by cooperatives has been

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steadily increasing. Although there has been overall progress in cooperative marketing, it

has not been evenly spread in different states. While at one end are states like Punjab,

Haryana and Maharashtra where impressive progress has been recorded, there are states

like Andhra Pradesh, Tamil Nadu, Uttar Pradesh and West Bengal where even the

existing level of cooperative marketing declined during certain years. The disparities are

still larger in terms of the value of agricultural produce handled by cooperative societies

in various states with a very few states accounting for a major proportion of the total.

Besides, there is also considerable unevenness in the performance amongst marketing

cooperatives. There are quite many which exist only on paper and do no marketing. A

significant number is very small in terms of the value of agricultural produce handled.

Only very few, running some into hundreds, which work on a big scale of goods worth 5

lakhs or more. Further these societies mostly confine to certain agricultural products like

wheat, sugarcane and jute, and do little in respect of coarse grains, fruits, and vegetables,

pulses etc. Thus the progress is very unevenly distributed between states and among

cooperatives.

13.23 Conclusion

Cooperative marketing has an important place in the economy. But the progress

made so far, though noteworthy, is not wholly satisfactory. Cooperatives have yet to

cover a substantial part of the total agricultural produce. It is, therefore, essential that

these cooperatives develop at a faster speed and along right lines so that these could

perform the role assigned to them. Marketing societies need to be more closely

intertwined with other societies dealing with farming, finance, etc. The best way to do so

is to establish multipurpose societies which could look after all the aspects of agriculture.

It is through this way that the farmer can make the best of this institution. With such a

linkage of separate societies or the setting up of multipurpose societies, the farmer can

become the centre of the cooperative movement and his various needs can be met and

problems solved on a comprehensive basis. The development of linkages among

marketing and other functions is of special importance because with increase in

production, marketing is increasingly becoming important to the farmer.

There is then the need to further diversify the activities of marketing societies.

These societies, apart from organizing the sale of agricultural produce, should undertake

to construct their own rage capacity, provide their own transport, arrange for the

processing of produce, grade their goods, organize export, etc. In these spheres the

dependence on the other sources will weaken these societies. On the other hand, a total

view of marketing requires that all the operations collection and storage of produce,

transportation, grading, sale, etc. should be undertaken by the marketing societies themselves. No

doubt some progress has been made along these lines. But this is insignificant

considering the large part of the work which remains to be done. These societies need to

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be strengthened to enable them to cope with an increasing amount of work and to serve

the largest number of agriculturists. In this regard there are three urgently needed

reforms. Further, these societies should be provided with larger financial resources. More

government work with regard to procurement of food grains, etc. should be entrusted to

these cooperatives. There is need for the establishment of more societies in areas where

this movement has not arrived. In all these matters, the government and the Reserve

Bank of India should do more than what they are doing.

Important Questions

1. What are the significance of marketing of agricultural produce?

2. What are the constraints of marketing agricultural produce?

3. What are the evil consequences of agricultural marketing?

4. Explain cooperative marketing of India.

5. Explain about regulated markets in agricultural sector.

LESSON- 14

PUBLIC DISTRIBUTION SYSTEM (PDS)

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14.0 Objectives

To probe into the objectives of public distribution system

To study the major issues involved in public distribution system

To study the restructuring of public distribution system

To bring out Public Distribution System plan schemes

Contents

14.0 Objectives

14.1 Introduction

14.2 Objectives of Public Distribution System (PDS)

14.3 The evaluation problem

14.4 Implementation of TPDS

14.5 Issues Involved in Implementation of TPDS

14.6 Restructuring of PDS

14.7 Diversion of PDS Commodities

14.8 Marketing Arrangements:

14.9 Decentralization of Operations

14.10 PDS Plan Schemes

14.11 Grain Bank Scheme:

14.12 Disadvantages of P.D.S System

14.13 Benefits of Public Distribution System

14.14 Conclusion

14.1 An Introduction to Public Distribution System

Public Distribution System (PDS) is an Indian food security system it was

established it was by the Government of India under Ministry of Consumer Affairs,

Food, and Public Distribution and managed jointly with state governments in India, it

distributes subsidised food and non-food items to India's poor. Major commodities

distributed include staple food grains, such as wheat, rice, sugar, and kerosene, through a

network of Public distribution shops (PDS) established in several states across the

country. Food Corporation of India, a Government-owned corporation, procures,

maintain and issue food grains to the state. Distribution of food grains to poor people

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throughout the country is managed by state governments. As of date there are about 4.99

lakh Fair Price Shops (FPS) across India.

In terms of both coverage and public expenditure, it is considered to be the most

important food security network. However, the food grains supplied by the ration shops

are not enough to meet the consumption needs of the poor or are of inferior quality. The

average level of consumption of PDS grains in India is only 1 kg per person and month.

The PDS has been criticised for its urban bias and its failure to serve the poorer sections

of the population effectively. The targeted PDS is costly and gives rise to much

corruption in the process of extricating the poor from those who are less needy. Today,

India has the largest stock of grain in the world besides China, the government spends

Rs. 750 billion ($13.6 billion) per year, almost 1 percent of GDP, yet 21 percent remain

undernourished

14.2 Objectives of Public Distribution System (PDS)

India‟s Public Distribution System (PDS) with a network of 4.78 Lakh Fair Price

Shops (FPS) is perhaps the largest retail system of its type in the world. Since 1951

public distribution of food grains has been retained as deliberate social policy by India

with the objectives of: (i) Providing food grains and other essential items to vulnerable

sections of the society at reasonable (subsidized) prices (ii) To put an indirect check on

the open market prices of various items and (iii) To attempt socialization in the matter of

distribution of essential commodities PDS is an important constituent of the strategy for

poverty eradication and is intended to serve as a safety net for the poor whose number is

more than 33 Crores and are nutritionally at risk. PDS is operated under the joint

responsibility of the Central and the State Governments. The Central Government has

taken the responsibility for procurement, storage, transportation and bulk allocation of

food grains, etc.

The operational details of the PDS differ from state to state. Though the policy of

setting up of FPSs owes its initiation to national food policy, its implementation remains

the direct responsibility of the state governments. In order to operate the PDS effectively,

the Central Government issues guidelines from time to time to the states regarding the

operational details of the PDS. The operational responsibilities including allocation

within the State, identification of families below poverty line, issue of ration cards,

supervision and monitoring the functioning of FPSs rest with the State Governments. The

Food and Civil Supplies Department of the State Government is mainly entrusted with

the task of monitoring PDS in the state.

The Indian Public distribution system the rural Indian spend 64 percent of its

budget on food. Food share is an inverse indicator of welfare, it follows that food

security should be a major focus of policies concerned with well being in this society. In

terms of both coverage and public expenditure, the most important food safety net is the

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Public Distribution System. Of the 200 million tones of food grains produced in 1999-

2000, about 29 million where produced by the government under PDS, which now

support the largest network of ”fair price shops” in the world.(458499 shops in 1999).

These provides rice, wheat sugar, edible oil, soft cake and kerosene oil at subsidized

prices. The PDS is managed by state governments. The central government based on the

population state and its share of below poverty line households and above poverty line

households, determine the total procurement of food grains and total allocation across

states. The government also determines the Central Issue Prices (CIP) for commodities.

The state government then determines the off-take, the public delivery, and the list of

commodities provided. The state government is allow to add to the CIP the transactions

cost of keeping the stock and of delivering. Locations of the fair price shops are

determined by the officials at the district level. There is enormous variation in the density

of the fair price shops as also in the regularity of supplies both across and within states.

The PDS took shape soon after the Bengal famine in 1943.

It evolves in the 1950s and 1960s as a mechanism for providing price support to

producers and at the same time as providing food subsidy for consumers. At that time the

country was threatened by national-level food shortages and there was rapid food price

inflation, especially in urban areas. By the 1980s, India had generated a surplus of

foodgrains and the incidence on poverty had declined progressively for about 50 per cent

in the 1960s to about 30 per cent in the 1990s. As a result the welfare component of the

PDS gains strength in the 1980s , when it was considerably extended to rural and tribal

blocks, with and explicit view to reaching areas of high poverty incidence. In the context

of currency devaluation and economic reform in the 1990s, procurement and issue prices

of PDS commodities were increased leading the government to mitigate the adverse

welfare consequences by better targeting of PDS to the poor. Until 1992, there was

universal entitlement to the PDS but it has since been restructured. In 1997 it was

replaced by the Targeted PDS (TPDS).in which targeting was shifted from poor regions

to poor households and the subsidy differential between the poor and non poor was

widened. More specifically, 10kg of foodgrains were available at a highly subsidized

price per family per month for families below the poverty line. Those classify as non

poor get no subsidy though they are served by fair price shops, which can play a useful

distributional function in areas where private shops have not emerged. The problem of

crowding out effect may exist if the poor are credit constraint and if they rich are not.

When asked the main reason why people have not used fair price shops is that because

the commodities were not available in sufficient quantity or quality.

14.3 The Evaluation Problem

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India is embarked on a program of economic reforms in 1991 with the objective

of achieving macroeconomic stabilization and structural adjustment, the latter being

closely tied to getting prices right. Both processes encourage government expenditure

reduction and the removal of subsidies. In this context the PDS has commended

considerable attention. It has been argued that it is an obsolescent and fiscally

unsustainable institution. These authors have also argues that the PDS has a poor record

on reaching the poor. Hence, the move towards slimming the system and targeting the

subsidy to the targeted poor. This was done in June 1997, moving through a universal

public distribution system toward a targeted public distribution system. There is still a

debate on whether the PDS should be phase out and replaced with more effective

instruments for reaching the poor. While the cost effectiveness of the sys- tem has been

put in scrutiny, we still lack a program evaluation impact of TPDS. For that we need to

investigate the benefit incidence of TPDS that is access of poor to foodgrains at

subsidized price and conditional on the access we need to evaluate the progressively of

the TPDS with regard to poverty. The poverty impact of TPDS is the difference between

poverty level with the TPDS and the poverty level without it. The data are observable

while the”without” data are fundamentally unobservable. This is the well known problem

of causal inferences. Common practice for assessing the distributional and poverty

impact, the fiscal benefit incidence analysis, is straightforward but ignore the

counterfactual taking the transfer as the net benefit accruing to household, ignoring any

behavioral responses. Benefit incidence of PDS has two component the price and the

quantity the overall being the product of both. Previous evaluation consider only with

and without the program effect on prices, but fail to consider the without effect on

quantities. This is to assume that those affecting by PDS does not change their

consumption behavior as the result of PDS.

14.4 Implementation of TPDS

The importance of an effective mechanism that ensures availability of food at

affordable prices at household level for the poor can hardly be over emphasised.

However, the PDS as it stood earlier, was widely criticised for its failure to serve the

population below the poverty line, its urban bias, negligible coverage in the states with

the highest concentration of the rural poor and lack of transparent and accountable

arrangements for delivery. Realising this, the government streamlined the PDS, by

issuing special cards to families Below Poverty Line (BPL) and selling food grains under

PDS to them at specially subsidised prices with effect from June, 1997.

Under the Targeted Public Distribution System (TPDS) as initiated in June 1997,

each poor family was entitled to 10 kgs of foodgrains per month at specially subsidised

prices. His was expected to benefit about 6 crore poor families. The state-wise poverty

estimates of the Planning Commission based on the methodology of the „Expert Group‟

on estimation of proportion and number of poor chaired by late Prof. Lakdawala defined

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the number of poor in each state. The identification of the poor is done by the states. The

Committee did not give identification guidelines. The thrust is to include only the really

poor and vulnerable sections of the society such as landless agricultural labourers,

marginal farmers, rural artisans/craftsmen such as potters, tappers, weavers, 20

blacksmiths, carpenters etc, in the rural areas and slum dwellers and persons earning their

livelihood on a daily basis in the informal sector like porters, rickshaw pullers and hand

cart pullers, fruit and flower sellers on the pavements etc. in urban areas.

Keeping in view the consensus on increasing the allocation of food grains to BPL

category and to better target the food subsidy, Government of India increased the

allocation to BPL families from 10 kgs. to 20 kgs. Of food grains per family per month at

50 percent of economic cost from April 1, 2000. The allocation for APL was retained at

the same level as at the time of introduction of TPDS but the Central Issue Prices for

APL was fixed at 100 percent of economic cost from that date so that entire consumer

subsidy could be directed for the benefit of BPL population. The number of BPL families

has increased with effect from 1.12.2000 by shifting the base to the population

projections of the Registrar General as on 1.3.2000 instead of the earlier population

projection of 1995. The change has resulted in increasing the number of BPL families to

652.03 lakh as against 596.23 lakh families originally estimated when TPDS was

introduced in June, 1997. The increased level of allocation of food grains for BPL

category is about 147 lakh tones per annum.

In order to reduce excess stocks lying with the Food Corporation of lndia,

Government have recently initiated the following measures under the TPDS with effect

from 12.7.2001. The BPL allocation of food grains has been increased from 20 kgs. to 25

kgs. per family er month w.e.f. July, 2001, the CIP for BPL families at Rs.4.15 per kg.

for wheat and Rs.5.65 per kg. for rice is 48 percent of the economic cost. The

Government has decided to allocate food grains to APL families at the discounted rate of

70 percent of the economic cost. The CIP of APL wheat which was at Rs.8.30 per quintal

has been reduced to Rs.610 per quintal and CIP of APL rice which was at Rs.1130 per

quintal has been reduced to Rs.830 per quintal. Further, under the Antyodaya Anna

Yojana, 25 kgs. of food grain are provided to the poorest of the poor families at a highly

subsidised rate of Rs.2 per kg. for wheat and Rs.3 per kg. for rice. It also needs to be

mentioned that the Public Distribution System (Control) Order 2001 has been

promulgated which seeks to plug the loopholes in the PDS and make it more efficient

and effective.

14.5 Issues Involved in Implementation of TPDS

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One of the issues involved in the implementation of TPDS is the identification of

the target group. The poverty ratios estimated by the Lakdawala Committee have been

used to determine the number of BPL population in each State/UT. But when the

States/UTs sit down to identify the actual beneficiaries the population identified

generally exceed the estimates made by the Expert Group. The government has now

decided to use the projected population of states as on 1-3-2000 for determining the

number of BPL families in a state as against the population figure for 1995 used earlier.

This will generally lead to an increase in the number of BPL families in a state. The

allocation of food grains under BPL quota is now based on the population of states as on

1-3-2000, average size of households in a state in 1991 and the poverty ratio of states

obtained as in 1993-94. The new NSS round on poverty has indicated a lower incidence

of poverty in many states and this can have an impact on the BPL population of various

states. While we can arrive at a figure for the BPL population based on the poverty

estimates, when identification of the poor is done by the states the identified population

does not necessarily match BPL estimates based on poverty.

To improve delivery to the underserved poor a possible approach which would be

to supplement TPDS with area based targeting under which the population of

inaccessible areas like hill areas, desert areas, drought-prone areas etc. are targeted. The

substantial regional variations in PDS performance suggests that geographical targeting

may be one feasible avenue for ensuring food security. The introduction of the

Revamped Public Distribution System was to address some of these problems. Under the

RPDS, certain regions which were poorly developed and remote were identified, and

PDS supplies made available to these areas at still lower prices. This was subsequently

replaced by the TPDS in 1997. Apart from sustained intervention of the kind outlined

above, the occurrence and location-specificity of drought also argue for an area-based

approach. For example, consider the response to drought in Maharashtra in the 1970s.

Enhanced supplies of subsidized food, as well as measures that tied food receipts to

participation in public works, all contributed to what is now almost universally

recognized as a well-managed drought; further evidence of the effectiveness of need-

based geographical targeting.

However it has been pointed out that area based targeting approach is not the

ideal approach. The focus should be on the poor in all areas. RPDS covered only 20

percent of the total population. The Report of the Subgroup on Policy aspects of PDS for

the formulation of the Ninth Five Year Plan has stated that even if it is presumed that 70

percent of this population was below the poverty line, this implies that 14 percent of the

poor in the country resided in the RPDS blocks and about 16 percent elsewhere assuming

the poor to constitute about 30 percent of the total population. The quality of food grain

supplied through the PDS also leaves much to be desired. The problem has arisen partly

due to relaxed specification of quality while procurements are made. Such relaxation

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need to be avoided in the future in the interests of a well managed public distribution

system. If any state government requests for relaxation of quality norms, this should be

invariably accompanied by an appropriate price reduction besides exemption from

statutory state levies. When the monthly quota supplied to the poor families under TPDS

is 25 kgs, it is evident that the poor families will not have the economic capacity to buy

their full monthly quota of food grain in one go. The least that can be expected in this

regard is that delivery system permits the poor to buy their rations at least on a weekly

basis. The issue has been addressed in Public Distribution System (Control) Order 2001.

14.6 Restructuring of PDS

To make the implementation of TPDS more effective, it is desirable that the

following points may be taken into consideration. Items other than rice and wheat need to

be excluded from the purview of TPDS. The main objective of providing food subsidy to

the poor is to ensure food security. Rice and wheat are the two commodities, which are

eagerly sought after as basic necessities by the poor in India. Provision of food susbsidies

should be restricted to these two commodities. Items such as sugar should be kept outside

the purview of PDS. Sugar should be decontrolled and the system of levy on sugar

should be discontinued. It is argued that if production of coarse cereals, is encouraged in

dryland areas environment damage like degradation of soil can be checked to some

extent. However, there is difficulty in supplying coarse cereals through PDS and bringing

them under the cover of food subsidy. The average shelf-life of coarse grains is limited

making them unsuitable for long term storage and distribution under PDS. Inclusion of

coarse cereals under PDS cannot be taken up as a national level program since there is no

standard variety of coarse grain. But initiatives from the side of state governments are

possible catering to the needs of specific localities.

Kerosene oil is also a commodity supplied through PDS and intended for the

poor. But this is an item where there occurs large scale illicit diversion where the benefits

meant for the poor are cornered by miscreants and subsidised kerosene is used for

adulteration with diesel. Subsidy on kerosene while it benefits the poor to a certain extent

is very often cornered by the rich and subsidised kerosene ultimately ends up being used

for commercial purposes. A study carried out by Indira Gandhi Institute for Development

Research, Mumbai shows that there is huge leakage of kerosene meant for PDS in the

four states covered by the study. It is irrational, therefore to continue to subsidise

kerosene at rates that are so high and continue its distribution through the PDS. Subsidy

on kerosene should be gradually phased out by raising its supply price under PDS while

at the same time eliminating all domestic central (e.g. cenvat) and state (e.g. sales) taxes

on kerosene so as to encourage private supply of kerosene through normal distribution

channels. Alternately, if kerosene is to be retained under PDS the extent of subsidy given

should be reduced below 30 percent so that there is less incentive for diversion and for

adulteration with diesel.

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All further attempts to include more and more commodities under the coverage of

food subsidy should be resisted. At the same time the FPS should be permitted to sell all

commodities (other than rice and wheat) at full market prices through PDS outlets so as

to ensure their economic viability. The coverage of TPDS and food subsidy should be

restricted to the population below the poverty line. For the people above the poverty line

who have the purchasing power to buy food the requirement is only to ensure availability

of food grains at a stable price in the market. There is no need to extend the coverage of

food subsidy to this population. Stability in food grain prices should be ensured through

the maintenance of a buffer stock and open market operations of the FCI. However,

during the present period when there exist huge surplus stocks of food grains with FCI it

may be necessary to continue below “economic cost” supplies of cereals under PDS to

the APL population as a temporary measure.

With the liberalization of external sector, the operation of the buffer stock can be

supplemented by timely exports and imports and effectively this will mean that the buffer

stock required will be smaller in size. Ration cards should not be used by the

administration as an identification card for various purposes. The role should be assigned

to multi-purpose identity cards in the future. Many people get ration cards issued only to

establish their identity before the administration. There are several plan schemes in

operation, which are in the nature of welfare or income transfer schemes where

distribution of food grains is involved. Such schemes, all serving the same purpose, could

be merged and some sort of convergence among them could be evolved.

14.7 Diversion of PDS Commodities

A study was conducted by the Tata Economic Consultancy Services to ascertain

the extent of diversion of commodities supplied under PDS from the system. At the

national level, it is assessed that there is 36 percent diversion of wheat, 31 percent

diversion of rice and 23 percent diversion of sugar. These are most likely estimates of

diversion based on the sample survey conducted. Statistically at 90 percent confidence

level, the actual diversion of wheat would fall in the range of 32-40 percent rice in 27-35

percent and sugar 20-26 percent. Satirical shows the extent of diversion in various states

and union territories of India. Further, diversion is more in the Northern, Eastern and

North Eastern regions. Diversion is comparatively less in the Southern and Western

regions. As extreme cases 64percent diversion of rice is estimated in Bihar and Assam. In

the case of wheat 100percent diversion is estimated in Nagaland and 69percent in Punjab.

The huge extent of leakages as brought out in the report has been disputed by several

state governments. A view has also been expressed that the sample size used in the study

was small and therefore was not truly representative.

It is significant to note that less diversion is estimated in the case of sugar as

compared to rice and wheat. In this connection, it has to be noted that sugar is a

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commodity where even the well-to-do section buy from the PDS outlets. Greater

diversion in the case of rice and wheat (not generally purchased by the well-to-do section

from PDS outlets) is perhaps an indication that a large amount of the quota meant to be

distributed among the well-to-do is actually diverted to the open market. This again

strengthens the argument for excluding the population above the poverty line from the

PDS. The report also examines the effectiveness of Essential Commodities Act, 1995 and

Prevention of Black-Marketing and Maintenance of Essential Commodities Act, 1980 in

checking diversion. The report says that no correlation was observed between the

frequency of use of Enforcement Acts in particular states and extent of diversion in these

states. In the Northern Region, Uttar Pradesh has more diversion of rice and sugar than

Punjab despite higher number of raids and convictions. Similarly, in the Western Region,

Gujarat does not appear to be very much better managed than Madhya Pradesh and

Rajesthan despite having the highest number of detentions in the country under these

acts.

A study done by India statistical institute researchers using NSS data for 1993-94

along with other for two states (Andhra Pradesh and Maharashtra) estimated both the

extent of leakage as well as the economic inefficiency of the public food procurement

system relative to the open market. The study shows that only 56 to 58.5 percent of the

total food subsidy (i.e. Center and State) reaches the PDS consumers. Leakages can range

from 15 percent to 28 percent of the subsidy while 16 to 26.5 percent of the subsidy is

eaten up by the inefficiency of the government procurement and distribution system (FCI

plus State level) relative to the market.

14.8 Marketing Arrangements

The amount of budgetary food subsidy is influenced by a number of controllable

factors. It depends on the quantity of food grains procured, distributed and maintained as

stock on the one hand, and procurement price, issue price and economic cost of

distribution and maintaining buffer stock on the other. The factors affecting the growth of

budgetary food

subsidies can be grouped into the following :

the growth in the level of government operations in food grains as reflected in the

rising volumes of procurement, distribution and buffer stocks;

relatively higher growth rates of procurement prices compared to issue prices;

and

very high growth rates of (unit) costs of distribution and stocking of food grains.

In order to contain the level of food subsidy within manageable limits major

reforms are required in the pattern of marketing of food grains in the country. At the

outset it may be mentioned that all types of restriction over inter-state movement of food

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grains should be removed once and for all. Secondly, it is necessary to strengthen the

system of private trade and marketing of food grains. Thirdly, the concept of having fair

price shops over the length and breadth of the country should be looked into afresh. It

may be more efficient to move towards a new system of providing food subsidy through

the normal food supply shops that exist through out the length and breadth of the country,

supplemented by Fair Price Shops in remote and inaccessible regions where such shops

may be absent. This could be achieved through the introduction of food stamps or

The food credit card system as outlined below: Under the system of food stamps,

instead of issuing ration cards, the states could issue a subsidy entitlement card (SEC).

The SEC should show the number of members in a poor family, their age etc, and

indicate their entitlement level for food stamps. There could, in principle, be different

levels of entitlement based on age. All adult members from a poor family could be

entitled to “a” number of food stamps per month while the entitlement for a child could

be “b” number of food stamps. There could also be a higher subsidy entitlement based on

old age or infirmity. The SEC will indicate the total number of food stamps a family is

entitled to every month. The members of a family would produce their SEC and collect

their monthly quota of food stamps from prescribed distribution centres. By using these

food stamps in any food supply shop the poor should be able to purchase food grains

(rice and wheat) at a price (Rs x) below the market price. The retailer who sells food to

the stamp holder could accumulate these food stamps issued by the state governments

and claim (Rs x) per food stamp from the state treasury.

It needs to be noticed that there is less scope for corruption under a system of

food stamps than under the existing system. Under the existing system, it is well known

that Fair Price Shop owners declare on paper that they have sold a certain quantity of

food to the poor at subsidised prices but actually make a big profit by selling the food at

market prices. Under a system of food stamps there will be less possibility, of such

diversion of food supplies. The retailer can claim food subsidy only if he acquires food

stamps by selling food to the poor at subsidised prices. Under this system it could be

made mandatory for retail traders in food grains to display the selling price of food grains

at a prominent place in their shops. However, it has to be noted that the system of food

stamps should be introduced with caution and initially on an experimental basis in

selected locations. The introduction of the scheme can lead to the production of

counterfeit food stamps and also malpractices from the side of the food shop owners who

will try to exploit loopholes in the system. To reduce malpractices, it is felt that food

stamps should be issued to female members of the family who can be designated as

heads of households for the purpose. Informal trading of food stamps can also convert

the food subsidy into an income subsidy. The use of smart cards in the form of a food

credit/debit card can remove these problems and ensure provision of a food subsidy (i.e.

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a reduction in the relative price of food), as it can have inbuilt security features that make

it difficult if not impossible to trade.

The experience with food stamps has been mixed worldwide. In Sri Lanka, the

food ration system was replaced in September 1979 with a food stamp programme,

supported in part by the IMF, to reduce overall costs, and improve efficiency. Food

stamps were provided to families whose self-declared incomes fell below a specified

norm, and took into account family size and composition. The Sri Lankan experience

suggests that switch to the food stamp system did succeed in reducing budgetary costs,

which decreased from 15 per cent to 3 per cent of total government expenditures.

However, a part of this decrease is explained by a decision to retain the nominal value of

food stamps, and not adjust them for inflation. However, in terms of better ensuring food

security, the scheme was less successful. A food coupon system for distribution of rice

and kerosene through PDS was introduced in Andhra Pradesh during 1998-1999.

Basically, the scheme was aimed at improving the delivery system of kerosene and rice.

Under the scheme mere possession of card was not adequate to draw PDS rice, wheat or

kerosene. Physical presence of the cardholder whose photo was affixed on the card was

insisted upon for obtaining the coupons.

Coupons are issued once in a year and coupon holders are entitled to draw rice

and kerosene on monthly basis. To facilitate the coupon holder to draw rice and kerosene

in easy installments in a month, coupons have been distributed for denominations like 4

Kgs., 8 Kgs. etc. Under coupon system, coupon holder and beneficiary is aware of his

entitlement. The State Government feels that this system has largely eliminated the scope

of cheating of the beneficiary by dealers to deliver lesser quantity than entitlement.

Coupon guarantees the stake holder his right to draw the specific quantity every month.

Unless coupon is produced rice or kerosene is not released. This facilitates proper

accounting of actual quantity distributed in the month as it is reckoned based on the

quantity covered by coupons produced by the beneficiaries. Quantity distributed vis a vis

the coupons produced could be verified every month by the officials of the Civil Supplies

and Revenue Department. This has reduced the scope of diversion of rice and kerosene to

a great extent, if not totally eliminated it. Introduction of coupon system also resulted in

reduction of number of cards by approximately 8 lakhs, which were either bogus or with

ineligible families. A quantity of about 20,000 tonnes of rice and 7,100 kilo litres of

kerosene is saved due to this system every month. In financial terms, an amount of Rs. 9

crores per month on rice and Rs. 5.67 crores per month on kerosene is being saved in

subsidy. Coupon system could be made more effective if the list of beneficiaries is

computerized fair-price shop wise so that duplicate names, if any, could be identified and

eliminated. This step would also reduce the cost of PDS substantially. However, steps

should be taken to prevent counterfeit coupons by unscrupulous elements. Regular and

staggered distribution of coupons could also prevent mischief and manipulation.

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A food credit card system could be a superior alternative to the prevalent system

of specialized Fair Price Shops and perhaps even to a food stamp system. Food

credit/debit cards could be used by the customers to buy subsidized food grains from the

market and the retailers can claim the subsidy from the government. Though the issue

costs of a food credit card are likely to be higher than for existing ration card, the running

costs may be lower than for specialized Fair Price Shops as the credit card can be used in

any existing retail shops that accepts such cards. This will eliminate the need for an

exclusive FPS system and consequently its entire overhead cost. This will partly

compensate for the initial costs of setting up a leakage proof credit card system using

smart card technology. The rest would be compensated for by the elimination of leakage

at all stages of the current food procurement, storage and distribution system (including

the FCI). To minimise the cost, existing credit card companies could be induced to set up

and run the food credit card system at cost in return for advertisement rights to this social

service.

There is a fear among some academics that food stamps may be traded on the

informal market and thus be effectively converted from a food subsidy to an income

subsidy. The food credit card, can obviate this problem as it is much more difficult to

trade. Additional safety features such as identifying characteristics of the card holder and

periodic validation (and re-charging) can be built into the system, which will make it

virtually non-tradable. The food credit can also have the inbuilt flexibility of changing

over from a food subsidy to an income transfer system if there is a subsequent change in

the policy. The food credit card can be made applicable to all cereals including coarse

grains. If desired, a different subsidy rate can be specified for different cereals. As coarse

cereals are consumed primarily by the poor, the smart card will allow some self selecting

and self-targeting features to be built into the system.

The food credit card could also be integrated with a food-for-work programme

without incurring the additional administrative and logistic costs of transporting food to

each area where there is need to provide work. Payment for the work would be done by

incrementing the food credit of the worker. Once set up this credit card system could also

be used to provide social security to the old, infirm, disabled and handicapped citizens.

This could be done for instance by programming a higher subsidy proportion for such

groups. A Committee needs to be set up to examine the feasibility of introducing the

system of rations through food stamps and food credit/debit cards in the country using

smart card technology.

14.9 Decentralization of Operations

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Experience with increase in issue price of food grains shows how politically

unpalatable it has become to increase PDS prices. Based on the net consumer subsidy

spent on providing food through the PDS the central budget should make a provision for

national food subsidy. This subsidy will be distributed among the states according to a

prescribed formula based on latest available data and updated poverty ratios. Henceforth,

it should be the duty of the state governments to determine the quantum of food subsidy

based on the contribution they get from the centre and adding the states own resources to

it. The centre could also agree to enhance the quantum of centre‟s food subsidy

contribution to compensate for increase in prices. The new system will also result in a

more equitable distribution of the benefits of food subsidy among different states of

India.

The operation of PDS should be the responsibility of the state governments. If a

state government feels that its administrative and managerial resources are inadequate to

the task it can in turn sub-contract this job to the other State agencies or the private

sector. The role of the centre should be only allocation of food subsidy among the states

and procurement, storage and distribution of food grains through the medium of FCI.

Maintenance of buffer stock will be the joint responsibility of the central and the state

governments. The scheme of decentralized procurement, which is in operation should be

promoted and more and more states should be encouraged to adapt this scheme. If the

need is felt a number of FCI godowns with staff could be handed over to the state

governments. The issue of food stamps should be the responsibility of the state

governments. The subsidy element involved in each food stamp could be decided by the

state governments based on the resources available with them to meet the subsidy. In this

regard the subsidy provided by the centre could be supplemented by the states own

resources.

The task of fixing issue price of food grains may be left to the discretion of state

governments. As long as fixation of issue price is done by the centre, changes in issue

price should be made every time there is a revision of procurement price of food grains.

This will drive home the message to the public that issue price of food grains are being

raised due to increase in cost of production. Under the circumstance, there will be less

resistance to increase in issue price of food grains. The decision like issue price of food

grains, quantum of food subsidy per food stamp, amount of food grains that should be

supplied per individual per month, etc should be left to be decided by the state

governments based on the capacity of the state to conduct food subsidy operations.

14.10 PDS Plan Schemes

While the provision for food subsidy is made in the non-Plan budget of the

Central Government, for strengthening the operational machinery of the PDS, the

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Planning Commission provides funds under its plan programmes for the following

schemes:

Construction of Godowns

Purchase of Mobile Vans and Trucks

Training, Research and Monitoring

The godowns scheme is intended to assist the State Governments and union

torturing for construction of small godowns of the capacity upto 2000 tonnes. The

Mobile Vans scheme is intended to provide financial assistance to the State Government

and union terracing UT administrations for purchase of mobile vans and trucks for

distributing essential commodities in rural/hilly/remote and other disadvantaged areas

where static and regular Fair Price Shops are not found viable and feasible. The training

scheme aims at strengthening and upgrading the skill of personnel engaged in PDS and

also to improve the management of supplies. The efforts of the State Governments and

Union Teritories administrations, Civil Supplies Corporations etc. are supplemented by

providing financial assistance for organising training programmes on PDS. Evaluation

studies, research studies on various aspects of PDS are also sponsored under the scheme.

According to the CAG Report, the Government of India released Rs.58.73 crore

and Rs.62.96 crore for construction of godowns and purchase of mobile vans respectively

during 1983-99. Responses of the State Governments were, however, lukewarm. Large

number of godowns for which the Central Government provided funds were not

constructed and many were not put to the intended use. Many state governments did not

purchase mobile vans for which funds were released by the Central Government. Large

number of vans were out of order or used for purposes other than for doorstep delivery of

foodgrains. A decision has been taken to abolish the scheme „Purchase of Vans‟ during

the Tenth Plan. The operation of the scheme „Construction of Godowns‟ should be

restricted to North Eastern States, Hill States and Island terrirories during the Tenth Plan

period. The funds under the scheme „Training, Research and Monitoring‟ need to be

increasingly diverted towards sponsoring studies on the operation and viability of the

food security system in the country.

14.11 Grain Bank Scheme

As a part of Government‟s efforts to prevent deaths of children in remote and

backward tribal areas due to fall in nutrition standards, a scheme of Village Grain Banks

has been launched during 1996-97. A onetime grant towards purchase of grains, at the

rate of 1 quintal per family of tribals in such areas, storage facilities for the grains and

purchase of weights and scales is provided by the Ministry of Tribal Affairs through

TRIFED, as the channelising agency. The bank will be managed by the village

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committee elected by the beneficiaries themselves who are members of the bank. They

can borrow grains from the grain banks at the times of scarcity.

A grain bank scheme is also being run under the aegis of the Department of Rural

Development in Jhabua district. The scheme was launched on pilot basis in 1995 in 18

villages. The performance of last 2 years encouraged DRDA to adopt the strategy in all

the villages under Integrated Watershed Development Programme. Presently, there are

184 grain-banks functioning in watershed areas run by the community itself. In last

season, 12363 families took loan from the grain bank. A proposal of Madhya Pradesh

Government on the subject envisages evolution of community-based support systems (to

substitute/supplement PDS operations) where PDS does not exist. Self help groups of

BPL families will be formed and charged a membership fee of Rs.50/-. The self-help

groups will be eligible to receive supplies of food grains and other infrastructure based

assistance from the Government.

Activities will be organized under the grain bank scheme to develop degraded

lands through food for work Programme on the periphery of forests having significant

Adivasi population by self-help groups. The grain banks will be managed by committees

of women beneficiaries to be called anaj samitis. The government will give a one-time

supply of 100 kgs of wheat or rice to each grain bank. The grain will be stored by the

traditional method in earthen kothas constructed with free local material and free family

labour. One could consider setting up of grain banks in remote and isolated areas where

the reach of PDS is not there and in regions where there is the problem of inadequate

employment generation such as in tribal areas and in the periphery of the forests such as

in the tribal and forest belts of Madhya Pradesh. The grain bank scheme to be successful

has to be combined with food for work programme so as to ensure generation of income

with the people which is necessary to ensure repayment of borrowed grain by the

beneficiaries.

It is felt that a scheme such as grain bank scheme, if implemented, should run

with least interference from the side of the Government. It should be run under the aegis

of NGOs. The moment it is realized that grain under the scheme is supplied by the

government, there will be a tendency among beneficiaries not to repay borrowed grain.

However, the initial supply of grain may be provided by the government and the storage

capacity may be created under the food for work programmes of the government. The

scheme may run well during times when there is a surplus food grain stock with the

government. A system of food distribution running parallel with the current PDS may

however not be desirable in perpetuity as it could result in lack of accountability on the

part of both.

14.12 Disadvantages of P.D.S System

Generally, the consumers get inferior food grains in ration shops.

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Deceitful dealers replace good supplies received from the F.C.I (Food

Corporation of India) with inferior stock.

Many retail shopkeepers have large number of bogus cards to sell food grains in

the open market.

Many FPS dealers resort to malpractice since they acquire less salary.

Despite the PDS, India accounts for over 400 million poor and hungry people.

Numerous malpractices make safe and nutritious food inaccessible and

unaffordable to many poor.

Several schemes have augmented the number of people aided by PDS, but the

number is still extremely low. Poor supervision of FPS and lack of accountability

have spurred a number of middlemen who consume a good proportion of the

stock meant for the poor. There is also no clarity as to which families should be

included in the BPL list and which excluded. This results in the genuinely poor

being excluded whilst the ineligible get several cards.

The stock assigned to a single family cannot be bought in installments. This is

one of the biggest barriers to the efficient functioning of PDS in India. Many BPL

families are not able to acquire ration cards either because they are seasonal

migrant workers or because they live in unauthorized colonies. A lot of families

also mortgage their ration cards for money.

14.13 Benefits of Public Distribution System

There are lots of benefits of public distribution system. These are as follows:

Public distribution system removes the poverty from the country.

Public distribution system helps the poor peoples by giving them food at less

price.

Public distribution system reduces the Malnutrition among the peoples.

Public distribution system helps in regional balances in the country.

Public distribution system also reduces the Infant Mortality rate in the country.

Public distribution system helps the country to rank high in the Human

Development Index.

To improve the current system of the PDS, the following suggestions are furnished for:

Vigilance squad should be strengthened to detect corruption, which is an added

expenditure for taxpayers.

Personnel-in-charge of the department should be chosen locally.

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Margin of profit should be increased for honest business, in which case the

market system is more apt anyway.

F.C.I. and other prominent agencies should provide quality food grains for

distribution, which is a tall order for an agency that has no real incentive to do so.

Frequent checks and raids should be conducted to eliminate bogus and duplicate

cards, which is again an added expenditure and not fool proof.

The Civil supplies Corporation should open more Fair Price shops in rural areas.

The Fair Price dealers seldom display rate chart and quantity available in the

block-boards in front of the shop. This should be enforced.

In aggregate, only about 42 percent of subsidised grains issued by the central pool

reach the target group, according to a Planning Commission study released in

March 2008.

14.14 Conclusion

In order to better address the need of food security, enhancement of the

functioning of the PDS must be complimentary to the improvement in the agricultural

system in India. Only when the two go hand in hand will the government be able to

achieve its objective of ensuring that no person remains hungry. Therefore, firstly low

productivity in agriculture must be attacked. This can be done by improving subsidies for

farmers, giving them better quality fertilizers, pesticides and seeds. The next obvious step

should be addressing the shortage of storage space for food grains in order to avoid

wastage. These must be complimented with the improvement of the PDS.

Public Distribution System is a lifeline for the poor and the needy of the society.

It is time that the government takes upon itself the task of overhauling the system and

making it more meaningful and efficient. There are certain very positive steps that have

been taken by the government in this regard; to name a few, statutorily providing for

legal enforcement of entitlement under the PDS, social audit of the system and

empowering the Gram Panchayats and women groups to take over the control of the Fair

Price Shops. However, everything has its pros and cons and the same applies to the Food

Security Bill as well. Incorporation of cash transfers, no specified method for the

identification of beneficiaries and targeting of the system are some of the maladies that

the Bill suffers from. The demand of the civil society against these features being

incorporated in the final statute is just and based on reasonable considerations. The voice

of the people must not be drowned and the government must take into consideration the

suggestions that have been given by them. This cooperative approach will lead to a

stronger and more efficient PDS system under the Bill and that time will not be far when

people in the country will sleep on an empty stomach.

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Important Questions

1. Define distribution system and what are its objectives?

2. Explain about targeted public distribution system (TPDs)

3. What and the issues involved to implementation of public distribution system?

4. What are the restructuring methods to over come the problem of public

distribution system?

5. Explain diversion of PDS

6. Explain subsidy entitlement card

7. Explain the grain bank scheme

8. What are advantages and disadvantages of public distribution system?

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LESSON-15

MARKETING AND MARKETABLE SURPLUS

15.0 Objectives

To study about marketable and market surplus

To bring out the perspectives of marketing of commercial crops.

To examine the factors affecting marketable surplus

Contents

15.0 Objectives

15.1 Introduction

15.2 Definition

15.3 Uncertainty

15.4 Marketed Surplus

15.5 Marketable and Marketed Surpluses

15.6 Cash crop or commercial crop:

15.7 Factors affecting Marketable Surplus

15.7.1 Size of Production

15.7.2 Size of the Farm

15.7.3 Consumption Habits

15.7.4 Prices of Food Products

15.7.5 Nature of Crops Grown

15.7.6 Hoarding

15.7.7 Cash Requirements

15.7.8 Subsistence Farming

15.7.9 Income Elasticity of Demand for Food

15.7.10 Defective Marketing

15.8 Measures and Steps to increase marketable surplus

15.8.1 Increase in Agricultural Output

15.8.2 Inducement to Consume Less

15.8.3 Linking of Supply of Credit

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15.8.4 Forced Collection of Food grains

15.8.5Taxes

15.8.6 Flow of Surplus

15.9 Marketable Surplus in India

15.9.1 Increase in Agricultural Prices

15.9.2 Low Marketable Surplus

15.9.3 No Correct Idea

15.9.4 No Accurate Method to Mobilise Surplus Produce

15.10 Estimates of Marketable Surplus in India

15.11Conclusion

15.1 Introduction

By describing something as "marketable," people in the business world mean that

it is fit to sell on the market. Surplus is the amount of product that a company

manufactures or produces in excess of what is necessary to continue operations.

Marketable surplus is a term that agriculturalists use to refer to a specific type of surplus

that farmers and ranchers deal with.

15.2 Definition

Farming requires investment. Farmers must make financial investments in labor,

tools, fertilizer and land. They must also invest in seeds. If it is the farmer's first year to

grow a certain crop, he probably has to purchase seeds from someone else. A farmer

must also invest in the form of personal labour. The marketable surplus for an

agricultural entrepreneur is the surplus of produce that exists after the point at which he

can make back any money he paid to labourers or used to buy tools, fertilizer and land. If

he takes some of the crop for his own family's consumption and to use as seed for the

next year, he must account for this as well before calculating the marketable surplus. In

this way, marketable surplus is what a farmer makes for his personal labour. Marketable

surplus is the portion of a harvest that a farmer can sell on the market to earn a profit.

With this profit she can reinvest into farming operations by purchasing more land or

better farming equipment. She may also simply save this profit or use it to purchase

personal items.

15.3 Uncertainty

In agriculture, farmers and ranchers can never know exactly how much product

their efforts will yield for a particular season until it is over. For this reason, a farmer

may not know what his marketable surplus will be until he actually harvests his fields.

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This uncertainty of the size of a crop's marketable surplus lends a certain level of

uncertainty to the farmer's income expectations.

15.4 Marketed Surplus

Another term that closely relates to marketable surplus is marketed surplus. In

some cases, these terms may be interchangeable. The principal difference is time

perspective: marketable surplus is produce that a farmer currently has on hand to take to

market to earn a profit, while marketed surplus is what she has already taken to market to

earn a profit.

15.5 Marketable and Marketed Surpluses

Every agricultural commodity is, in fact, produced for sale in the market to earn

some cash income and thereby meet many other family requirements which are not

satisfied on the farm. Even foodgrains which are grown by the farmers are not merely

meant for satisfying his own family requirements but are also meant for satisfying the

needs of non-farming population in the towns and cities. But of course, the surplus

available for sale varies from farmer to farmer for various reasons. This is also true for

other food crops like edible oilseeds, fruits, vegetables, milk, eggs,etc. All the produce of

these crops is not available for sale because some quantities are retained for seed

purpose, home consumption, gifts to friends and relatives and some quantities are lost

due to spoilage, etc. Thus, two concepts viz. "marketable surplus" and "marketed

surplus" have been coined to ascertain the quantity of produce available for marketing

and the quantity actually marketed. The quantities are estimated as mentioned below:-

i. Production on a farm.

ii. Utilization.

a. Seed purpose.

b. Home consumption.

c. Gifts to friends and relatives.

d. Kind wages to labour.

iii. Marketable surplus

a. Losses due to spoilage

b. Marketed surplus

15.6 Cash Crop or Commercial Crop

The larger the quantity actually marketed, greater the cash income to a farmer.

Accordingly, crops also came to be known as cash crops, which earn more cash income

to the farmers. The marketable or marketed surpluses depend upon type of crop i.e.

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foodgrain, other food crop or non-food crop. In the case of foodgrain and other food

crops, the surpluses are generally less on small and marginal farms and their proportions

very widely according to the size of holding and other related factors. But in the case of

non-food crops viz. Cotton, sugarcane, etc. which are used as raw material in agro-based

industry, almost all the production is available for sale except small quantities kept for

seed. In these crops, marketable surpluses are nearly 100 per cent. Such crops are called

as cash crops or commercial crops. On the same analogy, even food crops with large

marketable surpluses (say above 50 percent), can be regarded as cash or commercial

crops. As a result of the development of these two concepts, the studies regarding

marketable and marketed surpluses have aroused interest in the minds of researchers in

Agricultural Marketing with a view to identify or categories certain crops as cash crops

or commercial crops. Identification of certain crops as commercial or cash crops has

many policy implications from the point of view of development of good organized

markets and other infrastructure facilities such as roads, storage‟s (including cold

storage‟s for perishables), communication, market information, banking services, etc.

Marketable and marketed surpluses of some commodities are given in detail. Marketable

surplus for foodgrains, particularly in a deficit state are low and such crops may not be

considered as commercial crops in that area. But in Punjab, wheat which is a foodgrain

crop is a commercial crop as its marketable surplus is around 85 percent.

1. All fruit crops are definitely commercial crops because their marketable surpluses

are above 96 percent.

2. Similarly, vegetables are also commercial crops, which is evident from their

marketable surpluses being above 96percent and marketed surpluses above

85percent.

3. Special mention needs to be made about milk. Some 25-30 years back, dairy

activity was just carried out as subsidiary to crop production to meet the family

requirement of milk and no surplus. But after the development of new high

yielding cow and buffalo breeds, improvement in feeding and management

practices of milk animals, certain of marketing facilities through Govt. Milk

Schemes and Producer‟s Co-operatives, the milk production has increased very

rapidly. It has spread in the rural area and it has now become an important

commercial activity as can be seen from the marketable surpluses ranging from

77 percent to 92 percent with the farmers. On some farms, where number of

crossbred cows or pure buffaloes is more than 5, dairy has become main

enterprise surpassing crop production. Diary has assumed a commercial status

providing regular cash income to farmers and employment to his family.

Some oil seed crops like groundnut, sunflower, safflower, soyabean, castor and

other crops like cotton and sugarcane are also recognized as commercial crops as the

marketable surpluses in them are almost 100 percent and therefore they are cash crops for

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the farmers. In addition, there are some crops, which are grown in small pockets, but they

have large marketable surpluses and hence they are cash crops for farmers in those areas.

Examples are Red chilli, turmeric, tobacco, minor fruits, etc.

15.7 Factors Affecting Marketable Surplus

We are familiar that marketable surplus differs from region to region holding to

holding to holding and even crop to crop in the same region. Therefore, there are many

factors that affect the extent of marketable surplus and are discussed as under.

15.7.1 Size of Production

The foremost factor affecting the size of marketable surplus is the level of

production. A sustained rise in its volume depends on the improvement in the level of

production. Study conducted in Ajmer district of Rajasthan confirmed the view that by

far the best predictor of per capita marketable surplus is the per capital output of

foodgrains. In this context, the intensity of cropping becomes and important determinant

of marketable surplus. Lower the intensity of cropping lesser the area sown more than

once and vice-versa. This higher intensity of cropping leads to higher productivity which

is turn leads to a large margin of marketable surplus.

15.7.2 Size of the Farm

The sizes of the farm also go a long way to determine the extent of marketable

surplus. Generally, the larger the size of the farm, the more will be the surplus. In India

the rural economy consists of all farm sizes. According to Dr. Dharam Narain, the

marketable surplus as a proportion of the value of produce declined upto 10-15 acres size

groups and it steadily increased afterwards. Similarly, the village surveys conducted by

Agro economic research centre have revealed that the small farmers contributed les than

1/4th

of the total marketable surplus of Paddy in selected villages of Bihar, Orissa and

west Bengal. It was noted that the size of holdings and the size and status of the family

have powerful influence on the marketable surplus.

15.7.3 Consumption Habits

Producer‟s consumption habits also affect the extent of marketable surplus.

According to Kahlon and Read that in those areas where a commodity is staple food. The

marketed surplus is low. As the major proportion of rice in produced by Punjab farmers

will be marketed because it is not the staple food of Punjab. Similarly, Bench Mark

survey of Batala community project supported this view. Thus, it is possible to mention

that marketable surplus depends on the consumption habits of the people.

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15.7.4 Prices of Food Products

The level of marketable surplus also depends upon the prices of food products. In

order to see their effect on marketable surplus, two hypotheses have been advanced to

explain the relationship between prices and food grains marketable surplus. Mathur and

Ezchiel postulate an inverse relation between the two. The second group on the basis of

considerable micro data maintained that farmers have become hightly price conscious.

15.7.5 Nature of Crops Grown

Nature of crops grown by the farmers contributes a lot to determine the extent of

marketable surplus. It is a known fact that marketable surplus in the case of food crops

tends to be low while for cash crops it is more. In this context bench mark survey quoted

that in batala community project marketable surplus was as high as 90 per cent in the

case of toria crop because it is cash crop.

15.7.6 Hoarding

Another factor affecting marketable surplus is the tendency of hoarding and

discharging. This in turn depends on the current level of prices and anticipated prices.

Hoarding may be done by the traders, peasants and consumers etc to earn more profits in

the future. Thus larger the tendency to hoard, lesser will be the volume of marketable

surplus and vice-versa.

15.7.7 Cash Requirements

The financial positions of the farmers also do affect the volume of marketable

surplus. After harvesting, Indian farmers need cash to meet certain obligations like land

revenue, repayment of debt, etc. Therefore, the volume of produce he is ready to sell in

the market depends on his cash requirement. If he needs more cash, he will sell more

produce and thus there will be more marketable surplus. The report on market Arrivals of

food grains pointed that in Madhya Pradesh the producers were under not compelling

necessity to part with their wheat harvest immediately since they had enough cash

income to meet their cash needs in 1958-59 season.

15.7.8 Subsistence Farming

In subsistence farming, farming is mainly undertaken to provide for the family.

Only the surplus is marketed. It is said that in our country subsistence farming

predominates and hence marketable surplus is low. Contrary to this in commercial

agriculture, the entire output is marketed and hence there is more marketable surplus.

The reason for this is that these crops are more prices remunerative. Therefore, the

farmers grow these crops with a view to meet their cash requirements.

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15.7.9 Income Elasticity of Demand for Food

In Indian context, the majority of people are poor and thus their marginal

propensity to consume is high. It is said that among poor people living on mere

subsistence, and increase in income will be spent on food grains. In these communities,

income elasticity of demand is said to be high.

15.7.10 Defective Marketing

Unhealthy market conditions also affect the marketable surplus. Lack of adequate

storage facilities prevent the producers from withholding his produce after harvest which

in turn causes low marketable surplus. On the other hand, deficiencies and difficulties of

transportation also affect adversely the extent of marketable surplus.

15.8 Measures and Steps to Increase Marketable Surplus

The following measures can go a long way to increase the volume of marketable

surplus in developing countries like India.

15.8.1 Increase in Agricultural Output

Efforts should be made to increase the total volume of agricultural output. As

other things being equal, large the level of output larger will be the marketable surplus.

Therefore, farmer should be provided with adequate irrigation facilities, improved seeds

chemical fertilizers and farms implements etc.

15.8.2 Inducement to Consume Less

Another measure to increase the marketable surplus is that farmers should be

induced to consume less and more their food products. In view of this, all efforts should

be made to creat wants among the farmers and manufacturers.

15.8.3 Linking of Supply of Credit

Ashok Mehta Committee had suggested to link the supply of credit to farmers by

the co-operative societies. The societie may expect members to pay off their seasonal

loans by discharge of the surplus produce.

15.8.4 Forced Collection of Food Grains

Marketable surplus can be induced to a great extent by the forced collection of

foodgrains. In this regard procurement is carried on along with the price regulation. If

Govt. is prepared to use force in reducing consumption, it may be possible to ensure a

stead supply of foodgrains to urban areas.

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15.8.5 Taxes

Taxes may also be used to curtail the consumption and increase marketable

surplus. For example, land tax and taxes on agricultural income may be increased. This

will compel the farmers to sell more of their surplus by curtailing their consumption.

15.8.6 Flow of Surplus

Markets should be regulated with a view to cencourage the flow of surplus form

the rural areas to the assembling markets besides grading and standardization, the

regulated markets promote market practices and save the cultivator- sellers from the

arbitrary malpractices. Thus the govt. should adopt measures stated above in such a way

the there may not be a shift away from food crops to cash crops.

15.9 Marketable Surplus in India

In the context of Indian economy, the significance of marketable surplus can not

be over-looked to accelerate the tempo of economic development. It is thus essential to

have a glance on the basic features of marketable surplus in the country. The important

characteristics are as under.

15.9.1 Increase in Agricultural Prices

The basic pre-condition for the success of economic development is the stability

in the prices of agricultural commodities. But, in our country it is not so. Prices of

agricultural commodities are going up by unpredicted dimensions. Therefore, it is now

realized that so long as rise in prices is not controlled, the eight plan is doomed to failure.

However, the stability in prices can only be maintained by increasing agricultural and

industrial production.

15.9.2 Low Marketable Surplus

Marketable surplus in India has been bound to be low due to several factors like

primitive agriculture, defective marketing hoarding propensities etc. but with the

commercialization of agriculture, marketable surplus has started to increase. The reason

is that Indian farmers have set a stable income target and increase in agriculture

productivity leads to a diminution effort has proved to be wrong. In reality, he is equally

anxious to increase his income as well as to improve his standard of living. Due to this

reason, there ca be no fixed and stagnant marketed surplus of agricultural produce which

will put break on the growth of the economy. Therefore, the ideal problem is of

increasing agricultural productivity.

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15.9.3 No Correct Idea

In our country, it is not possible to have a correct idea of the marketable surplus

due to several reasons. However, the fact remains is that marketed surplus is less than the

marketable surplus because a part of supply is kept back by the producers themselves.

Therefore, efforts should be made to increase the marketed surplus.

15.9.4 No Accurate Method to Mobilize Surplus Produce

Being a democratic set-up it is not possible to make use of coercive methods to

mobilize the surplus produce. Sometimes, inertia on the part of Govt and loopholes in the

tax structure prevent the mopping up of marketable surplus. A study made by wald in

seven states of India found that land revenue between 1936-52 increased only by 20 per

cent while the increase in wholsesole price of major agricultural products was more than

550 per cent. In case of agricultural income tax position is still worse. Sometimes, purely

political considerations have led the certain states to abolish land revenue below a certain

limit. All these factors have resulted in preventing the entire mobilization of agricultural

surplus for capital formation.

15.10 Estimates of Marketable Surplus in India

In Indian context, the exiting estimates of the extent of marketable surplus are far

from satisfaction. In 1950-51 Dr. Dhram Narain estimated the marketable surplus

according to different size of holdings. Accordingly, 33,4 percent of all agricultural

produce is marketed by the cultivators. These estimates come very close to the estimate

of the Report of all India Rural credit survey committee. It is pointed out that nearly 33

percent of the total produce is sold by the cultivators moreover according to Directorate

of Marketing and Inspection, it is pointed out that 25 per cent may be taken as the

average marketing margin for all surplus food in India whereas Indian council of

Agricultural Research placed this figures at 30 per cent.

15.11Conclusion

After partition of the country, the conclusions of various commissions pointed out

a narrow margin of marketable surplus in India. Here mention may be made of ford

foundation. It concluded that by far the largest portion over 75 per cent of food

production is not marketed. The total marketable surplus represents less than 25 percent

of the total foodgrains production in an average year. Even the liberal estimates pointed

out hat it is 1/3rd

of the total production. Cereal-wise it is 32 per cent for rice, 35 percent

for wheat. But in case of cash crops marketable margin is as high as 90-95 per cent of the

total production.

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Importance Questions

1. Explain marketable and marketed surplus

2. What are the factors affecting marketable surplus?

3. What are the measures taken by the government to increase marketable surplus

4. Explain the perspectives of marketable surplus in India.

LESSON- 16

AGRICULTURAL PRICES

16.0 Objectives

To Study the factors influencing the fluctuation in Agricultural prices

To study causes of rise and fall in agricultural prices

To probe into price stabilization strategy

Contents

16.0 Objectives

16.1 Introduction

16.2 Trends and Causes

16.3 Rising and Fluctuating Prices

16.4 Large Fluctuation

16.5 Causes of Rise and Fluctuations

16.5.1 Demand Factor

16.5.2 Supply Factor

16.5.3 Stabilization and Price-Policy

16.6 Determining the Level of Stable Prices

16.6.1 Evils of rising Prices

16.6.2 Evils of Falling Prices

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16.6.3 Rational Price-Level

16.7 Price- Policy: Objectives, Role and Functions

16.8 Objectives

16.9 Role

16.10 Functions

16.11 Buffer-Stocks and Imports

16.12 Buffer-Stock Operations

16.13 Meaning and Objective

16.14 Nature

16.15 Government‟s Policy

16.16 Key Price-stabilization Measure

16.17 Problems and Requirements

16.18 Imports: Role and Problems

16.19 Conclusion

16.1 Introduction

Prices of agricultural produce are important for farmers as these determine their

incomes. Buyers are no less affected by these prices be they consumers, industries or

exporters. As incentives for raising production and a rational allocation of resources, as

also for acquiring marketable surplus, there is the social interest involved in these prices.

It is, therefore, of considerable significance that we have such a level and structure of

prices that satisfy all these varied aspects of the economy.

16.2 Trends and Causes

Any policy that is designed to pursue a desirable set of agricultural prices requires

a prior knowledge about the behaviour of prices. This provides a basis for the

formulation of objectives and the selection of instruments for the purpose.

16.3 Rising and Fluctuating Prices

The movements of agricultural prices over the last many years reveals two major

features: rising trend, and man fluctuations. Except for a few years in the beginning of

planning since 1951, there has been an almost continuous uptrend in agricultural prices.

The same uptrend can be seen in the prices of sub-groups like food articles, and non-food

articles, as also in individual commodities or group of commodities like ceeals, pulses,

fruits and vegetables, oilseeds, etc. of course, as among these components, there are

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differences in the extent of price rise, also in their up-climb and down-dips from year to

year. However, over the entire period there is no doubt about the rise.

This uptrend has contributed considerably to the rise in the general price level, as

agricultural commodities carry a heavy weight in the index number of wholesale prices.

In the early years covering the first plan, the fall in agricultural prices, largely because of

bumper crops, pulled down the general price level. In a similar fashion the later rise in

the general price level can be ascribed to a considerable extent to the rise in the general

price level can be ascribed to a considerable extent to the rise in the prices of agricultural

products. This generalization remained valid till very recently since when the non-

agricultural prices such as those of fuel and manufactured products rose very sharply to

contribute much to the rise in the general price-level,

16.4 Large Fluctuation

Another significant aspect of the price-behaviour has been the fluctuations in the

prices of agricultural products. The up and down movements have been many, and quite

big indeed. And these have characterized commodities both in the foodgrain group and

the non foodgrain group. However, on balance, the in creases have been larger than the

decreases, so that the net effect has been a rising price curve. These fluctuations cause

upsets to the prices of agricultural products. And through that these make the general

price index to fluctuate. Since these fluctuations are caused by uncertain weather

conditions, this behaviour of agricultural prices results in instability in the general price

situation which is also uncertain and unpredictable in its occurrence.

16.5 Causes of Rise and Fluctuations

How do we explain the general uptrend in agricultural prices, and large many

fluctuations in them. Several factors have contributed their mite to this behaviour. These

may be grouped under two broad headings of demand and supply.

16.5.1 Demand Factor

Overall there has been a continuous rise in demand for agricultural products, with

large and rapidly increasing demand for food articles. As a result, the prices of certain

goods rose higher than those of others. Rise in demand took place on several counts,

which may be listed as follows: one, there is the increase in demand for consumption,

both because of a rapid rise in population, and a rise in incomes of some sections of the

population. Two, demand also rose with industrialization of the country, requiring larger

quantities of agricultural raw materials. Three, there has also been some increase in

demand emanating from the export- sector. Four, there has also been an increase in

demand for inventory/stock building needed for different categories of demand

(consumption, raw materials, exports). Five, often, there has also been an increase in

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demand for speculative to take advantage of rising prices, and sometimes on the part of

consumers, to protect themselves from further price-rises. Although demand increases

have varied in respect of different segments of the total demand, in some of the cases

there has been a steady rise like, for instance, in the demand for consumption, and for

raw materials for industries. Demands for exports, and for speculative holdings by the

sellers and for hoarding by the consumers, have been fluctuating, causing ups and downs

in the price level, besides raising in general the demand for agricultural products.

16.5.2 Supply Factor

Equally significant are the factors on the supply side, raising the price-level as

also causing fluctuations in the prices of different products. One important factor is the

low growth rate of agricultural production, in particular foodgrains for very many years.

Even at present the output of inferior cereals like jowar, bajra and maiza, as also of

pulses and oilseeds continues to be plagued by Avery inadequate growth rate. Two, not

only that output growth is not satisfactory, it is also characterized by large fluctuations.

Since about two-thirds of the land under cultivation is still without assured irrigation, and

the rain-fed areas are subject to uncertain rains, the large output variations are the

inevitable result. With the spread of new agricultural technology, (since the green

Revolution in mid- 1960‟s) there is no doubt lesser instability than before. But the impact

of the new technology has been limited to a few places like Punjab, Haryana and some

places in Uttar Pradesh, and to a few crops like wheat, and to extent rice. Hence, the

forces to counter instability in output have been inadequate to compensate for the forces

causing fluctuations.

Three, there has been and inadequacy in the marketable surplus in varying

degrees at different times. As a proportion of the total produce, the marketed supply

continues to be small, and be comes smaller during rising prices, when in expectation of

still higher prices, large producers hold back a larger part of their produce. At present this

phenomenon poses less serious challenge at least in the case of certain food grains like

wheat and rice. But in the case of other products like oilseeds, raw cotton etc., this factor

operates with considerable force. As already mentioned, to this may be added the holding

of stocks by traders/speculators and hoarding by consumers. The marketed surplus thus

often becomes too inadequate, resulting in sharp rise in prices, and equally sharp

fluctuations. At times during the falling phase in prices, as, for example, in the first few

years of the planning era, there are large supplies coming forth, caused in particular by

the distress selling by small farmers. But this has been a short-lived phenomenon.

Overall there has been an inadequacy of the market-arrivals. Therefore, imports have

often been resorted to by the government to meet the inadequate supply. To an extent

these have helped. But these have always been a very small proportion of the total output

or even the total marketed supply. Nor could these be an exact match to the domestic

shortages in terms of quantities, products needed, and delivery-time etc. Four, the cost of

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agricultural production has also gone up. No doubt, Government subsidizes inputs like

fertilizers. It also subsidizes the sale of foodgrains through fair price shops. However,

with costs having gone up, there has been a steady rise in the prices at which foodgrains

are procured by the government, and the prices at which these are distributed. But for

subsidies price-rise would certainly have been much larger.

16.5.3 Stabilization and Price-Policy

In view of the price-behaviour as being characterized by a rise in prices and

fluctuations in them, the problem of agricultural prices, therefore, boils down to keeping

them stable at a reasonable level. This requires the determination of the level at which

these prices are to be stabilized, and the use of stabilizing-instruments for the success of a

price-stabilization policy.

16.6 Determining the Level of Stable Prices

In formulating a price- policy to stabilize prices, one has to make sure that these

do not rise, nor fluctuate, and at the same time these are rational prices.

16.6.1 Evils of rising Prices

In considering a rational price-level, it is important to rule out fast rising prices,

as also rapidly falling prices, as both these have evil consequences. A large rise is

agricultural prices adversely affects consumers and in dustries, as also the development

programmes. At low incomes, consumers in India spend a major proportion of incomes

on foodgrains and on the products of agro-industries like cloth, soap, edible oil etc. this

too is the case of labour in industries, large and small, as also the agricultural labour. A

rise in the prices of these consumer-goods will ad to the labour-costs of industries,

causing cost-push inflation. A similar effect will take place if the prices of industrial raw

materials like raw cotton, raw jute, oilseeds, sugarcane etc., are rising. Since wage-goods

in India constitute a major part for costs, and since large many industries are based on

agricultural raw materials, the entire cost-price structure will rise, causing set-backs to

the development programmes. And every other price will also rise in sympathy. Since all

prices do not rise equally, this leads to distortions. Wages and salaries, for instance, may

not rise fully to compensate for the instance, may not rise fully to compensate for the rise

in prices, despite dearness allowances. The position of workers in the unorganized sector

(i.e., in agriculture, small-scale and cottage industries etc.) will be worse, with no trade

unions and effective laws to protect them. Big farmers may however, gain because they

them. Big farmers may, however, gain because they have large surpluses to sell. But

these gains may be of no avail for the country‟s development, for in the absence of any

tax on agricultural income or voluntary saving by the rich farmers, these get wasted in

luxury saving by the rich farmers, these get wasted in luxury living.

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16.6.2 Evils of Falling Prices

Falling prices are no less bad. Incentives to producers are reduced, in fact they

disappear. Farmers will produce for their own consumption and very little for sale in the

market, except that much needed to meet their commitment in cash as, for example, land-

rev-enue. In the case of small farmers the position will be worse. They are forced to

undertake distress sales to meet their fixed obligations. With no surplus, they would sell

all and get reduced to paupers. Very often they have been forced to sell their lands,

throwing them into the rank of landless agricultural labourers. Thus falling prices reduce

the output of agricultural products, lessen the marketed surplus, and ruin the small

farmers. This is not all. Falling prices, by reducing the purchasing power of farmers, lead

to a fall in the demand for industrial products. This in turn results in reducing the

profitability of the industrial economy. Together the depressed conditions of agriculture

and industry cause a general recession in the economy. The consumers and the industrial

labour, who seemingly benefit from the fall in agricultural prices, do not do so in reality.

With recession they have to face the prospects of low income and reduced employment.

16.6.3 Rational Price-Level

Having ruled out the rising prices and the falling prices, one has still to specify

the level at which prices should be stabilized. In this connection there are three main

considerations which are to be kept in view in determining a rational price-level.

The impact of the price-level on agricultural production. The level of prices

should be such as acts as an incentive to producers to use improved technology and

maximize production. In this connection in needs to be added that one is also thinking of

a structure of prices, i.e., relative prices of different agricultural products. It is essential to

have such a set of prices that agricultural resources, including land, are so allocated for

the production of different commodities that there is an optimal utilization of resources.

And a crop pattern emerges which goes well with the agro climatic emerges which goes

well with the agro climatic conditions of different regions, and satisfies fully demands for

various products. In respect of the impact of agricultural prices on the rest of the

economy. This implies that while fixing the level of agricultural prices. One must keep in

view the cost of industries which would be using agricultural raw materials, and paying

wages to labour who would be spending a larger proportion of their wage-income on

food articles. It is also necessary to take account of the consumers in general, as also the

exporters who would be interested in certain exportable. In brief, the level of agricultural

prices has to be chosen keeping in view the industrial cost-structure, the level of wages,

the cost of living etc.

The terms of trade between the agricultural sector and the non-agricultural sector.

It takes into view the prices that agricultural sector fetches, and the prices that is has to

pay for the agricultural inputs like chemical fertilizers, pesticides, electricity etc., and for

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the consumption-goods like cloth, kerosene, etc. This is a very important consideration as

it aligns agriculture to the non-agricultural sector in a way that there is a rational two-

way flow of income into the former and that of expenditure into the latter sector. This

also implies that stabilization of agricultural prices does imply that stabilization of

agricultural prices does not mean lowering them vis-à-vis non-agricultural prices, but a

proper relation between the two. If follows from this that every rise and fall in

agricultural prices cannot be taken as bad, for in part it may be correction of the

imbalance between the prices of the two sectors. It also means that stabilization is not to

aim at a fixed level of prices. It must, for example, keep in view the changes in costs of

agricultural products caused by improvements in technologies and other production-

conditions. At the same time, it is important to assure that prices are such as

accommodating durable changes in the demand structure for goods. On the whole, the

level of agricultural prices, and its relative position vis-à-vis non-agricultural prices move

with slight upward slant to provide a tonic-effect for the sake of raising the economy‟s

growth rate.

16.7 Price- Policy: Objectives, Role and Functions

For a right price-level and a right price-structure, an appropriate price-policy is a

must. Along side and as a part of the price policy, two important instruments are buffer-

stocks, and imports. We take up all these, as also the government policy.

16.8 Objectives

For formulating a price-policy, it is important first to lay down the aims to be

achieved. This will also help in choosing appropriate instruments for implementation of

the policy. In the context of Indian conditions, the objectives are on the face of it,

manifold. These are, for example: increase in production, in particular of foodgrains to

provide food-security to the vast masses; achieving a cropping-pattern that optimally

allocates land to various uses to meet the diverse demands of the economy; fair

remuneration tot eh farmers; reasonable prices of agricultural products used for

consumption for industrial purposes, and for exports; and healthy terms of trade with the

non-agricultural sectors of the economy. These objectives, though several, impinge upon

the various components of the economy in a manner that these harmonise their interests.

For underlying these objectives are the concerns common to all, namely, the needs to

maximize output, to ensure incentives to the producers, and to efficiently cater to the

various demands of the economy.

16.9 Role

There are two things that a price-policy can achieve, and thereby promote the

furtherance of the above-mentioned objectives. One is concerned with the correction of

market imperfections in the agricultural economy. Some of these arise because of

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competition with the manufacturers against whom the farmer is weak for several reasons.

Farmers, for example, are too small, too many too scattered, and almost totally

unorganized as compared to manufacturers. There are, again, several gaps in agricultural

marketing arising from lack of information, existence of unregulated markets, inadequate

storage capacity etc. A comprehensive price-policy can do a lot in correcting these

distortions in the market-structure and therefore, in prices, by letting them reflect

demand/supply factors.

Second is to make prices do what they are supposed to do, i.e., indicate or signal

to the producers the demand preferences of the society. Conformation to these signals

will lead to such an allocation of resources to the production of different commodities

that an optimum utilization of resources will be the result. Flowing from these price-

signals will be the desired production, cropping pattern remunerative incomes to the

farmers, and assured supply of essential commodities to the consumers. In brief, an

appropriate price-policy will promote the fulfillment of the desired objectives.

16.10 Functions

The appropriate design of the required policy can be identified in terms of the

varying emphasis on the different functioning of prices. One is its allocative function,

i.e., directing the resource-use as per market singals. This promotes the gradual

adjustment of all prices, (including non-agricultural prices) towards an equilibrium level.

In the present state of affairs that obviously is the long-term function. But then this has to

be implied in the medium and short-term functions of prices.

The medium-term function to encourage investment in agriculture. This requires

keeping the terms of trade in a shape that agricultural producers incomes are protected,

so that they are induced to make more investments. This protection of farmers incomes

can also be the basis for creating stability which is very much needed for investment

decisions. The emphasis on the short-term function of prices. It consists in creating

certainty in respect of prices of different crops. This not only keeps prices stable, but also

provides a basis and guidelines for a desirable cropping pattern. To put these three

functions together, one can say that the price-policy should eliminate, or at least

moderate the short-term fluctuating which has so often characterized agricultural prices

in India. At the same time while prices are made to promote investment in agriculture

these also move towards their long-term equilibrium level.

16.11 Buffer-Stocks and Imports

In achieving the objective of price-stabilization both the instruments of buffer-

stocks and imports have been used, the former having been given a permanent place in

the public distribution system of the country.

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16.12 Buffer-Stock Operations

These operations have been practiced in recent years, and with some success too.

In the years to come these will acquire greater importance as the number of commodities

covered by them in-creases.

16.13 Meaning and Objective

Buffer-stock operations refer to buying of goods and selling the same with the

purpose of moderating price-fluctuations. The quantity bought/sold in the market

interposes as if it were a variable transmission mechanism that is to pull up prices in case

these are sagging too low, or push them down in case these tend to move up to an

undesirable extent. The extremes of price-limits are thus brought closer, or the range

within which prices move is narrowed. A buffer stock policy can also be one that, instead

of keeping prices within a certain range, keeps them fixed at a certain level, so that

whether these move down or move up slightly or largely, these, are brought back to the

fixed level. However, generally the buffer-stock policy aims at moderating the

fluctuations rather than eliminating them altogether, the former being more practicable

than the latter.

16.14 Nature

A buffer-stock policy, it needs to be stressed, is in the nature of supplement to the

market. It neither supplants market, nor restricts it working. When the authority makes

purchases, it adds to the existing market demand. And when it sells, it adds to the

existing market supply. As such the buffer-stock operation only alters the balance of

demand and supply in the market. It does not obstruct the essential function of the

market, namely, the allocation of goods among buyers, and through that signaling via the

factor-prices, the change desired in the allocation of resources and factors to different

goods. In brief, the buffer-stock operations influence the market-forces, and through that

the allocation of resources. It, therefore does not damage the market-mechanism, but

instead makes use of it.

16.15 Government’s Policy

Building up and maintaining buffer-stocks of foodgrains have been an important

element of india‟s food policy. It is, however, being extended to cover more commodities

to strengthen the public distribution system, which has now become a permanent feature

of the economy. The government regards it as an important instrument of maintaining

price-stability in as many of the essential commodities as possible. The government also

proposes to create buffer stocks for some more articles of common consumption through

domestic sources, and if need be by imports to the extent feasible. In this connection it

needs to be made clear that the entire stocks with the government are not meant to be

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used as a buffer-stock. Over and above the buffer-stocks, the government has to keep

operational stocks needed for meeting the requirements of fair-price shops working as

part of the public distribution system.

16.16 Key Price-stabilization Measure

In India this instrument has rightly been chosen for price-stabilization. It is so for

several important reasons. In an agricultural country, agricultural products exercise a

great pull on the entire price-situation, as these products constitute a major part of the

total. Several of the essential articles of mass consumption as well as some of the

industrial raw materials are agriculture-based. The prices of these good thus exercise a

great influence on the entire price set-up. As such stability in agricultural prices can

impart stability to the total price-situation. The first, the prices of agricultural products

carry a great weight age/importance in the various important price-indices of the country.

For example in the wholesale price index, agriculture and agriculture- based products

account for more than 40 per cent of the total weight in the series (1970-71=100) over 27

per cent in the series (1981-82=100) and about 22 per cent in the present series (1993-

94=100). A very high weight age has also been given to the agricultural products like

food in the three consumer price index numbers (based ion retail prices) prepared

separately for industrial workers, urban non-manual employees, and agricultural

labourers.

Agricultural prices fluctuate largely, and in recent years the tendency has been to

rise continuously. Although weather conditions act as a strong factor in causing price

variations, yet fluctuations tend to be magnified even with slight and marginal changes in

output, be cause of the generally inelastic demand for these products, in particular of

food articles. Since demand remains the same or does not rise and fall with fall and rise

in prices, a small change in the output causes disproportionate change in prices. In such a

case buffer-stock can avoid these uncalled for disproportionate fluctuations in

prices.Fourth are the psychological impact a buffer stock policy can have on the market

situation. The very fact that a buffer-stock exists, and the government is ready to make

good the deficiency of demand (when prices are falling) and the deficiency of supply

(when prices are rising) will deter many a speculator, holder and hoarder to desist from

indulging in undesirable activities. In India with imperfections in the marketing of

agricultural produce such things have often happened. Speculators have often bought

from the market to create artificial scarcity, and gain from the rising prices. So have the

big landlords and traders done to profit at the expense of the society. Consumers too have

hoarded to protect themselves against rising prices. A buffer-stock policy is eminently

suited to such a situation to create a psychology of stability in respect of prices.

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16.17 Problems and Requirements

In the execution of a buffer-stock policy, there are certain conditions to be

fulfilled before it can be successful. Among these, we may mention the five major ones.

In respect of the fixation of prices at which the commodity in question has to be bought

and sold. The determination of these two prices will also set the range within which the

prices will be allowed to vary. Buying prices as also selling prices will have to be fixed

with reference to the overall objectives of the agricultural price-policy.

With regard to the procurement, storage and transport of the commodity to be

stocked for the purpose. The procurement may have to be made from the domestic source

and/or imports. Again, the procured commodity has to be stored in god owns so that it is

available for sale when needed. Further, the commodity in question has to be transported

when procured or sold. The storage facilities may have to be dispersed at various places

so as to minimize transport costs, as also to ensure the ready availability of the

commodity stocked. Requirement for a smooth functioning of the buffer-stock operations

is the availability of finance. This is required not only for the procurement of

commodities, but also for the construction of storage capacity and for transportation, as

also for meeting the expenses on the administrative personnel. The funds needed are both

for the short-term purposes, as also for long-term investments. The personnel

administrating buffer-stock operations should be capable of good judgment so that they

can buy and sell the requisite quantity on time, thus minimizing the costs of these

operations. They should in addition be honest, and independent of political pressure, so

that these operations remain essentially economic operations, with no corruption and no

political biases so as to avoid any discrimination among producers and rs. Information

management includes collection of data, analysis of the same, and reporting the results to

the relevant authorities. The timely availability of right type of information about

demand and supply conditions, price movements etc., can be of immense help in the

successful operations of buffer-stocks.

16.18 Imports: Role and Problems

For quite many years India has imported agricultural products, and continues to

do so even nowadays. At the same time there is continuous stress being laid on self-

reliance, with a great success in respect of foodgrains. Role imports play an important

role in the stabilization of prices. It is so when the domestic shortages occur and which

can be met with only by imports. In India for quite many years imports have been used to

make up the deficiency of domestic production. Even when production was not so bad,

imports were resorted to in order to feed the public distribution system, as the

procurement from the domestic production was not sufficient. In either case imports have

helped a lot in introducing an element of stability in the price situations. This was

particularly so in the late 1950‟s and for a number of years since then when India

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imported huge quantities of foodgrains on confessional terms from the USA. These

imports enabled the government to supply cheap foodgrains through fair-price shops.

With production increasing since the mid-1960‟s after the introduction of the new

agricultural technology, and procurement improving as a result of price-inducement and

proper organizational arrangements, imports of foodgrains have been reduced, with no

imports of cereals and pulses in several years.

Although cereals are no longer imported in large quanties, yet imports of some

other products continue. In case of edible oils the imports are quite considerable, and

these have played an important role in augmenting the domestic supplies and in

lessenting the fluctuations in their prices. Such imports will have to continue till the

country produces enough to be self-reliant in respect of these goods also. Taking an

overall view of many commodities, it is the import of cereals till recently, and edible oils

at present, that have been the more important ones to be used as instruments of price-

stabilization.

16.19 Conclusion

Imports of foodgrains did play an important part in stabilizaing prices. Again it is

admitted that the imported edible oils are proving to be a great help in meeting the

present situation. It may further be conceded that in future, too, we may have to import

essential agricultural products to meet the emergency situations. But when all is said and

done, it must also be realized that imports should not be a preferred instrument for price-

stabilization. The reasons for this are not far to seek. Imports involve expenditure of

foreign exchange which is itself in scarce supply, and is needed for development imports.

No doubt imports of agricultural products help in maintaining price-stability, and thereby

create a favourable climate for development. But for an agricultural country like India,

the superior way is to quicken the pace of agricultural production to be self-reliant in the

essential goods, rather than the inefficient course of importing them. There is the

problem of adequacy of imports and timely imports. Both these conditions must be met,

if imports can be successfully used for the price-stabilization objective. In case imports

are not in adequate quantities, or their delivery schedules do not match our requirements,

imports cannot play the stabilizing role adequately. Perhaps sometimes with uncertainties

surrounding imports from certain countries, the whole effort at using them for price-

stabilization may prove counter-productive. If news about their inadequacy and

uncertainty get hold of the market psychology, the price situation may be more

destabilized than without imports. A country may not be favoured, if international

politics does not suit the exporting country. The problem becomes worse if one seeks

imports as aid. In this case the foreign country can demand political price such as falling

in line with its international posture etc., which may not be acceptable to a self-respecting

country like India. Hence, the only course for India is to be self-sufficient in respect of

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essential agricultural products. Imports should be resorted to only when it is a must, and

when these do not compromise with our principles.

Importance Questions

1. What are the causes of price fluctuation

2. Explain stabilization of Agricultural prices?

3. What are the factors determining price stability

4. How pricing policy is helpful to stabilize the prices of agricultural

commodities?

5. Explain price stabilization measures?

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LESSON- 17

AGRICULTURAL PRICE POLICY

17.0 Objectives

To probe into the objectives of agricultural price policy

To examine the domestic agricultural price policy

To study the need for agricultural price policy

To understand minimum support prices.

Contents

17.0 Objectives

17.1 Introduction

17.2 Price Policy

17.3 Pricing Policy Modifications

17.4 The economy and its relation to agriculture

17.5 Overview of domestic agricultural policy

17.6 Need for agricultural Price Policy

17.7 Major objectives of price policy

17.8 Agricultural Price Policy in India

17.9 Agricultural price policy before 1965

17.10 Food Corporation

17.11 Present price policy for agricultural products

17.12 Distribution of food grains

17.13 Modification of the price policy

17.14 Minimum Support Price

17.15 Evaluation of Agricultural Price Policy

17.16 Percolation of Benefits to all sections of the rural people

17.17 Safeguards to Consumers

17.18 Conclusion

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17.1 Introduction

Agricultural price policy plays an important role in achieving growth and equity

in Indian economy in general and agriculture sector in particular. The major underlying

objective of the Indian government‟s price policy is to protect both producers and

consumers. Achieving food security at both national level and household level is one of

challenges in India today. Currently, food security system and price policy basically

consists of three instruments: procurement prices and minimum support prices, buffer

stocks and public distribution system (PDS). Agricultural price policy is one of the

important instruments in achieving food security by improving production, employment

and incomes of the farmers. There is a need to provide remunerative prices for farmers in

order to maintain food security and increase incomes of farmers. There has been a debate

on price vs. non-price factors in the literature. However, a review of literature shows that

they are complements rather than substitutes. The government has formulated a price

policy for agricultural produce that aims at securing remunerative prices to farmers to

encourage them to invest more in agricultural production. Keeping this in mind, the

government announces minimum support prices for major agricultural products every

year. These prices are fixed after taking into account the recommendations of the

Commission for Agricultural Costs and Prices (CACP) - External website that opens in a

new window.

The Commission of Agricultural Costs and Prices while recommending prices

takes into account important factors, such as:

Cost of production

Changes in input prices

Input and Output Price Parity

Trends in market prices

Inter-crop Price Parity

Demand and supply situation

Effect on Industrial Cost Structure

Effect on general price level

Effect on cost of living

International market price situation

Parity between prices paid and prices received by farmers (Terms of Trade)

17.2 Price Policy

The agricultural policy of India is framed with the objective to achieve self

efficiency, food price stability and income distribution.

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Self Efficiency: Utilizing the available resources to gain maximum output within

the defined time period.

Food Price Stability and Food Security: Stability of food prices with the

affordable limits of consumers. The price should reflect the availability of food

supplies, and ensure long term availability of nutrition for the population.

Income Distribution: Distribution of the profits of agricultural products to the

preferred groups or region.

17.3 Pricing Policy Modifications

Agricultural price policy is the priority focused to effect change by strengthening

agrarian community, and ensuring the adequacy of the food. The price of an agricultural

product can be modified through two different two ways.

Quota, Tariff and Subsidies on Import and Export: This has a direct impact on the

price of agricultural commodities traded internationally, thus affecting the price

of agricultural products at domestic level. Quota, tariff and subsidies are

applicable to product volume traded internationally, not at domestic level.

Domestic taxes and subsidies are different from Quota and tariff concept. They

reflect the transaction between the producers or consumers and state's treasury.

The second method involves nationwide coverage through macro-economic

policies. It basically involves government decision on tax and expenditure (fiscal

policy). The decision mostly relates to control the supply of money, and impose

policies to impact foreign-exchange rate and domestic factor (land rates, labor

costs, etc).

With exception of land related policies, the decisions are not frequently taken as it

may possibly affect the marketing of agricultural products. However macro-

economic policies pose a greater risk of to offset the desired incentives of

agricultural price policy.

In addition to price regulations and macro-policies, Government may influence

the price of agricultural product through incentives and investment policies.

Government budgetary resources can be invested in agriculture with objective to

increase productivity and reduce market price. Research and technology up

gradation is the major investment area in the sector. A part of the investment is

allocated to infrastructure development (roads, irrigation, marketing facilities,

etc), in landmark projects to increase productivity and demonstrate technologies,

and in training of agriculturist.

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17.4 The Economy and its Relation to Agriculture

India remains an agricultural economy in many important respects. The share of

agriculture in the country‟s GDP constitutes about 18 percent. Agriculture provides a

livelihood for approximately 600 million citizens, at least indirectly. However, Indian

agriculture is not very efficient, and the sector continues to limit overall economic

growth. India is endowed with rich land, water, and labor resources, although water

resources are overexploited in some states due to non-economic pricing of irrigation

water and power. Indian agriculture is characterized by low productivity, with average

crop yields for most crops well below world levels. The average farm size is 3.3 acres

and getting smaller as farms are broken up as they pass from one generation to the next.

“Large” farms (>25 acres) account for only 1.0 percent of the total of 119.2 million farms

in India. State land ceiling laws restrict farm size to 10 to 20 acres (irrigated, double-

cropped) and 15 to 60 acres (non-irrigated) in various states. Only 35 percent of the net

cropped area (141 million ha) is fully or partly irrigated; 65 percent depends on monsoon

rains. With the beginning of economic liberalization in 1991, the Indian Government

(GOI) encouraged foreign direct investment in agriculture and food processing. Although

the GOI banned 100 percent foreign direct investment in the retail sector, there are

opportunities for foreign retailers to enter India through “cash and carry” (wholesaling)

and franchising routes where 100 percent FDI is permitted.

17.5 Overview of Domestic Agricultural Policy

Agricultural price policy is primarily focused on achieving self-sufficiency in

India‟s two food staples - wheat and rice. Concerns about the widening supply and

demand gap for basic food items such as wheat, rice, and pulses have prompted the

government recently to launch a National Food Security Mission (NFSM), which aims to

increase the country‟s wheat, rice, and pulse production by 8, 10 and 2 million tons,

respectively, by the end of the 11th Five Year Plan (2011-12) to ensure food security.

The approach of the NFSM is to bridge the yield gap in these crops through

dissemination of improved technologies and farm management practices.

Marketing chains are highly fragmented, often including six to eight

intermediaries, and are dominated by smallscale enterprises. Transportation infrastructure

and the cold-chain system remain inadequate. Farmers tend to receive a small share of

the final consumer price. However, “organized” retailing is now in full swing in India,

with several large Indian corporations entering and expanding their operations. Optimism

in the food retail sector stems from a vibrant and growing economy, increasing

purchasing power, and a growing number of urban consumers demanding a modern

shopping experience. Concerns over adequate supplies of essential food items have led

the government to both reduce some import restrictions and impose export restrictions on

items such as wheat, rice and vegetables oils. This has led to stock-building of

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government supplies in wheat and rice during the 2008-09 period. India was one of the

first Asian countries to invest in agricultural biotechnology research and to set up a bio

safety system to regulate the approval of genetically modified (GM) crops. Despite the

government of India's acknowledged interest in encouraging growth in the biotechnology

sector and the increasing number of research initiatives in the public and private

domains, the commercial approval of new transgenic crops has been slow. The country

has only approved one GM crop, Bt (Bacillus thuringiensis) cotton, which was planted

on 7.7 million hectares by 3.8 million farmers in 2007-08. There are several other GM

crops and traits in the biotechnology regulatory pipeline.

17.6 Need for Agricultural Price Policy

As stated earlier, agricultural prices fluctuate violently and frequently under the

free market mechanism to the disadvantage of both the producers as well as the

consumers. These fluctuations in the prices of agricultural products are the greatest

handle in the way of agricultural development, for they bring ruin too many. For

instance, in the bumper crop ears, prices fall too low to leave farmers any appreciable

margin and in the light crop years, prices rise so steeply that the farmers have a very little

marketable surplus. Similarly, persistent imbalance between supply and demand causes

violent fluctuations in consumer prices and thus affects the poor consumers. The two

major aspects of the price and thus affects the poor consumers. The two major aspects of

the price and thus affects the poor consumers. The two major aspects of the price policy,

are (i) to protect the farmers interests by removing or at least mitigating the major

uncertainties by assuring them remunerative prices for their produce and (ii) to safeguard

the interests of the low income consumers by assuring minimum supplies of food articles

at reasonable prices.

17.7 Major Objectives of Price Policy

The major objective of the agricultural price policy is to achieve price stability

without destabilizing total revenue of the farmer and provide a price support which

would be economic to the grower as well as agro-based industry and at the same time,

sub serve the interests of the consumer. In other words, the intention is to integrate

support prices with policies to stabilize prices and supplies to integrate support prices

with policies to stabilize prices and supplies to consumers. In the developed countries

like the U.S.A. Canada, and Western Europe, where the farm incomes have badly lagged

behind non-farm incomes in the process of economic growth, the main objective of price

policy is to raise farm incomes so as to bring them in line with the income levels in the

rest of the country. In the under-developed countries, however, the income- oriented

price policy of the developed countries has not much direct relevance. In poor countries,

the objective of farm price policy, therefore, should be to increase agricultural production

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by creating economic incentives for farmers. They policy should be able to perform the

following functions.

To accelerate the growth of agricultural output as a whole.

To stabilize prices in order to prevent fluctuations.

To bring about desired changes in the product mix.

To increase the marketable surplus.

To ensure adequate supplies of food grains to the low income consumers at

reasonable prices.

Thus, the price policy must ensure that agricultural production is economic both

in the widest and in the strictest sense of the term. In is narrow sense, economic

production would mean that costs are reduced to the minimum, that the agriculturists

have a fair margin of profits and that the costs of agricultural products, foodgrains and

raw materials as they enter into the costs of living and the prices of manufactured articles

either in the internal or external markets are healthy levels. In the wider sense, economic

production would signify the widest distribution of scarce land resources among the

various competing ends, forestry pastures and cultivation in the first instance, and

secondly, between food crops and cash crops.

17.8 Agricultural Price Policy in India

During the last three decades, India‟s agricultural price policy has moved through

two distinct phase. Upto 1965, the government was following and ad-hoc type policy

marked by spells of hectic activity in years of poor crops and completes complacency in

years of good crops. In 1965, however, the Agricultural Prices commission was

appointed and therefore, the subsequent period witnessed the beginning of a more stable

and meaningful price policy.

17.9 Agricultural Price Policy before 1965

Prior to the beginning of the first five year plan two committees were appointed

by the Government of India who in their recommendations hinted towards the desired

price policy. In 1947, the Foodgrains policy committee was formed which recommended

a policy of progressive decontrol, reduction of dependence on imports of foodgrains and

a substantial increase in domestic production within the earliest possible time. Another

committee, known as foodgrains procurement committee (1950) recommended the

continuation and extension of the system of rationing in the country. During the first five

year plan period, due to the relatively easy situation on the food front, the government

followed a policy of complete decontrol. However, prices of agricultural products started

showing a rising trend again in the last leg of the first plan, forcing the government to

introduce again partial controls. Concerned about the rising prices, the government

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appointed the foodgrains enquiry committee in 1957. The committee strongly

recommended the setting- up of a foodgrains stabilization organization to stabilize the

food price. It also recommended the building-up of a buffer stock, licensing of wholesale

traders and fixation of minimum and maximum prices. Thus, till 1964, the agricultural

price policy was more concerned with the stabilization of consumer prices and not much

attention was paid to providing any incentive to the producers. After 1965: It was during

1964 that the government envisaged a price policy which ensured incentive prices to the

farmers. The seeds of this change were to be found in the third five year plan document,

which stated that the producer of foodgrains must get a reasonable return. The farmer, in

other words, should be assured that the prices of foodgrains and the other commodities

that he produces will not be allowed to fall below a reasonable minimum.

In order to provide fair and economical prices to the farmers, a foodgrains prices

committee was appointed in 1964; (ii) opening of fair price shops in other areas, (iii)

gradually withdrawing the restrictions on inter-state movement of foodgrains; (iv)

lincensing the wholesale trade in foodgrains; and (v) strengthening the state

administrative machinery. Its main recommendation was the setting up of an Agricultural

price commission so that “the price policy of all agricultural commodities should come

within the purview of the Agricultural price commission so that a balanced and

integrated price structure could be evolved and the claims of competing crops on limited

resource can be resolved in the perspective of the overall needs of the economy”.

Agricultural price commission: It was in 1965 that the agricultural price

commission (APC) was set up with a view to evolve a balanced and integrated price

commission (APC) the perspective of overall needs of the economy and with due regard

to the interest of the producer and the consumer. The major functions of APC are as

follows:

(1) To advise the government on the price policy of agricultural commodities,

particularly paddy, wheat, jowar, bajra, maize, gram and pulses.

(2) To recommend measures to make the price policy effective.

(3) To suggest measures to reduce costs of marketing and recommend fair price

margins for different stages of marketing.

(4) To advise the government on any problem relating to agricultural prices and

production.

The APC does not follow a mechanical approach in deciding upon the price

policy. While recommending a price policy for a commodity the commission takes a

comprehensive overview of the entire structure of the economy of that commodity, its

demand and supply situation, and available date on cost of cultivation, export potential,

price trends and the general economic health of the economy. Besides, the commission

also takes into account the level of the administered prices for competing also takes into

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account the level of the administered prices for competing crops, so that a measure of

inter-crop price parity is achieved. While recommending the price policy, the

commission also suggests such non-price measures as would facilitate the achievement

of the objectives of the policy.

17.10 Food Corporation

Along with the setting-up of APC, the government took another step of long-term

consequences by the setting-up food corporation of India in 1965. The main functions of

this corporation are to procure store and distribute foodgrains. The providing incentives

for increased production, the fourth five year plan recommended a minimum price for the

main agricultural commodities. However, the effectiveness of this policy, according to

the plan document, depended on the adequacy of the relevant machinery for purchase,

including the food corporation of India, state trading corporation and the co-operative

marketing organizations.

During the Fifth plan period, two main considerations were kept in view while

recommending the agricultural price policy. First, it should provide incentives for

sustained and higher production, and second, a discriminating manipulation of inter-crop

price relationship to induce the farmers plan the production of different crops in line with

the estimated demand. The fifth plan sought to maintain a clear-cut distinction between

minimum support price (SP) and procurement prices (PP). The minimum support price

based on the cost of production and other relevant factors is the minimum floor price

which would be announced for all important foodgrain crops prior to the sowing season.

The procurement price, on the other hand, to be announced later, will usually be fixed in

terms of a premium over and above the minimum support price. The procurement prices

thus fixed will naturally take into account the size of the anticipated crop in addition to

the requirements of public distribution and buffer stocking.

The Sixth plan regarded price policy as being of crucial importance in agricultural

development on account of the following reasons.

Modern agriculture increasingly involves the use of costly inputs as part of

improved technology and hence an assured minimum price becomes a necessary

underpinning for sustained agricultural production.

Price policy is also an important tool for facilitating crop planning, an aspect

which has so far not received adequate attention in the country.

Price policy can be geared towards ensuring that the relevant income levels of the

farming community are not eroded by continuing unfavourable terms of trade

between the agricultural sector and the non-agricultural sector.

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17.11 Present Price Policy for Agricultural Products

The present price policy for agricultural products is guided by the objectives of

providing remunerative prices to the producers, to facilitate procurement and also to

maintain the requisite inter-crop parity. Under this policy, government has been

providing minimum support prices of important food crops and has been making upward

revisions in the support/ procurement prices of these agricultural commodities. At the

declared support procurement price, the government stands to purchase whatever amount

of that crop is offered for sale in the market. The procurement price for different crops is

determined and suggested to the government by the APC. Government after due

consideration, declares the support or procurement price of a after due consideration,

declares the support or procurement price of a particular food crop before harvesting

begins. As a result of following such a policy, the wheat price during 1984-85 was raised

by 32.2 per cent, of paddy by 44.2 per cent and of coarse grains by 36.8 per cent. In

respect of two important cereals, viz. rice and wheat, this policy has yielded rich

dividends. Buffer stocks are built up through procurement at support prices which sustain

the public distribution system. Over 15 million tones of foodgrains are procured by

public agencies annually. Enforcement of this policy over the years has demonstrated

that agricultural development is directly related to the price policy through which the

farmers are assured of a minimum support.

17.12 Distribution of Food Grains

Important items of foodgrains are distributed among the consumers through ration

and fair price shops throughout the country. If the consumers‟ requirement exceeds the

rationed quantity of an article, these can be purchased from the open market at market

rates. Though the thrust of the policy had been to achieve the twin objectives of assuring

remunerative prices to the farmer and providing foodgrains to the consumer at reasonable

prices, it was amply made clear that the concern for consumer interest should not be

allowed to take away the farmer‟s incentive to adopt improved technology and make

necessary investment for the purpose.

17.13 Modification of the Price Policy

The framework of the policy was modified in 1980. the emphasis of the policy, as

reflected in the revised terms of reference of APC which was later renamed as

commission for Agricultural costs and prices (CACP), shifted from maximizing the

production to developing a production further reviewed in 1986 when a long-term

perspective for agricultural price policy was presented to the parliament. The price policy

was again subjected to a rigorous review after a programme of economic reforms was

launched in 1991. The package of reforms in agriculture is based on the diagnosis that

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while the sector remained but disprotected, the subsidies arising out of inappropriate

pricing of inputs and outputs led to inefficient resource use, eroded the capacity of the

government to finance public investment in agriculture and benefited only the producers

of few crops and that too in some regions. The suggested agenda for the agricultural

sector, therefore, revolves on setting the prices right and includes withdrawal of subsidies

on inputs, targeting the public distribution system only to the poor, abolition of food

management system and its attendant costs and liberalization of trade in agricultural

commodities, “Under new economic regime the subsidies on farm input and food are no

more sustainable in terms of fiscal management and these be phased out and adjustment

in agricultural prices be made for arresting the deterioration in terms of trade for the

agricultural sector”.

17.14 Minimum Support Price

At present 24 commodities are covered under the minimum price support

programme. These include paddy, wheat, jowar, bajra, maize, barlay, gram, tur, moong,

urad, groundnut, rapessed, mustard, toria, soyabean, sunflower seed, sesamum, copra,

cotton, Jute-mesta, Virginia flue-cured tobacco and sugarcane which together account for

2 per cent of the total value of crop output in the country. These apart, some other

commodities like onion, potato, ginger, chilies, black pepper, castor seed and some fruits

are included under the Market intervention scheme (MIS). In case of cereals, till 1970-

71, government used to announce, apart from the minimum support price, procurement

prices at which public agencies procured specified quantities of grains from the market.

The procurement prices used to be higher than the minimum support prices but lower

than market prices. In 1970-71, Government decided to announce only the procurement

prices and provide support to the farmers at these prices. However, recognizing that the

blurred distinction between the procurement prices and minimum support prices had

started depriving the farmers of the guarantee that was inherent in the fixation of

minimum support price, the government since 1991, on the recommendation of CACP,

has decided to fix only the minimum support price in the case of cereals also.

17.15 Evaluation of Agricultural Price Policy

The price policy, whether of agricultural products or of manufactures, is

formulated keeping in view some objectives. The objectives of stability is, perhaps, the

most important one more so, in agricultural products where due to strong natural factors,

serious fluctuations can occur. Drastic and frequent fluctuations are deterrent to increased

production and result in considerable uncertainty. Government‟s agricultural price policy

is designed by the agricultural price commission (APC) which after taking note of the

cost of production fixes procurement prices and minimum support prices of different

commodities procurement prices are those at which the government procures surplus

grain from the farmers and support prices are those at which government is bound to

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purchase the surplus grain if the prices fall below the minimum level. However, the

effectiveness of these policies is determined by the level of implementation. Many a

times, what has been happening is that the level of implementation would remain below

expectations and there would arise differences between differences, sometimes, have

been found to be so substaintial that it has affected adversely market arrivals. Such

ineffective implementation and regulation of prices even now leads to fluctuations in

agricultural prices which are not desirable.

17.16 Percolation of Benefits to all Sections of the Rural People

While formulating a price policy, it has to be kept in mind that the benefits

percolate to all sections of the farm population. Usually, it has been noticed that the

benefits accrue more to the large farmers than to the small ones. Large farmers have

better access to inputs and they generate a higher marketable surplus compared to the

small farmers who do not enjoy such access to inputs. Even the system of procurement is

such that the small farmer‟s is not reached in his own village. Government operates

through private commission agents and does not directly enter the open market. In some

cases, it has also been noticed that large farmers hold back their surplus and sell it at a

higher price sometimes later in the open market. This benefit does not accrue to small

farmers who are in greater need of cash and sell their surplus only through the

procurement channel. Strong regulatory measures are, therefore, required in this regard

so that incentives are provided to both large and small farmers in an adequate measure.

17.17 Safeguards to Consumers

The agricultural price policy should also provide safeguards to the consumers,

and one of the best ways to do this is through a proper public distribution system. As

such, a public distribution system should provide for adequate food through fair price

shops to meet the requirements of the vulnerable sections of society, should include all

the major crops and should reach the depressed sections in the rural areas. It may be

noted that our public distribution system flops on all these counts. Stocks are often

inadequate mainly rice and wheat are covered ignoring other inferior grains which form

food for the poor and which do not reach all the rural poor population. Procurement

prices have been raised year after year and agriculture forming the dominant sector in the

economy, the general price level has been moving up in full sympathy with the trend in

procurement prices. As such, these prices tend to be inflationary. It has been observed

that higher procurement prices in the previous years have enhanced the holding power of

large farmers which in turn becomes a contributing factor to further rise in procurement

prices. While fixing procurement prices, the APC takes congnisance of the cost of

production but not of the return to each rupee invested which may often be more than

100 per cent. As such, under the garb of higher cost of production, the procurement

prices are forced to be fixed at a higher cost of production, the procurement prices are

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forced to be fixed at a higher level than before and made to contribute to inflationary

tendencies.

17.18 Conclusion

The agricultural price policy of post –independence can seems to have failed to

protect the interests of the rural poor such as marginal farmers and landless labourers.

Higher procurement prices give a spurt to foodgrain prices and make things hard for the

poor whose bulk of earnings go to the purchase of foodgrains. Since they do not have nay

marketable surplus so that they could benefit from enhanced procurement prices, they

pay through their nose for their very livelihood. The agricultural price policy has to be

reoriented in a meaningful fashion, blending production inventive with consumer

safeguards in a more balanced manner.

Importance Questions

1. What are the objectives of agricultural pricing policy?

2. Explain the need of agricultural price policy in India.

3. Explain minimum support prices in agriculture.

4. Write an essay on agricultural price policy in India.

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LESSON- 18

ROLE OF CREDIT FOR DEVELOPMENT OF AGRICULTURE

18.0 Objectives

To study the role and need of agricultural credit in India

To bring out different classification of Agricultural credit

To bring out the major instructional factors influence agriculture credit.

Contents

18.0 Objectives

18.1 Introduction

18.2 Status of Agriculture Credit

18.3 Strategy to improve Agriculture Credit

18.4 Source of Agricultural Credit

18.5 Institutional Credit Agencies

18.6 Priority Sector Lending

18.7 Categories of Priority Sector

18.8 Kisan Credit Card Scheme

18.9 Objective of Kisan Credit and Scheme

18.10 Benefits of KCC Scheme

18.11 Financial Inclusion-Reaching the Unreached

18.12 Business Facilitator Model

18.13 Business Correspondent Model

18.1 Introduction

Agriculture plays a crucial role in the development of the Indian economy. It

accounts for about 19 per cent of GDP and about two thirds of the population is

dependent on the sector. The importance of farm credit as a critical input to agriculture is

reinforced by the unique role of Indian agriculture in the macroeconomic framework and

its role in poverty alleviation. Agricultural finance is a subset of rural finance dedicated

to financing agricultural related activities such as input supply, production, distribution,

wholesale, processing and marketing. Financial service providers face distinct challenges

when dealing with this sector. For example, the seasonal nature of production and the

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dependence on biological processes and natural resources leaves producers subject to

events beyond their control such as droughts, floods or diseases. The modern agriculture

has increased the use of inputs specially for seed, fertilizers, irrigational water,

machineries, implements etc. which has increased demand for agricultural credit. The

adoption of modern technology, which is capital intensive, has commercialized

agricultural production in India. Besides, the farmer's income is seasonal while his

working expenses are spread over time. In addition, farmer's inadequate savings require

the uses of more credit to meet the increasing capital requirements. Furthermore, credit is

a unique resource, since it provides the opportunity to use additional inputs and capital

items now and to pay for them from future earnings.

The rural population in India suffers from a great deal of indebtedness and is

subject to exploitation in the credit market due to high interest rates and the lack of

convenient access to credit. Rural households need credit for investing in agriculture and

smoothening out seasonal fluctuations in earnings. Since cash flows and savings in rural

areas for the majority of households are small, rural households typically tend to rely on

credit for other consumption needs like education, food, housing, household functions,

etc. Rural households need access to financial institutions that can provide them with

credit at lower rates and at reasonable terms than the traditional money-lender and

thereby help them avoid debt-traps that are common in rural India. Timely and adequate

agricultural credit is important for increase in fixed and working capital for farmers. In

order to provide sufficient credit to the farmers, many institutional and non-institutional

agencies are working. Under institutional agencies-cooperative, commercial, regional

rural banks and different Government organizations are supplying credit to the needy

farmers on priority basis.

18.2 Status of Agriculture Credit

Credit in conjunction with modern agricultural technologies has ushered

agricultural development across Indian regions. The liberal credit supply by the lending

institutions enabled rapid infrastructural growth across Indian regions and thereby

improved the farm level credit absorption capacity. Although credit has played vital role

in agricultural development yet regional and farm-category wise disparity has also taken

place. Infact, some of the states with better natural resource base have progressed well

while some others lagged far behind. Like wise, some farmers with better resource

endowments and access to financial and other institutions have marched faster while

others could not do so. Furthermore, multiplicity of lending institutions together with the

liberal deployment of credit through various on going schemes including micro-financing

saved rural dwellers from the clutches of money lenders. Yet, non-institutional credit

agents still survive as they follow the canons of financing.

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18.3 Strategy to Improve Agriculture Credit

The achievement of targets in the agricultural sector which covers production of

food and essential raw material like cotton, Jute and oilseeds, ought not to be allowed to

suffer for want of adequate credit has, however, to be related to specific items of

productive work rates of interest has, therefore, to be considered as an integral part of the

Plan. For providing these facilities all the existing agencies e.g. money lenders,

commercial banks, co- operatives and the State have to be integrated and harnessed to a

common purpose. Such a comprehensive approach is essential for ensuring the best use

of all the available resources of the nation.

Credit can be classified on the basis of time, purpose, security, lender and borrower.

(i)Time Classification:- It classifies credit into three groups, i.e. short, medium

and long term.(a) Short-Term (for periods up to 15 months): The "short-term loans" are

generally advanced for meeting annual recurring purchases such as, seed, feed,

fertilizers, hired labour expenses, pesticides, weedicides, hired machinery charges, etc.,

and termed as seasonal loans and crop loans. These are expected to be repaid after the

harvest. It is expected that the loan plus interest would be repaid from the income

received through the enterprise in which it was invested. The time limit to repay such

loans is a year or at the most 18 months. (b) Medium-Term (from 15 months up to 5

years): "Medium-term loans" are advanced for comparatively longer lived assets such as

machinery, diesel engine, wells, irrigation structure, threshers, shelters, crushers, draught

and milch animals, dairy/poultry sheds, etc., where the returns accruing from increase in

farm assets in spread over more than one production period. The usual repayment period

for such type of loan is from fifteen months to five years. (c) Long-Term (above 5

Years): Loans repayable over a longer period (i.e. above 5 years) are classified as long-

term loans. "Long-term loans" are related to the long lifed assets such as heavy

machinery, land and its reclamation, errection of farm buildings, construction of

permanent-drainage or irrigation system, etc. which require large sums of money for

initial investment. The benefits generated through such assets are spread over the entire

life of the asset. The normal repayment period for such loans ranges from five to fifteen

or even upto 20 years.

(ii) Purpose Classification:- Credit is also classified based on purpose of loans

e.g. crop loan, poultry, dairy piggery loan, irrigation loan, machinery and equipment

loan, forestry loan, fishery loan etc. These loans signify the close relationship between

time and use as well as rate of return (or profitability). Some times loans are also

classified as production and consumption loans due to the fact that production loans are

diverted for consumption purposes by the weaker sections. So, the banks have also

started financing for consumption purposes (exclusively for home consumption

expenditures) besides financing for the production purposes. The consumption loans are

also to be repaid from the sale proceeds of the crop.

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(iii) Security Classification:- Security offered/obtained provides another basis

for classifying the loans. The secured loans are advanced as against the security of some

tangible personal property such as land, livestock and other capital assets, i.e., medium

and long term loans. The borrower's credit worthiness may act much more than the

security offered, which if doubtful may result willful default. Moreover, the secured

loans are further classified on the basis of type of security e.g. mortgage loans, where

legal mortgage of some property such as land is offered to the lender, i.e., loans for

intangible property such as land improvement, irrigation infrastructures, etc. and

hypothecated loans, where legal ownership of the asset financed remains with the lender

though physical possession with the borrowers i.e. loans for tangible property such as

tractor, machinery and equipments. The private money lenders, usually possess items

such as gold ornaments and jewellery or land as security, which reminds the borrower

about his obligations of loan repayments. On the contrary, unsecured loans are generally

advanced without offering any security e.g. short-term crop loans.

(iv) Lender Classification:- Credit is also classified on the basis of lender such

as (a) Institutional Credit e.g. co-operative loans, commercial bank loans and government

loans; (b) Non-Institutional Credit e.g. professional and agricultural money lenders,

traders and commission agents, relatives and friends etc.

(v) Borrower Classification:- The credit is also classified on the basis of type of

borrowers (i.e., production or business activity as well as size of business) such as crop

farmers, dairy farmers, poultry farmers, fisherman, rural artisans etc. or agricultural

labourers, marginal/small/medium/large farmers, hill farmers or tribal farmers etc. Such

classification has equity considerations.

18.4 Source of Agricultural Credit

The sources of agricultural finance are broadly classified into two categories:

(A) Non institutional Credit Agencies or informal sources, and (B) Institutional Credit

Agencies or Formal Sources. A. Non-institutional Credit Agencies i) Traders and

Commission Agents: Traders and commission agents advance loans to agriculturists for

productive purposes against their crop without completing legal formalities. It often

becomes obligatory for farmers to buy inputs and sell output through them. They charge

a very heavy rate of interest on the loan and a commission on all the sales and purchases,

making it exploitative in nature. ii) Landlords: Mostly small farmers and tenants depend

on landlords for meeting their production and day to day financial requirements. iii)

Money lenders: Despite rapid development in rural branches of different institutional

credit agencies, village money lenders still dominate the scene. Money lenders are of two

types- agriculturist money lenders who combine their money lending job with farming

and professional money lenders whose sole job is money lending. A number of reasons

have been attributed for the popularity of moneylenders such as: (a) they meet demand

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for productive as well as unproductive requirement; (b) they are easily approachable at

odd hours; and (c) they require very low paper work and advances are given against

promissory notes or land. Money lenders charge a very high rate of interest as they take

advantage of the urgency of the situation. Over the years a need for regulation of money

lending has been felt. But lack of institutional credit access to certain sections and areas

had facilitated unhindered operation of money lending.

18.5 Institutional Credit Agencies

The evolution of institutional credit to agriculture could be broadly classified into

four distinct phases - 1904-1969 (predominance of co-operatives and setting up of RBI),

1969-1975 [nationalisation of commercial banks and setting up of Regional Rural Banks

(RRBs)], 1975-1990 (setting up of NABARD) and from 1991 onwards (financial sector

reforms). Institutional funding of the farm sector is mainly by commercial banks,

regional rural banks and co-operative banks. Share of commercial banks in total

institutional credit to agriculture is almost 48 percent followed by cooperative banks with

a share of 46 per cent. Regional Rural Banks account for just about 6 per cent of total

credit disbursement.

i) Government: These are both short term as well as long-term loans. These

loans are popularly known as "Taccavi loans" which are generally advanced in times of

natural calamities. The rate of interest is low. But it is not a major source of agricultural

finance.

ii) Cooperative Credit Societies: The history of cooperative movement in India

dates back to 1904 when first Cooperative Credit Societies Act was passed by the

Government. The scope of the Act was restricted to establishment of primary credit

societies and non-credit societies were left out of its purview. The shortcomings of the

Act were rectified through passing another Act called Cooperative Societies Act 1912.

The Act gave provision for registration of all types of Cooperative Societies. This made

the emergence of rural cooperatives both in the credit and noncredit areas, though with

uneven spatial growth. In subsequent years a number of Committees were appointed and

recommendations implemented to improve the functioning of the cooperatives. Soon

after the independence, the Government of India following the recommendations of All

India Rural Credit Survey Committee (1951) felt that cooperatives were the only

alternative to promote agricultural credit and development of rural areas. Accordingly,

cooperatives received substantial help in the provision of credit from Reserve Bank of

India as a part of loan policy and large scale assistance from Central and State

Governments for their development and strengthening. Many schemes involving

subsidies and concessions for the weaker sections were routed through cooperatives. As a

result cooperative institutions registered a remarkable growth in the post-independence

India.

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iii) Commercial Banks: Previously commercial banks (CBs) were confined only

to urban areas serving mainly to trade, commerce and industry. Their role in rural credit

was meagre i.e., 0.9 per cent in 1951- 52 and 0.7 per cent in 1961-61. The insignificant

participation of CBs in rural lending was explained by the risky nature of agriculture due

to its heavy dependence on monsoon, unorganized nature and subsistence approach. A

major change took place in the form of nationalisation of CBs in 1969 and CBs were

made to play an active role in agricultural credit. At present, they are the largest source of

institutional credit to agriculture.

iv) Regional Rural Banks (RRBs): RRBs were set up in those regions where

availability of institutional credit was found to be inadequate but potential for agricultural

development was very high. However, the main thrust of the RRBs is to provide loans to

small and marginal farmers, landless labourers and village artisans. These loans are

advanced for productive purposes. At present 196 RRBs are functioning in the country

lending around Rs 9,000 crore to rural people, particularly to weaker sections.

v) Micro financing: Micro financing through Self Help Groups (SHG) has

assumed prominence in recent years. SHG is group of rural poor who volunteer to

organise themselves into a group for eradication of poverty of the members. They agree

to save regularly and convert their savings into a common fund known as the Group

corpus. The members of the group agree to use this common fund and such other funds

that they may receive as a group through a common management. Generally, a self-help

group consists of 10 to 20 persons. However, in difficult areas like deserts, hills and areas

with scattered and sparse population and in case of minor irrigation and disabled persons,

this number may range from 5-20. As soon as the SHG is formed and a couple of group

meetings are held, an SHG can open a Savings Bank account with the nearest

Commercial or Regional Rural Bank or a Cooperative Bank. This is essential to keep the

thrift and other earnings of the SHG safely and also to improve the transparency levels of

SHG's transactions. Opening of SB account, in fact, is the beginning of a relationship

between the bank and the SHG. The Reserve Bank of India has issued instructions to all

banks permitting them to open SB accounts in the name of registered or unregistered

SHGs.

18.6 Priority Sector Lending

As per the existing regulatory framework, banks have priority sector lending

(PSL) targets (the Reserve Bank of India mandates that banks must lend a certain

percentage of funds to certain sectors: 40 percent of ANBC (Adjusted Net Bank Credit)

for domestic banks and 32 percent of ANBC for foreign scheduled commercial banks).

Within the overall figure, sub-targets are set for banks: for domestic banks, 18 percent

agricultural loans (of which 13.5 percent is direct-agri) plus 10percent lending to weaker

sections, for domestic banks; for foreign banks, the requirement of specific relevance to

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this context is the 10percent sub-target for micro, small and medium enterprises. Any

shortfall in achieving these targets needs to be compensated by placing funds with

NABARD under Rural Infrastructure development feed scheme at very nominal rate of

interest.

Priority Sector includes those sectors that impact large sections of the population,

the weaker sections and the sectors which are employment-intensive such as agriculture,

and tiny and small enterprises. Presently, the broad categories of priority sector for all

scheduled commercial banks are as under:

18.7 Categories of Priority Sector

(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture

includes short, medium and long term loans given for agriculture and allied activities

(dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers, Self-

Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit

and to others (such as corporates, partnership firms and institutions) for taking up

agriculture and allied activities.

(ii) Small Enterprises (Direct and Indirect Finance): Direct finance to small

enterprises includes all loans given to micro and small (manufacturing) enterprises

engaged in manufacture and production, processing or preservation of goods, and micro

and small (service) enterprises engaged in providing or rendering of services, and whose

investment in plant and machinery and equipment (original cost excluding land and

building and such items as mentioned therein). The micro and small (service) enterprises

includes small road & water transport operators, small business, professional and self-

employed persons, and all other service enterprises.

Indirect finance to small enterprises includes finance to any person providing

inputs to or marketing the output of artisans, village and cottage industries, handlooms

and to cooperatives of producers in this sector.

(iii) Retail Trade: includes retail traders/private retail traders dealing in essential

commodities (fair price shops), and consumer co-operative stores.

(iv) Micro Credit: Provision of credit and other financial services and products

of very small amounts not exceeding Rs. 50,000 per borrower, either directly or

indirectly through a SHG and JLG mechanism or to NBFC and MFI for on-lending up to

Rs. 50,000 per borrower, will constitute micro credit.

(v) Education loans: Education loans include loans and advances granted to only

individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh

for studies abroad, and do not include those granted to institutions;

(vi) Housing loans: Loans up to Rs. 20 lakh to individuals for purchase and

construction of dwelling unit per family, (excluding loans granted by banks to their own

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employees) and loans given for repairs to the damaged dwelling units of families up to

Rs. 1 lakh in rural and semi-urban areas and up to Rs. 2 lakh in urban and metropolitan

areas.

18.8 Kisan Credit Card Scheme

In spite of various measures to rejuvenate farm credit, the flow of credit remained

quantitatively and qualitatively poor. The institutional sources of credit meet only 51 per

cent of the credit requirements of farm sector. The non-institutional sources were mainly

reached by farmers due to lack of collaterals, frequent needs, undue delays, complicated

procedures and malpractices adopted by institutional lending agencies. With a view to

inquire into the reasons for the problems of the farm credit and suggest measure for

improving the delivering system, RBI set up a one man Committee of Shri R. V. Gupta

to in December 1997. The Committee submitted its report in April 1998. It was against

this background that RBI directed all Public Sector Banks (PSBs), RRBs and cooperative

banks to introduce "Kisan Credit Card Scheme (KCCS)" on the lines of the model

scheme formulated by NABARD and in due course of time the KCCS was adopted by all

the directed agencies.

18.9 Objective of Kisan Credit and Scheme

The KCC scheme aims at adequate and timely support from banking system to

the farmer for crop production and ancillary activities. The credit limit (loan) is

sanctioned in proportion to the size of the owned land but some flexibility is provided for

leased-in land in addition to owned land. The borrowing limit is fixed on the basis of

proposed cropping pattern. Most of the banks are adhering to Scales of Finance (SOF)

decided by the State Level Bankers Committee (SLBC) but some banks have fixed their

own SOF. The nature of credit extended under KCCS is revolving cash credit i.e., it

provides for any number of withdrawals and repayments within the limit. This feature

would provide flexibility and reduce the interest burden upon KCCS beneficiary.

Security and margin norms would be in conformity with the guidelines issued by RBI

and NABARD from time to time. With effect from 2001-02, it was made obligatory for

the implementing agencies to operate the KCC scheme with an in-built component of

life-insurance for KCC scheme beneficiary. The KCC scheme as envisaged has

substituted all other existing institutional modes of short term credit delivery.

The features of the scheme at a glance are:

Type of revolving cash credit facility with unlimited withdrawals and

repayments.

Meet the production credit need, cultivation expenses, and contingency expenses

of the farmers.

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Limits based on the basis of operational land holding, cropping pattern and scale

of finance. This limit is inclusive of 20 and of production credit.

Each withdrawal to be paid within 12 months.

Card valid for 3 years subject to annual renewals.

Credit limits can be enhanced depending on performance and needs.

Rescheduling is also possible depending upon the situation. If for example the

crops fail due to a natural calamity and the farmer is not able to repay his loan,

then he could get an extension of upto four years.

Cash withdrawals through slips accompanied by card and passbook.

A credit cum passbook would be issued.

All branches engaged in agricultural lending could issue Kisan Credit Cards.

18.10 Benefits of KCC Scheme

Simplifies disbursement procedures

Removes rigidity regarding cash and kind

No need to apply for a loan for every crop

Assured availability of credit at any time enabling reduced interest burden for the

farmer.

Helps buy seeds, fertilizers at farmer's convenience and choice

Helps buy on cash-avail discount from dealers

Credit facility for 3 years - no need for seasonal appraisal

Maximum credit limit based on agriculture income

Any number of withdrawals subject to credit limit

Repayment only after harvest

Rate of interest as applicable to agriculture advance

Security, margin and documentation norms as applicable to agricultural advance

18.11 Financial Inclusion-Reaching the Unreached

Indian economy in general and banking services in particular have made rapid

strides in the recent past. However, a sizeable section of the population, particularly the

vulnerable groups, such as weaker sections and low income groups, continue to remain

excluded from even the most basic opportunities and services provided by the financial

sector. Financial inclusion is aimed at providing banking and financial services to all

people in a fair, transparent and equitable manner at affordable cost. Households with

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low income often lack access to bank account and have to spend time and money for

multiple visits to avail the banking services, be it opening a savings bank account or

availing a loan. These families find it more difficult to save and to plan financially for the

future. Thus, the unbanked public is largely cut off from the Banking products and

services. It is the endeavor of the Bank to provide the basic banking facility of SB

account to all the unbanked.

Financial Inclusion Package: To start with, the Bank provided 'No frills' SB

accounts. As a next step, small overdraft facilities were allowed in the SB accounts in

order to cater to the account holder's general purpose or consumption needs, which

eventually would provide credit history for the future. Those who are engaged in income

generation activities were provided with General Credit Card facility (GCC) with a

flexibility of rollover facility. Business Facilitators and Business Correspondents (BF and

BC) With the objective of ensuring greater financial inclusion and increasing the

outreach of the banking sector, the RBI has permitted banks to use the services of NGOs

and SHGs, MFIs and other civil society organisations as intermediaries in providing

financial and banking services through the use of BF and BC Models.

18.12 Business Facilitator Model

Under the BF Model, banks may use intermediaries such as NGOs, farmers' clubs,

cooperatives, community based organisations, IT-enabled rural outlets of corporate

entities, post offices, insurance agents, well functioning Panchayats, village knowledge

centres, agri-clinics / agri-business centres, Krishi Vigyan Kendras and KVIC / KVIB

units for providing facilitation services. It has been clarified that such services may

include

Identification of borrowers and fitment of activities,

Collection and preliminary processing of loan applications,

Creation of awareness about savings and other products, education and advise on

managing money and debt counseling,

Processing and submission of application to banks,

Promotion and nurturing of SHGs / JLGs,

Post sanction monitoring,

Monitoring and hand holding of SHGs, JLGs, credit groups and others, and

Follow-up for recovery.

18.13 Business Correspondent Model

Under the BC Model, NGOs and MFIs set up under the Societies and Trust Act,

Societies registered under Mutually Aided Cooperative Societies Acts or the Cooperative

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Societies Acts of States, Section 25 Companies, Registered NBFCs not accepting public

deposits and post offices may act as BCs. Banks have been advised to conduct due

diligence on such entities and ensure that they are well established, enjoy good reputation

and have the confidence of local people. In addition to the activities listed under the BF

Model, the scope and activities to be undertaken by BCs will include

Disbursal of small value credit,

Recovery of principal and collection of interest,

Collection of small value deposits,

Sale of micro-insurance, mutual fund products, pension products, other third

party products, and

Receipt and delivery of small value remittances and other payment instruments

18.14 Conclusion

An assessment of agriculture credit situation rings out the fact that the credit

delivery to the agriculture sector continues to be inadequate. It appears that he banking

system is still hesitant on various grounds of supply credit to small and marginal farmers.

The situation calls for concerted efforts to augment the flow f credit to agriculture,

alongside exploring new innovations in product design and methods of delivery, trough

better use of technology required for the agriculture development.

Importance Questions

1. Explain the role and need of Agricultural credit

2. Explain different types of credit to the different categories of farmers.

3. Explain the role of institutional credit agencies in India

4. Explain Kisas an credit card scheme

5. What are the benefits from Kisan credit card scheme?

6. Explain about SHG bank linkage credit models

7. Point out the chief ministry about financial inclusion

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LESSON- 19

CAPITAL FORMATION IN AGRICULTURE

19.0 Objectives

To study the factors instituting capital formation Indian agriculture

To study the trend of capital formation

To study the role of central statistical organization in capital formation in

Agriculture

Contents

19.0 Objectives

19.1 Introduction

19.2 Capital Formation in National Accounts

19.3 Capital formation for agriculture

19.4 Regrouping of CSO estimates to get Capital Formation for Agriculture

19.5 Capital Formation by including Additional Items not in system of National

accounts basket

19.6 Broad trends in capital formation

19.7 Recommendations of central statistical organization

19.1 Introduction

Capital formation is one of the basic factors for increasing production. This is all

the more important in agriculture where we are faced with the task of increasing

production to keep pace with the increase in population against the odds of the vagaries

of monsoon. Judicious use of natural resources for sustainable production of agriculture,

adoption of advanced technology and development of infrastructure for facilitating all

agricultural activities, ensuring food security in the broader sense of making adequate

nutritious food available and accessible to all and making agriculture a profitable

commercial activity at par with other industries in the arena of global economy are the

problems that can be successfully tackled only with a strong capital base. This

requires a close monitoring of the status of capital formation which in turn hinges on the

nature of statistical system and quality of data available for measurement of capital

formation.

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Agricultural development cannot be ensured by confining attention to the

activities within the boundaries of agricultural fields. It should encompass activities

fully or partially meant for agriculture such as production of fertilizers and pesticides,

development of agricultural markets, rural roads and communication; augmentation of

facilities for agricultural credit for small and marginal farmers, agricultural education,

research and development of agricultural technology which are the main source of

increasing production under the limited availability of natural resources. For monitoring

agricultural growth it is necessary to have a broader measure of agricultural capital

formation that includes capital formation in all these activities, which can be called

capital formation for agriculture in comparison with capital formation in agriculture

being compiled and presented at present in the National Accounts Statistics. Agriculture,

apart from crop production, is also broadened to include the allied activities, namely,

animal husbandry, forestry and fishing. The resources for these activities are closely

related. People often are engaged in more than one of these activities. Therefore, this

lesson takes up agriculture and allied activities for consideration, and the term agriculture

used to agriculture allied activities mentioned above.

19.2 Capital Formation in National Accounts

Capital formation takes place in the production units. It consists of additions, less

disposals, to fixed assets and change in inventories. Additions to fixed assets, called

fixed capital formation, are the assets produced as outputs from process of production

that are themselves used repeatedly or continuously in other process of production for

more than one year. Inventories consist of materials and supplies meant for intermediate

input in production; work in progress; and finished goods and goods for resale. The

total fixed capital used in production loses its productive capacity in course of time due

to wear and tear or obsolescence. In other words, fixed capital gets consumed in the

process of production. The extent of loss of its productive potential is known as

Consumption of Fixed Capital (CFC) which is to be compensated by acquisition of an

equal amount of fixed capital in the current year. Fixed Capital Formation computed

without netting for CFC is known as Gross Fixed Capital Formation (GFCF). The term

Gross Capital Formation (GCF) refers to the sum of GFCF and change in inventories.

GCF less CFC is known as Net Capital Formation (NCF).

Capital formation in the broader sense would cover many more items than what

system of national accounts 1993 has identified. However, in several cases, there is

ambiguity regarding classification of some expenditure as capital formation or

consumption expenditures: For example, expenditures on training and development,

education and research etc. System national accounts 1993 discusses these borderline

cases in a separate section. It is observed that there is a possibility of overstretching the

concept of capital formation into all consumption activities. Further, though it may be

logically correct and useful for policy making and planning to include several activities

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as capital formation, the difficulty in quantification and valuation, and the incongruity

that they may cause in the national accounting set up, are the reasons for not including

them as capital formation in national accounting. However, for monitoring and predicting

the growth trend of the economy, it is necessary to measure such unquantifiable items

and collect and provide regular data on them.

19.3 Capital Formation for Agriculture

Capital Formation as compiled by central statistical organization is broadly in

accordance with system of national accounts and the definition and coverage of

agricultural capital formation in SNA is constrained by the necessity for consistency and

coherence within SNA. Solutions for policy and planning issues cannot be obtained

merely from the confines of SNA. In fact SNA itself recognizes this shortcoming and

recommends compilation of satellite accounts in harmony with SNA. In respect of

Agricultural Sector, the information need for the managers of agriculture, extends

beyond the production activity. The economic status of the people engaged in agriculture

vis-à-vis other sectors, the availability of infrastructure for production and marketing,

and infrastructure for production of various inputs and services such as education and

research are also to be monitored and developed for a holistic growth of agriculture.

Therefore, apart from the present series of capital formation compiled by CSO, we may

have two other series of capital formation in agriculture obtained in the following way:

Capital formation for agriculture obtained by regrouping the CSO estimates, and

Capital formation for agriculture obtained by including capital formation in

agricultural education, research etc.

19.4 Regrouping of CSO Estimates to get Capital Formation for Agriculture

Most of the industrial sectors contribute directly or indirectly to the development

of agriculture. For example, fertilizer production is meant only for use in agriculture.

Pesticide is also mostly used in agriculture. Supply of electricity in the rural areas is

utilized in agricultural activities such as irrigation. Rural roads provide facilities for

transport of agricultural commodities. Construction of godowns and cold storage of rural

markets provide facilities for getting the monetary returns for the production. A

considerable proportion of the goods traffic on road and rails is o account of transporting

agricultural commodities. The rural cooperative banks and commercial banks lend loans

to the farmers to facilitate increase in agricultural production. Agricultural education and

research is out and out meant for developing agriculture only. Increase in the capital

formation in these activities boost up the growth of agriculture.

Therefore, calculation of capital formation for agriculture can be made by taking an

appropriate proportion of capital formation in different sectors as available from NAS,

and adding them together. This can be worked out for Public and Private Sectors

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combined, and for Public Sector separately by adopting the norms given below. The

quantum of GFCF in each of the industrial sectors that qualifies for inclusion in the

GFCF for agriculture can be obtained according to the following procedure.

Agriculture, Forestry and Fishing: The entire capital formation in the sector is

for agriculture only and so the entire GFCF in these sectors qualify as GFCF for

agriculture.

Mining and Quarrying: Capital formation in this sector is not meant for growth

of agricultural production. Therefore, no FCF of this sector is apportioned into

agriculture GFCF.

Manufacturing: The activities of manufacturing fertilizers, pesticides and

agriculture machinery produce goods meant for use in agricultural production.

The entire capital formation in fertilizer and agriculture machinery industries are

for agriculture. Pesticides are used in agriculture as well as in households. 59.4

percent of the pesticides is estimated to be used in agriculture on the basis of

quantities of technical grade pesticides produced for agricultural and household

uses. However, National accounts statistics gives the value of pesticides and

fertilizers used in agriculture. It is assumed that the value of consumption of

fertilizers is equal to the value of production of fertilizers and the entire fertilizer

produced is consumed in agriculture. The value of production of pesticides is

obtained by dividing the consumption value by 0.594. The total value of

production of pesticides and fertilizers is obtained by adding these values of

production. The proportion of the value of pesticides and fertilizers used in

agriculture to the total value of production of pesticides and fertilizers is worked

out, which turns out to be 96.16 percent. This proportion is applied on the GFCF

of the fertiliser and pesticide industry obtained from Annual Survey of Industries

(ASI) from 1980-81onwards to get the GFCF from the industry meant for

agriculture for the corresponding years.

In the case of Public Sector, it is estimated on the basis of the share of Public

Sector in fertilizer production which turns out to be 52 percent. On the basis of the

information available from Pesticides Association of India, it is assumed that 90 percent

of pesticides production is due to Private Sector. Weighted average of these proportions

is computed by taking the corresponding consumption values as weights. The average

works out to be 49.64 percent which is applied on GFCF for agriculture in fertiliser and

pesticide at the aggregate level to arrive at GFCF for agriculture in the Public Sector. As

regards Agricultural Machinery, the GFCF for individual years are taken from ASI data.

The Public Sector‟s contribution to GFCF in agriculture machinery is negligible.

Therefore, to work out GFCF for agriculture due to Public Sector, the GFCF of only the

Fertiliser and Pesticide industries are included. The values at 1993-94 prices are

obtained by using WPI for Industrial Machinery.

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Electricity, Gas and Water Supply: The proportion of electricity consumed in

agriculture to the total output in value terms as available from the Input Output

Transaction Table -1993-94 of CSO is 8.55 percent which is used to apportion

capital formation in this sector into agriculture.

Construction: Capital formation in this sector consists of those goods used in

construction activity. Construction for agriculture includes construction of irrigation

facilities, farm houses etc. and construction for developing infrastructure such as

rural roads, rural electrification, godowns, agricultural markets etc. The quantum of

capital formation meant for use in all the above activities is not available in the

existing data sources. Therefore, the ratio of value of construction in agriculture to

the total value of construction in the year 1993-94 as available from the National

Accounts Statistics is used for apportioning construction GFCF into GFCF for

agriculture. The above ratio turns out to be 8.8 percent.

Trade: The Enterprise Survey -1996-97 of NSSO gives the fixed capital formation

in the rural and urban trade in respect of major States. The proportion of rural capital

formation to the total capital formation according to the survey is 24.5 percent which

is used to apportion GFCF in Trade Sector into GFCF for agriculture.

Railways: The ratio of revenue from foodgrain transport to the total revenue earned

by the Railways in the years from 1993-94 to 1999-00 works out to be 6.6 percent

which is used to apportion GFCF in Railways to GFCF for agriculture. Though

there are other agricultural commodities transported by the Railways, the major

contribution to the revenue is from foodgrain transport. Therefore, in the absence of

detailed information, only the revenue due to foodgrain transport alone is taken for

apportionment of GFCF.

Transport by other Means: The transport equipments owned by the Agriculture

Sector is already accounted for in the sector in NAS. Other transports such as

airways, shipping etc. are not meant for agriculture. Therefore, contribution to

agriculture GFCF from this sector is assumed to be very negligible and hence no

apportionment of GFCF of this sector is made for inclusion in GFCF for agriculture.

At present no firm data is available on transport of agricultural commodities through

roadways, and hence it is not included in the estimate of GFCF for agriculture.

Storage: The Enterprise Survey-1992-93 of National sample sources organisation

gives the value of assets including godowns, room cooling equipments etc. owned by

unorganized sector enterprises in the rural and urban areas. The rural component of

the assets constitutes 69.3 percent of the total assets. This ratio is taken for

apportioning GFCF in Storage Sector into GFCF for agriculture.

Communication: Rural communication for agriculture is mainly by means of

telephone. The ratio of revenue from rural telephones to the total revenue from

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communication for the year 2001-02, as per the data obtained from Bharat Sanchar

Nigam Limited, is 9.1 percent which is used for apportioning GFCF in

Communication Sector into agriculture.

Banking and Insurance: The value addition in this sector is by indirectly measuring

the value of financial services. The measure known as Financial Intermediary

Services Indirectly Measured (FISIM) gives the value addition. FISIM is account of

services rendered to different sectors. The contribution of agriculture to the total

FISIM for the year 1993-94 is 5.25 percent which is taken for apportioning this

sector‟s GFCF into agriculture.

Real estate and Ownership of Dwellings: This sector has no contribution to

agricultural production and hence no apportionment of GFCF of the sector is made

for agriculture.

Public Administration and Defence: Economic and purpose classification of

expenditure incurred by the Administrative Departments compiled from budget

documents are published in National accounts statistics. The amount classified as

Agriculture GFCF at current prices in the above classification is taken as such for

inclusion in GFCF for agriculture. The GFCF at 1993-94 prices is obtained by using

the ratio between GFCF of Public Sector in agriculture at current and 1993-94

prices.

In the above procedure, in each if the sectors, the same ratio is used to get GFCF

contribution to agriculture at both current and 1993-94 prices; excepting the

Manufacturing and Public Administration wherein the special procedures for estimating

the GFCF contribution to agriculture are fully described under the respective captions.

The above proportions are put together in the following table.

Table 1

Sector-wise Proportions of GFCF meant for agriculture

Sector

Proportion of

GFCF for

agriculture

Agriculture etc. 1.0000

Agri. Machinery 1.0000

Fertiliser & Pesticide 0.9616

Elect. gas & water supply 0.0855

Construction 0.0880

Trade 0.2450

Railways 0.0660

Storage 0.6930

Communication 0.0910

Banking & insurance 0.0525

Source: Ministry of Agriculture and Co-operation

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19.5 Capital Formation by including Additional Items not in system of National

accounts basket

In the regrouping of CSO estimates of capital formation, the expenditures on

research and development, training, extension services and agricultural education are not

included. Further, expenditures on conservation of forests and environment also qualify

for inclusion as capital formation in agriculture. By adding these expenditures we get a

third set of agricultural capital formation which goes beyond the confines of SNA.

Though these cannot be easily quantified, efforts should be made to know expenditures

on agricultural research in scientific institutions to compile capital formation for

agriculture in the broadest sense.

19.6 Broad trends in Capital Formation

Currently (2001-02) cross fixed capital formation in agriculture at 1993-94 prices,

amount to Rs.19880 crore and GFCF for agriculture turns out to be Rs.28830 crore. The

share of „GFCF in agriculture‟ in „GFCF for agriculture‟ has declined over the years,

from 79 percent in 1980-81 to 69 percent in 2001-02. The broad trends in both GFCF in

agriculture and for agriculture are similar during the period 1980-81 to 2001-02. As per

cent to GDP, GFCF in agriculture has declined from 3.4 percent in 1980-81 to 1.6

percent in 2001-02. The corresponding share of GFCF for agriculture has also halved

during this period. The deceleration has been more pronounced in the 1980‟s as

compared to the 1990‟s. These are seen from Table 2 below:

Table 2

Gross Fixed Capital Formation in and for Agriculture at 1993-94 Prices

(Rs.Crore)

GFCF Percent Share in GDP of GFCF

Year GDP

in

Agriculture

For

Agriculture in Agriculture for Agriculture

1980-81 401128 13721 17279 3.4 4.3

1985-86 513990 13061 17656 2.5 3.4

1990-91 692871 15805 21560 2.3 3.1

1995-96 899563 16824 25283 1.9 2.8

2000-01 1198685 18364 27946 1.5 2.3

2001-02 1265429 19880 28830 1.6 2.3

Source: Ministry of Agriculture and Co-operation

The share of GFCF in Public Sector in agriculture has also declined in relation to

GDP. The same is true of Public Sector GFCF for agriculture. There has been,

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therefore, a long term deceleration in the share of capital formation in agriculture in GDP

at both aggregate and Public Sector level. In fact the shares of GFCF in agriculture and

for agriculture in GDP have declined much more sharply in the Public Sector, as would

be evident from the two tables.

Table- 3

Gross Fixed Capital Formation in and for Agriculture at 1993-94 Prices (Public Sector)

(Rs. crore)

GFCF Percent Share in GDP of

GFCF

Year GDP in

Agriculture

for

Agriculture

in

Agriculture

for

Agriculture

1980-81 401128 7358 9855 1.8 2.5

1985-86 513990 6005 9224 1.2 1.8

1990-91 692871 4871 8706 0.7 1.3

1995-96 899563 5318 9631 0.6 1.1

1999-00 1148442 4637 9902 0.4 0.9

Source: Ministry of Agriculture and Co-operation

Gross fixed capital formation in agriculture now accounts for less than 10 percent

of total GFCF. The ratio seems to have declined very sharply during the 1980‟s. In the

last few years there has been some improvement in the share of agriculture in total

GFCF, however, in spite of this it is still well below what it was in the early 1980‟s. The

same is true of GFCF for agriculture. Currently, GFCF for agriculture at 1993-94 prices

account for about 12 percent of aggregate capital formation. As against this, the share of

agriculture in GDP is currently about 24 percent clearly there is a strong case to increase

the share of agriculture in total capital formation in the economy. Even in the case of

Public Sector, the share of agriculture in total Public Sector capital formation has

declined over the years.

As agriculture is getting diversified, there is a need to not only augment but also

re-structure the pattern of investment in agriculture. Historically, the Public Sector has

taken the lead in directing the growth and pattern of agriculture investment. We

recommend that immediate steps should be taken to improve capital formation for

agriculture in both Public and Private Sectors. Otherwise, it may be difficult to sustain

the agriculture growth and rural purchasing power. Currently, irrigation accounts for the

bulk of public investment in agriculture (above 90 percent). The new strategy of

agriculture growth and diversification of agriculture from traditional crop cultivation to

horticulture etc. would require more investments on cold storage, rural roads,

communication, marketing network and facilities, warehouses etc. Simultaneously

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efforts should be made to revitalize agriculture through introduction of bio-technology

and other innovations. This would require substantial increase in investment on research

development for agriculture.

19.7 Recommendations of Central Statistical Organization

The coverage of items and the procedure for compilation of capital formation in

agriculture as followed by the Central Statistical Organisation is constrained by

the United Nations System of National Accounts (SNA). In the National

Accounts Statistics compiled by CSO, capital formation in agriculture as reported

in the industry-wise estimates of capital formation does not represent total capital

formation augmenting capacity of agriculture. Nor the institutional classification

as recommended by SNA-1993 would capture the total picture of agricultural

capital formation properly. Therefore, it is necessary to consolidate capital

formation for agriculture under different headings in National Accounts into a

single entity called capital formation for agriculture.

Training, education and research are the basic activities that help to enrich the

human capital and lead to break-through in increasing productivity in agriculture.

Given the limitations on expansion of area under cultivation, agriculture for its

growth primarily depends on techniques for optimal use of resources and

scientific innovations. Therefore, expenditures on agricultural education, research

and training generate intangible assets that help to increase productivity. For

reasons of inconsistency that it may create in the system and difficulties in

quantification, these activities are not taken as capital formation activities in

SNA. Though it is desirable to broaden the concept of capital formation, it is not

feasible to incorporate this in the present system of national accounts. However,

a separate estimate of expenditure on research development for agriculture may

be made to keep track of development of agriculture.

There are no direct data available on annual basis for compilation of capital

formation in agriculture in the household sector. The All India Debt and

Investment Survey (AIDIS) conducted by the National Sample Survey

Organisation once in ten years is the basis for estimating household sector capital

formation. Capital formation in the post survey period is estimated by

extrapolating the base year results by using various indicators. These indicators

should be updated through periodic samples. Further, AIDIS is a household

survey. The activities such as watershed management undertaken by the non-

profit institutions are not likely to be covered in the survey. CSO may ensure that

capital formation due to such activities as are not captured in AIDIS, are also

covered in the private agricultural capital formation.

237

Livestock Census conducted once in five years is the source of data for estimating

capital formation due to increment in livestock. However, the census is not

conducted in the same year in all the States. In the absence of annual data, the

census figures are extrapolated by using the earlier inter-census growth rates,

which may not be representative due to variations in agriculture in the post-

census years. The extrapolation should be done by normalizing growth rates

though smoothening of yearly variations in agricultural situation. The Livestock

Census results need to be released within a reasonable time period and procedures

for providing realistic estimates of different livestock population for the post-

census years be explored by the Department of Animal Husbandry, for use by

CSO in their estimates.

At present Public Sector investment in agriculture mainly consists of investment

in irrigation projects. Expenditures on soil and water conservation etc. are

included as capital formation under Public Administration. The source of data for

these estimates are the Central and State government budgets. The entire

National Accounts Statistics on Public Sector compiled by CSO is based on the

budget documents. It is a time consuming work to analyse all central and State

budgets to prepare the accounts. The Department of Economic Affairs in the

Ministry of Finance analyse the central budget to bring out the publication,

“Economic and Functional Classification of the Central Government Budget”.

“Indian Public Finance” compiled by them gives the details based on the account

heads as available in the budget documents. The Reserve Bank of India does

similar exercise to release the publication, “State Finances – A Study of

Budgets”. There is a necessity for these agencies to coordinate with one another

to reconcile the alternative estimates for the mutual benefit of these agencies as

well as for enhancing the utility of the compiled statistics.

As agriculture is getting diversified, there is a need to not only augment but also

re-structure the pattern of investment in agriculture. Historically, the Public

Sector has taken the lead in directing the growth and pattern of agriculture

investment. We recommend that immediate steps should be taken to improve

capital formation for agriculture in both Public and Private Sectors. Otherwise, it

may be difficult to sustain the agriculture growth and rural purchasing power.

Currently, irrigation accounts for the bulk of public investment in agriculture

(above 90 percent). The new strategy of agriculture growth and diversification of

agriculture from traditional crop cultivation to horticulture etc. would require

more investments on cold storage, rural roads, communication, marketing

network and facilities, warehouses etc. Simultaneously efforts should be made to

revitalize agriculture through introduction of bio-technology and other

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innovations. This would require substantial increase in investment on research &

development for agriculture.

There is a need to get the actual consumption of electricity in agricultural

activities. The present estimates of electricity consumption in agriculture is

obtained as residual after deducting the industrial and urban consumption from

the total consumption. The residual represents both the domestic consumption of

rural households and electricity consumed in agricultural activities, as well as

transmission losses and thefts and pilferage.

Data on each component of capital formation provides a separate picture of the

status of capital formation. Data on construction of rural godowns , rural roads,

provision of rural electricity and establishment of agricultural markets facilities,

acquisition of assets such as tractors, tillers, threshers, pump sets etc. may be

available directly or indirectly from different sources. These data may be

collected and compiled and brought out in the form of regular publication.

Similarly, data on details of institutional loans released to the farmers for

acquisition of capital assets may be published regularly. In such a publication,

subsidies in agriculture may be juxtaposed with investment by government to

know the total resource allocation by the government for agriculture.

The System of Economic Accounts for Food and Agriculture (SEAFA) designed

by FAO may be attempted for implementation in the Ministry of Agriculture.

Agriculture Census, Input Survey, Livestock Census, Integrated Sample surveys

and Land and Livestock Holding Survey by NSSO are some of the sources for

gathering the relevant details for SEAFA. The gaps in the data may be filled up

by collecting additional information through these Census and Surveys.

A coordination committee in the Ministry of Agriculture for agricultural statistics

may be formed on a permanent basis with the Economic and Statistical Adviser

as the chairman and concerned senior officers from Department of Animal

Husbandry, Agriculture Census Division, Horticulture Division, Directorate of

Marketing and Inspection etc. as members to resolve all issues in the matter of

collection and exchange of comprehensive and consistent statistics as well as to

improve and maintain the statistical base on agriculture keeping the

requirements of the Ministry of Agriculture as well as the national statistical

system in view.

A Division is to be created in the Directorate of Economics and Statistics in the

Ministry of Agriculture which would be managed by suitably trained personnel as

well as equipped with modern facilities of Information Technology, for

compilation of capital formation for agriculture, implementation of SEAFA and

for bringing out a regular publication on capital formation for agriculture.

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At present only a few states compile capital formation estimates at the state level.

As a result it is not possible to compute capital formation for agriculture for all

states. However, those states that publish data on capital formation regularly may

be encouraged to compute capital formation for agriculture by using an

appropriate methodology, similar to the one worked out at the national level.

Important Questions

1. Explain the term capital formation

2. Explain the major factors instituting capital formation in agriculture

3. Explain the trends of capital formation in Indian agriculture

4. What are the recommendations of central statistical organization on capital

formation in agriculture

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LESSON- 20

REGULATED MARKET

20.0 Objectives

To study the major functions of regulated market in India

To study progress of regulated markets in India

To study the grading and standardization of agricultural products in India

To study the cooperative marketing in India

Contents

20.0 Objectives

20.1 Introduction

20.2 Regulated Markets

20.3 Progress

20.4 Use of Standard Weights and Grading

20.5 Provision of Finance

20.6 Consumer Protection

20.7 Improvement in Means of Transport

20.8 Market Information

20.9 Marketing Inspection, Research and Training

20.10 Grading and Standardization

20.11 NAFED

20.12 Commodity Boards

20.13 Small Farmers Agri-Business Consortium (SFAC)

20.14 Co-operative Marketing

20.15 Objectives of Co-operative Marketing

20.1 Introduction

It is a recognized fact that improvement in the marketing system of agricultural

produce will definitely secure better position of the cultivator. Therefore, after

independence, various steps have been taken by the government to improve the

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conditions of agricultural marketing. Some of these steps have been summarized here as

under.

20.2 Regulated Markets

Regulated markets have been organized with a view to protect the farmers from the

malpractices of sellers and brokers. These regulated markets check all unfair practices

prevalent in most of the cultivators. In most of the states, Act of Agricultural product

market has been passed. According to this act, there were nearly 1000 regulated markets

in 1951 which rose to over 6050 agricultural markets by the end of March, 1988. The

management of such markets is done by a market committee. Brokers and farmers. Thus,

all interests are represented by the committee. These committees are appointed by the

government for a specified period. This committee performs various functions. The

important functions of this committee are highlighted below:

Fixation of charges for weighting and brokerage etc.

Enforcing the sue of standardized weights

Prevention of unauthorized deductions, underhand dealings and wrong practices

by Arthatiyas.

Providing up-to-date market information to the farmers.

Settlement of disputes.

Presently these regulated markets information are considered very useful for the

elimination of fraudulent practices adopted by different brokers, commission agents and

also for standardizing market prices of agricultural produce. These markets are ensuring

fair prices for the agricultural produce to the farmers and adopting standard weights and

measures. Considering its achievements, the Government has finalized its policy to

convert all markets of the country within the fold of regulated markets.

Regulated markets are formed with a certain objective for the development of a

rational marketing structure in the country: (i) ensure remunerative price of the

agricultural produce to the farmers, (ii) narrow down the price differentials between the

producer and the consumer, and (iii) control the non-functional margins of the traders

and commission agents. In order to fulfill these goals, the government has been

extending the net-work of the regulated marketing system by setting up more and more

regulated markets in different parts of the country. These regulated markets have been

generating a good amount of income for the marketing committees which are mostly

raised for the development of rural infra-structure. In the states like Punjab and Haryana,

this regulated marketing system has become very much successful in major producing

areas as well as to link up the distant satellite markets in the rural areas. In short,

regulated markets remove most of the defects of unregulated marketing system. In these

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markets, licences are issued to the brokers to carry on their operations. Therefore, if they

adopt any unfair practice, their licence can be cancelled. Thus, these intermediaries are

not able to indulge in malpractices. As a result, farmers are expected to get fair prices for

their produce.

20.3 Progress

The regulation of markets and markets and market practices is done under the

Agricultural produce markets Act. The directorate of marketing and inspection renders

the necessary guidance and assistance to states in framing market legislation. Almost all

the states have passed legislation for market regulation. At the beginning of the eighth

Plan, 6,217 out of total 6,632 wholesale assembling markets had been regulated. Since

April 1980 an integrated scheme for development of agricultural markets is in operation.

Accordingly, agricultural markets handling agricultural and allied produce are entitled to

get central assistance. Therefore, the regulated markets are playing in important role in

establishing a rational marketing structure for the agricultural and allied produce of the

country both in the semi-urban and rural areas. Again during the seventh plan,

importance was laid on making provision of adequate and more modern storage and

warehousing facilities. To promote cold storage under the co-operative sector for

ensuring improved year-round supply of agricultural produce, the National Co-operative

Development corporation (NCDC) has provided Rs. 74.9 crore for installation of 247

cold storages with an installed capacity of 7.33 lakh tones till the end of March, 1998.

The Eighth Plan is more attentive to the need for regulated markets. It notes that

regulated markets can be used as an instrument of regeneration of the whole “rural

infrastructure”, with a view to achieve this objective, the plan provides for the following

programmes: (i) a comprehensive and rapid expansion of the regulated marketing system

having organic links with primary market, (ii) the establishment of linkage with major

consuming centres, (iii) the inclusion of facilities for grading and for monitoring of

prices, (iv) utilizing regulated markets for the generation of resources by levying a

surcharge and associating panchayats in this task, and (v) the development of regulated

markets in command areas and terminal markets especially in areas where commercial

crops like cotton, jute, tobacco and important non-traditional crops are produced and sold

in weekly markets.

20.4 Use of Standard Weights and Grading

Another major defect of unregulated market was the use of arbitrary weights to

cheat the farmers by the brokers. In order to stop this practice, the government has passed

the standard weights act in 1939. The central Government adopted the metric system of

measures in 1958 when an act to this effect was passed by the parliament. Moreover, the

state governments have also appointed weight inspectors. They insist on uniformity of

weights. Shopkeepers are required to use weights bearing government stamps.

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The standard weights and measures act was brought into force in 1958. Under this

act, only the government weights and measures can be used for transactions. Further, the

metric system of weights was introduced in 1963 all over the country on the basis of the

recommendations made by the planning commission. Grading of agricultural produce is

done under the provisions of the agricultural produce (Grading and marketing) act, 1937,

for which purpose the insignia AGMARK is used. This in sigma is the hallmark of

quality. Compulsory grading is done before export is carried out in respect of 41

commodities. Voluntary grading is carried out in respect of 41 commodities. Voluntary

grading is carried out for internal trade and consumption. Amendments to this act to

made enabling provisions for compulsory grading, to make penal provisions more

stringent and to provide for redressal of consumer grievances has been proposed.

20.5 Provision of Finance

It is well said that the provision of adequate financing in the rural areas is very

broad issue. As is known that India agriculturist always remains under debt, thus,

availability of sufficient finance pulls him out of pressures of money lenders to sell the

produce at the cheaper rate. Therefore, a good number of public agencies should come

forward in the task of arranging adequate facilities of finance for the peasantry.

20.6 Consumer Protection

Producers and consumers are the two main elements in marketing process.

Therefore, it is necessary for the government to protect the interests of the producers and

consumers. Producers are sought to be protected through the regulation of market while

the consumers interests are safeguarded through grading under „Agmark‟ at the level of

traders. In fact, there is a need of an active consumer movement. To this effect,

consumer‟s guidance society was set up in 1966 with the objective of educating the

consumers about their rights and responsibilities. But still, it needs to be accelerated.

20.7 Improvement in Means of Transport

Cheap and easy means of transportation encourage the farmers to carry their

produce to markets and create confidence among the farmers and improve their

bargaining power. Therefore, transportation play an imperative role in making the market

system efficient and useful. Therefore, within an integrated road development

programme, rural village with a population of 1000 and more will be linked by roads. It

has rightly been said by the National commission on Agricultural that the link up and

associated road development is sine qua non for the success of market structure.

20.8 Market Information

The producers should have perfect knowledge of prevailing market prices so that

they may get benefits of efficient marketing system. All India Radio and Doordarshan

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arrange broadcasts prices of the different markets. Similarly, the Directorate of

Economics and Statistics is responsible for collection, compilation and dissemination of

market intelligence. This information provides healthy infrastructural for the proper

functioning of the markets. Market information relating to agricultural products is made

available to farmers through different media like radio, television, newspaper, etc. There

are daily market news bulletins, weekly data, monthly information and yearly digests

about such varied aspects of agricultural activities. For dissemination of information all

sorts of media, like display boards, radio, television, weekly, monthly and yearly

publication, conferences, etc are used. The information service is a part of the

infrastructure that is need for a healthy functioning of the market.

20.9 Marketing Inspection, Research and Training

There is a dire need to make adequate arrangements for marketing education,

research extension, market inspection and occasional surveys of market which will go a

long way to help in identifying problems and findings solutions for efficient marketing

system. The need to investigate marketing methods, changing demand cost and prices is

not less significant. The government has paid attention to these requirements. The

directorate of marketing and inspection undertakes inspection of major agricultural

products throughout the country. The directorate also undertakes research in various

marketing problems.

20.10 Grading and Standardization

It means preparation, shifting and sorting of materials according to certain

criteria. It provides confidence to the consumers the government has realized the need to

introduce the standardization of agricultural produce. The government passed the

agricultural produced act in 1937. Initially, the grading was introduced for sun hemp and

tobacco. According this act, grading stations have been set up for several commodities.

Graded gods bear the „Agmark‟ indicating that their quality conforms to certain

prescribed standards. It will induce farmers to grow quality products. The grade

standards prescribed under this act are based on both physical and chemical features and

formulated after analyzing representative samples of each commodity collected from

different board for securing an adequate return to the benefits of grading some of the

important benefits of grading agricultural produce are as follows.

Grading given incentive to producers for producing commodities of better

quality.

Grading eliminates waste that would otherwise occur.

Grading simplifies the marketing system by making it possible for buyers to

produce the goods that satisfy their particular requirements.

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Grading enables consumers to purchase products according to their purchasing

power.

Grading ensures that consumers are paying the right price according to quality.

Grading reduces the cost of financing and warehousing. When graded good are

brought for storing in a warehouse it becomes easy to determine their value.

Grading facilitates trading. In the absence of grading it could not be possible to

guarantee the delivery of goods of particular quality and grade at a future time.

Grading dispenses with the need for personal inspection of products by buyers. If

a graded product is well-established and recognized it can be internationally

traded.

State –trading in food grains was taken up initially by food department of the

central and state government. In January, 1965, the food corporation of India was set up

to undertake the purchase, storage, movement, transport, distribution and sale of

foodgrains. It was envisaged that the FCI would play an important and commanding role

in the marketing of foodgrains. Some of the functions such as the maintenance of

warehouses in the various states carried out by food department were also transferred to

it. Thus, state-trading in foodgrains is carried out partly by the food department and party

by the FCI.

20.11 NAFED

National Agricultural Cooperative Marketing Fedration (NAFED) is the central

nodal agency for undertaking price support support operations for pulses and oilseeds

and market intervention operation for horticultural items like malta, onion, potato,

grapes, black pepper, red chillies etc. its turnover was Rs. 718.77 crore during 1994-95

and the turnover target for 1997-98 is Rs. 810.00 crore. Some other organizations in the

co-operative sector are the national co-operative tobacco Growers‟ Federation Ltd., the

National Consumers co-operative federation and the tribal co-operative marketing

development federation of India ltd has been set up. They attend specifically to the

marketing problems of the tribal areas.

20.12 Commodity Boards

Besides, specialized commodity boards continue to operate for rubber, coffee, tea,

tobacco, spices, coconut, oil-seed and vegetable oils, horticulture etc. the National Dairy

Development Board is also engaged in the marketing of agricultural commodities.

Separate directorates have been functioning for the development of agro-raw materials

like sugarcane, jute, tobacco, oilseeds, rice, millets, cotton, pulses, cashewnuts, cocoa,

arcnut, spices etc. moreover, there are various organizations, active in he field of

agricultural commodity exports such as the state trading corporation, the casehwnuts

246

export promotion council, the shellac export promotion council and the agricultural and

processed food development authority, which works for promoting and boosting

agriculture exports.

20.13 Small Farmers Agri-Business Consortium (SFAC)

The small farmers‟ agri-business consortium (SAFC) came into existence during

lanuary.1994 as a society registered under the societies registration act, 1960. This

society was instituted in pursuance of the finance minister‟s budget speech announcing

independent entity funded by the RBI, NABARD and IDBI to initiate projects on the

principles of economic efficiency, environmental soundness and social equity. This

consortium has been formed to generate agri-business activities with the theme objective

of securing expanding employment opportunities and raising income levels in the rural

areas through effective support to various types of agri-business. In the mean time,

detailed project studies were arranged to be commissioned with United Nationals

Development Programme (UNDP) assistance, under the auspices of M.S. Swaminathan

Research Foundation for 12 identified district viz., Barpeta (Assam), Ernakulam (Kerala)

Jabalpur (Madhya Pradesh), Ganjam (Orissa), Pondichery, Bikaneer (Rajasthan),

Dhrampuri (Tamil Nadu), Pithorgarh (Uttar Pradesh), Midnapore (west Bengal). Pune

was also taken up as the 13th

district under the project. Studies have been completed and

the project reports are also prepared. Horticulture, wasteland Development, structure and

Aquaculture are some of the areas identified for development of agri-business activities.

SFAC will be catalytic, promotional and financial agency. It will lay stress on

establishing linkages between production, processing and marketing so that farmers can

derive the benefits of value addition. The project reports of all of these 13 identified

districts are ready, but the funding of the projects is yet to be arranged. The approach of

SFAC is that the projects should not be subsidy-driven but self-sustainable.

20.14 Co-operative Marketing

Co-operative marketing is based on the principle of co-operation and it helps the

farmers to get maximum returns for the farm product. The first co-operative marketing

society was set up in 1915. Its sole objective was of improving bargaining power of

cottage growers. In 1955, the state ministers conference on co-operating recommended

that marketing societies should be established. Since then, it has become an integral part

of the marketing of agricultural produce in our country. In the mean time, multipurpose

societies have also been started with the purpose of giving credit to the farmers and

marketing their surplus produce.

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20.15 Objectives of Co-operative Marketing

According to F.A.O. publications, the main objectives of co-operative marketing

are:

1. to help the farmers to produce best product according to its demand

2. to help its members to ensure better prices of their produce

3. to given fair weights;

4. to provide fair trading practices and to use its influence against rings and

manipulation of prices; and

5. to give a better understanding to the farmers in the marketing process.

The regulation for the sale and purchase of agricultural marketing had been taken

as an important task after the independence. Prior to the independence a few number

regulated markets were established. The productivity is increased significantly with the

optimum use of resources and adoption of technology which ultimately forced to develop

the infrastructure to cop up with the increased market surplus. Prior to 1939, there were

only 57 regulated markets, later on witht eh passage of time and also due to increased

surpluses, the number of regulated market increased to 1777 in 1974 and 7566 in the year

of 2006.

20.16 Conclusion

In the present era of liberalization, the agricultural marketing Laws must be

liberalized to create an opportunity for the alternative marketing channels for selling the

agricultural produce to the produces. Private companies, co-operatives or any legal entity

be allowed to establish and operate the agricultural marketing infrastructure and

supporting services as competitive measures with the markets established by APMCs.

Direct purchase of agricultural produce from the farmers‟ field by individuals as well as

companies, societies, co-operatives is encouraged to reduce the number of intermediaries

thereby providing opportunity in increasing the share of farmer in consumer rupee.

Producer or Consumer markets are established for the direct sale to the processors or

consumers. Contract farming is popularized for the assured sale at the predetermined

price before sowing. Specialized market yards for special commodities also be developed

to provide a commodity specific modern market infrastructure for the particular crops

grown in a particular area. Public-Private participation for establishment and

management of markets for agricultural produce to encourage the private investment and

professionalism in agricultural marketing including post harvest handling of agricultural

produce and encouraging value addition to share the burden and provide healthy

competition with APMC‟s. e-market, e-marketing, and e-trading for speedy and distance

transactions also be established. Market Stabalization fund be created at State level to

safeguard the interests of the producers in the wake of sudden and anticipated fall in the

248

prices of agricultural produce. Marketing extension cell be established for market driven

extension service to farmers to adopt the improved practices of marketing to fetch the

better price. Agricultural Produce Marketing Standards Bureau also be set up for grading,

standardization and quality certifications of all the agricultural produce. The producer be

helped and provided all technologies to produce hygienic and provided all better qualities

for export to other countries to fetch better prices. The States must initiate the steps for

farmers organizations to produce in collective manner for reduction in the production

costs by pooling the resources, assemble produce at one point to sell in bulk to the main

buyer on spot payment and also to use the free time for other earning activities created by

those farmer organizations. The other areas related to agriculture and horticulture as such

animal husbandry and products of live stocks, forestry, apiculture and sericulture also be

well equipped and provided a suitable platform to increase the farm income as a

subsidiary occupation.

Important Questions

1. What are the functions of regulated markets?

2. Explain consumer protection through regulated market in India

3. Explain grading and standardization of agricultural products

4. What are the benefits of grading of agricultural products?

5. Write short notes on National Agricultural Cooperative Marketing Fedration

(NAFED)

6. Explain about cooperative marketing in India

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LESSON-21

BUFFER STOCK

21.0 Objectives

To understand the concept buffer stock systems

To study the advantages and disadvantages of buffer stock

To probe into the operation of buffer stock

Contents

21.0 Objectives

21.1 Introduction

21.2 Storage and Stability - An Ancient Idea

21.3 Relation to Agricultural Commodity Price Stabilization

21.4 Buffer stock systems

21.5 Analysis diagram for a buffer stock scheme

21.6 Advantages of a successful buffer-stock scheme:

21.7 Problems with buffer stock schemes

21.8 Operation of Buffer Stocks and Food corporation of India

21.9 Encouraging Private Trade in Food grains

21.10 Reducing the Scope of Essential Commodities Act, 1955.

21.11 Decontrol of Sugar

21.12 The Path Ahead

21.13 Conclusion

21.1 Introduction

Buffer stock is the Inventory of inputs held as a reserve against short-term

shortages and/or to dampen excessive fluctuations in the prices of commodities and thus

protect local exporters from wild swings in world commodity prices. The team Buffer

Stocks" refer to the use of commodity storage for economic stabilization. Specifically,

commodities are bought and stored when there is a surplus in the economy and they are

sold from these stores when there are shortages in the economy. The institutional buying,

storing and selling of commodities by a large player (e.g. a government) can take place

for one commodity or a "basket of commodities". The stock of commodities stored act

250

as a buffer against price volatility. If a basket of commodities is stored, their price

stabilization can in turn stabilize the overall price level.

21.2 Storage and Stability - An Ancient Idea

The use of commodity buffer stocks against fluctuations, the idea of an "ever-

normal granary", is an ancient idea. For instance, the Bible (Genesis 41-47) informs us

that the Egyptians operated an "ever-normal granary", storing food during the seven

years of plenty and then releasing these during the seven years of famine. Classical

China also operated commodity buffer stocks - particular under the consolidation during

the Sui dynasty in the 7th Century. There is also much evidence that many other

civilizations throughout the world have operated commodity buffer stock schemes for

economic stability.

21.3 Relation to Agricultural Commodity Price Stabilization

More recently, commodity buffer stocks have been used to stabilize agricultural

prices both within the United States and other developed countries as well as in many

developing countries and even across countries via international agreements.

Governments or marketing boards, for instance, store or encourage the storing of

commodities in the aftermath of bumper years and then release these stores during poor

harvests. In this way, the prices of agricultural commodities can be stabilized and

farmers can plan their activities with more confidence.

21.4 Buffer Stock Systems

The prices of agricultural products such as wheat, cotton, cocoa, tea and coffee

tend to fluctuate more than prices of manufactured products and services. This is largely

due to the volatility in the market supply of agricultural products coupled with the fact

that demand and supply are price inelastic. One way to smooth out the fluctuations in

prices is to operate price support schemes through the use of buffer stocks. But many of

them have had a chequered history. Buffer stock schemes seek to stabilize the market

price of agricultural products by buying up supplies of the product when harvests are

plentiful and selling stocks of the product onto the market when supplies are low.

21.5 A Diagrammatic explanation Buffer Stock Scheme

The diagram below illustrates the operation of a buffer stock scheme

The government offers a guaranteed minimum price (P min) to farmers of wheat

The price floor is set above the normal free market equilibrium price

Notice that the price elasticity of supply for wheat in the short term is low

because of the length of time it takes for producers to supply new quantities of

251

wheat to the market. (Indeed in the momentary period, we would draw the supply

curve as vertical indicating a fixed supply).

If the government is to maintain the guaranteed price at P min, then it must buy

up the excess supply (Q3-Q1) and put these purchases into intervention storage Should

there be a large rise in supply due to better than expected yields at harvest time, the

market supply will shift out – putting downward pressure on the free market equilibrium

price. In this situation, the intervention agency will have to intervene in the market and

buy up the surplus stock to prevent the price from falling. It is easy to see how if the

market supply rises faster than demand then the amount of wheat bought into storage will

grow.

21.6 Advantages of a Successful Buffer-stock Scheme

Stable prices help maintain farmers‟ incomes and improve the incentive to grow

legal crops

Stability enables capital investment in agriculture needed to lift agricultural

productivity

Farming has positive externalities it helps to sustain rural communities

Stable prices prevent excess prices for consumers – helping consumer welfare

21.7 Problems with Buffer Stock Schemes

In theory buffer stock schemes should be profit making, since they buy up stocks

of the product when the price is low and sell them onto the market when the price is high.

However, they do not often work well in practice. Clearly, perishable items cannot be

stored for long periods of time and can therefore be immediately ruled out of buffer stock

schemes. Other problems are:

Cost of buying excess supply can cause a buffer stock scheme to run out of cash

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A guaranteed minimum price might cause over-production and rising surpluses

which has economic and environmental costs

Setting up a buffer stock scheme also requires a significant amount of start up

capital, since money is needed to buy up the product when prices are low. There

are also high administrative and storage costs to be considered.

The success of a buffer stock scheme however ultimately depends on the ability

of those managing a scheme to correctly estimate the average price of the product over a

period of time. This estimate is the scheme‟s target price and obviously determines the

maximum and minimum price boundaries. But if the target price is significantly above

the correct average price then the organization will find itself buying more produce than

it is selling and it will eventually run out of money. The price of the product will then

crash as the excess stocks built up by the organization are dumped onto the market.

Conversely if the target price is too low then the organization will often find the price

rising above the boundary, it will end up selling more than it is buying and will

eventually run out of stocks

21.8 Operation of Buffer Stocks and Food Corporation of India

The high level of market prices of wheat now prevailing in India are due to

primarily the rise in the procurement prices over the past three years or so and taxes and

charges on cereals imposed by state governments. The difference between the economic

cost of Food Corporation of India (FCI) and the market price also contributes to the

higher price. The previously referenced Indian Statistical Institute study showed that up

to 16 percent of the subsidy provided in one state could be due to the inefficiency of the

FCI. Whatever may be the criticism against FCI, it has to be admitted that the

corporation plays an important role in the food economy of India. The contribution of

FCI would be enhanced if there was greater competition in food trade from other public,

co-operative and private organisations. While provision of food subsidy is an important

element of the food security system in India, an equally important role is played by food

procurement and buffer stock operations. Since agricultural production is subject to

fluctuations due to climatic factors, it is necessary to maintain an adequate level of buffer

stock to bring about stability in food grain prices in the country.

A study conducted by Dr Kirit Parikh has concluded that a buffer stock of around

10 million tonnes can be considered to be adequate from the national food security angle.

The Expenditure Reforms Commission has also endorsed this recommendation according

to which a food security buffer stock of 10 million tonnes 4 million tonnes of wheat and

6 million tones of rice- would be adequate. The present levels of buffer stocks in the

country are far in excess of requirements and create more economic instability than

stability. The FCI can maintain a minimum level of buffer stock and then undertake open

market operations within a prescribed price band. It can conduct open market operations

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by releasing stocks in the open market when shortages are prevalent and prices are high.

The FCI can also purchase food grains from the open market when there is excess supply

and prices are depressed. However its objective should not be to procure all that is

offered by the farmers but only to maintain an optimum level of buffer stock. The FCI

can therefore be instructed to limit its role in the future to more manageable and optimum

levels, recognising the fact that a high level of buffer stock of food grains can itself be a

factor contributing to inflation.

Presently, the level of food credit is more than Rs. 40,000 crore and large food

credit will have significant macro economic implications. The impact of food credit on

money supply is also not insignificant. The FCI could also play a role in the international

market for food grains by resorting to imports when stock levels are low and exporting

food grains when there is surplus stocks. The private sector and the farmers must also be

allowed a role in the export of food grains, by removing quantitative restriction on the

export of wheat and rice. The lifting of QRs on import of wheat and rice has already been

accompanied by high import duties that are well above the general peak rate of duty of

35 percent. These duties can be brought down in line with the reduction in peak rates.

The FCI will continue to have a vital role in the maintenance of the food buffer stock to

take care of fluctuations in year to year production of food grains. Its monopoly of food

procurement must be ended by allowing State procurement agencies to operate in all

parts of the country (i.e. even in other states). The restriction on private food grain trade

must be lifted and the bias against them removed so that competitive forces can have

freer play in reducing intermediation costs. In particular the constraints and restrictions

on entry of modern food procurement, transport, processing and distribution companies

must be removed so that the benefits of modern management practices like silo storage,

logistics and large scale processing can flourish. This will benefit both farmers and

consumers. It has also to be noted that when procurement prices for food grains are fixed

these should not be pegged at such a high level which can lead to accumulation of

surplus stocks in FCI god owns much in excess of prescribed buffer stock norms. In this

connection there is a need to strictly adhere to the recommendations of the Commission

for Agricultural Costs and Prices and not resorting to fixation of procurement prices

much in excess of the estimated costs of production. The main objective of our food

procurement policy should be stabilization of food prices rather than provision of

subsidies to producers. Even today when food subsidies are provided to the BPL

population only a limited proportion of the food requirements of the BPL population is

met by the PDS. For the rest of their requirements even the BPL families have to depend

on the private traders. Thus the objective of stabilization of food grain prices becomes

important. This objective has to be achieved by appropriate buffer stocking operations

and market interventions by the FCI.

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New initiatives have been taken in India in the field of decentralized procurement

of food grains. Several state governments have for instance initiated their own food

procurement operations. More such initiatives are likely in the future. Under such a

situation it is conceivable that some of the FCI god owns (with staff) are transferred to

the state governments. In this context the task of maintaining buffer stocks could even

become the joint responsibility of the central and state governments. The government

should make efforts to evolve a standardized grain grading system which would benefit

farmers, traders and consumers by lowering transaction costs, providing growers with

rewards for delivering quality output and incentives to use quality enhancing

technologies and practices and facilitate integration of domestic markets with world

markets. FCI should transfer more and more of its marketing functions under concession

arrangements and management contracts to the private sector and encourage it to invest

in more modern grain handling systems.

21.9 Encouraging Private Trade in Foodgrains

In India with its wide network of FCI godowns and PDS outlets, a great deal of

the distribution of food grains was handled by the public sector. The role of the private

sector in this regard has been limited. In the future, there is a need to strengthen the role

of private trade in the matter of storage and distribution of food grains. Various

restrictions that continue to inhibit private initiatives in this regard need to be removed.

Only then private trade will have the incentive to make huge investment in grain

handling operations. Tax concessions could also be extended to the private sector to

promote such investments. In the operation of PDS, while it is the ultimate objective to

restrict supply of subsidised food grains to only the population below the poverty line,

the better off sections of society will be expected to meet their entire requirements by

purchases from the open market. Thus as the principle of targeting is more strictly

applied in the case of PDS, there is all the more reason to promote private trade in food

grains supported by more sophisticated grain handling techniques.

While the National Policy on Handling, Storage and Transportation of Foodgrains

is timely, its success is largely dependent upon highly regulated and controlled sectors of

the economy. Unless the control regime governing storage and movement of food grains

and other essential commodities is suitably relaxed, the degree of success would be

limited. State governments have imposed many restrictions on the movement and storage

of food grains. Even when the country has achieved food self-sufficiency, many of these

controls which have outlived their utility are still continuing. There is need to withdraw

them urgently, keeping in view the emerging economic environment. Legislative and

administrative measures for removing impediments on storage and movement of food

grains as proposed need to be accorded topmost priority. Another set of controls emanate

from the provisions of Essential Commodities Act. Most of the provisions in this Act

have become irrelevant in the context of having achieved self sufficiency in production.

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They hamper the market from performing its productive and commercial role. A large

number of permits and licences are required to be obtained from the authorities under the

Essential Commodities Act and periodically returns have to be submitted and inspections

carried out, which add to transaction costs. Some notifications under the same Act

restrict movement of goods from the surplus states to deficit states. These controls and

restrictions, which include the ever present threat of arrest, act as disincentives to

production and distribution of essential commodities by organised companies that can

exploit economies of scale and modernise the entire food sector. Besides, there is urgent

need to upgrade market infrastructure, cold storage facilities, mandi facilities and roads

for which the private sector should be encouraged to make productive investment. The

government has adopted various measures to improve agricultural marketing. These steps

include establishing regulated markets, constructing warehouses, grading and

standardising produce, standardizing weights and measures, and providing information

on agricultural prices.

The basic object of the existing marketing structure has been to ensure reasonable

gain to the farmers by creating environment in the markets for fair play of market

practices and other transport measures. The Central Government advised all the State

Governments to enact marketing legislation to provide competitive and transparent

transactional methods to protect interests of the farmers. Barring a few, most of the States

and Union Territories embarked upon a massive programme of regulation of markets

after enacting the legislation. As on 31.3.2000, out of 7262 wholesale markets, 7169 have

been covered under regulation. The country also has nearly 28000 rural periodical

markets, 15 percent of which function under the ambit of regulation. The advent of

regulated markets has helped in mitigating the market handicaps of producers and sellers

at the wholesale assembling level.

The institution of regulated markets, set up to strengthen and develop agricultural

marketing in the country met, however, with a limited success. It is only the Government

which initiates the process of setting up of a market for different commodities, which are

regulated and for certain areas, in which the regulation is enforced. Private sector on its

own cannot take any initiative in assessing the viability and feasibility for setting up of

markets equipped with requisite facilities at competitive costs and in any place other than

the notified market area. Whenever there is a principal market in the city, the sub-market

of the collection centres are not permitted. There is no scope under the existing law for

direct marketing by the farmers for procurement. Functionaries of the marketing system,

namely, commission agents, traders, processors, weigh man, surveyors, brokers have to

obtain licence to function in the market area. The rules and bye-laws stipulate lengthy

procedures and documentation for licensing.

With a view to strengthen agricultural marketing in the country, an Expert

Committee set up by the Ministry of Agriculture, has suggested several measures

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including a review of the existing legal framework governing the institutions of regulated

markets and to remove all such restrictive provision which inhibit growth of a

competitive marketing structure in the country. An Inter-Ministerial Task Force is

examining these recommendations for implementation. The recommendations made by

the Expert Committee include the following:

The Committee has suggested promotion of direct marketing as one of the

alternative marketing structures that will sustain incentives for quality and

enhanced productivity, reduce distribution losses and improve farmer incomes

with improved technology support and methods. Accordingly the market will

operate outside the purview of the Agricultural Produce Marketing Act and will

be owned by professional agencies in private sector, wholesalers, trade

associations and other investors.

The Committee also recommends that more and more commodities be added to

the list covered under forward marketing.

The Committee is of the view that items like wine and beer which are based on

fruits and vegetables and have low alcohol content should be considered as items

of food and should be promoted as health drinks.

Considering the limited reach of public extension services, it has suggested

privatization of extension services with appropriate financial backup from the

public sector.

21.10 Reducing the Scope of Essential Commodities Act, 1955.

In March 1993, Central Government decided to treat the entire country as a single

food zone for inter-state and intra-state movement of food grains and advised the States

and UTs to take action accordingly. Restrictions exist even with regard to movement of

paddy across the district boundaries. There is an impression that the restrictions have

continued even without adequate justifications because it hits the interests of certain class

of renters who have had a parasitic existence on the restrictions imposed decades earlier.

Reports suggest that besides the statutory restrictions, some states also impose informal

restrictions on movement of foodgrains outside the state during particular periods of the

year. Groundnuts, onions, cotton etc. have routinely been subjected to restrictive regime

of movements. Some of the restrictions imposed by the States are in the form of written

instructions while others are in the form of oral orders or word of mouth instructions. The

other restrictive practices under the Essential Commodities Act include prescribing the

stock limits on storage of essential commodities, licensing requirements for godowns of

essential commodities and for putting up the processing units of agricultural products etc.

These restrictions are hampering the growth of free trade in the country and are

against the interest of the producers as well as consumers. For example, it is felt that if

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restrictive regime on sugar is removed, economies of scale in the production of sugar can

be exploited more fully to the ultimate benefit of both farmers and consumers. It will

slowly lead

to a regime of stability in the sugarcane/sugar production. By not doing so, one of the

commodities in which India holds tremendous advantage is not being exploited. In an age

where WTO has forced the national boundaries to be thrown open, the restrictions on the

inter-state or intrastate movement of agricultural products are paradoxical.

Since the restrictions on movement are sometimes even by the word of mouth, the

documentation of the restrictions imposed by the State would be very difficult. The State

would also not easily share the written restrictions imposed by them. The oral restrictions

imposed would not be shared by the State authorities in any case as most of the time they

are not legal. The only help in this regard could come from the traders associations or the

Vyapar Mandals who are the actual sufferers of this sort of restrictive and sometimes

illegal regimes. They not only face the difficulty in regard to their trade, they have also to

shell out illegal gratifications to get round these restrictions. Unless attempts are made to

prepare the public opinion against such restrictive practices, it would be very difficult to

get the States to agree to dismantle the restrictive regimes.

21.11 Decontrol of Sugar

Sugar industry had been subjected to compulsory licensing for establishing new

capacity and expanding the existing capacity. With the continuity of industrial reforms as

envisaged in the Ninth Plan, the sugar industry has been de-licensed in September, 1998.

However, the policy of partial control and dual pricing for sugar is still in operation.

Fifteen per cent of the sugar production is lifted as levy by the Government of India. The

balance 85 per cent is sold by the sugar mills at market price under a regulated system.

The present system of partial control leads to higher market price for free sale sugar as

the mills have to make room for loss incurred supplying 15 per cent of production in levy

at below cost. Sugar is a commodity where the subsidy burden resulting from low-cost

levy sugar is borne by the industry rather than the government.

The main advantage of the system of partial control is that it makes available

certain quantity of sugar to consumers at lower price through PDS. However, it is well

recognised that there are leakages from PDS into open market where prices are higher.

The Standing Committee on Food, Civil Supplies and Public Distribution (1995-96 10th

Lok Sabha) in its 15th

report on sugar while recommending the continuation of the policy

of partial decontrol observed in para 29 in part-B of its report that “It has been brought to

the notice of the committee that the large-scale leakages of levy sugar into open market is

taking place, thus defeating the very purpose for which PDS has been commissioned”.

Even where sugar in PDS reaches the card holders, the financial benefit accruing is very

small. For an average family of five members, the allocation, even if there were no

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leakage, would be about 2 kgs. per month which would mean financial benefit of about

Rs.6/- to Rs.8/- per month depending on the quantum of sugar supplied through PDS.

A High Powered Committee (HPC) under the chairmanship of Shri B.B. Mahajan

was set up by the Food Ministry on March 14, 1997 in pursuance of a directive by the

Allahabad High Court in a writ petition challenging the power of the state government to

advise sugar mills on the cane price payable to cane growers. The committee had gone

into various details of sugar sector. After weighing the advantages and disadvantages, the

Mahajan Committee felt that the time has come for complete decontrol of sugar.

However, a sudden decision to decontrol may adversely affect the factories with

consequent hardships for the cane growers supplying cane to such mills and the workers

employed therein. The committee, therefore, recommended that the decontrol may be

phased over a period of two years.

A policy change of this nature should be effected only at the beginning of a sugar

season. It was suggested that from the beginning of the sugar season following the date

of announcement of the policy, the ratio of levy sugar may be reduced to 20 per cent

which may be continued at the same rate during the next sugar season and from the

beginning of the subsequent sugar season, the levy may be completely abolished. Sugar

is a superior food item and could be removed from PDS. Much of the demand for

inclusion of sugar as an item within the PDS arises from the desire to consume

subsidised sugar by the relatively well-to-do. There is little reason to agree to that. On

balance, it is worth considering discontinuation of supply of sugar through PDS

altogether. With effect from 1-2-2001 levy sugar supply under PDS has been restricted to

only the BPL families in all states and UTs except North Eastern States, hill States and

island territories where considering the logistics, nutritional requirement and availability

of free sale sugar at relatively higher prices, levy sugar is being supplied to all ration card

holders. The decision constitutes another step forward in the direction of decontrol of the

sugar industry and implementation of the Mahajan Committee recommendations.

21.12 The Path Ahead

Despite the huge stock of food grains available in FCI godowns, stray cases of

hunger deaths are still being reported. The food distribution system, therefore, needs to

be reformed and made more efficient. The present system could be replaced by a system

of food stamps and eventually by a food credit card system. The excess stocks of food

grains that have accumulated with the Government is partly a result of the high MSP

which often exceeded the levels recommended by the CACP. There is, therefore, a need

to adhere to the recommendations of the CACP in this regard. The MSP should

encourage diversification of agricultural production.

Surveys by the National Sample Survey Organisation (NSSO) show that

consumers today prefer to consume less of cereals and more of fruits, vegetables and

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animal products than before. This changing food consumption pattern may also have

contributed to the accumulation of surplus food grain stocks. Studies show that a buffer

stock of 10 mt is adequate to meet food security needs. The FCI could intervene in the

market by timely sales and purchases to maintain stability in food grain prices. The

buffer stocking agency could also take resort to exports and imports of food grains as per

requirements. The scheme for decentralised procurement of food grains should be

encouraged and more states could be brought under its fold. Similarly, the operation of

the PDS could be decentralised with the states taking their own decisions regarding issue

prices, quantum of food grains to be supplied etc. The national food subsidy could be

distributed among the states according to a prescribed formula.

21.13 Conclusion

The private sector should play an enhanced role in the food distribution system.

The Essential Commodities Act should be amended to make it an emergency provision

that will have to be formally invoked by notification for a limited period for specific

commodities. All restrictions on inter-state movement of food grains should be removed.

Octroi and all sorts of taxes/levies on food articles should be eliminated. The ban on

futures trading in all agricultural commodities should be lifted. Twenty-six per cent FDI

should be allowed in food retailing along with 100 per cent FDI in insurance for

agriculture and rural areas. These and other policy recommendations outlined in the

chapter would make the food distribution system in the country more vibrant and

efficient and capable of meeting the requirements of a liberalised economy.

Important Questions

1. Explain the term buffer stock

2. What are the advantages and problems of buffer stock?

3. Explain operations of buffer stocks in India

4. Explain decontrol of sugar.

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LESSON- 22

AGRICULTURAL INPUTS

22.0 Objectives

To study the role and importance of farm in puts

To study the method of improving farm in puts

To study case far as case against grant of subsidies.

Contents

22.0 Objectives

22.1 Introduction

22.2 Large Potential to increase production

22.3 Impact of new farm in puts

22.4 Unsatisfactory State

22.5 Remedial Measures to overcome the deficiencies of farm in puts

22.6 Improving land and farm inputs

22.7 Supportive measures

22.8 Subsidising farm Inputs

22.9 Case for grant of input subsidies

22.10 Case against input subsidies

22.11 Rational approach for input subsidies

22.13 Foodgrain Surpluses

22.13 Surpluses of government food grains

22.14 Paradox of surpluses of food grains

22.15 Causes of surpluses of food grains

22.16 Consequences

22.17 Alternative uses

22.18 Productive use food grains

22.19 Long Term Food Management Policy

22.20 Conclusion

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22.1 Introduction

The performance of agriculture in respect of production and productivity, as

discussed above, is far from satisfactory. We, therefore, take up the basis of production

and productivity, namely, inputs, to see how things can be improved upon.

22.2 Large Potential to Increase Production

To begin with, it needs to be stressed that there is a lot that can be achieved

through a proper use of inputs. Land, for example, can be made to yield much larger

returns than at present. Though its fertility as also its total availability are given by

nature, we can raise its quality to yield much larger returns than at present. Though its

fertility as also its total availability are given by nature, we also its total availability are

given by nature, we can riase its quality to yield more, and improve the level of its use

through multiple cropping or increasing cropping intensity. The yield can also be raised

by applying an appropriate pakage of inputs like sees, fertilizers, water and pesticides.

The cropping intensity can be increased by making available adequate water supply.

These measures can, in fact, shift the very production function i.e., more output with the

same inputs, through improvements in technology. The inputs, which embody new

technology, will yield more output even though their quantity remains the same.

22.3 Impact of New Farm in Puts

The results of such an efficient farming are bound to be fantastic. The Green

Revolution in India is an ample proof of what can be expected from such a course.

During the first five years of the Green Revolution, namely, 1967-72, the production of

wheat rose by as much as about 11 per cent annually with nearly half the increase

contributed by gains in the yield of land. The cost of production in real terms has also gone

down tremendously. It is calculated that the reduction in cost of wheat and rice has been

to the tune of over 70 per cent. This means large profits for the producers, and large

supplies of foodgrains for the poor. Another big gain has been in terms of the land saved

which would have been needed to feed the population. Had the same wheat and rice

yields prevailed today that prevailed in 1961-65, India would have required an

additional 94 million hecatres to produce what was produced in 1995. In fact such a

huge additional land could not be found except at the cost of forests, grasslands,

hillsides etc. This would have caused massive environmental havoc to the ecology of the

country.

The vast scope for raising output from the use of a better package of inputs can

also be gauged by looking at the difference between what can be achieved and what has

been attained in the advanced countries. In wheat, for example, there is still the

possibility of raising the yield per hectare by three times. In rice, the yield can be

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doubled. In groundnut, it can be more than doubled. In sugarcane, it can be doubled. In

cotton it can be raised by more than fifty per cent. And so on and so forth.

22.4 Unsatisfactory State

Despite large potential, as described above, the country's position in respect of

inputs is far from satisfactory. Take first land, the base of agriculture: Much of it

continues to be in bad shape, suffering from soil erosion and degradation. According to

the Seventh Plan, about 80 million hectares suffer from varying degree of soil deg-

radation (like saline, alkaline, ravine, coastal sandy areas, culturable waste lands, old

fallows other than current fallows). Again, the extent of underutilization of land is quite

large. The area, cultivated more than once is small at 47 million hectares. The total gross

cropped area (i.e., net sown area plus area sown more than once) is thus only 189.5

million hectares.

Things are also no better in respect of other inputs. Irrigation potential created

can irrigate over 94.7 million hectares. But only about 84.7 million hectares are

irrigated, with the capacity of over 10 million hectares going to waste. Irrigation system

too is inefficient with excess watering, almost flooding of fields in some areas, and too

little in other areas. Such scientific irrigation systems as drip or sprinkle systems prevail

in very few areas.

Area under HYV (High-Yielding Varieties) seeds (at 76 million hectares in

1996-98) is just about half of the net sown area. Except in wheat, where about 92 per

cent of the gross area is under HYV seeds, no other crop is fully under these seeds. Land

under paddy (rice), the staple food of the majority in the country, is covered by the HYV

to the extent of about 78 per cent. In case of other important crops, namely, jowar, bajra,

maize and ragi, the area covered- by the HYV seeds varies between 53 to 80 per cent.

There is also little by way of improved seeds in oilseeds, pulses etc. The use of HYV of

seeds, which are the carrier of new technology for crop production, propagation and

multiplication, has not as yet become a general phenomenon. In most of the areas, farm-

seeds, rather than laboratory-researched seeds, are in use. The use of chemical

fertilizers, another principal input for enhancing crop-yields, is also not an extensive

one. Its consumption has increased slowly. Since the coming of Green Revolution in the

mid-sixties, its consumption has increased by only a small amount. In the vast areas, it is

the farm-manure that predominates. No different is the case of the consumption of

pesticides, an essential input for sustaining agricultural production for minimising crop

damage due to insects, pests, diseases and weeds.

22.5 Remedial Measures to Overcome the Deficiencies of Farm in Puts

The deficiencies in respect of inputs can be got over through the following two

sets of measures.

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22.6 Improving Land and Farm Inputs

The capacity of land needs to be maintained in terms of its natural capabilities,

and its use rationalised. For this, it is necessary to restore the fertility of land in the Green

Revolution areas where it has been impaired because of the excessive use of chemical

fertilisers. Maintenance of soil fertility will continue to be important as the use of

chemical fertilisers will not decline. Despite an increase in the use of farm-manure or

organic manure, the chemical fertilisers will be needed to raise production substantially

to meet the fast expanding demands for foodgrains to feed the rapidly growing

population. Again, the different soils under different climatic conditions in the country

should be properly documented and their use should conform to their capabilities. This

requires organising information, testing of soils etc. to enable the farmers to make the

right choices. Further, it is of utmost importance that the pace of multiple cropping is

stepped up sharply. With no more land to take in for extensive cultivation, this is the only

way of increasing the gross area under cultivation.

The water-supply needs to be stepped up, and its use is made along scientific

lines. There is the large potential for irrigation which remains to be created. At present, it

falls short by as much as 43 million hectares. Besides, there is much to be done by way

of utilising fully the potential created. This will require construction of feeder channels,

as also farm channels etc., to carry water. Equally importantly, the water needs to be so

fed to the plants that results can be maximised with the least amount of water. Such an

efficient use of water requires adoption of irrigation-meth- ods like the drip system or

sprinkle system on a much larger scale than at present. Efforts also need to be made on a

massive scale to arrange for the collection of rain water in tanks etc., as also for the

conservation of moisture of the soil in the dry rainfed areas.

Third, the use of HYV seeds, as also of fertilisers and pesticides, be extended to

crops and to areas so far unattended. This is of particular importance for the regions

which for want of infrastructure like water, transport etc., could not adopt the modern

inputs. For such areas the package of seeds, fertilizers and pesticides has to be modified

so as to fit in with the facilities available in these regions. Alongside, efforts have to be

made to step up the availability of facilities to absorb the new technologies.

22.7 Supportive Measures

For the land and inputs to yield maximum output, it is essential that there are

facilities which ensure their availability and proper application. One such facility

concerns the generation of technology and its delivery. It should be such as it is in the

developed countries. In these countries, the research and development are directly linked

to the Field, both in terms of the problems studied in the laboratories, as also in terms of

the transfer of results for application in the fields. The payoffs of such a system in those

countries have been tremendous. Another necessary requirement for success is that the

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farm-size should, on an average, be a viable one. In other words, it should be such as can

use a certain minimum of inputs to give maximum output. In India, the farm-size in the

case of majority of landholders is very small, at less than one hectare. In large many

cases, it is even less than a half of hectare. It is therefore necessary that the farm-size is

raised, through a speedy implementation of land reforms.

For a growth-oriented farming, the availability of credit is of key importance. No

farmer, much less the small farmer, can provide finances to meet the rising needs of

inputs, from his own pockets. It is necessary, therefore, that arrangements for adequate

and timely credit exist. Alongside, provisions need also be made for the marketing of the

produce. A proper facilitative set-up for the purchase of inputs and sale of outputs is no

less important than the use of inputs and generation of outputs. Associated with it is the

need for providing incentives to farmers. The best instrument for this is the price-

incentive. The prices that the farmers pay for inputs, and the prices they receive for their

outputs, are the ones that need to be set within a range such that the terms of trade

remain reasonably favourable for the farmers and their incomes are high enough to make

farming an attractive proposition. In brief, farming should become profitable, if the use

of high yielding-inputs is to become a general phenomenon.

22.8 Subsidising Farm Inputs

In connection with the incentives to the farmers, we may discuss the issue of

subsidies for inputs. Several inputs like water, fertilisers etc., are being subsidised. This

means that the farmers get these inputs at prices lower than the market prices. The

burden of subsidy runs into thousands of crores of rupees.

22.9 Case for Grant of Input Subsidies

Those who favour the grant of subsidies put forward several arguments. One

point stressed is that these incentives (low input- prices) are necessary to induce the

tradition-bound farmers to change over to modern inputs. It is said that it is only when

the farmers find that the modern inputs are not expensive, that they will readily adopt

them. It is also pointed out that the risks associated with the use of new technology can

be lessened if inputs like fertilisers are provided at concessional rates. This is of special

importance for the majority of the farmers who are small farmers. Being resource-poor,

these farmers can neither afford expensive inputs, not bear the risks of using unfamiliar

inputs. It is also argued that these incentives are essential to motivate farmers to change

over to high-value crops and also to crops which are much in demand in the world

markets. These modern inputs, it is said, can alone make intensive-farming, as also

multiple cropping (i.e., growing more than one crop in a year, or in a season) a success.

This is of utmost importance, as there is very little scope for extensive cultivation in the

country. In support of their reasoning, the supporters of subsidies cite the successes

achieved by the application of new inputs (like HYV seeds, chemical fertilisers) under

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the Green Revolution. The subsidisation of inputs, they say, has been a very important

factor in motivating farmers to adopt these inputs.

22.10 Case against Input Subsidies

As against the above-men- tioned case for inputs-subsidies, there are those who

point out the serious shortcomings associated with such a policy. It is argued that the

availability of cheap inputs has made agriculture grossly inefficient. Since large

expenses are not involved, there is an excessive use of inputs. These have raised the real

costs (in terms of fertilisers, water) per unit of output. More seriously, the excessive use

of inputs like chemical fertilisers, has damaged the quality of the soil, which has in turn

reduced the yield from land. Several studies have infact proved that the yield in respect

of inputs like chemical fertilisers has already reached a plateau in most of the Green

Revolution areas. Inefficiency in agriculture has also been caused by the misallocation of

resources, resulting from distortion in the prices of inputs. Varying subsidies for various

inputs have made the input-prices to deviate from the market prices. These give false

signals in respect of the demand and supply of inputs, which lead to uneconomic use of

inputs. There has also been a wastage of resources. For example, excess capacities for

production have been created in capital-intensive industry of chemical fertilizers because

of artificially increased demand caused by low subsidised prices. Besides, it is pointed

out that a much greater proportion of subsidies has been cornered by the rich farmers,

and the advanced regions of the country. The small farmers, on the other hand, have

benefited to a very small extent.

22.11 Rational Approach for Input Subsidies

When we examine the views of the two sides, as described above, we can

formulate a rational approach to the problem of subsidies. It is obvious that in our

tradition-bound environment, inducements are essential to modernise agriculture. Since

the basic component of modernisation consists of biological inputs (seeds, fertilisers,

water), it is desirable that these inputs are made cheap through subsidies. If subsidies are

given in this form (i.e., through lowering their prices) these cannot be used in any other

way, except in using modern inputs. For this reason, these can be described as

development-subsidies. As against these, other subsidies like those on credit (like low-

interest loans) can be misused for purposes other than development. It follows that the

subsidies should be given on a selective basis i.e., only those which are developmental

in nature.

Another point to be made is that these subsidies should be given only to the

small farmers who cannot afford these inputs at market price. Further, these subsidies

should be a temporary affair. These should end as soon as possible, so as to eliminate

inefficiency and waste of resources in agriculture. At the same time, as pointed out

above, reliance should be placed on market-prices.

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22.12 Foodgrain Surpluses

There are at present large stocks of foodgrains with the government. These have

been acquired in the last few years. This phenomenon, also described as "surplus-in-

foodgrains," has given rise to much debate, particularly because large many in the

country go without full meals.

22.13 Surpluses of Government Food Grains

To understand this subject, it is essential first to be clear about as to why the

accumulated foodgrains are being termed "surpluses." The total quantity of foodgrains

with the government has considerably varied, sometimes reaching as high a figure as 60

million tonnes. These foodgrains consist of mostly wheat and rice. These have been

acquired over time as part of government's policy of procurement on fixed prices which

are announced much before the sowing and harvesting time. These are acquired largely

for three main reasons. One is to ensure a certain price or sale-revenue to the farmers, so

that they know in advance how much they will earn. It is intended that this should act as

an incentive for raising production. Two, these are used for supplying to ration shops

which sell them at lower prices (because these are subsidized). Three, a part of these

surpluses is used as buffer to absorb the shocks of fluctuating prices. When prices tend

to rise, the supplies of foodgrains in the market are increased through release of the

same from the stocks, creating downward pressure on prices. And when prices show a

tendency to fall below a reasonable level, government, through purchases from the

market, raises the demand for them and thereby stops them from falling. In fact the pro-

curement policy at announced prices is intended to prevent prices from falling which

they would have on the eve of harvesting season because of large supplies coming to the

market in a short time. It follows then that the government's policy is intended to give

incentive to the farmers, attain food security, and reduce price fluctuations. For these

aims the stocks are required. It has been estimated that the country needs operational ac-

count stocks to the tune of 6 to 8 million tonnes, and for "buffer" purpose, 16 to 18

million tonnes. In all the need thus ranges around 24 million tonnes. Obviously, any

stock beyond this figure is much more than the need. What is beyond our needs is

termed as surpluses and these have been there in a number of years.

22.14 Paradox of Surpluses of Food Grains

The existence of surpluses has given rise to a paradoxical situation from several

angles. In the first place, it looks rather odd that a country with slow agricultural growth

in the past and one planning for higher future growth should be faced with surpluses at

present. Secondly, it is also strange that with large many poor going without adequate

foodgrains, there should be surpluses in these very cereals. Thirdly, accumulation of

these surpluses, despite inadequate storage capacity, makes no sense. Fourthly, the

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increase in stocks/ inventories amount to investment, alongside investments which take

the form of fixed capital (like building, machines, tools etc.). Now India needs more of

fixed capital formation, rather than unnecessary accumulation in the form of inventories,

and that too in the foodgrains. This means that the resources (like credit to hold stock)

remain locked up in holding inessential inventories. And as such these resources are not

available for the formation of fixed capital. Thus such a situation of surpluses makes no

economic sense.

22.15 Causes of Surpluses of Food Grains

The question which needs to be answered is as to why these unwanted surpluses

exist, when our needs for operational and buffer operations are far less. The answer lies

in the fact that large many poor have not enough demand and purchasing power and

money to buy them. Most of these poor belong to regions (as also classes) where

agricultural growth has been very negligible. Eastern states are, for example, largely

rice-growing, but the production of rice in these states has not been for very many years

touched by any green revolution. In rainfed and dry areas, agricultural foodgrain

production has continued to remain small. On the other hand, the growth of foodgrains

has remained concentrated in certain regions (like Punjab, Haryana, western U.P.) with

good irrigation facilities etc. Now in these regions the per capita consumption of

foodgrains is already high. These regions have, therefore, been bringing to the market

their surplus produce, which the government has been buying. In fact, a major

proportion of foodgrains has been procured from these regions. Since all these are not

"demanded" by the poor, despite their "needs" for them, these remain in the stocks.

22.16 Consequences

These stocks are good only in part. Insofar as the policy to procure foodgrains at

fixed price is concerned, it is helpful. Without this there would have been little incentive

to the producers. Again, since this policy ensures supplies for public distribution

through ration-shops, the policy is useful. So is the case when the aim is to lesson the

ups and downs in the price fluctuations. Even though the procurement has resulted in

larger surpluses than needed, the policy has at least prevented sharp slump in prices (and

through that in production). Without it the situation would have been worse.

But the stocks over and above those needed are undesirable. They involve

wastage and are proving burdensome. For example, because of the inadequate storage

capacity as also of railway- capacity, quite a large amount get damaged, as the

foodgraians remain lying in the open. Further, these extra stocks involve large interest-

costs because funds are required to purchase and hold the stocks till these are disposed

off. Since these tend to increase, the cost of holding increases. These funds thus get used

for unproductive purposes. Although these changes/increases in stocks raise investment,

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these are unwanted investments. In fact, these resources if used for fixed capital could

be more desirable and beneficial for the economy.

22.17 Alternative Uses

There are various ways of remedying the situation. One can be not to buy

foodgrain stocks more than needed for the public distribution and buffer-stock purposes.

This solution is to be ruled out, on the ground that it would result in severe decline in

price and will prove to be very much disincentive for production. Another apparently

easy solution is to export. Government did try but with little success. The reason being

that our prices are higher than international prices. And therefore, we cannot stand

competition from countries like the USA and European Economic Community (EEC)

countries, even though Indian wheat is said to be of fairly good quality. Exporting to

nearby countries where we have freight advantage has not been found to be feasible.

There is a large inadequacy in the port-handling facilities because of very little

mechanization as compared to advanced countries. This causes delays in effecting quick

shipments and delivery. This cuts down the freight advantage. An alternative way is to

sell as much as possible in the domestic market. Government has also used this method

to dispose of the surpluses. It has also met with some success. But this too is not a

proper way out. If it is sold on a large scale, the sale-price has to be low (or subsidized)

causing burden on the government budget. In any case the entire surplus stocks cannot

be disposed off because there will not be enough takers. Had there been enough buyers,

surpluses would not have risen.

22.18 Productive use Food Grains

The one and the most beneficial use is to convert these foodgrain surpluses into

productive assets. This can be done via payment of wages (in part) in the form of

foodgrains to the labourers working on the building of assets. These assets can be

construction of roads, canals, land development, school and hospital buildings etc. These

can be easily started in places which need those most, like in the rural areas. The rural

labour that is seasonally unemployed or is underemployed can be employed without loss

of the existing work. This measure was earlier adopted under the Food for Work

Programme. This is at present being done under some employment programmes, (like

the former National Rural Employment Programmes, now merged with other

programmes). The need is to expand these programmes on a massive scale. In this

context these surpluses appear to be something in the form of precious resources for

fixed capital formation, rather than burden/liability for the society.

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22.19 Long Term Food Management Policy

The growing concern over the cost of maintaining food-stress for above the

buffer stock requirements and the rising food subsidy has brought about some changes in

the food management policy. Some of the measures under the new approach are:

(a) A decentralised procurement with an enlarged role for the State Governments in both

procurement and distribution of foodgrains for PDS. The Centre will provide

financial assistance for this purpose rather than the food subsidy.

(b) Greater focus on the production of non-cereal foods. A PSP programme both greater

stresses on production (P) of noncereal foods e.g. fruits, vegetables, their storage (S)

and processing (P) is expected to benefit the farmers as also increase the incomes.

22.20 Conclusion

Measures to liquidate excess food stocks like Sampoorna Gramin Rozgar Yojana

announced by the Prime Minister on 15th August 2001, Annapurna scheme and Food for

Work Programme launched in January 2001 are likely to direct the surplus food stocks

into productive and socially beneficial areas. The economic cost of large food surpluses

may thus lead to tangible social benefits.

Important Questions

1. Explain the impact of new farming inputs

2. What are the measures to overcome the deficiencies of farm inputs?

3. Explain case far and case against grant of farm subsidies

4. What are the consequences of surpluses of food grains?

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LESSON- 23

PLANT PROTECTION

23.0 Objectives

To understand Integrated Pest Management

To study Capacity Building in Plant Protection

To study the traditional plant protection methods

Contents

23.1 Introduction

23.2 Plant Quarantine

23.3 Integrated Pest Management

23.4 Fao-Eu Cotton Ipm Programme In India

23.5 Implementation of Insecticides Act, 1968

23.6 The Locust Control and Research

23.7 Food Security

23.8 Training in Plant Protection

23.9 Programme for the Year 2003-04

23.10 Measures for Pollution Control and Abatement

23.11 Activities in Northeast States

23.12 Programme for Development of SCs and STs

23.13 Capacity Building in Plant Protection

23.14 National Agricultural Bio security System

23.15 Plant protection field experiences

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23.16 Ploughing, hoeing and basin preparation

23.17 Hand picking of pests

23.18 Cow-dung and clay mixture

23.19 Pruning of fruit trees

23.20 Use of wood ash on and around vegetable crops

23.21 Beating drums and using domestic dogs for combating the menace

of birds and monkeys

23.22 Kerosene oil for killing borers

23.23 Bajagun Weed for Reducing Rat Menace

23.24 Use of walnut and swetflag leaves against pests in stored grains

23.1 Introduction

Plant protection is an important component of crop production programme. Plant

protection activities encompass plant quarantine, regulation of pesticides, activities

aimed at minimizing crop losses due to pests including locust control in desert areas, and

training and capacity building in plant protection. Further, Plant Protection strategy and

activities have significant importance in the overall crop production programmes for

sustainable agriculture. Plant protection efforts aim at minimizing crop losses due to

ravages of insect pests, diseases, weeds, nematodes, rodents, etc. Enforcement of

Destructive Insects and Pests Act (1914) for prevention of exotic pests, promotion of

Integrated Pest Management (IPM), Implementation of Insecticides Act, 1968 for

regulating production and use of pesticides, monitoring and control of desert locust in the

Scheduled Desert Area and Human Resource Development in Plant Protection through

training, are the major programmes in the gamut of Plant Protection.

23.2 Plant Quarantine

The objective of plant quarantine primarily is to prevent introduction of exotic

pests, diseases and weeds through imports of agricultural commodities or plant material

into India and similarly prevent introduction of indigenous pests, diseases and weeds in

other countries through exports. The Plant Quarantine (Regulation of Import into India)

Order, 2003 issued under provisions of Destructive Insects and Pests Act, 1914 (DIP

Act) regulates imports. Post entry quarantine inspection is undertaken in case of

propagation plant material. Phytosanitary

certificates (PSCs) are issued for exports as per International Plant Protection Convention

(IPPC), 1951 of the Food and Agriculture Organization (FAO). These functions are being

discharged by 36 Plant Quarantine Stations (PQSs) functioning under Directorate of

Plant Protection, Quarantine and Storage (DPPQ&S), Faridabad, at various international

272

airports, seaports and land customs stations across the country to facilitate international

trade in agriculture products.

The plant quarantine infrastructure is created and maintained under central sector

plan scheme „Strengthening and Modernization of Plant Quarantine Facilities‟. PQSs at

Bongaon, Cochin, Kandla and Tuticorin have acquired ISO 9001:2000 certifi cation now

in addition to 5 major PQS at Amritsar, Chennai, Kolkata, Mumbai and New Delhi for

quality management in provision of plant quarantine services. Molecular diagnostic

facilities have been established at Chennai, Kolkata, Mumbai and New Delhi.

During 2011-12, Pest Risk Analyses (PRAs) for import of 31 items were

completed and technical information provided for export of 5 items to concerned

National Plant Protection Organizations. 10,899 import permits were issued for seeds and

plant material and screening of 49.63 lakh metric tones of imported agricultural

commodities was undertaken. Phytosanitary inspection for export of 69.38 lakh metric

tonnes of plants and plant material was conducted and 78,748 PSCs issued. 374 pest

control agencies have been accredited for (SDA) in parts of Rajasthan, Gujarat and

Haryana, has 10 Circle Offices located at Bikaner, Jaisalmer, Barmer, Jalore, Nagaur,

Phalodi, Churu, Suratgarh, Palanpur and Bhuj. Its field headquarter is located in Jodhpur

and a central headquarter at Faridabad. Besides, there is a Field Station for Investigations

on Locusts (FSIL) in Bikaner. To strengthen locust monitoring, remote sensing images

are being used. LWO maintains its own wireless network for exchanging information on

locust surveys and control between locust outposts, circle offices and headquarter at

Faridabad. Wireless communication between Jodhpur (India) and Karachi (Pakistan) is

also maintained every year from June to November for exchanging locust intelligence

between the two countries. Four Indo-Pak border meetings were conducted at the

Munabao (India)/Khokhrapar (Pakistan) border point during 2011-12 (upto December,

2011). 18 locust situation bulletins were issued and an area of 2.17 lakh hectares in SDA

was monitored through locust surveys.

23.3 Integrated Pest Management

Integrated Pest Management (IPM) is an eco-friendly approach which aims at

keeping pest below and disease infestation economic thresholds level by employing all

available alternate pest control methods and techniques such as cultural, mechanical and

biological control with greater emphasis on use of Bio-pesticides and pesticides of plant-

origin like Neem formulations. The use of chemical pesticides is advised as a last resort

when pest crosses economic threshold level (ETL). IPM related activities are being

implemented through 26 Central Integrated Pest Management Centers (CIPMCs) located

in 23 States and Union Territories.

Major activities under IPM approach include undertaking sample roving surveys

for monitoring pest/disease situation on major crops, production and release of Bio-

273

control agents, conducting Farmers‟ Field Schools (FFSs) etc. Pest/disease situation has

been monitored regularly during the period in the States and 644 thousand ha. was

covered against targeted area of 469 thousand ha. The pest situation reports received

from field stations and States were compiled and comprehensive weekly and monthly

reports were circulated to the concerned officers and scientists of State Departments of

Agriculture and State Agricultural Universities and ICAR Institutes so as to help them

take appropriate remedial measures.

A total of 16260 thousands Bio-control agents have been mass produced in the

laboratories and released (up to December, 2002) against insect-pests in rice, cotton,

sugarcane, pulses, vegetables and oilseeds against the targeted release of 11570

thousands during the year 2002-03. An area of 523 thousands ha has been covered

against the targeted area of 367 thousands ha. in different States against various insect

pests through augmentation and conservation. In order to popularize IPM technology

among the State extension functionaries and farmers, demo-cum-training programme has

been launched by organizing 290 Farmers‟ Field Schools (FFSs) in rice, cotton,

vegetables, pulses and groundnut during Kharif, 2002 in 23 States and UTs wherein 1019

agriculture extension officers and 8784 farmers were trained in IPM approach. In these

FFSs training programmes, women farmers also included. Another 520 FFS are being

taken up in Rabi 2002-03 for training 2,600 agriculture extension officers and 15,600

farmers. To ensure greater public participation in the IPM Programme, NGOs are now

being involved in the spread of IPM approach. In the year 2002-03, 21 NGOs were

trained who in turn organised 34 FFSs. IPM packages of practices in respect of 52 crops

have been already made and sent to States/CIPMCs across the country for

implementation thereof. Further, various training programmes were conducted across the

country to train Central and State Government officials in IPM approach. Some State

specific training programmes were also oganised such as orientation training programme

on Rice at Guwahati, Assam in which 52 trainees from 23 districts of Assam were

trained.

23.4 Fao-Eu Cotton IPM Programme In India

A regional FAO-EU Cotton IPM Project is also being implemented in

India. Besides India, Bangladesh, China, Pakistan, The Philippines and Vietnam are also

signatories to the project. The main objectives of the Project are to train farmers in cotton

IPM, promote cooperation between extension agencies, NGOs, Research

Institutions. Under the Project, so far about 6.300 farmers and 130 extension officers

have been trained in 4 field training programmes conducted during 2001-2002 at Raichur

(Karnataka), Akola (Maharashtra), Nandyal (Andhra Pradesh) and Dharwad

(Maharashtra).

23.5 Implementation of Insecticides Act, 1968

274

Pesticides being toxic by their very nature are hazardous to human beings and

environment. The residues of pesticides also enter into the food chain and are harmful to

human and animal health. Keeping this in view, the Government of India is regulating

their manufacture, sale, transport, use and import/export through implementation of the

Insecticides Act, 1968 and the Rules framed there under. The Central Insecticides Board

(CIB) constituted under Section 4 of the Act, renders advice to the Central and States

Governments on the technical matters arising out of the administration of the Act and to

carry out such other functions. The Registration Committee (RC) constituted under

Section 5 of the Act registers insecticides under Section 9 of the Act, after satisfying

itself about their efficacy and safety to human beings, animals and environment.

During the year (up to December, 2002) a total number of 5079 applications

have been received for the grant of registration and the RC has issued 2551 Registration

Certificates and rejected 1578 applications after holding 13 Registration Committee

meetings. In order to boost the export of the pesticides, the rules and procedures have

been simplified, particularly for pesticides being manufactured for export thereof with a

view to further streamline the functioning of CIBRC, a website of the Secretariat of

CIB&RC http//www.cibrc.nic.in has been launched on 25.10.2002.

The Central Insecticides Laboratory (CIL), Faridabad set up under Section 5 of

the Act, is serving as a referral laboratory for quality control of pesticides. The CIL is

also carrying out pesticides residues analysis and investigations on bioassay, medical

toxicology and processing/packaging. Besides, there are two Regional Pesticides Testing

Laboratories (RPTLs) at Kanpur and Chandigarh to assist the States in the quality control

tests. The CIL and two RPTLs have conducted testing of 2205 and 1573 samples of

pesticides upto 31.12.2002. It is intended to amend the Insecticides Act, 1968 to deal

with offenders effectively and to ensure supply of quality pesticides. A Central Task

Force has also been created in the Department of Agriculture and Cooperation to

organize and coordinate raids across the country to ensure supply of quality pesticides to

farmers. The said Task Force initiated such raids in Delhi, Haryana, Punjab and Uttar

Pradesh, whereby samples of pesticides were drawn from various dealers and suppliers

for the purpose of testing there of.

23.6 Locust Control and Research

The Locust Warning Organisation (LWO) monitors locust situation/activities

over an area of 200 thousands sq km of the Scheduled Desert Are in parts of Rajasthan,

Gujarat and Haryana. It has 5 circle offices and 23 locust outposts with its field

Headquarter at Jodhpur. Besides, there is one Field Station for Investigations on Locust

(FSIL) situated at Bikaner. To strengthen the locust monitoring and forecasting, a

Remote Sensing Laboratory has also been set up to prepare vegetation maps based on

satellite imageries for locust forecasting. Satisfactory locust control potential is being

275

maintained in the form of pesticides, plant protection equipment, wireless sets and

trained technical and mechanical staff.

During the period under report, India continued to be free from any gregarious

locust activity. However, mixed population of Desert/Migratory Locust and grasshoppers

was recorded from Bajra crop grown in small patches in Sanchore and Bhinmal Tehsils

of Jalore District in Rajasthan and Tharad Tehsil in Palanpur District of Gujarat during

the first week of July,2002. Immediate control operations were undertaken to control

locust/ grasshopper activity and as a result, 42 ha area was treated. Similarly, during the

first week of August, 2002 mixed population of Migratory locust and grasshopper was

also recorded in 35 ha area of Bajra and Guar crops at 5 TK Villages of Sriganganagar

district of Rajasthan which was also controlled. The Plant Protection Adviser to

Government of India visited the locust-affected areas in Jalore, Sanchore and Tharad

sectors and advised the field staff for maintaining utmost vigil for immediate

reporting and necessary action.

To keep a constant watch on locust in Thar desert, surveys over an area of 15600

thousand ha. were conducted against the target of 6000 thousand ha. during the period

from April to December, 2002. Fourteen locust situation bulletins were issued to various

concerned agencies and organization for their use. Close liaison is being kept with the

FAO and other agencies through exchange of locust information.

23.7 Food Security

Food safety issues are an area of growing concern all across the world. To ensure

ecologically safer food products, the stress area is control of pesticide residue contents by

fixing of maximum residue limits so as to bring them down to internationally accepted

minimum tolerance levels, so that agricultural products are safe for human consumption.

In this connection, the CIBRC has recently finalised the format for submission of

requisite data/information to be provided by applicants for registration of pesticides for

fixation of Maximum Residue Limits under PFA Act by Ministry of Health and Family

Welfare. Further, Maximum Residue Levels in respect of five pesticides have been

fixed in 51 pesticides to be notified under the PFA by the Ministry of Health and Family

Welfare in addition to 71 pesticides for which MRLs had already been fixed prior to

2002-03. Another 21 pesticides have been banned for use in Indian agriculture. Further

an Expert Group has been constituted by CIBRC to examine the data available w.r.t.

toxicity/bio efficacy, etc., with Secretariat of CIBRC so as to enable fixing of Maximum

Residue Levels for a number of pesticides registered prior to 1972.

23.8 Training in Plant Protection

The National Plant Protection Training Institute (NPPTI), Hyderabad organized

short-term and long-term training courses for in-service personnel of the State

276

Departments of Agriculture as well as for foreign nationals for human resource

development in plant protection. The Institute is well equipped with advance training

facilities. During the period up to 31st December, 2002, 19 regular courses were

conducted at NPPTI, Hyderabad against the target of 27, wherein 441 trainees from

various States and Central Organizations were trained in different aspects of plant

protection.

THE OUTLAYS (BE) 2002-03 AND EXPENDITURE UPTO DEC., 2002 IN

RESPECT OF VARIOUS SCHEMES IN THE FIELD OF PLANT PROTECTION

(Rs. in thousands)

S.No. Name of the Scheme BUDGET/OUTLAYS

EXPENDITURE

1.

Implementation of Insecticides Act

i) Plan

ii) Non-Plan

Revenue Capital Total Expenditure upto

December, 2002

67,50

3,23,00

20,00

-

87,50

3,23,00

52,60

244,11

2. Locust Control & Research

i) Plan

ii) Non-Plan

13,00

2,96,00

25,00

-

38,00

2,96,00

14,79

1,87,84

3. Integrated Pest

Management (IPM)

i) Plan

ii) Non-Plan

3,21,36

3,41,00

30,00

-

3,51,36

3,41,00

3,24,50

2,18,17

4. Training in Plant Protection

i) Plan

ii) Non-Plan

12,73

1,60,00

30,00

-

42,73

1,60,00

15,67

1,00,76

5. Expansion of Plant Quarantine

Facilities in India

i) Plan

ii) Non-Plan

5,69,52

2,60,00

250,00

-

8,19,52

2,60,00

3,16,18

1,72,06

6 Strengthening and Modernisation of

Pest Management Approach in

India

i) Plan

ii) Non-plan

4,93,89

-

145,00

-

6,38,89

-

Nil

(The scheme is yet to be

approved. Schemes at

S.No.1 to 4 will be

merged under this

Scheme during X

Plan. Funds have been

transferred to schemes

at 1 to 4 at RE Stage)

23.9 Programme for the Year 2003-04

All the above activities and programmes in the field of plant protection

shall continue in 2003-04. However, the targets for the financial year will be

fixed only during March 2003 on the basis of availability of funds and facilities

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such as staff and infrastructure. The thrust areas identified for the year 2003-04

are as follows.

The thrust areas identified for the year 2003-04

S.No.

Thrust Area Expressed in terms of targets

1. Increasing production of bio-

pesticides and bio-control agents

in Departmental centers and

popularising the IPM packages

developed for different crops so

far.

a).Increasing the production of Bio-Control

agents in CIPMCs by 15% over the 2001-

2002 levels.

b). IPM package of practices for

8 new crops to be developed.

3. Simplification and Streamlining

of the functioning of the

Secretariat of CIB&RC with a

view to increase transparency

and to cut out time delays.

Computerization of the Secretariat of

CIB&RC.

4. Ensuring reliability of Central

Insecticide Laboratory.

Getting NABL certification for CIL.

5. Improving utilization of central

inspectors in quality assurance.

a). Creation of Central Task Force for

drawing and checking of insecticides‟

samples .

b). Central teams to organize 60 raids in

different States.

6. Revision of Plants Fruits and

Seeds Order 1989 to incorporate

provisions of SPS agreement

under the WTO.

To issue a new comprehensive Plant

Quarantine Order in place of PFS Order

1989

7. Computerisation of all major

Plant Quarantine Stations

15 Plant Quarantine Stations to be fully

computerized.

8. Review of guidelines and

preparation of an Operations

Manual of Plant Quarantine

activities so as to meet the

requirements of SPS agreement

Plant Quarantine Operations Manual to be

compiled and issued, incorporating and

rationalizing all the existing guidelines on

the matter.

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9. Training in Plant Protection

(current problems)

a). Training in IPM in vegetable crops.

b). Apex level training in rodent control as

well as off-campus training in rodent

pest management.

c). Organising Workshops on Neem and

other eco-friendly pest management

tools.

23.10 Measures for Pollution Control/Abatement

The Department of Agriculture and Cooperation has adopted Integrated Pest

Management (IPM) as main plank and cardinal principle of plant protection strategy in

overall crop production programmes to reduce the use of toxic chemical pesticides to the

barest minimum with a view to minimize environmental pollution (air, water & soil) and

maintain ecological imbalance. The IPM programme is being implemented with the

cooperation of State Governments and Indian Council of Agricultural Research. The

research efforts at Field Station for Investigations on Locust (FSIL), Bikaner have been

intensified on bio-control for locust control in order to minimize the use of chemical

pesticides for locust control.

23.11 Activities in Northeast States

Four Central IPM Centers are functioning in North-Eastern States to promote and

popularize IPM approach among farmers. These Centers are located at Guwahati

(Assam), Aizwal (Mizoram), Dimapur (Nagaland) and Gangtok (Sikkim). The main

activities of the Centres are pest surveillance and monitoring on major crops for

forewarning pest/disease build up, promotion of biological control methods and

organizing IPM Farmers Field Schools (FFSs) for educating farmers and extension

officials. During 2002 (upto December, 2002), 28 FFSs are being set up in rice,

vegetable crops wherein 820 farmers and 140 extension officials have been trained.

Central IPM Centres have also scanned a crop area of 0.427 lakh ha. against the target of

44 thousand ha. under the pest monitoring and released 71.05 million (nos) of bio-

control agents against the annual target of 71000 thousand for promotion of biological

control and IPM approach in the North Eastern States. Two Plant Quarantine Stations at

Agartala (Tripura) and Guwahati (Assam) are functioning in the North Eastern States to

render Plant Quarantine services.

23.12 Programme for Development of SCS and STS

Although there is no separate Plant Protection Programme for development of

SCs and STs, the preference is given to the SC and ST farmers in the IPM Farmers

Field Schools to impart them IPM Training particularly in the tribal and backward areas.

279

23.13 Capacity Building in Plant Protection

The National Plant Protection Institute (NPPTI), Hyderabad was converted during

2008-09 into a society to give it more autonomy. The institute, renamed as the National

institute of Plant Health Management (NIPHM), is headed by a Director General.

NIPHM has entered into MOUs with selected institutions and has initiated new courses,

including training courses for officers of DPPQ and S. A new faculty building is under

construction. NIPHM is being developed as the premier institution for capacity building.

During 2011-12 (upto December, 2011), 51 regular courses were conducted at NIPHM

wherein1042 trainees from various States and organizations were trained in different

aspects of plant protection.

23.14 National Agricultural Bio Security System

In view of threat perception to bio security of country on account of increasing

international trade, emergence of trans-boundary diseases of plants and animals (such as

Ug-99 wheat stem rust and avian influenza), introduction of genetically modified

organisms, climate change and bio-terrorism, Ministry of Agriculture has prepared a

proposal for putting in place a National Agricultural Bio security System (NABS). The

proposal is based on recommendations of National Commission on Farmers headed by

Prof. M.S. Swaminathan and National Policy on Farmers 2007. The proposal envisages

creation of an autonomous National Agricultural Bio security Authority (NABA) for

which an Agricultural Bio security Bill is being finalized.

23.15 Plant Protection Field Experiences

In recent years, the large scale application of pesticides, primarily insecticides,

has made cultivation of some mountain crops and fruits difficult due to the harm brought

to bear upon the bio-environment by large scale destruction of natural bio-enemies

causing pest resurgence, development of resistance to pesticides and consequent

secondary pest outbreaks. Perhaps the only solution to this problem at hand lies in the

adoption of eco-friendly approaches which are not destructive to natural enemies but

gradually remove sizeable proportions of pest populations and tend to keep their

populations in check. Physical, (devices and procedures used to change physical

environment of pest populations), and mechanical (mitigating pest populations by

cultural practices) methods of pest control are the oldest of all such insect control

methods. These are rooted in simple practices that man, as a farmer, has leant from his

long and close association with pests. These aid him in reducing pest populations to low

levels. These include both direct and/or indirect measures which may be preventive or

corrective in nature but are essentially slow acting, often ecofriendly, cost effective and

compatible with other methods of pest control. These characteristics make them

amenable to blend better with integrated pest management practices (IPM) even though

they do not bring about an immediate or drastic reduction in pest populations. Even the

280

modem concept of pest control does not emphasize the outright eradication of pests but

focuses on maintaining their populations at levels which do not cause economic losses.

Some of the indigenous methods of IPM include:

23.16 Ploughing, Hoeing and Basin Preparation

Cultural practices like ploughing, hoeing and basin preparation influence directly,

the survival of soil inhabiting pests. These routine agricultural operations expose soil

inhabiting insect, pests and other arthropods and nematodes to harsh weather and to

natural predators. Insects are most vulnerable when in the pupal stage and most insect-

pests pupate in the soil which furnishes a protective habitat. Birds like the king crow, the

myna, the starling, etc. pick up the exposed pupae following these cultural operations.

Some insects e.g. grasshoppers, crickets, mole-crickets and borers lay then-eggs in the

upper layers of the soil. Their eggs are exposed during soil preparation and subsequently

desiccate. Many insects like cutworms, grubs of the root borer and white grubs which

feed on the root system of plants are also exposed to the vagaries of the elements during

basin preparation and hoeing. Deep ploughing carried out during winter helps in reducing

the over wintering populations of several pests.

Beside dislodging the pests from their protective habitat and subjecting them to

unfavorable conditions for survival, these scientifically tempered cultural practices also

improve aeration of the soil and facilitate proper percolation of water into the soil.

However, the degree of success of these operations is related directly to the presence of

natural predators in adequate numbers and the synchronization of these operations with

the vulnerable stages of the pest's life cycle.

23.17 Hand Picking of Pests

Hand picking of pests and their destruction is another time tested method of pest

control. Right from picking lice from human hair, clothes and even animals to the manual

separation of pests from stored grain. This method can prove effective in curtailing

pestilence on some crops. Insects which lay eggs in conspicuous and easily eliminated

masses, e.g. tobacco caterpillar, gypsy moth, hairy caterpillar, sugarcane top borer,

epilachna beetle, etc. can be easily eliminated. Early instar larvae of such insects often

feed in congregations and later disperse on to the entire plant/tree and in the field,

making control, at best, difficult.

Hand picking demands alertness, patience and keen observation. The collected

pests are destroyed by immersing them in kerosinized water or by deep burying.

Nocturnal insects responding positively to light, e.g. defoliating beetles, moths of Bihar,

hairy caterpillar, tomato fruit borer, tobacco caterpillar, and cerambycid beetles etc. are

collected, using light source or by trapping them in a light-trap and are subsequently

destroyed. However, it is a labour intensive and time consuming process. Knowledge of

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egg laying behaviour, location of eggs and larvae on infested crop is essential Hence,

only a well trained person would prove effective.

23.18 Cow-dung and Clay Mixture

The practice of applying a thin paste made of cowdung, clay and cow urine, as a

disinfectant, on the floor of mud (kutcha) houses in rural areas is an age old practice.

Similarly, the application of a paste, of good consistency, to treat wounds and injured

limbs of fruit trees has been in vogue, in villages, since long. Such a paste is also applied

to pruned twigs/limbs. A fine slurry is prepared by thorough mixing of the clay, cowdung

and cow urine in a container. The paste is then applied manually using bare hands or a

locally made brush.

Cowdung and cow urine possess complex degrading substances and may possess

anti bacterial properties. Addition of clay results in better adhesion of other constituents

to the treated surface. Sealing of wounds/cut prevents access of pathogens to the

otherwise exposed surface. To some extent, the already present pathogen is also dealt by

using the applied paste. Pruned ends of twigs and cuts are also favourable spots for the

settlement and establishment of woolly (apple) aphid on apple trees. Covering such sites

with the cowdung paste hastens healing and prevents aphid settlement. The paste is also

used for the treatment of cankered limbs of the trees. The entire effected region is

removed by a disinfected knife and is then covered with freshly prepared cowdung paste.

As is evident, the application of the paste is a laborious procedure and proper sealing of

the injured region is required. Sometimes, it does not prove to be an effective method for

the treatment of canker.

23.19 Pruning of Fruit Trees

Pruning and training of fruit trees is an important practice performed during the

dormant season to create a proper frame and provide symmetry to the tree and ensure

proper and balanced growth in the ensuing season. Set procedures of pruning are

followed by using secateurs, knives, pruning saw, etc. Some inconspicuous pests which

hibernate as egg nymphs (e.g. some aphids, leaf hoppers, etc.) in limited numbers are

automatically removed along with pruned branches/twigs thereby mitigating the severity

of their attack in the next season. Further, pruning of old, damaged and weak portion of

the tree encourages new growth which is healthier and stronger. Thus, pruning aids pest

control as it realeases over wintering population, improves general health of the tree and

helps in maintaining a balanced foliage distribution with proper aeriation and sunlight

penetration. Pruned plants usually have lesser pest infestation and do not easily succumb

to pest attacks. However, since pruning is both an art and a skill it demands that the

pruner posses basic knowledge of over wintering behaviour and sites of pests to deliver

maximum benefit from this mechanical method of pest control.

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23.20 Use of Wood ash on and Around Vegetable Crops

Fruit wood is a major source of energy in the hills, consequently, wood ash is

available in plenty. It is used to wash and clean utensils as well as clothes in many areas

of Himachal Pradesh. It is a common practice to sprinkle wood ash on vegetable crops,

especially growing in kitchen garden and to spread it around plants to ward off pests and

to enhance nutrient status of the soil. To achieve this thick layer of ash is spread on the

soil around plants and it is also sprinkled on foliage to protect it against a variety of pests.

This is because it is a source of phosphorus for plants and it also acts as a physical poison

usually causing abrasion of epicuticular waxes and thus exposing pests to death through

desiccation. It also interferes in the chemical signals emanating from the host plants thus

obstructing the initial host location by pests. The treated foliage further becomes

unpalatable for foliage feeders like cutworms, caterpillars, grasshoppers, etc. But since

ash provides only temporary protection against pests, insecticides which have quick

knock down effect have replaced the use of wood ash today.

23.21 Beating drums and using domestic dogs for combating the menace

of birds and monkeys

Birds and monkeys are commonly found vertebrate pests which cause tremendous

damage to some ripening crops and fruits. Most bird species are protected by law and

monkeys can also not be killed due to religious sentiments. Alternately, the practice of

driving them away by beating drums and using well trained dogs has been used since

long. Locust-swarms are also warded off by the beating of drums. Today, one or two

persons are engaged in these activities during periods of fruiting and crop maturity (along

with one or two trained dogs Gaddi or Alsation). While the noise created by the beating

of drums and barking of dogs scares birds and monkeys, it requires the employment of

regular labourers for constant vigil (Also monkeys and birds may become use to these

practices).

23.22 Kerosene oil for Killing Borers

Shoot and stem borers bore and riddle the twigs, branches and even the main

trunk of fruit trees and push out faecal matter and frass through an exit hole (Fig. 6.1).

Farmers have been using kerosene oil to kill these control tissue borers using a flexible

metallic wire which is inserted through the hole made by the borer into the gallery to

clean it. Then a small bung made of cloth soaked in kerosene oil is inserted into the hole

and finally, it is plugged using a paste of cowdung and clay. The insertion of the metallic

wire into the gallery causes physical injury to the larvae which are destroyed in the

process. The oil vapour emanating gradually from the cloth bung fill the closed gallery,

suffocating the pests and ultimately the larvae die. The death of the borer is indicated by

unopened plugged hole. The drawback of this practice is that kerosene vapours act

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slowly and this treatment is not a sure and definite method to annihilate the borer.

Farmers now prefer to use quick acting insecticides for assured results.

23.23 Bajagun Weed for Reducing Rat Menace

Common cowitch, Mucuna prurita, vernacularly known as Bajagun, is a

leguminous herbaceous annual plant found throughout the plains of India. It also grows

in the low lying areas of Himachal Pradesh. Its longitudinally ribbed turgid pods are

covered with dense pale brown or grey stinging bristles (trichomas) which upon coming

in contact with the skin cause discomfort and itching attributed to presence of a histanine

liberating proteinase, mucunain. The effect persists for 3-5 minutes. These hairs also

contain serotonin which causes cutaneous pain besides itching. It was an old practice to

powder leaves and pods of the plant and scatter it over men-ways and in the live burrows

of the rats to drive them away from cultivated fields to reduce rat damage to the crop.

After prolonged boiling and throwing away of the water, the pods are also reported to be

used as food during famine. The easy availability of various effective rodenticides from

the market has resulted in this practice gradually dying out.

23.24 Use of Walnut and Swetflag Leaves against pests in Stored Grains

In rural areas of Himachal Pradesh, it is an old practice to use walnut leaves and

leaves of a pond weed, commonly known as sweetflag, Acorus calamus as a protection

for both grain and clothes against insect damage. To achieve protection a layer of leaves

of walnut is spread over grain stored in gunny bags. Likewise, shade dried leaves of

sweetflag are powdered and put over grain stored in gunny bags to protect it from

damage due to stored grain pests.

Walnut leaves are astringents and the aqueous extract of fresh leaves possesses

bactericidal action while mature leaves contain 9-11 per cent tannin. Tannins are known

to act as feeding deterrents. Sweetflag leaves and rhizomes have many chemical

ingredients including an essential oil, the oil of calamus, which primarily contains as

alone. Depending upon quantity of asarone (cis as well as trans), its effect on insects may

be attractant, antifeedant, repellent, antigonadal or insecticidal. However, since the active

principal is present only in meagre amounts (in the leaves) this treatment may not be able

to afford protection for long periods.

23.25 Conclusion

The government has introduced integrated pest management at the central and

state levels for purposes of plant protection. Twenty-five central, integrated pest-

management centers have been established in twenty-two states and one union territory

for pest surveillance and monitoring, promotion of bio control methods of conservation,

promotion of non chemical methods of pest control, training of extension workers and

farmers, and demonstration farms. Further, pecies are essential in supporting human

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population. Food, shelter, clothing and medicine are derived from plants. Therefore,

plants need care and attention so that, in turn, they can greatly benefit human beings.

What would happen to human race if plants are totally eliminated from the planet is,

indeed, a catastrophe.

Plant protection is of considerable importance in overall crop production

programmes for sustainable agriculture. Plant protection activities encompass plant

quarantine, regulation of pesticides, activities aimed at minimising crop losses due to

pests, including locust control in desert areas, and training and capacity building in plant

protection.

Important Questions

1. explain about Integrated pest management

2. explain National Agricultural Bio security System

3. Briefly explain plant protection field experiences

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LESSON- 24

AGRICULTURE TRADE

24.0 Objectives

To study the India‟s position on world trade

To study the volume of exports and imports of agricultural products

To study the trends of India‟s agricultural trade.

Contents

24.0 Objectives

24.1 Introduction

24.2 India in Global Agricultural Trade

24.3 Trade in Agriculture

24.4 Export of Rice and wheat

24.5 Agricultural Exports and Imports

24.6 Regional Free Trade Agreements in Agricultural Trade

24.7 Multilateral Negotiations

24.8 Agriculture in the Doha Round of Trade Negotiations

24.9 India‟s Agricultural Trade: Some Recent Trends Exports

24.10 Imports

24.11 Agricultural Support Policies

24.12 Input Subsidies

24.13 Export Subsidies

24.14 Export and Import

24.15 Indian Agriculture in World Trade

24.16 Scheme for Enhancing the Competitiveness of Indian Agriculture:

24.17 Conclusion

24.1 Introduction

India‟s external sector exhibited resilience during the global financial crisis of

2008. The balance of payments however has been under increasing stress recently.

Exports have declined while imports have not fallen significantly, resulting in increasing

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trade and current account deficits. Though capital flows are bridging the gap, the nature

of portfolio capital may lead to greater potential financial fragility and also rupee

volatility. India‟s growing external exposures can also be attributed to the increasing

integration of the Indian economy with the rest of the world, which is reflected in both

current and capital account transactions. The combined share of exports and imports of

goods increased from 14.2 per cent of GDP in 1990-91 to about 43.0 per cent in 2011-12.

Two way external sector transactions (i.e, gross current account plus gross capital

account flows) have risen from 30.6 per cent of GDP in 1990-91 to about 108.0 per cent

in 2011-12. Therefore, while the globalization of Indian economy has helped raise

growth, it has also meant greater vulnerability to external shocks. A focus on domestic

macroeconomic rebalancing will help reduce vulnerability.

The policy reforms of the 1990s more or less eliminated the bias against

agriculture by lowering industrial tariffs and correcting for the overvalued exchange rates

which lead to an improvement in the terms of trade in favour of agriculture. This was

followed by a calibrated liberalization of agri- exports and imports. As a result, Indian

agriculture has increasingly been opened to global agriculture with the ratio of

agricultural exports and imports as a percent of Agricultural GDP rising from 4.9 percent

in 1990-91 to 12.7 percent in 2010-11. This is still low as compared to the share of

India‟s total exports and imports as a percent of India‟s GDP at 55.7 percent India is a net

exporter of agricultural commodities with agricultural exports constituting 11 percent of

India‟s total exports. However, the share of agricultural exports in India‟s overall exports

has been declining from 18.5 percent in 1990-91 to 10.5 percent in 2010-11.

24.2 India in Global Agricultural Trade

Despite substantial degree of economic liberalisation since 1991, export of

agricultural products has remained highly regulated. Policies on export of agricultural

products have seen frequent changes mostly to protect interest of domestic consumers

and industries. Indication of increase in prices of agricultural products has in many

instances led to export restrictions to the detriment of farmers in the absence of other

alternatives. The implication of such ambivalent trade policy has to be carefully

considered in view of the legitimate interest of the Indian farmers, our increasing

integration with world trade and our commitment to international organizations like the

WTO. Frequent changes in export policy measures create a situation of uncertainty and

undermine credibility of the country as a reliable source of agricultural produce for

exports. Once a market is created, a sudden declaration of ban erodes such a reputation

making it difficult to regain the market developed by the exporters. Often there are very

small windows of opportunity in terms of time and price for exports in today‟s

competitive world commodity market. Uncertainty in policy prevents realisation of such

opportunities.

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Such a restrictive export policy amounts to penalising farmers and subsidising the

consumers. With more than required availability of agricultural products, the time has

come to do away with ad hoc control measures, which harm the interests of farmers

including those who are aimed to be protected through such measures. A consistent

policy environment is necessary to adequately incentivise farmers to invest more in

productivity increasing techniques, which will not only help the agriculture sector to

realise its true potential but also assist in meeting the domestic demand. A stable trade

policy on agricultural commodities will provide the right price signal and sufficient time

to farmers to respond to that. Despite policy uncertainties, over the years India has

developed export competitiveness and niche for certain specialized products like basmati

rice, oil meals, cotton, maize etc. India is among the 15 leading exporters of agricultural

products in the world and has also emerged a significant exporter having share of more

than 5 percent of global exports in certain crops like cotton, rice, eggs and oil meals. As

per United Nations Commodity Trade Statistics Database (UNCOMTRADE) 2010, the

global agricultural export trade was USD 994.95 billion, out of which India‟s share was

1.63 percent at USD 16.26 billion. India‟s share in global agriculture trade is 1.48

percent.

24.3 Trade in Agriculture

The Agricultural Exports as a percentage of GDP increased from 1.6 percent in

2007-08 to 2.2 percent in 2011-12. The Agricultural imports as a percentage of GDP also

increased from 0.9 percent to 1.3 percent during the same period. The share of India‟s

total Agricultural Exports and Imports as a percentage of GDP improved from 2.5

percent to 3.5 percent during this period.

24.4 Export of Rice and Wheat

Export of wheat and non-basmati rice on private account was banned w.e.f.

09.02.2007 and 01.04.2008 respectively. However, export of rice and wheat has been

allowed on diplomatic considerations and humanitarian ground. The Government, on

08.09.2011, permitted export of non-basmati rice and 20 lakh tonnes of wheat under

Open General Licence (OGL) by private parties out of privately held stocks through EDI

ports. As on 19.11.2012, a quantity of 77.25 lakh tones of non-basmati rice and 35.95

lakh tones of wheat have been exported under OGL. In view of record production of

foodgrains in the recent years and comfortable stock position of wheat and non-basmati

rice in the Central Pool far in excess of buffer norms/strategic reserve and also to offload

the excess stocks of wheat due to constraints in storage space with FCI and State

Agencies, the government has on 03.07.2012 approved export of 2 million tonnes of

wheat from Central Pool Stocks through CPSUs of the Department of Commerce at the

cost to be determined by individual tender subject to floor price of US$228 per metric

ton. The Government has approved on 29.11.2012, the continuation of the unrestricted

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export of wheat and non-basmati rice, in view of the adequate availability of wheat and

non-basmati rice in the domestic market. Further, with effect from 26.03.2012, export of

6.5 lakh tonnes of flour (Maida), Samolina (Rava and Sooji), Whole meal Atta and

resultant Atta on private account allowed in the year 2009 has been put on OGL up to

31.03.2012.

24.5 Agricultural Exports and Imports

Agricultural exports increased from Rs. 120 thousand crore in 2010-11 to Rs.187

thousand crore in financial year 2011-12 registering a growth of nearly 55 percent.

Increase in value of agricultural exports during 2011-12 was primarily on account of

higher exports of cotton, marine products, guar gum meal, basmati and non-basmati rice,

meat & meat preparations, spices, and oil meals. During the same period export of

tobacco, dairy& poultry products, sugar and molasses registered a decline. In 2011-12

over 2010-11the share of agricultural exports in total exports increased from 10.47

percent to 12.81 percent. Compared to agricultural exports India‟s agricultural imports

increased from Rs. 56 thousand crore in 2010-11 to Rs 85 thousand crore in 2011-12

registering a growth of nearly 50 percent. Increase in value of agricultural imports during

this period was primarily on account of imports of Vegetable oils, pulses, cashew nuts

raw, fruits and nuts, milk and cream and spices. Share of agricultural imports in the total

imports increased from 3.53 percent in 2010-11 to 3.63 percent in 2011-12.

24.6 Regional Free Trade Agreements in Agricultural Trade

India has been negotiating Free Trade Agreements including liberalized trade in

agriculture goods to increase its trade. The main developments during period under

review havebeen: (i) Negotiations on PTAs and FTAs continued to mark progress with

European Union, EFTA (Switzerland, Norway, Iceland and Liechtenstein). MERCOSUR

(Brazil, Argentina, Paraguay, Uruguay), Chile, Israel, Indonesia, Australia, New Zealand

and Thailand. (ii) Association of South East Again National (SEAN) (Brunei, Indonesia,

Malaysia, Philippines, Singapore, Thailand, Cambodia, Lao PDR, Myanmar and

Vietnam) Trade in Goods Agreement Agricultural Prices and Markets 115 was signed on

13th August 2009. This Free Trade Agriculture became effective from 1st January 2010.

India –South Korea Partnership Agreement (CEPA) was concluded on 7th August 2009.

(iii) Trade in goods agreements under India- Japan CEPA and India-Malaysia CECA

were concluded during 2010-11 and have become effective from 1st August 2011 and 1st

July 2011 respectively. (iv) Recently more tariff concession has been provided to

SAFTA LDCs (Bangladesh, Nepal, Bhutan and Maldives) and Non-LDCs (Sri Lanka

and Pakistan). Tariff on all agricultural products has been reduced to zero for SAFTA

LDCs. Bangladesh will be major beneficiary of this liberalization. Tariff on most of the

agricultural products has been reduced to Non-LDCs of SAFTA. Pakistan will be

benefitted from this liberalization.

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24.7 Multilateral Negotiations

India is a founder Member of the World Trade Organization (WTO). As a

Member, India has to abide by WTO rules, including the rules for agricultural trade as

contained in the General Agreement on Tariffs and Trade, the Agreement on Agriculture

and relevant provisions of other WTO agreements. The Agreement on Agriculture

(AOA) applies to basic agricultural products such as wheat, milk and live animals;

products derived from them such as bread, butter and meat; and all processed agricultural

products. It also applies to wines and spirits, tobacco products and fibers. It does not

apply, however, to fish and fish products or forestry products. India‟s commitments and

obligations are governed by these rules and its schedule of commitments notified to the

WTO in 1995 after the Uruguay Round of trade negotiations. The rules and

commitments relate, inter alia, to tariffs, tariff quotas, domestic support to farmers (such

as market price support) and export subsidies, and measures used to restrict exports and

imports. India has to file annual notifications of its domestic support and export subsidies

and ad hoc notifications of any interim measures. Tariffs on agreement products have to

be kept within the „bound‟ or ceiling levels committed in India‟s schedule of

commitments to the WTO. While no subsidies are prohibited under the Agriculture on

Agriculture AOA, Members have to ensure that these are within the limits to which they

are entitled and are in accordance with criteria specified in the Agreement for various

types of support.

24.8 Agriculture in the Doha Round of Trade Negotiations

Agriculture is one of the subjects covered in the Doha Round of trade

negotiations in the WTO which is underway since 2001. Other areas are market access

for non-agricultural products, services, trade-related aspects of intellectual property

rights, rules (covering anti-dumping and subsidies), trade facilitation, etc. These are part

of a „single undertaking‟ which means that nothing is agreed until everything is agreed.

The three main elements or “pillars” of the Agreement on Agriculture (AOA) and the

negotiations are: (i) market access, (ii) domestic support and (iii) export competition. The

negotiations are aimed at: substantial improvements in market access; reductions of, with

a view to phasing out, all forms of export subsidies; and substantial reductions in trade-

distorting domestic support. Special and differential treatment for developing Members is

also intended to be an integral part of the modalities. The objective of the agriculture

negotiations is to reduce the trade-distorting domestic support and export subsidies and

increase market access through a reduction of tariffs. The proposals being negotiated also

include special and differential treatment provisions for developing countries that would,

inter alia, allow them to take minimal tariff cuts on sensitive tariff lines so as to

safeguard their food and livelihood security and rural development needs. There is also a

proposal for a special safeguard mechanism to enable developing countries to protect

their farmers from the effects of import surges or price dips. Doha Round of trade

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negotiations in the World Trade Organization (WTO), launched in November 2001, is

essentially on hold currently. The negotiations in the „Special Session‟ of the WTO‟s

Committee on Agriculture take place on the basis of draft texts on modalities that are

brought by the chairperson of the Committee from time to time. The version that is

currently being discussed was issued on 6 December 2008. Since then hardly any

progress has been made. Ten issues- Blue box support for US, Cotton, Sensitive

Products, Tariff Capping for Non-Sensitive Products, Tariff Quota Creation for Sensitive

Products and Non-Sensitive Products beyond 100percent duties, Tariff Simplification,

Tropical Products and Diversification Products and Preservation of Long Standing

Preferences have been in square brackets or otherwise annotated in the modalities since

December 2008.

The FTAs and Multilateral Trade Agreements need to be revisited after careful

analysis of their impact on the agriculture sector. There is need to ensure an increased

consistency in our trade policy. Measures such as export ban etc. should be the last

recourse. International markets once developed must be protected and cultivated. Further,

we need to ensure that our imports do not adversely impact the domestic production and

returns to the farmers.

24.9 India’s Agricultural Trade: Some Recent Trends Exports

India has been both an importer and exporter of agricultural commodities for a

very long time. India‟s agricultural exports after growing at a rate of only 0.78 percent

per annum during the period from 1961 to 1971, registered a steep hike and during the

period between 1971 to 1981 increasing at an annual average growth rate of 18.36

percent. During the decade of 1980s the growth rate of exports again plummeted to 2.24

percent per annum. The economic liberalization and trade reforms introduced in 1991,

helped India accelerate the growth rate of exports to 7.42 percent per annum. While

during the first half of the 1990s India‟s agricultural exports performed extremely well,

however since 1995-96 these have shown extreme fluctuations. Although the World

Trade Organization (WTO) Agreement on Agriculture in 1995 was expected to improve

India‟s agricultural exports, this does not seem to have happened. There have recently

been some signs of a turnaround during 2002-03 and it is expected that this trend will

continue (MTA). Bhalla (2004) however opines that this sudden surge in Indian exports

has to some extent been the result of existence of large stocks and transport subsidy made

available to exporters. Examined from another angle, the share of agricultural exports,

which constituted more than 30 percent of the total exports from the country during

1970-71 and 1980-81, have of late been declining consistently, more so in recent years.

The declining trend is more noticeable in the post liberalization and post WTO periods.

In 1990-91 agricultural exports constituted about 18 percent of the total exports which in

2000-01 went down to 14 percent. In 2003-04 agricultural exports constituted only 12.4

percent of all exports.

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Although the relative share of agriculture in total exports has been falling over

time and is also lower than that of some other developing countries, the share of

agricultural products in total export earnings is still substantial. While the declining share

of agricultural exports in total exports is explained primarily in terms of the relatively

faster growth in the volume of merchandise exports, it appears that there are other and

more fundamental reasons which underlie the sluggishness of agri-exports from India.

Further not only the share of agricultural exports in the total merchandise exports has

come down steadily over the years but the share of agricultural exports (including

processed food) in agricultural GDP has also declined from 7.6 percent in 1995-96 to 6.3

percent in 2001-02 and recovered to 6.9 percent in 2003-04.

The experience of India since 1971 confirms that growth of agricultural exports

from India is highly correlated with the growth rate of international trade in agricultural

commodities. The recent slow down in Indian exports since mid nineties can also be

attributed to a slow down in international trade in the latter half of the nineties. A

complementary factor for rapid growth of agricultural products during the early 1990s

was high prices of agricultural commodities prevailing in the international markets

during that period and steep devaluation of Indian rupee. The deceleration in growth after

mid 1990s was also on account of fall in international prices for most of the commodities

and simultaneous steep increase in domestic administrative prices making Indian

products non competitive.

An examination of trends in exports of various commodities during recent years

suggest that many commodities like rice, meat products, processed foods, fish, fruits and

vegetables registered very high growth rates during the nineties. On the other hand some

traditional exports like tea, cotton were not able to sustain their growth rates after the

liberalization. Marine products were the largest export earner while oil meals were also a

major item in early 1990s. Recently oilmeal exports have suffered and cotton exports

have collapsed.

24.10 Imports

India‟s agricultural imports have displayed extreme fluctuations, with sudden

surge in imports during the mid 90s. In the post 1995-96 periods, the fluctuations in

imports have varied in the range of 58 per cent to (-) 29 per cent. The percentage share of

agricultural imports in total imports also has shown very high volatility, having moved in

the range of 28 per cent to less than 2 per cent during the same period. There was, in fact,

a negative growth of 29 per cent in 2000-01 but since then, agricultural imports have

grown at a relatively high rate of about 23, 22 and 27 per cent in 2001-02, 2002-03 and

2003-04 respectively. In recent years, imports of only two items, namely, pulses and

edible oils have recorded consistently high volumes. Import of pulses, which used to vary

in the range of 3-6 lakh tonnes in recent years except in 1997-98, when over 1 million

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tones were imported, surged to over 2 million tonnes in 2001-02 and has been close to

that level since then, essentially reflecting shortage of domestic production. Similarly,

import of edible oils surged from 1 million tonnes in 1995-96 to over 4 million tonnes in

1999- 2000 and has since been moving in the range of 4.2 to 5.3 million tonnes per year,

accounting for about half of domestic consumption. As in the case of agricultural export

items, concerted efforts are required to raise the productivity and production of both

pulses and oilseeds in the domestic sector.

Thus on balance, while after 1996 there was a deceleration in export growth, the

agricultural imports have shown an increase. In fact the gap between agricultural exports

and imports has been narrowing down in recent years. Although India abolished its QR‟s

in 2001, this has not resulted in any surge of agricultural imports. There is an increase in

growth but this is mainly because of large imports of edible oils. Recently there has also

been a sharp increase in imports of cotton, raw wool and rubber. India has a large

potential to increase its agricultural exports in a liberalized world rovided it can diversify

a significant part of its agriculture in to high value crops and in grow-processing. This

would depend first on undertaking large infrastructure investment n agricultural and agro

processing as also in rural infrastructure and research and development. India has not

only to create export surplus but also to become competitive through increased efficiency

of production in agriculture. The potential for exports would also depend on freeing of

agricultural markets by the developed countries.

24.11 Agricultural Support Policies

India, like most of the other countries including developed countries, employs a

variety of instruments to both protect and support its agriculture. These instruments can

broadly be clubbed in to three categories: domestic policies, import policies and export

policies. The domestic policies comprise a wide range of policy instruments like input

subsidies on fertilizers, power, irrigation water, public investment in development of

water resources –surface and groundwater, government intervention in markets, direct

payment to farmers (such as those in the form of deficiency payments, insurance and

disaster payments, stabilization payments, as also some compensatory payments), price

support for major crops , general services (such as government transfers to agricultural

research and development, extension services, training and agricultural infrastructure

etc), other support (comprising such measures like certain tax concession specific to

agriculture or local or substantial level funding for agriculture etc). Import policies refer

essentially to border protection through trade barriers such as quantitative restrictions,

quotas and tariffs on imports which in the process create a wedge between domestic and

world market prices. Export policies include those that either promotes exports (through

instruments like subsidies and marketing arrangements that make exportable of a country

more competitive) or those policies that constrain exports (often through canalization and

restriction of exports and export taxes etc). Usually however import policies etc are

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discussed in the context of trade policies rather than support to agriculture per se.

Domestic support and export policies are often intermingled - export subsidies are more

often than not fallout of domestic support policies that maintain domestic prices of

agricultural products within a country at levels higher than international prices. Of the

different types of domestic support to agriculture however the most important have been

through subsidization of input prices and subsidization though payment of higher prices

of crop output than that would prevail in a free trade scenario

24.12 Input Subsidies

The major components of input subsidy are: power, irrigation water and

fertilizers. Subsidy -on both irrigation and power – is defined as the difference between

the cost of providing the service and the charge levied for the service for the total

quantum of that particular input used. In case of power therefore it includes that

difference between the unit cost of power supply to all sectors combined and the average

tariff rate charged from agricultural users for each unit of power and multiplied by the

quantity of power supposedly supplied to agriculture. Irrigation subsidy is defined as the

difference between the cost of supplying water to farmers for irrigation and charges

levied on water. Subsidy is computed as OM cost of irrigation water supply plus 1

percent of cumulative capital cost at historical prices minus the receipt from the

operation of irrigation service. In the case of fertilizers, for estimation of subsidy the

import parity route is generally adopted. Here the subsidy is deemed to be the difference

between the actual price the farmers pay for fertilizers and what they would have paid

otherwise under conditions of free trade in agriculture, which is the farm gate cost of

imported fertilizers. The total input subsidies on irrigation, power and fertilizer during

the year 1999-00 for the country as a whole are estimated at Rs 377 billion at current

prices. This amounts to 2.13percent of India‟s GDP and 8.8 percent of India‟s GDP in

agriculture in that year. Over the past two decades (1980s and 1990s) these subsidies, at

constant prices, have risen nine times - from 11.4 billion in 1981-82 to 104 billion in

2001-02. In nominal terms, the subsidy per hectare of GCA has increased almost

continuously from Rs 45 in 1980-81 to reach an estimated level of Rs 1964 in 1999-

2000. Measured in terms of constant prices, the subsidy per hectare of GCA has

increased more than ten times during the two decade period. The trend in the level of

input subsidies indicates that subsidies in the post reform period of 1990s have been

much higher than the pre-reform period of 1980s. Further, within the post reform period,

the level of input subsidies (total as well as on per hectare basis) in the post WTO period

has been much higher than in the pre-WTO period.

24.13 Export Subsidies

In India the exporters of agricultural products do not receive direct export

subsidies. The export subsidies can be given in the form of transport assistance for

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export, providing common infrastructure for common use by small and medium

producers, quality building and

assurance measures, credit guarantee and insurance to exporters at better terms etc. The

export subsidy is being given in the form of exemption of export profit from income tax

and subsidies on cost of freight on export shipments of certain products like fruits,

vegetables, and floriculture products. The scheme for transport assistance through

APEDA provides for transportation up to a maximum of 25 percent of the freight. The

level of subsidy on exports in India has however been very small and is on the decline in

the recent years.

24.14 Export and Import

India‟s trade policy on agricultural items is guided by the twin objectives of

ensuring food security and building export markets for enhancing the income of farmers,

depending on domestic availability. India is among 15 leading exporters of agricultural

products in the world. As per the International Trade Statistics 2011, published by the

World Trade Organization (WTO), India‟s agricultural exports amounted to US $ 23.2

billion with a 1.7 per cent share of world trade in agriculture in 2010. India‟s agricultural

imports amounted to US $ 17.5 billion with a 1.2 per cent share of world trade in

agriculture in 2010.

24.15 Indian Agriculture in World Trade

India is among the 15 leading exporters of agricultural products in the world. As

per international trade statistics, 2010, published by WTO, India‟s agricultural exports

amounted to US $ 17 billion with a share of 1.4 percent of word trade in agriculture in

2009. On the other hand, India‟s agricultural imports amounted to US 14 billion with a

share of 1.2 percent of World Trade on agriculture in 2009. Agricultural exports

increased from Rs. 89341.50 crore in 2009-10 to Rs 120185.95 crore in financial year

2010-11 registering a growth of about 34.52 percent. Increase in value of agricultural

exports during 2010-11 was primarily on account of higher exports of sugar, molasses,

cotton, guar gum meal, spices, Niger seed, ground nut, maize, coffee, oil meal, castor oil,

tea and jute compared to corresponding period of previous year. However, the share of

agricultural exports in total exports decreased slightly from 10.57 percent in 2009-10 to

10.47 percent in 2010-11. Agricultural imports recorded an overall decrease from Rs.

59528.33 crore in 2009-10 to Rs 56196.20 crore in 2010-11 registering a decline of -5.6

percent over the corresponding previous period. Decrease in the value of agricultural

imports during this period was primarily due to lower imports of pulses, sugar and

cotton. The share of agricultural imports in total imports also decreased from 4.37percent

in 2009-10 to 3.50percent in 2010-11. There has been generally a surplus in agricultural

trade over the years. The trade surplus increased from Rs. 29813.17 crore in 2009-10 to

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Rs. 63989.75 crore in 2010-11 mainly due to the higher export of cotton, sugar and oil

meals. India‟s major exports and imports in terms of value of total agricultural exports

and imports in the recent period

24.16 Scheme for Enhancing the Competitiveness of Indian Agriculture:

Globalization has led to increased competition from international markets and

pressure to dismantle protectionist instruments. Agriculture in India is more a livelihood

matter than a commercial venture. Therefore, it is necessary to build capacities in the

system, such that it is able to withstand the forces of globalization and compete wherever

possible. While there are a large number of issues to be addressed in this context at the

micro and macro levels, the scheme titled Capacity Building to Enhance the

Competitiveness of Indian Agriculture and Registration of Organic Products Abroad

aims to address some of the limited micro-level capacity-creation issues. The scheme

was launched on 28 November 2006 with an outlay of Rs 1 crore for the year 2006-07.

Capacity building under this scheme may be in the form of both academic and relevant

research, or in the form of creation of physical assets critical of agriculture in the

international context. The scheme shall be operated on a cost-sharing basis with State

Governments or other private, semi-government, NGOs. There shall be an Empowered

Committee (EC) which will consider and approve the proposals and also monitor their

implementation. The Department of Agriculture and Cooperation will co-ordinate the

work relating to the scheme and liaise with eligible agencies for release and utilization of

the sanctioned funds.

Negotiations on PTAs and FTAs are at various stages of progress with the

European Union, EFTA (Switzerland, Norway, Iceland and Liechtenstein), MERCOSUR

(Brazil, Argentina, Paraguay, Uruguay), Chile, Israel, Indonesia, Australia, New Zealand

and Thailand. ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand,

Cambodia, Lao PDR, Myanmar and Vietnam) Trade in Goods Agreement was signed on

13 August 2009. This has become effective from 1 January 2010. India –South Korea

Partnership Agreement Comprehensive Economic Partnership Agreement (CEPA) was

concluded on 7 August 2009.

Trade in goods agreements under India- Japan CEPA and India-Malaysia

Comprehensive Economic Cooperation Agreement (CECA) were concluded during

2010-11 and have become effective from 1 August 2011 and 1 July 2011, respectively.

The Doha round of trade negotiations in the World Trade Organizations (WTO), which

were launched in November 2001, is essentially on hold currently. The last revised Draft

Modalities on Agriculture was brought on 6 December, 2008. Ten issues are namely

Blue box support for US, Cotton, Sensitive Products and Non Sensitive Products beyond

100 percent duties, Tariff Simplifications, Tropical Products and Diversification Products

and Preservation of Long Standing Preferences have been in square brackets or otherwise

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annotated in the modalities since December 2008. The focus shifted to possibility of

selecting some issues for finalization as an „Early Harvest‟ in time for the 8th Ministerial

Conference of the WTO scheduled to be held in December 2011,. As part of the “Early

Harvest‟, it was decided to take up LDC issues , which were enlarged to LDC+ issues as

largely insisted upon by USA. Australia has been taking the lead in pushing the Early

Harvest Package which would include several other issues apart from LDC issues. Core

LDC issues are Duty Free Quota Free (DFQF) market access and cotton subsidies. USA

has been insisting that all the major players including Brazil, China, and India should

make significant contributions in the package to take shape. India has said that though

the early harvest of LDC issues was important, the remaining issues of the Doha

development agenda should also be dealt with. USA is unwilling to commit in LDC core

issues such as DFQF and cotton it has been seeking to shift the onus on Brazil, China and

India.

A Mini Ministerial was held in Geneva from 21 -29 July, 2008 to finalize the

Modalities for Agriculture and NAMA. However, the Agricultural Negotiations broke

down due to lack of consensus on the Special Safeguard Mechanism (SSM) apart from

lack of consensus on other important areas of negotiation like sensitive products, tariff

capping, tariff simplification etc. There were several other important developing country

issues like cotton, preference erosion, tropical products, Duty Free Quota Free (DFQF)

market access on which no agreement has been reached. It is reported that the July 2008

negotiations in Geneva had moved very close to consensus. This development has

enough flexibility to enable India to protect its agriculture against imports from

developed countries. Hence India has to try hard to hasten the conclusion of this round.

24.17 Conclusion

The recent mid term appraisal of the 10th Five Year Plan, commenting on the

supply side scenario notes that agricultural growth has been poor, with productivity

growth coming to almost a complete halt in several products. Within the crop sector only

fruits, vegetables, condiments and spices have grown by over 2.5 percent per annum.

Output prices have fallen relative to input prices reflecting a fall in profitability in

agriculture. On the demand side per capita consumption of all cereals, pulses and edible

oils have fallen, with growth of consumption decelerating for all types of food including

milk, vegetables and fruit. This situation implies that there may be a need to focus on

production and demand, increasing the scope of the provision of subsidies, through

minimum support price in other areas such as the Eastern region. Many scholars opines

that the prospects for exports of foodgrains from India seem real, at least for a decade, if

the growth rate in foodgrains output of around 3 percent can be achieved, as the domestic

demand for foodgrains is unlikely to exceed 2.6 percent per annum with even 7 percent

growth rate in GDP. India is unlikely to absorb domestically the whole of foodgrains

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output from a growth rate of around 3 percent for quite sometimes unless drastic changes

in income distribution can be effected.

Importance Questions

Explain India‟s Position on world Agricultural Trade

Write an essay on Agricultural trade in Indian context

Explain about trade agreements on agriculture

Explain Doha round of Trade Negotiation?

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LESSON- 25

NEW AGRICULTURE POLICY

25.0 Objectives

To study the salient features of new agricultural police India

To study the institutional infrastructure

Contents

25.0 Objectives

25.1 Introduction

25.2 The salient features of the new agricultural policy are:

25.3 Sustainable Agriculture

25.4 Food and Nutritional Security

25.5 Generation and Transfer of Technology

25.6 Inputs Management

25.7 Incentives for Agriculture

25.7 Investments in Agriculture

25.8 Institutional Structure

25.9 Risk Management

25.10 Management Reforms

25.11 Conclusion

25.1 Introduction

Agriculture is a way of life, a tradition, which, for centuries, has shaped the

thought, the outlook, the culture and the economic life of the people of India.

Agriculture, therefore, is and will continue to be central to all strategies for planned

socio-economic development of the country. Rapid growth of agriculture is essential not

only to achieve self-reliance at national level but also for household food security and to

bring about equity in distribution of income and wealth resulting in rapid reduction in

poverty levels. Indian agriculture has, since Independence, made rapid strides. In taking

the annual foodgrains production from 51 million tonnes in early fifties to 206 million

tonnes at the turn of the century, it has contributed significantly in achieving self-

sufficiency in food and in avoiding food shortages. Over 200 million Indian farmers and

farm workers have been the backbone of India‟s agriculture. Despite having achieved

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national food security the well being of the farming community continues to be a matter

of grave concern for planners and policy makers. The establishment of an agrarian

economy which ensures food and nutrition to India‟s billion people, raw materials for its

expanding industrial base and surpluses for exports, and a fair and equitable reward

system for the farming community for the services they provide to the society, will be the

mainstay of reforms in the agriculture sector.

The National Policy on Agriculture seeks to actualise the vast untapped growth

potential of Indian agriculture, strengthen rural infrastructure to support faster

agricultural development, promote value addition, accelerate the growth of agro business,

create employment in rural areas, secure a fair standard of living for the farmers and

agricultural workers and their families, discourage migration to urban areas and face the

challenges arising out of economic liberalization and globalisation. Over the next two

decades, it aims to attain:

25.2 The salient features of the new agricultural policy are:

1. Over 4 per cent annual growth rate aimed over next two decades..

2. Greater private sector participation through contract farming.

3. Price protection for farmers.

4. National agricultural insurance scheme to be launched.

5. Dismantling of restrictions on movement of agricultural commodities throughout

the country.

6. Rational utilisation of country's water resources for optimum use of irrigation

potential.

7. High priority to development of animal husbandry, poultry, dairy and

aquaculture.

8. Capital inflow and assured markets for crop production.

9. Exemption from payment of capital gains tax on compulsory acquisition of

agricultural land.

10. Minimise fluctuations in commodity prices.

11. Continuous monitoring of international prices.

12. Plant varieties to be protected through a legislation.

13. Adequate and timely supply of quality inputs to farmers.

14. High priority to rural electrification.

15. Setting up of agro-processing units and creation of off-farm employment in rural

areas.

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25.3 Sustainable Agriculture

The policy will seek to promote technically sound, economically viable,

environmentally non-degrading, and socially acceptable use of country‟s natural

resources – land, water and genetic endowment to promote sustainable development of

agriculture. Measures will be taken to contain biotic pressures on land and to control

indiscriminate diversion of agricultural lands for non-agricultural purposes. The

unutilized wastelands will be put to use for agriculture and afforestation. Particular

attention will be given for increasing cropping intensity through multiple-cropping and

inter-cropping. Rational utilization and conservation of the country‟s abundant water

resources will be promoted. Conjunctive use of surface and ground water will receive

highest priority. Special attention will be focused on water quality and the problem of

receding ground-water levels in certain areas as a result of over-exploitation of

underground aquifers. Proper on-farm management of water resources for the optimum

use of irrigation potential will be promoted.

Erosion and narrowing of the base of India‟s plant and animal genetic resources

in the last few decades has been affecting the food security of the country. Survey and

evaluation of genetic resources and safe conservation of both indigenous and

exogenously introduced genetic variability in crop plants, animals and their wild relatives

will receive particular attention. The use of bio-technologies will be promoted for

evolving plants which consume less water, are drought resistant, pest resistant, contain

more nutrition, give higher yields and are environmentally safe. Conservation of bio-

resources through their ex situ preservation in Gene Banks, as also in situ conservation in

their natural habitats through bio-diversity parks, etc., will receive a high priority to

prevent their extinction. Specific measures will also be taken to conserve indigenous

breeds facing extinction. There will be a time bound programme to list, catalogue and

classify country‟s vast agro bio-diversity. Sensitization of the farming community with

the environmental concerns will receive high priority. Balanced and conjunctive use of

bio-mass, organic and inorganic fertilizers and controlled use of agro chemicals through

integrated nutrients and pest management (INM & IPM) will be promoted to achieve the

sustainable increases in agricultural production. A nation-wide programme for utilization

of rural and urban garbage, farm residues and organic waste for organic matter repletion

and pollution control will be worked out.

Agro-forestry and social forestry are prime requisites for maintenance of

ecological balance and augmentation of bio-mass production in agricultural systems.

Agro-forestry will receive a major thrust for efficient nutrient cycling, nitrogen fixation,

organic matter addition and for improving drainage. Farmers will be encouraged to take

up farm/agro-forestry for higher income generation by evolving technology, extension

and credit support packages and removing constraints to development of agro and farm

forestry. Involvement of farmers and landless labourers will be sought in the

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development of pastures/forestry programmes on public wastelands by giving financial

incentives and entitlements to the usufructs of trees and pastures. The history and

traditional knowledge of agriculture, particularly of tribal communities, relating to

organic farming and preservation and processing of food for nutritional and medicinal

purposes is one of the oldest in the world. Concerted efforts will be made to pool, distil

and evaluate traditional practices, knowledge and wisdom and to harness them for

sustainable agricultural growth.

25.4 Food and Nutritional Security

Special efforts will be made to raise the productivity and production of crops to

meet the increasing demand for food generated by unabated demographic pressures and

raw materials for expanding agro-based industries. A regionally differentiated strategy

will be pursued, taking into account the agronomic, climatic and environmental

conditions to realize the full growth potential of every region. Special attention will be

given to development of new crop varieties, particularly of food crops, with higher

nutritional value through adoption of bio-technology particularly genetic modification,

while addressing bio-safety concerns.

A major thrust will be given to development of rainfed and irrigated horticulture,

floriculture, roots and tubers, plantation crops, aromatic and medicinal plants, bee-

keeping and sericulture, for augmenting food supply, exports and generating employment

in rural areas. Availability of hybrid seeds and disease-free planting materials of

improved varieties, supported by a network of regional nurseries, tissue culture

laboratories, seed farms will be promoted to support systematic development of

horticulture having emphasis on increased production, post-harvest management,

precision farming, bio-control of pests and quality regulation mechanism and exports.

Animal husbandry and fisheries also generate wealth and employment in

agriculture sector. Development of animal husbandry, poultry, dairying and aqua-culture

will receive a high priority in the efforts for diversifying agriculture, increasing animal

protein availability in the food basket and for generating exportable surpluses. A national

livestock breeding strategy will be evolved to meet the requirements of milk, meat, egg

and livestock products and to enhance the role of draught animals as a source of energy

for farming operations and transport. Major thrust will be on genetic upgradation of

indigenous/native cattle and buffaloes using proven semen and high quality pedigreed

bulls and by expanding artificial insemination network to provide services at the farmer‟s

doorstep.

Generation and dissemination of appropriate technologies in the field of animal

production as also health care to enhance production and productivity levels will be

given greater attention. Cultivation of fodder crops and fodder trees will be encouraged

to meet the feed and fodder requirements and to improve animal nutrition and welfare.

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Priority will also be given to improve the processing, marketing and transport facilities,

with emphasis on modernization of abattoirs, carcass utilization and value addition

thereon. Since animal disease eradication and quarantine is critical to exports, animal

health system will be strengthened and disease-free zones created. The involvement of

cooperatives and private sector will be encouraged for development of animal husbandry,

poultry and dairy. Incentives for livestock and fisheries production activities will be

brought at par with incentives for crop production.

An integrated approach to marine and inland fisheries, designed to promote

sustainable aquaculture practices, will be adopted. Biotechnological application in the

field of genetics and breeding, harmonal applications, immunology and disease control

will receive particular attention for increased aquaculture production. Development of

sustainable technologies for fin and shell fish culture as also pearl-culture, their yield

optimization, harvest and post-harvest operations, mechanization of fishing boats,

strengthening of infrastructure for production of fish seed, berthing and landing facilities

for fishing vessels and development of marketing infrastructure will be accorded high

priority. Deep sea fishing industry will be developed to take advantage of the vast

potential of country‟s exclusive economic zone.

25.5 Generation and Transfer of Technology

A very high priority will be accorded to evolving new location-specific and

economically viable improved varieties of agricultural and horticultural crops, livestock

species and aquaculture as also conservation and judicious use of germplasm and other

bio-diversity resources. The regionalization of agricultural research, based on identified

agro-climatic zones, will be accorded high priority. Application of frontier sciences like

bio-technology, remote sensing technologies, pre and post-harvest technologies, energy

saving technologies, technology for environmental protection through national research

system as well as proprietary research will be encouraged. The endeavour will be to build

a well organized, efficient and result-oriented agriculture research and education system

to introduce technological change in Indian agriculture. Upgradation of agricultural

education and its orientation towards uniformity in education standards, women

empowerment, user-orientation, vocationalization and promotion of excellence will be

the hallmark of the new policy.

The research and extension linkages will be strengthened to improve quality and

effectiveness of research and extension system. The extension system will be broad-

based and revitalized. Innovative and decentralized institutional changes will be

introduced to make the extension system farmer-responsible and farmer-accountable.

Role of Krishi Vigyan Kendras (KVKs), Non-Governmental Organizations (NGOs),

Farmers Organizations, Cooperatives, corporate sector and para-technicians in

agricultural extension will be encouraged for organizing demand-driven production

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systems. Development of human resources through capacity building and skill

upgradation of public extension functionaries and other extension functionaries will be

accorded a high priority. The Government will endeavour to move towards a regime of

financial sustainability of extension services through effecting in a phased manner, a

more realistic cost recovery of extension services and inputs, while simultaneously

safeguarding the interests of the poor and the vulnerable groups. Mainstreaming gender

concerns in agriculture will receive particular attention. Appropriate structural, functional

and institutional measures will be initiated to empower women and build their

capabilities and improve their access to inputs, technology and other farming resources.

25.6 Inputs Management

Adequate and timely supply of quality inputs such as seeds, fertilizers, plant

protection chemicals, bio-pesticides, agricultural machinery and credit at reasonable rates

to farmers will be the endeavour of the Government. Soil testing and quality testing of

fertilisers and seeds will be ensured and supply of spurious inputs will be checked.

Balanced and optimum use of fertilizers will be promoted together with use of organic

manures and bio-fertilizers to optimize the efficiency of nutrient use. Development,

production and distribution of improved varieties of seeds and planting materials and

strengthening and expansion of seed and plant certification system with private sector

participation will receive a high priority. A National Seed Grid will be established to

ensure supply of seeds especially to areas affected by natural calamities. The National

Seeds Corporation (NSC) and State Farms Corporation of India (SFCI) will be

restructured for efficient utilization of investment and manpower.

Protection to plant varieties through a sui generis legislation, will be granted to

encourage research and breeding of new varieties particularly in the private sector in line

with India‟s obligations under TRIPS Agreement. The farmers will, however, be allowed

their traditional rights to save, use, exchange, share and sell their farm saved seeds except

as branded seeds of protected varieties for commercial purpose. The interests of the

researchers will also be safeguarded in carrying out research on proprietary varieties to

develop new varieties. Integrated pest management and use of biotic agents in order to

minimize the indiscriminate and injudicious use of chemical pesticides will be the

cardinal principle covering plant protection. Selective and eco-friendly farm

mechanization through appropriate technology will be promoted, with special reference

to rainfed farming to reduce arduous work and to make agriculture efficient and

competitive as also to increase crop productivity.

25.7 Incentives for Agriculture

The Government will endeavour to create a favourable economic environment for

increasing capital formation and farmer‟s own investments by removal of distortions in

the incentive regime for agriculture, improving the terms of trade with manufacturing

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sectors and bringing about external and domestic market reforms backed by

rationalization of domestic tax structure. It will seek to bestow on the agriculture sector

in as many respects as possible benefits similar to those obtaining in the manufacturing

sector, such as easy availability of credit and other inputs, and infrastructure facilities for

development of agri-business industries and development of effective delivery systems

and freed movement of agro produce.

Consequent upon dismantling of Quantitative Restrictions on imports as per

WTO Agreement on Agriculture, commodity-wise strategies and arrangements for

protecting the grower from adverse impact of undue price fluctuations in world markets

and for promoting exports will be formulated. Apart from price competition, other

aspects of marketing such as quality, choice, health and bio-safety will be promoted.

Exports of horticultural produce and marine products will receive particular emphasis. A

two-fold long term strategy of diversification of agricultural produce and value addition

enabling the production system to respond to external environment and creating export

demand for the commodities produced in the country will be evolved with a view to

providing the farmers incremental income from export earnings. A favourable economic

environment and supportive public management system will be created for promotion of

agricultural exports. Quarantine, both of exports and imports, will be given particular

attention so that Indian agriculture is protected from the ingress of exotic pests and

diseases.

In order to protect the interest of farmers in context of removal of Quantitative

Restrictions, continuous monitoring of international prices will be undertaken and

appropriate tariffs protection will be provided. Import duties on manufactured

commodities used in agriculture will be rationalized. The domestic agricultural market

will be liberalized and all controls and regulations hindering increase in farmers‟ income

will be reviewed and abolished to ensure that agriculturists receive prices commensurate

with their efforts, investment. Restrictions on the movement of agricultural commodities

throughout the country will be progressively dismantled. The structure of taxes on

foodgrains and other commercial crops will be reviewed and rationalized. Similarly, the

excise duty on materials such as farm machinery and implements, fertilizers, etc., used as

inputs in agricultural production, post harvest storage and processing will be reviewed.

Appropriate measures will be adopted to ensure that agriculturists by and large remain

outside the regulatory and tax collection systems. Farmers will be exempted from

payment of capital gains tax on compulsory acquisition of agricultural land.

25.7 Investments in Agriculture

The agriculture sector has been starved of capital. There has been a decline in the

public sector investment in the agriculture sector. Public investment for narrowing

regional imbalances, accelerating development of supportive infrastructure for

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agriculture and rural development particularly rural connectivity will be stepped up. A

time-bound strategy for rationalisation and transparent pricing of inputs will be

formulated to encourage judicious input use and to generate resources for agriculture.

Input subsidy reforms will be pursued as a combination of price and institutional reforms

to cut down costs of these inputs for agriculture. Resource allocation regime will be

reviewed with a view to rechannelizing the available resources from support measures

towards assets formation in rural sector.

A conducive climate will be created through a favourable price and trade regime

to promote farmers‟ own investments as also investments by industries producing inputs

for agriculture and agro-based industries. Private sector investments in agriculture will

also be encouraged more particularly in areas like agricultural research, human resource

development, post-harvest management and marketing. Rural electrification will be

given a high priority as the prime mover for agricultural development. The quality and

availability of electricity supply will be improved and the demand of the agriculture

sector will be met adequately in a reliable and cost effective manner. The use of new and

renewable sources of energy for irrigation and other agricultural purposes will also be

encouraged.

Bridging the gap between irrigation potential created and utilized, completion of

all on-going projects, restoration and modernization of irrigation infrastructure including

drainage, evolving and implementing an integrated plan of augmentation and

management of national water resources will receive special attention for augmenting the

availability and use of irrigation water. Emphasis will be laid on development of

marketing infrastructure and techniques of preservation, storage and transportation with a

view to reducing post-harvest losses and ensuring a better return to the grower. The

weekly periodic markets under the direct control of Panchayat Raj institutions will be

upgraded and strengthened. Direct marketing and pledge financing will be promoted.

Producers markets on the lines of Ryatu Bazars will be encouraged throughout the width

and breadth of the country. Storage facilities for different kinds of agricultural products

will be created in the production areas or nearby places particularly in the rural areas so

that the farmers can transport their produce to these places immediately after harvest in

shortest possible time. The establishment of cold chains, provision of pre-cooling

facilities to farmers as a service and cold storage in the terminal markets and improving

the retail marketing arrangements in urban areas, will be given priority. Upgradation and

dissemination of market intelligence will receive particular attention.

Setting up of agro-processing units in the producing areas to reduce wastage,

especially of horticultural produce, increased value addition and creation of off-farm

employment in rural areas will be encouraged. Collaboration between the producer

cooperatives and the corporate sector will be encouraged to promote agro-processing

industry. An interactive coupling between technology, economy, environment and

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society will be promoted for speedy development of food and agro-processing industries

and building up a substantial base for production of value added agro-products for

domestic and export markets with a strong emphasis on food safety and quality. The

Small Farmers Agro Business Consortium (SFAC) will be energized to cater to the needs

of farmer entrepreneurs and promote public and private investments in agri-business.

25.8 Institutional Structure

Indian agriculture is characterized by pre-dominance of small and marginal

farmers. Institutional reforms will be so pursued as to channelize their energies for

achieving greater productivity and production. The approach to rural development and

land reforms will focus on the following areas:

Consolidation of holdings all over the country on the pattern of north-western

States;

Redistribution of ceiling surplus lands and waste lands among the landless

farmers, unemployed youth with initial start-up capital;

Tenancy reforms to recognize the rights of the tenants and share croppers;

Development of lease markets for increasing the size of holdings by making legal

provisions for giving private lands on lease for cultivation and agri-business;

Updating and improvement of land records, computerization and issue of land

pass-books to the farmers, and

Recognition of women‟s rights in land.

The rural poor will be increasingly involved in the implementation of land

reforms with the help of Panchayati Raj Institutions, Voluntary Groups, Social Activists

and Community Leaders.

Private sector participation will be promoted through contract farming and land

leasing arrangements to allow accelerated technology transfer, capital inflow and assured

markets for crop production, especially of oilseeds, cotton and horticultural

crops.Progressive institutionalization of rural and farm credit will be continued for

providing timely and adequate credit to farmers. The rural credit institutions will be

geared to promote savings, investments and risk management. Particular attention will be

paid to removal of distortions in the priority sector lending by commercial banks for

agriculture and rural sectors. Special measures will be taken for revamping of

cooperatives to remove institutional and financial weaknesses and evolving simplified

procedure for sanction and disbursement of agriculture credit. The endeavour will be to

ensure distribution equity in the disbursement of credit. Micro-credit will be promoted as

an effective tool for alleviating poverty. Self Help Group – Bank linkage system, suited

to Indian rural sector, will be developed as a supplementary mechanism for bringing the

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rural poor into the formal banking system, thereby improving banks outreach and the

credit flows to the poor in an effective and sustainable manner.

The basic support to agriculture has been provided by cooperative sector

assiduously built over the years. The Government will provide active support for

promotion of cooperative-form of enterprise and ensure greater autonomy and

operational freedom to them to improve their functioning. The thrust will be on:

Structural reforms for promoting greater efficiency and viability by freeing them

from excessive bureaucratic control and political interference;

Creation of infrastructure and human resource development;

Improvement in financial viability and organizational sustainability of

cooperatives;

Democratisation of management and increased professionalism in their

operations, and

Creating a viable inter-face with other grass-root Organizations.

The Legislative and regulatory framework will be appropriately amended and

strengthened to achieve these objectives.

25.9 Risk Management

Despite technological and economic advancements, the condition of farmers

continues to be unstable due to natural calamities and price fluctuations. National

Agriculture Insurance Scheme covering all farmers and all crops throughout the country

with built-in provisions for insulating farmers from financial distress caused by natural

disasters and making agriculture financially viable will be made more farmer-specific

and effective. Endeavour will be made to provide a package insurance policy for farmers,

right from sowing of crops to post-harvest operations, including market fluctuations in

the prices of agricultural produce. In order to reduce risk in and impart greater resilience

to Indian agriculture against droughts and floods, efforts will be made for achieving

greater flood-proofing of flood prone agriculture and drought-proofing of rainfed

agriculture for protecting farmers from vagaries of nature. For this purpose, contingency

agriculture planning, development of drought and flood resistant crop varieties,

watershed development programmes, drought prone areas and desert development

programmes and rural infrastructure development programmes, will receive particular

attention.

The Central Government will continue to discharge its responsibility to ensure

remunerative prices for agricultural produce through announcement of Minimum Support

Prices policy for major agricultural commodities. The food, nutrition and other domestic

and exports requirements of the country will be kept in view while determining the

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support prices of different commodities. The price structure and trade mechanism will be

continuously reviewed to ensure a favourable economic environment for the agriculture

sector and to bring about an equitable balance between rural and urban incomes. The

methodology used by the Commission on Agricultural Costs and Prices (CACP) in

arriving at estimates of cost of production will be periodically reviewed. The price

structure of both inputs and outputs will be monitored to ensure higher returns to the

farmers and bring about cost effectiveness throughout the economy. Domestic market

prices will be closely monitored to prevent distress sales by farmers. Public and

cooperative agencies undertaking marketing operations, will be strengthened. The

Government will enlarge the coverage of futures markets to minimize the wide

fluctuations in commodity prices as also for hedging their risks. The endeavour will be to

cover all important agricultural products under futures trading in course of time.

25.10 Management Reforms

Effective implementation of policy initiatives will call for comprehensive reforms

in the management of agriculture by Central and State Governments. Central

Government will supplement/complement the State Governments‟ through regionally

differentiated Work Plans, comprising crop/area/target group efforts specific

interventions, formulated in an inter-active mode and implemented in a spirit of

partnership with States. Central Government will move away from schematic approach to

Macro-Management mode and assume a role of advocacy, articulation and facilitation to

help States in their efforts towards achieving accelerated agricultural development. The

Government will focus on quality aspects at all stages of farm operations from sowing to

primary processing. The quality of inputs and other support services to farmers will be

improved. Quality consciousness amongst farmers and agro-processors will be created.

Grading and standardization of agricultural products will be promoted for export

enhancement. Application of science and technology in agriculture will be promoted

through a regular system of interface between Science and Technology institutions and

users and potential users, to make the sector globally competitive.

25.11 Conclusion

The database for agriculture sector will be strengthened to ensure greater

reliability of estimates and forecasting which will help in the process of planning and

policy making. Efforts will be made to significantly improve and harness latest remote

sensing and information technology to capture data, collate it, add value and disseminate

it to appropriate destinations for managing the risk and in accelerating the growth

process. The objective will be to engage in a meaningful continuous dialogue with the

external environment in the changing scenario and to have on-line and real time system

of „Agriculture on-line‟ capacity to analyze signals emanating from the farms and

markets for the benefit of farmers.

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Important Questions

1. Explain salient features of new agricultural policy

2. Explain the importance of investments in agriculture

3. How transfer of technology enhance the agricultural output?

4. How institutions are helpful to develop the agriculture sector in India?