Month: October 2020

Direct Cash Support

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Last Updated: Feb 2023

Direct Cash Support

This article deals with ‘Direct Cash Support.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

Introduction

According to NABARD’s All India Rural Financial Inclusion Survey, the average monthly income of the agricultural household is Rs 8900, out of which agriculture brings barely Rs 3100. Hence, farming is not a profitable enterprise in India.  Along with that, there are inherent deficiencies with the crop procurement system and MSP.

Schemes for Direct Cash Support for farmers

To deal with these issues, Central Government and various state governments have started Direct Cash Support Schemes for farmers.

Direct Cash Support

1 . PM-KISAN

  • PM-KISAN = Pradhan Mantri Kisan Samman Nidhi
  • The Agriculture Ministry runs this scheme.
  • Under this, income support of ₹6,000 / annum is given to all farmers in three instalments of ₹ 2,000 each.

Schemes by other states

2. Ryuthu Bandu Yojana

  • The Telangana government started it.
  • The government gives Rs 5,000/acre to land-owning farmers for two seasons in a year.
  • Many experts have criticized it, saying that it is pro-big farmers and neglects tenants (since it is per acre and not per farmer).

3. KALIA Scheme

  • KALIA (Krushak Assistance for Livelihood and Income Augmentation) is the scheme of the Odisha government.
  • All farmers are given Rs 10,000 per family as assistance.
  • Landless households, specifically SC and ST families, are given one time Rs 12,500 for activities like goat rearing, mushroom cultivation, beekeeping, poultry farming and fishery. 
  • It is not linked to landholding. Hence, there is lesser exclusion than PM KISAN, and it isn’t pro- big farmers.

Benefits

  • Farmers can avoid distress sales to buy inputs for the next crop. Hence, it will help in better crop price realization.
  • Direct Cash Scheme doesn’t distort the market (which was the case with MSP).
  • This system is consistent with India’s obligations to the WTO since it doesn’t distort market prices. Hence, subsidies given under Direct Cash Transfer are not counted under the De-Minimus limit.
  • It will increase the disposable income in the farmer’s hands and spur growth in rural markets.
  • It will help farmers to deal with problems related to climate change. Economic Survey (2018) noted that farmers income could decrease by 25% due to climate change and global warming.
  • Better than indirect subsidies: Direct Cash Schemes are better than Subsidies given to agriculture.  E.g., In Punjab, the average power subsidy per hectare comes out to be ₹14,000 / ha. If this 14,000 is given as Direct Income Support, it will lead to better outcomes like education, investment in the field etc.

Issues with these schemes

  • Fiscal implications: It will increase the subsidy of the bill of the Union and States, forcing them to deviate from their FRBM targets. 
  • Schemes are subject to gross exclusionary errors as the land records are not digitalized in many states ((for instance, in Jharkhand, Bihar etc.), and tenants are not covered.
  • The amount given under these schemes (for example, Rs 6000 per annum under PM-KISAN) is too low to cover the cost of seeds, fertilizers etc. Input costs for hectare land are around Rs 25,000. 
  • It will encourage further fragmentation of already fragmented landholdings. Farming households holding larger land parcels will try to split holdings to more benefits under the scheme.
  • Role of Banks: Cases of banks settling the amount received under PM Kisan Samman Nidhi against the past liabilities of the farmers with banks have emerged, which goes against the spirit of the scheme.
  • Inadequate financial support: The amount offered by PM-KISAN is insufficient for even the bare minimum sustenance of vulnerable farmers.

After a particular stage of economic development, it becomes difficult for average per capita agricultural incomes to keep pace with the rest of the economy, as land productivity becomes a limiting factor. Therefore, moving workers away from agriculture is the only sustainable solution: Such schemes can only provide temporary relief in the interim.

 Minimum Support Price

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Last Updated: Feb 2023

Minimum Support Price

This article deals with ‘Minimum Support Price.’ This is part of our series on ‘Economics’, which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

What is the Minimum Support Price?

  • The government introduced MSP in the 1960s in the wake of the Green revolution. Minimum Support Price is the minimum price at which the government buys crops from the farmers, even if the market price is below that rate. It serves as a “floor” price, below which government will not allow prices to fall, EVEN if there was a bumper crop.
  • MSP has been in place since 1966-67.
  • In PUCL vs Union of India (2001), the Supreme Court of India declared MSP essential to ensure food to every Indian, which is an integral part of Article 21. Later, National Food Security Act (NFSA) gave legal sanctity to this. 
  • MSP is announced in the
    • Beginning of sowing season
    • For 23 Crops
    • Based on the recommendations of CACP (Committee on Agriculture Cost & Prices)  
    • Approved and announced by CCEA (Cabinet Committee on Economic Affairs ) 
 Minimum Support Price
  • MSPs are important because 
    1. It enhances the production of targeted crops. 
    2. Protect farmers against the bumper crops which bring down the market prices.
    3. Protect farmers from the cartelization/price-fixing by the mandi-merchants.
    4. Motivate farmers to adopt improved crop technologies.
    5. MSP also helps in creating the benchmark for the price of the crop.

In the absence of such a guaranteed price, there is a concern that farmers may shift to other crops, causing a shortage in these commodities.

23 crops for which MSPs are announced are

7 Cereals Paddy, wheat, barley, jowar, bajra, maize and ragi
5 Pulses Gram, arhar/tur, moong, urad and lentil
7 Oilseeds Groundnut, rapeseed/mustard, soyabean, sunflower seed, sesamum, safflower seed and Niger seed
4 Commercial crops Sugarcane, raw cotton, raw jute and Virginia flu cured (VFC) tobacco

MSP Procurement Process

  • The primary duty to purchase, store, transport, distribute and sell foodgrains is of two Central Agencies.
    1. Food Corporation of India (FCI)
    2. NAFED, i.e. National Agricultural Cooperative Marketing Federation of India Limited 

Open-Ended Procurement is for Wheat and Rice

Wheat and Rice – FCI conducts “Open-ended procurement” for Wheat and Rice.
– It means the government will buy at MSP from any farmer who comes forward to sell. (even if market prices are running higher than MSP).
Other crops – Procurement is not open-ended.
– It means the government buy ONLY when their prices fall below MSP in the open market.
  • Procurement is done at MSP, and then Central Agencies sell the produce to States at Issue Price. States, in turn, distribute this under the provisions of the National Food Security Act, 2003, to 75% of the rural population and 50% of the urban population at a low price (Rs 3/kg – Rice, Rs 2/ Kg – Wheat and Rs 1/ Kg – Coarse grains).
  • The issue price is significantly lower than MSP, and the Centre bears the whole of this subsidy load.
MSP Procurement Process

Costs: A2, A2+FL and C2

The Commission for Agricultural Costs and Prices (CACP) calculates and recommends MSP. It computes three types of costs.

A2

Actual costs directly incurred by the farmer on

  1. Inputs like seeds, fertilizers, pesticides and hired labour
  2. Diesel, electricity to run tractors and pumps.
  3. Depreciation of machinery.

A2 + FL

  • It is the summation of A2 and imputed value of wages to family labour (based on the assumption that, if members of the family were paid for their labour, how much it would have cost).

C2

  • C2 = A2 + FL + rent paid for any leased-in land or the imputed rent for the owned land and the interest on owned fixed capital.
  • Generally, CACP announces MSP which is 1.5 times (A2 + FL). 
  • But, MS Swaminathan Commission or National Commission on Farmers (2006) suggested 50% profit on C2.

Side Topic: Market Intervention Scheme (MIS)

  • Market Intervention Scheme (MIS) is similar to MSP, but it is implemented at the request of state governments to procure perishable and horticultural commodities in the event of a fall in market prices. 
  • The scheme is implemented if there is at least a 10% increase in production or a 10% decrease in rates over the previous year. 
  • The concerned state has to bear 50% loss while Union bears the rest of the 50%.

Critical analysis of Minimum Support Price in modern times

Presently MSP is being announced for  23 crops, but the primary emphasis remains on two crops, i.e. rice & wheat.

Pros

  1. MSP provides financial assurance and security to the farmers.
  2. Production of targeted crops increases. For example, India, once an importer of wheat, is now one of the largest producers.
  3. Historically, the increased production has helped India in achieving food security.
  4. Protect farmers from exploitation of middlemen

Cons

  1. It has distorted the cropping pattern in India. For example, rice is grown in Punjab and Haryana due to high MSP, which impacts the soil health and overexploitation of groundwater.
  2. MSP mainly focuses on rice and wheat, resulting in the attainment of food security at the cost of nutrition security (as pulses, oilseeds, and coarse cereals are not grown).  
  3. MSP regime concentrated on wheat, and rice has led to monoculture, destroyed agricultural biodiversity and led to massive consumption of pesticides.
  4. According to Economic Survey (2020), due to guaranteed procurement of Wheat and Rice at MSP, Government procures around 40-50% of the total market surplus of rice and wheat, making the government virtually a monopsonist in the domestic grain market. It disincentivizes the private sector to undertake long-term procurement, storage, and processing investments.
  5. MSP benefits only large farmers because large farmers have a surplus to sell.
  6. It goes against WTO Obligations as overall subsidies given to the agriculture sector, including MSP subsidies, exceed the De-Minimus limit.
  7. MSP goes against the Principle of Laisse Faire (Free Market Principles).
  8. Poor Procurement System: MSP procurement is absent for most crops (except Rice and Wheat) in most states (except Punjab and Haryana). For example, in the case of wheat, of the average of 33 per cent of marketed surplus procured, 90 per cent procurement is accounted only from Punjab, Haryana and Madhya Pradesh.
  9. Lack of Safeguards:  The farmers are not paid any compensation in case they sell their produce in the open market below the MSP.

Solutions to Minimum Support Price  Problems

  • MSP should be rationalized to depict social rather than private returns on production
Solutions to Minimum Support Price Problems
  • Three models have been suggested by NITI Aayog ( Price Deficiency Payment (PDP)), Market Assurance Scheme (MAS), (Private Procurement & Stockist Scheme (PPSS))
    1. Price Deficiency Payment: The government doesn’t have any role in procurement (but MSP is announced). If the price in an APMC Mandi fell below the MSP, then the farmer would be entitled to a price difference. This system is consistent with India’s obligations to the WTO since it doesn’t distort market prices. Bhavantar Bhugtan Yojana in MP and Haryana follows this model.   
    2. Market Assurance Scheme: State will procure from the farmer and sell it. The Centre will compensate the state for losses incurred.
    3. Private procurement and stockist Model: Under this, private entrepreneurs would do procurement at MSP announced by the government. 

PM-AASHA Scheme

  • PM – AASHA = Pradhan Mantri Annadata Aay SanraksHan Abhiyan 
  • It was rolled out in September 2018.
  • It is a Central Sector Scheme and is 100% funded by the Union.

Why this scheme was started?

  • To give better returns to farmers.
  • To plug the gaps in food procurement &  MSP system like
    1. MSP & procurement has limited geographical reach (mainly operational in Punjab, Haryana, UP only).
    2. MSP & Procurement concentrate on Wheat & Rice & excludes oilseeds, coarse cereals etc.

Components of PM-AASHA 

It has three components for complementing the existing schemes of  procurement

  1. Price Deficiency Payment Scheme (PDP): This will cover all oilseeds for which MSP is notified, and the Centre will pay the difference between the MSP and actual selling price to the farmers directly into his bank account  
  2. Price Support Scheme (PSS): Under this, physical procurement of pulses, oilseeds and copra will be done by NAFED & FCI. The Centre would bear expenditure and losses due to procurement. 
  3. Private Procurement and Stockist Scheme (PPS): Roll out PPS in select districts where a private player can procure crops at MSP when market prices drop below MSP. The private player will then be compensated up to a maximum of 15% of the MSP of the crop. 

Should MSP be legalized?

The farmers protest against the farm laws has ignited the debate regarding the legalization of MSP in India.

Present Status of MSP:  Presently, MSP does not enjoy statutory recognition. It means that there is no onus on the private sector to buy at MSP. Legalization of MSP would ensure that the private sector would buy commodities at MSP. Failure to buy at MSP would be penalized.

Need of Legalization

  • It will enhance the income levels of the Indian farmers as most of the farmers sell their produce below MSP in the present regime.
  • It will reduce the exploitation of farmers by the corporations in case they force the farmers to sell their produce below MSP.

How can MSP be given Statutory Backing?

  1. Forcing the private traders to buy the crops at least at MSP announced by the government. This system is already working in the case of sugarcane.
  2. Government can procure all the crops through its agencies such as FCI, NAFED etc., at MSP. 
  3. Price Deficiency Payments: Government can allow the sale at the market price but give the difference between the average market price and MSP to farmers. But PDPS is based on the Bhavantar Bhugtan Yojana implemented in the State of Madhya Pradesh. In Madhya Pradesh, there was unfair collusion between traders and farmers wherein the traders asked the farmers to sell the agricultural produce below the MSP. The compensation amount given by the Madhya Pradesh government was then shared between the traders and farmers. 

Challenges

  • In the case of bumper harvest, the private buyers might not buy anything from the farmers in fear of punishment by the government. 
  • Inflation: It will lead to inflation in the economy as buying below the statutory MSP will not be possible. 
  • Negatively impacts agricultural exports: Agricultural exports will be greatly impacted as exporters can’t buy below the MSP even when the international prices are low. 
  • Financing issue: The government can’t buy all the agricultural produce as it will cost the government half of its budget. Even now, the government is spending Rs. 2 lakh crore on food grain management. 
  • Violation of WTO Agreement: Legalizing the MSP goes against the WTO agreements as India will breach the de-minimus limit in such a scenario. 
  • Goes against free-market economics: According to the Principles of Laize Faire, the price of the goods must be decided by the forces of supply and demand and governments shouldn’t intervene to impact the price. 

Taxing Agricultural Income

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Last Updated: Feb 2023

Taxing Agricultural Income

This article deals with ‘Taxing Agricultural Income.’ This is part of our series on ‘Economics’, which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

Introduction

Taxing Agricultural Income

Niti Aayog, in its 3-year plan, suggested that agriculture income should be brought under the purview of personal Income Tax because non-agricultural entities sometimes use blanket relief to evade taxes.

Present Status

  • Under the Constitution, States can demand Income Tax on Agricultural Income.
  • Six states currently have agricultural tax legislation on the books—Tamil Nadu, Kerala, Assam, Bihar, Odisha and West Bengal— although implementation varies substantially & being levied mostly upon income from plantations. 

Debate – Should it be Taxed or Not?

Yes, it should be taxed

  • This provision is used as a loophole to evade taxes (According to Tax Administration Reform Commission (TARC) (2014))
  • Most Farmers in India are either Marginal or Small farmers (87%) and will remain outside the ambit of taxation.  
  • Agriculture Income Tax is a state tax. It will improve the financial position of  States which are always in a financial crunch.  
  • Various Committees of the past have suggested to agricultural tax income—Eg: The committee on agriculture taxation headed by K.N. Raj (1972). Dr B.R. Ambedkar also favoured taxing agricultural income.
  • To increase Income Tax Base: In India, only 4% of voters pay tax. Since 42% of the population is involved in Agriculture, the only way to increase it is to bring Agriculture Income under Income Tax.

No, it shouldn’t be taxed

  • The agriculture sector is already in a bad state and needs impetus.   
  • Administrative problems: Unlike Income from jobs, the Agriculture sector doesn’t guarantee fixed Income and is vulnerable to price fluctuations.   
  • Taxing of agriculture income is a state prerogative. Hence states should decide on this. 
  •  Income tax on agriculture can make this sector more unattractive to the young generation.

Conclusion: As suggested by MS Swaminathan,  the best and most practical way is to stop the subsidies given to Big Farmers instead of imposing taxes on agricultural income. In future, when the Agriculture sector achieves sufficient development taxing, it can be thought. 

Green Revolution

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Last Updated: Feb 2023

Green Revolution

This article deals with the ‘Green Revolution.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

Introduction

India’s first prime minister, Jawaharlal Nehru, said, “everything can wait but not agriculture“. So independent India invested heavily in dams, both for power generation and for bringing large areas under irrigation. It had a positive impact on food production. But by the 1960s, India faced a severe deficit of food grains. The situation was saved by introducing more productive dwarf varieties of wheat and rice, which brought about the “Green Revolution” in Asia.

Need for Green Revolution in India

  • After Independence, India wasn’t self-sufficient in food production. Hence, India imported food grains from the US under the PL-480 program. But these grains had strings attached, which impacted India’s foreign policy. So India thought to attain food grain sufficiency.
  • Land Reforms failed to bring about change in agriculture. Hence, a paradigm shift was required in the policies to develop Indian agriculture.

Hence, India went for New Agricultural Strategy (NAS) to increase food grains production. NAS stressed fertilizers, irrigation, HYV seeds, credit extension to creditworthy farmers (to buy costly equipment & seeds). 

Green Revolution begins

Green Revolution was centered around the use of High Yielding Variety (HYV) seeds developed by the US agro-scientist Norman Borlaug researching a British Rockefeller Foundation Scholarship in Mexico in the late 1950s. The new wheat seeds developed in vivo claimed to increase productivity by more than 200%.  

Components of the Green Revolution

The Green Revolution was based on the timely & adequate supply of many inputs/outputs.

1. HYV seeds

  • They were popularly called ‘dwarf’ varieties of seeds.
  • Dr Borlaug had been able to develop seed which directed the large amount of nutrients supplied to wheat plant towards grain & less towards leaves and stem (reason for dwarfness).

2. Chemical Fertilisers

  • The seeds increased productivity provided they got sufficient nutrients from the land.
  • Traditional compost couldn’t supply the nutrients required because it had a low concentration of nutrient content. That is why a high-concentration fertilizer is needed – the only option was the chemical fertilizer containing N, P, K.

3. Irrigation

  • There was a need for controlled means of water supply for adequate growth of crops & adequate dilution of fertilizers.
  • It made two critical compulsions – firstly the area of such crops should be at least free of flooding & secondly, artificial water supply should be developed. 

4. Chemical Pesticides & Germicides

  • As the HYV seeds were new & non-acclimatized to local pests, germs & diseases, pesticides & germicide became compulsory for result oriented & secured yields.

5. Chemical  Herbicides & Weedicides

  • To prevent the costlier inputs of fertilizers not being consumed by herbs & the weeds in the farmlands, herbicides & weedicides were used while sowing the HYV seeds.

6. Credit , Subsidies, storage, marketing etc.

  • For farmers to use the new & the costlier inputs of the Green Revolution, easy & cheaper credit was required. 
  • Also, the inputs had to be made cheaper via subsidies. 
  • The farmlands suitable for this new kind of farming were region-specific (Haryana-Punjab & Western UP). The storage was made in these regions from where it was distributed throughout the country.

Positive Impacts of the Green Revolution

  • The productivity of major cereal crops, viz., wheat and rice, was boosted. India, dependent on the US for food grains through PL-480, became self-dependent wrt food crops. As a result of the Green Revolution, cereal production in India increased.
Green Revolution
  • Food self-sufficiency helped India take independent stands in foreign affairs & save huge Foreign Reserves.
  • The Green Revolution positively affected industries that manufactured agricultural tools like tractors, engines, threshers, and pumping sets.
  • New dams were constructed to harness monsoon water. The water stored was used to produce hydroelectric power. It, in turn, boosted industrial growth and improved life of people. 
  • It created a rural middle class who later invested in their children’s studies.

Negative Impacts of the Green Revolution

  • The agriculture subsidy regime that started during the Green Revolution is now hurting the government’s finances. 
  • Green Revolution has distorted the farm ecology and led to environmental degradation.  
    1. Due to the repetitive cropping pattern and increased cropping intensity, soil fertility has decreased. 
    2. An exponential rise in the tube wells has declined the water table in Punjab and Haryana.
    3. Large scale loss of biodiversity and indigenous varieties of crops has been lost forever.
    4. Increased use of fertilizers, pesticides and herbicides has led to chemical contamination and toxicity of the soil. 
    5. It has led to extensive water pollution, which has polluted underground water. 
    6. It has increased the instances of cancer, renal failure, stillborn babies, and congenital disabilities due to overuse of pesticides & herbicides.
    7. It has led to the rise in malaria incidence due to waterlogging. 
  • There were Socio-Economic Impacts as well 
    1. It has increased the income inequality in villages. Since Green Revolution was input-centric, only rich farmers who could afford the inputs became rich at the cost of small & marginal farmers.
    2. Dominant castes like Jatts, Jats, Yadavs, Kurmis etc., started to assert themselves in politics because of their numerical superiority and newly acquired wealth. 
    3. The use of machineries such as tillers, tractors, threshers, and harvesters led to the displacement of the service caste groups who used to carry out these agriculture-related activities.
  • Pulses, millets and oilseeds were neglected. As a result, India needs to import oil seeds & pulses now.

Second Green Revolution 

In First Green Revolution, India achieved food security, but it had some drawbacks, for which we need Second Green Revolution.

Second Green Revolution is needed, which will

  1. Special focus on the Eastern States likes Bihar, West Bengal, Jharkhand, Assam, Odisha & North East which have not benefitted as much from the 1st Green Revolution.
  2. Apart from Wheat & Rice, it should also focus on Pulses, Oilseeds and other cereals like maize etc., making India self-sufficient in a real sense. 
  3. It will be Eco-Friendly and Sustainable. Food Security should not come at the cost of soil fertility, lowering water and health of farmers.

Hence, Second Revolution should be more inclusive and sustainable and target nutrient security.  

Climate Change & Agriculture

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Last Updated: Feb 2023

Climate Change & Agriculture

This article deals with ‘Climate Change & Agriculture.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

Introduction

Climate Change & Agriculture
  • Climate Change is leading to
    1. Changes in Mean Temperature
    2. Excess or deficit in rainfall 
    3. Uncertain weather behaviour (due to change in pressure systems) 
  • Indian agriculture, with 60% rainfed area, remains vulnerable to various vagaries of monsoon. Climate change has aggravated these vagaries.
  • Intergovernmental Panel on Climate Change (IPCC) report has also pointed out that climate change will gravely affect agriculture & food security.

Observations from Economic Survey

  • The number of Cold Days in a year has been decreasing. 
  • The number of Dry Days in a year has been increasing. 
  • The average temperature has been increasing in almost all states. 
  • Rainfall has a mixed trend (at some places it is increasing and at other places, it is decreasing). UP and Kerala, along with the North Eastern States, are witnessing a maximum decrease.

How it is impacting Indian Agriculture? 

  • Impact on productivity & yield: Productivity & yield will decrease. It will impact unirrigated areas more (60% of India’s agricultural land is rainfed).
  • Impact on farmer incomes: Decline in production leads to a decrease in the farmer’s incomes.
  • Pest attacks will increase due to the warming of the climate. It was seen in the attack of White Fly in Punjab in 2015, which led to the destruction of cotton crop or locust attack in Rajasthan and MP in 2020.
  • A rise in mean temperature of 2 to 3 C will reduce the duration of the wheat crop in North India, resulting in a loss of 6 to 7 million tonnes of wheat every year.  
  • The mortality of livestock will increase because of new viruses and bacterial attacks.  
  • The frequency of incidents like floods, droughts etc., will increase. 

Methods to deal

  • Spread Irrigation, especially Drip Irrigation, against a backdrop of rising water scarcity and depleting groundwater ( work on the mantra of “more crop for every drop“) 
  • Strengthen Agriculture Insurance  (Pradhan Mantri Fasal Bima Yojana) to protect farmers against the vagaries of nature. 
  • Moving towards Climate Smart Crops, especially Climate-Smart Millets  (2018 was declared Year of Millets by the Government)
  • Developing Halophyte Varieties (of Rice): Due to Global Warming, the sea level is rising. About 150 years ago, the farmer of Kuttanad in Kerala perfected the method of cultivating rice below sea level, which requires both salinity management and varieties like Pokkali, which are salinity tolerant (FAO has declared the Kuttanad Farming System as a Globally Important Agricultural Heritage Systems (GIAHS)). Areas like Sundarbans should also try this. 
  • Improve pest management
  • Timely availability of weather-based advisories should be ensured.

Schemes of Government

NICRA

– NICAR = National Initiative on Climate Resilient Agriculture 
– It works under ICAR
– Function: To enhance the resilience of Indian Agriculture against climate change & vulnerability.   
NMSA
National Mission for Sustainable Agriculture (NMSA) is a sub-scheme of the Green Revolution. 

Under this mission following schemes have been started
1. Soil Health Card Scheme
2. Parampragat Krishi Vikas Yojana
 
NAPCD National Action Plan to Combat Desertification 

Methods at World Level

  • FAO led  Global Alliance for Climate-Smart Agriculture (GACSA)  
  • Paris Deal to contain Climate Change.

Conclusion: Climate change has already increased the volatility of prices of agricultural commodities. Future will belong to the nations with grains and not guns. 

Side Topic: Climate Smart Agriculture

Climate-Smart Agriculture (CSA) is an integrated approach with three main objectives:  

  1. Reduce the impact of climate on agriculture. 
  2. Reduce the impact of agriculture on climate (agriculture produces 25% of world GHG emissions and 63% of India’s methane emissions)
  3. Increase in productivity as well as incomes of farmers. 

It is a new concept and is at a nascent stage in India.

Doubling Farmers Income till 2022

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Last Updated: May 2023 (Doubling Farmers Income till 2022)

Doubling Farmers Income till 2022

This article deals with ‘Doubling Farmers Income till 2022.’ This is part of our series on ‘Economics’, which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

Introduction

In the 2016 Budget, the Government of India announced to double the farmer’s income (not income from per acre but total what he is earning) until 2022. An annual increase of 15% every year for 6 years was needed.

Government Committees and strategy to achieve this

  • Ashok Dalwai Committee has prepared a report on the way to Double Farmer’s income. 
  • Agriculture Ministry has given Seven-Point Strategy for Doubling Farmers income 
    1. Improvement in crop productivity
    2. Improvement in livestock productivity
    3. Resource use efficiency or savings in the cost of production
    4. Increase in the cropping intensity
    5. Diversification towards high-value crops
    6. Improvement in real prices received by farmers
    7.  Shift from farm to non-farm occupations.  
  • There are some issues as the definition of who constitutes a farmer in India is faulty. The Government considers that person as a farmer who owns the land and possesses a record of right (RoR). But it creates an issue of exclusion and inclusion error.

Ways to double farmer’s income  or increase farmer’s income

1. More from Less

  • Going towards low-input, high-output agriculture, especially Organic farming and Zero Budget Natural Farming.

2. Better Market Price Realization

Farmers should be able to sell their produce at good prices. It can be achieved by

  • Revision of the APMC Act.
  • Promoting Contract Farming.   
  • Focusing on the “demand-driven fork-to-farm approach” (i.e. farmers should produce what consumers demand). Until now, the focus was on ‘farm to fork’ approach.

3. Providing Extension Services

  • Extension services provided to the farmers should be increased. For this, the government should utilize ICT. It can help the farmers make correct decisions regarding inputs and crop-mix decisions.

4. Food Processing

  • There should be more value addition by promoting food processing. The government has already started schemes such as Pradhan Mantri Kisan Sampada Yojana, promoting agro-processing clusters, etc.

5. Insurance and  credit cushion

  • Government should promote Pradhan Mantri Fasal Bima Yojana (PMFBY) to reduce possible risks. 
  • The government should increase the percentage of Institutional Credit to farmers so that they can invest in their farms to increase productivity.

6. Diversification 

Doubling Farmers Income till 2022
  • Emphasis on Livestock sector: Animal husbandry, beekeeping, fishery etc., duly supported by Food Processing Industry should be promoted as a side business to increase farmer’s income.  
  • Farmers should diversify into agroforestry by planting trees on the boundaries of farmers’ fields.

7. Governance

  • States should pass the Model Agricultural Produce and Livestock Marketing Act (APLM) 2017.
  • Government should increase the budgetary allocations to Agricultural Universities, which can do R&D for increasing farmer productivity. 
  • Leasing laws should be reformed so that farmers can lease land easily and do farming on a viable piece of land. 

Agriculture Inputs

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Agriculture Inputs

This article deals with ‘Agriculture Inputs.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


1. Land

  • India has 18% of the world population but 2.5% of the world’s land. Hence, the land is a scarce resource in India. 
  • The net sown area in India is 141 million hectares out of India’s total geographical area of 368 million hectares.
  • Due to the tradition of equal division of land among heirs each passing generation, the issue of small-sized farms and land fragmentation has come to the forefront. 
    • The average size of farm holdings has declined from 2.3 hectares in 1970-71 to 1.08 hectares in 2015-16.
    • The distribution of land is not a consolidated one, but its nature is fragmented. Different tracts have different levels of fertility, and it is distributed accordingly. If there are four tracts to be distributed between two sons, both sons will get smaller plots from all four tracts. Hence, landholdings have become fragmented.
  • Small and marginal farmers account for 87 per cent of Indian farmers (source – Agriculture Census 2015-16).
Marginal farmers less than 1 ha 69%
Small farmer  1 – 2 ha 18%
Small Medium 2 – 4 ha 8%
Medium 4 – 10 ha 4%
Large Above 10 ha 1%

Average Land Holding

Side Topic: Types of Holdings

Agricultural holdings are classified into three categories:

Economic Holding Holding which ensures a minimum satisfactory standard of living in a family.
Family Holding Holding which gives work to an average size family having one plough.
Optimum Holding Maximum size of the holding which must be possessed and owned by a family

Problems due to small land holdings

  • Land Consolidation: Reallocation of holdings to create farms comprising only one or a few parcels instead of many patches. However, all states have passed such legislation, but it has been implemented only in Punjab, Haryana and some parts of UP. 
  • Land Leasing: Union has circulated the Model Land Leasing Act providing security to the owner of land against illegal occupation by a tenant farmer. Provisions of the Model Land Leasing Act will encourage owners of land who have moved to some other sector for employment to lease their land to tenant farmers for cultivation. 

Wayout

  • Land Consolidation: Reallocation of holdings to create farms comprising only one or a few parcels instead of many patches. However, all states have passed such legislation, but it has been implemented only in Punjab, Haryana and some parts of UP. 
  • Land Leasing: Union has circulated the Model Land Leasing Act providing security to the owner of land against illegal occupation by a tenant farmer. Provisions of the Model Land Leasing Act will encourage owners of land who have moved to some other sector for employment to lease their land to tenant farmers for cultivation. 

2. Seeds

  • High Yielding Varieties (HYV) of seeds is one of the most crucial factors for enhancing agricultural productivity. 20-25% of farm productivity rely on seed quality. 
  • But the issue with HYV seeds is that they need to be replaced every year for best results. It is not possible in India because 
    1. Farmers are poor, and they can’t afford to buy HYV seeds.
    2. Due to infrastructural issues, HYV seeds of the best quality aren’t available to meet the demand of all farmers.
  • As a result, India’s Seed Replacement Ratio (SRR) is low, and most farmers use farm-saved seeds.
Seeds quality in India

Side Topic: Seed Replacement Ratio (SRR)

  • SRR is the percentage of sown area covered by the certified seeds rather than the farm-saved seeds. 
  • In India, SRR is low, varying between 20-35% for various seeds.

Side Topic: Type of Quality Seeds

Quality Seeds are of the following types

Breeder Seeds – Breeder seeds are produced in laboratories either by ICAR, Agricultural Universities, or MNCs like Monsanto.
– These seeds can be High Yielding Variety (HYV) or Genetically Modified (GM) Seed.  
Foundation Seeds – Breeder seeds can’t be produced on a large scale. Hence, the industry produces Foundation seeds from Breeder Seeds at a large scale.
– In the government sector, National Seeds Corporation produces the Foundation Seeds using Breeder Seeds made by ICAR or Agricultural Universities.  
Certified Seeds

Foundation seeds are then distributed in villages to large farmers and Farmer Producer Organisations. They use foundation seeds to produce certified seeds.

Breeder, Foundation and Certified Seeds are collectively called Quality Seeds.

They are better than Farm Saved Seeds because, according to Mendel’s Laws, dominant genes will dominate in the next generation, and the efficacy of seeds reduces.

Side Topic: Hybrid Seeds and Genetically Modified (GM) Seeds

HYV seeds can either be Hybrid Seeds or Genetically Modified Seeds. The difference between them is as follows:-

Hybrid Seeds Hybrid seeds are developed by cross-breeding or cross-pollination with other plants.
GM Seeds – GM Seeds are developed by transferring selected genes from one organism into another.
– E.g., In BT Cotton, a gene from bacteria named Bacillus Thuringenesis (BT) is transferred to cotton so that it can produce natural pesticides to kill the insects and pests.

Benefits of HYV  Seeds

  • HYV seeds have a higher yield and productivity than ordinary seeds.
  • HYV has a shorter life cycle, allowing farmers to venture for multiple cropping.
  • Per quintal requirement of irrigation is lower in the case of HYVs.
  • It increases the income of farmers. Per hectare income of farmers increases significantly by using HYV seeds.

Government initiatives wrt Seeds

1 . Sub Mission on Seed

  • It is a scheme under Umbrella Green Revolution Scheme.
  • It aims
    1. To enhance the seed replacement ratio (SRR ).
    2. To upgrade the quality of farm-saved seeds.
    3. To increase the production of certified quality seeds.
    4. Upgradation of public sector seed producing agencies.

2. 100% FDI allowed in Seed Companies

  • 100% FDI is permitted through the automatic route for the development of seeds.

3 . Seed Village Concept

  • A group of farmers in a village are given the training to produce seeds of various crops to fulfil the needs of their village and neighbouring villages.

4. Seed Bank

  • It is the depository of seeds to preserve genetic diversity for future generations.

5. Protection of Plant Varieties and Farmers’ Rights Act, 2001 (PPVFR Act)

  • It protects the intellectual property rights of plant breeders and seed companies. 
  • Under the Indian Patent Act, seeds and plant varieties can’t be patented. To deal with that issue, the PPVFR Act was introduced, which grants Intellectual Property Rights to the company to charge royalty if others use its method to produce the seed. 
  • This issue came to the limelight in the 2019 PepsiCo Controversy. PepsiCo has developed the FC5 variety of potatoes for the production of Lays. Under the contract, PepsiCo supplied FC5 variety seeds to the farmers. But after the PepsiCo contract expired, farmers continued using the hybrid seeds and sold potatoes to rival companies. 

6. Biofortification

  • Biofortification is used to improve the nutritional quality of food crops.
  • E.g., ICAR developed CR Dhan 310 – a rice variety with higher protein and zinc content than traditional rice and Dhan Shakti – a variety of Bajra that has higher Iron content. 

Issues with the Indian Seed sector

  • India has a low seed replacement ratio and high use of farm-saved seeds, negatively impacting farm productivity. 
  • Low investment in R&D by Seed Companies: Investment in R&D is just 3-4% of profits against the international norm of 10-12 %.
  • India has a weak IPR regime to protect the rights of seed companies. Hence, companies are not interested in investing in India.
  • The efficacy of certified seeds is also doubtful in many cases.  
  • Seed Monopoly Issues: Monsanto and other MNCs indulge in seed monopolization. It has become the cause of farmer suicides in Vidarbha.
  • Issue of Terminator Genes: Seed companies use Terminator genes in the GM seeds. Such seeds can be used only once and lose their vigour next season. In this way, farmers are forced to buy expensive seeds every season. 
  • Issue of Trait Fees: Under the Indian Patent Act, Seed companies can’t patent particular seed and plant varieties. But companies like Monsanto can charge Trait Fees if other companies use their technology to produce the seeds. BT Cotton is produced by Indian Seed Companies using Monsanto’s Bollgard technology, and in return, Indian seed companies pay a type of royalty to Monsanto, called Trait Fees. The government of India decides the ceiling on Trait fees. But the government has no fixed policy in this regard, causing many legal issues.
  • Loss of genetic diversity of seeds as local varieties have not been preserved. 

3. Water and Irrigation

  • Water is a critical input for successful agriculture. This water can be provided naturally through rainfall or artificially through human efforts. 
  • Irrigation is the process of supplying water to the crops by artificial means such as canals, wells, tubewells, tanks, etc., from freshwater sources such as rivers, tanks, ponds, or underground reserves.

India and Irrigation

  • India has 18% of the world population but just 4% of freshwater resources. Hence, fresh water is a scarce resource in India. 
  • 40% of India’s total area under agriculture has irrigation facilities & the rest 60% is rainfed.
percentage of land under irrigation
  • There are regional disparities in irrigation facilities. While Punjab, Tamil Nadu and UP have more than 50% of agricultural land under irrigation, other states like Maharashtra and Rajasthan have less than 50%.
  • Due to lower levels of irrigation, 
    1. Indian agriculture is vulnerable to the vagaries of nature. E.g., due to El-Nino induced drought conditions in 2014, the agriculture growth rate dipped to -0.2%. 
    2. Farmers can’t grow multiple crops reducing the overall productivity of farms and farmers. 

Schemes: Pradhan Mantri Krishi Sinchai Yojana (PMKSY)

  • The Ministry of Agriculture launched it in 2015.
  • It is a core scheme in which the Union give some funds, and the rest of the funds are to be provided by states. 
  • It aims to bring 2.85 million hectares of agricultural land under irrigation.

3 objectives to be achieved under PMKSY

Pradhan Mantri Krishi Sinchai Yojana
Har Khet ko Paani – Increase Irrigated Area so that every farm gets an irrigation facility.
– It is to be achieved through Accelerated Irrigation Benefit Program (AIBP).   
Per Drop More Crop – Improve the efficiency of water usage by promoting Micro-Irrigation.
– E.g., Drip Irrigation, Sprinkler Irrigation etc.  
Watershed Management It includes
1. Setting up Water Harvesting Structures like check dams, tanks etc.
2. Conserve Soil Moisture
3. Ground Water Recharge
4. Municipal Water Treatment and re-use  

Suggestions by Economic Survey to improve irrigation

  • River inter-linking project must be completed to transfer water from water surplus basins to water-deficit basins.
  • Electricity subsidies for tubewells should be eliminated as they encourage wastage of water.
  • Pulse cultivation should be encouraged in drought-prone areas.
  • There should be cost-based water pricing, and canal water theft should be dealt with strictly.
  • Rainwater Harvesting should be encouraged to capture and store rainwater.
  • Watershed Management should be promoted for recharge of surface and groundwater.

4. Fertilizer

Basics of Fertilizers

Plants require Nitrogen, Phosphorus and Potassium (NPK) for their balanced growth. If soil is deficient in these nutrients or if the farmer is using High Yielding Variety seeds that require more nutrients than any natural soil can supply, different fertilizers are used to boost nutrients in the soil.

Nutrient Fertilizer used
Nitrogen (N) Urea
– Urea is produced using Haber’s Process using LPG as raw material.
– It is the most widely consumed fertilizer in India. The Ministry of Chemical and Fertilizer gives subsidies to the Indian companies to manufacture and sell it at a lower price to farmers. 
Phosphorus (P) Diammonium Phosphate (DAP)
– 80% of its demand is met via imports.   
Potassium (K) Muriate of Potash (MOP)
– It is not manufactured in India. Hence, 100% of its demand is met via imports.

Fertilizer Subsidies

Fertilizers are provided to the farmers at subsidized rates. In 2020, Rs 71,000 crore was paid in fertilizer subsidies by the Union Government.

There are two types of subsidies on fertilizers

1. Nutrient Based Subsidy

  • Nutrient Based Subsidy is used in the case of DAP & MOP. 
  • The government fixes per kilogram subsidy on DAP & MOP in this system. (Cost of Fertilizer for farmer = Market Price MINUS Fertilizer Subsidy)
  • But, imports of DAP & MOP aren’t controlled.

2. Subsidy on Urea

The case of urea is very different. The government intervenes in the sector in five ways: 

  1. It sets the Maximum Retail Price (MRP).
  2. It provides a subsidy to 30 domestic producers on a cost-plus basis, meaning more inefficient producers get larger subsidies. 
  3. It provides a subsidy to importers.
  4. Imports are canalized—only three agencies can import Urea into India.
  5. Half of the movement of fertilizer is directed—that is, government tells manufacturers where to sell their urea.

These distortions feed upon each other, leading to a series of adverse outcomes.

Leakages

Subsidized urea suffers from 3 types of leakages : 

  1. Inefficient urea producers.
  2. Subsidized urea is smuggled to non-agricultural uses and abroad to Nepal and Bangladesh.
  3. Larger—presumably richer— farmers consume subsidized urea. Ideally, subsidized urea should be given only to poor farmers.

Problems created by the way Urea is subsidized

1. Diversion

  • Urea is subsidized 75% of its price. 
  • Due to this, it is smuggled to
    1. Industry (Ammonia-based industry) 
    2. Across the border to Bangladesh and Nepal  
  • It is estimated that 41% of Urea is diverted to industry or smuggled abroad.

2. Shortages

  • The regulation under canalization creates shortages. Under the provisions of canalization, the government orders specific companies to when to import, what quantities to import & where to sell. But estimating the demand is a difficult task & shortages can’t be addressed instantaneously (it takes 60 days at least).

3. Inefficient Fertilizer Manufacturers

  • Earlier, the main objective of the Indian government was self-sufficiency  & this led to Subsidy on Cost Plus Basis, where the subsidy a firm receives is based on its cost of production: greater the cost, the larger the subsidy. Consequently, inefficient firms with high production costs survive, and the incentive to lower costs is blunted.

4. Environmental & Health Externalities

  • Since urea is cheaper than other Fertilizers, it creates a situation of urea overuse which is detrimental for the soil. Consequently, the soil’s N:P: K ratio is disturbed (Rajasthan – N:P: K = 25:12:1 instead of 4:2:1). 
  • The declining response ratio or marginal productivity of fertilizers since the 1970s is a pointer to their inefficient use in Indian agriculture.

Steps Already Taken

Indian Fertilizer

1. Direct Benefit Transfer 

  • Earlier, the government used to give subsidies to the fertilizer company when fertilizer left the company’s godowns. 
  • This system has been changed. Now, Fertilizer companies are paid subsidies only after the retailer has sold the fertilizer to the farmer through a Point of Sale (PoS) device.
  • This system prevents the diversion of subsidized urea towards non-agricultural purposes and smuggling to Nepal and Bangladesh.

2. Neem coated urea

  • The government started this scheme in 2015.
  • Under this scheme, urea is coated with neem, which has the following benefits
    1. It stops diversion to industrial consumers as neem coated urea cant be used in Ammonia-based industry due to adverse reactions that neem can cause.
    2. It helps in slowing down the Nitrification of urea & increasing the efficacy of urea.
    3. Due to the pesticidal properties of neem, the amount of pesticides required is reduced.   

3. Soil Health Card

  • Soil Health Card Scheme is a component of NMSA (National Mission on Sustainable Agriculture).
  • In this, farmer’s land is tested for 12 parameters and given Soil Health Card (updated every 3 years).
  • The card also advises the farmer about the type of crops that can be grown and fertilizer requirements to achieve maximum yield for various crops.  

Importance

  • Assist farmers in supplying proper fertilizer mix, which is currently dominated by urea. 
  • It will help the farmer to select the most appropriate crop pattern.
  • This will lead to a diverse crop pattern that revolves around wheat & rice.

4. Size of Urea Bag reduced

  • In 2018, the size of the Urea Bag was reduced to 45 kg instead of earlier 50 kg.
  • Reason: Neem Coated Urea has increased the effectiveness of urea. Since farmers mainly assess the requirement of urea in terms of bags, the government has decided to reduce the size of the bag. 

5. Joint Venture

  • To reduce the cost of imported urea, the Indian government is setting up Joint Ventures with companies like Oman, where gas prices are low, resulting in cheaper production of fertilizers. 

Further reforms required

1. Bring Urea under Nutrient Based Subsidy (NBS)

Bringing urea under the NBS program for DAP & MOP would encourage fertilizer manufacturers to be efficient.

2. BAPU Model 

  • Use BAPU (Biometrically Authenticated Physical Uptake) Model for selling urea.
  • Under this model, the government sets the maximum limit on subsidized Urea Bags one can buy. Small farmers will still get all urea at a subsidized rate, but big farmers will have to buy more than the set limit at full price.

3. Leveraging Soil Health Card

  • Use Soil Health Card to make Tailor-made fertilizer for a particular field.

4. Other Steps

Teach farmers about Integrated Nutrient Management which uses practices such as organic manures, plantation of legume crops, crop residue management etc.

Organic alternatives to Fertilizers

Organic alternatives to Fertilizers

1. Organic alternatives to Fertilizers

  • Manure is a natural substance made by the decomposition of organic waste.
  • Apart from nutrients, it also provides humus to the soil.
  • But manure is less rich in nutrients compared to fertilizers.
  • The government is promoting the use of manure via schemes like 
    1. Gobar Dhan Yojana: For converting cattle dung and solid waste from farms and fields to manure, biogas and Bio-CNG (India has 300 million cows generating 3 million tons of dung).
    2. City Compost Scheme: Fertilizer companies and marketing entities will also co-market City Compost with chemical fertilizers.

2 . Vermicompost

  • Vermicompost is a mixture of earthworms and decomposed food, leading to the breakdown of organic matter.
  • Benefits of Vermicompost:
    1. Increase in soil aeration by earthworms.
    2. Enriches soil with microorganisms.
    3. Water retention of soil capacity increases.
    4. Easy to produce at an affordable cost.

3 . Biofertilizer

Biofertilizer uses Micro-Organisms to produce impact similar to Fertilizers. Eg

  1. Rhizobium Bacteria for Nitrogen Fixation.
  2. Mycorrhiza fungi for Phosphorus.

5. Pesticides

Why Pesticides are required?

  • 15-25% of the crop in India is lost to weeds, pests, diseases and rodents.

Statistics of Pesticide Use in India

  • Total pesticide consumption is the highest in Maharashtra, followed by Uttar Pradesh, Punjab and Haryana. 
  • On the other hand, per hectare consumption of pesticides was the highest in Punjab.
  • Amongst the crops, paddy accounts for the maximum share of consumption (26-28%), followed by cotton (18-20%).

Problems in India

Issues of Pesticides in India

Even though per hectare pesticide is much lower in India (0.5 kg per ha) than other advanced economies like 7.0 kg per ha in the USA and 12 kg per ha in Japan. But there are some issues:- 

  1. The quality of the spray is substandard.
  2. Farmers use pesticides without following proper guidelines. 
  3. Use of broad-spectrum pesticides, which kills beneficial insects and pollinators as well.
  4. Residues of pesticides are found in fruits and veggies. It leads to a ban on their exports to first-world nations (especially the EU).
  5. When a pesticide is sprayed on crops, most of it bounces off the leaves, falling on the ground. It then mixes with soil and water, contaminating both, and entering the food chain leading to biomagnification. 
  6. 93 chemicals banned in most of the developed world are sold in India. 
  7. Carcinogenic pesticides like Monsanto’s Glyphosate (brand-named ‘Roundup’) are still sold in India despite the proven fact that it can cause cancer.  
  8. Pesticides like Endosulfan (used on Cashew Plantations in Kerala) have proven genotoxic.
  9. Rising usage: Warmer climate and growing population are expected to increase the use of pesticides to combat the possible rise in pest invasions and feed more people. 
  10. Pesticide poisoning: According to NCRB, in 2019, 6,962 deaths were reported out of 7,007 pesticide poisoning cases.
  11. Opaque and out of date regulatory framework: Pesticide Management Bill (PMB) has been discussed since 2008. The cabinet approved the latest draft in February 2020.
  12. The private sector monopoly: There is a private sector monopoly in pesticide trade whose decision is guided by the profit motive alone. 

Wayout

  1. Move towards Organic Farming.
  2. Use narrow-spectrum pesticides.
  3. Using biocontrol agents and biopesticides: It is a method of controlling pests such as insects, mites, weeds and plant diseases using other organisms. 
  4. Adopt Integrated Pest Management approach, which encompasses a judicious mix of pest control methods like bio-pesticides, bio-control agents and pesticides. (Vietnam Case Study: In Vietnam, almost all the farmers of Mekong Delta adopted a policy of “no-spray for first 40 days”. They used predatory beetles that prey on rice pests.)
  5. Government should pass the Pesticide Management Bill, 2017, which aims to replace the Insecticide Act of 1968 with larger penalties and jail time for selling substandard or fake pesticides. 

Note: India is a signatory to United Nations Environment Programme (UNEP) led Stockholm Convention for persistent organic pollutants and Rotterdam convention for export-import of pesticides.  

6. Mechanisation

Although India is one of the top countries in agricultural production, farm mechanization is just 40% ( & growing at a very slow pace of 5% per annum),  against more than 90% mechanization in the first world.

Mechanization of Agriculture in India

Why Mechanisation is needed?

  • Companies and governments should invest in R&D for making machinery suitable for different terrains and agro-climatic regions of India.
  • Cooperative farming: The cooperative group can buy mechanical tools instead of individual farmers.
  • Rental Model: Like ZoomCar for Tractors, Reapers etc., can also be used.
  • Custom Hiring Centers (CHCs)
  • Invent cheap machines suited to Indian conditions. E.g., small farmers can use power tiller instead of tractor and power reaper instead of Combines as they are more affordable, have low operational cost and can be used in rugged topography. 

According to the  Dalwai  Committee,  the adoption of agricultural mechanization would reduce the input costs by  25%,  enhance productivity by  20%  and increase the farmers’ incomes by  25-30%.

Problems in mechanisation

  • Soil, Terrain & Agro-Climatic Diversity: Machines used in Punjab can’t be used in North East. There is a need for Tailormade products. 
  • Small farmers with limited income can’t buy Tractors.
  • Low loan support by the banks to the agriculture sector compared to the Industrial sector.
  • Due to Small and fragmented Indian landholdings, it is uneconomical to buy individual machines.
  • Credit procedure: The procedure to avail agriculture term loan for various activities helping farm mechanization is very cumbersome. Also, the interest rate is higher for such loans than crop loans.

Issues with Agriculture Mechanisation

  • Higher Agricultural Mechanisation has led to higher water usage, stubble burning, smoke from machines and soil erosion, thus impacting the environment negatively. 
  • Higher use of agriculture machines leads to displacement of unskilled labour from the rural areas. 
  • The agricultural tools in the market are not gender friendly. 
  • The agricultural tools are costly, and since the farms are small, they are not utilized to their full potential. 
  • Regional Disparities: Northern India has higher mechanisation levels than other regions. (Rice and Wheat crops having the largest extent of mechanization).

Solution

  • Companies and governments should invest in R&D for making machinery suitable for different terrains and agro-climatic regions of India.
  • Cooperative farming: The cooperative group can buy mechanical tools instead of individual farmers.
  • Rental Model: Like ZoomCar for Tractors, Reapers etc., can also be used.
  • Custom Hiring Centers (CHCs)
  • Invent cheap machines suited to Indian conditions. E.g., small farmers can use power tiller instead of tractor and power reaper instead of Combines as they are more affordable, have low operational cost and can be used in rugged topography. 

Scheme

1. Sub-Mission on Agricultural Mechanisation (SMAM)

  • It is a sub-part of Umbrella Green Mission.
  • Aims: promote agricultural Mechanization among small and marginal farmers.

2. State Scheme: Rajasthan Free Rental Scheme for Farm Tools   

  • The government of Rajasthan has started a scheme under which small farmers (having land less than 2.5 acres) can use tractors and sowing machines without paying any rent.

3. “FARMS-app”

  • It was developed by Agriculture Ministry. It connects farmers and Custom Hiring Service Centres so that farmers can rent agricultural machinery.

7. Agro-Credit

Agri credit is an essential input for agriculture to improve productivity. Access to institutional credit enables the farmer to enhance productivity by investing in machinery, purchasing variable inputs like fertilizers, quality seeds, and manure, and providing funds until the farmer receives payment from the sale of produce.

Issues

  • The predominance of informal sources: 44 % of agro finance comes from money lenders. These money lenders are highly exploitative and charge exorbitant rates.
Agro-Credit
  • Although Short Term Loan quantity has increased, Long Term Investment in agro infrastructure has decreased both by private & public sectors.  
  • Regional Disparity: The coverage is meagre in the north-eastern and eastern regions of the country. 
  • Agri credit /Agricultural loans are not used for the stated purpose. Primarily, they are used for marriage & consumption purposes by the farmer.

Steps taken by the government in giving loans to farmers easily

Agro Credit in India

1 . Priority Sector Lending Norms for Banks

  • Banks are mandated to give 10% of their loans to Agriculture & Allied Sector, and 8% of their loans should be explicitly given to Marginal and Small Farmers.
  • Budget 2021: Farm loan disbursal target was increased to Rs 16.5 lakh crore (10% increase)

2 . Interest Subvention

  • Under this, loans up to ₹ 3Lakh are given to the farmer at an interest rate of 7% & if his credit history is good, then 5% additional subvention is provided by the government, making the effective interest rate of 2% 

3 . Kisan Credit Card (KCC) Scheme

  • KCC is a smart debit cum credit card for farmers. The farmer can later pay credit at a very low rate of interest.
  • The scheme aims to reduce farmers’ dependence on the informal banking sector for credit, which can be very expensive and suck them into a debt spiral.
  • Recent reports suggest high default rates on KCCs, which are becoming a significant source of non-performing assets (NPAs) for banks despite its various benefits.

4 . Negotiable Warehouse Receipt

  • Under this scheme, the farmer can deposit his produce in a warehouse & get a warehouse receipt in return. The farmer can “mortgage” this warehouse receipt to a banker to get loans or trade at Commodity exchange.
  • Hence, these Negotiable Warehouse Receipt helps the farmer get a loan for the next cropping season on receipt & sell his produce at a later date when he receives a favourable price of his product.  

5 . Loan Waivers

  • Various state governments are giving loan waivers to the farmers. 
  • But the efficacy of such loan waivers and their impacts on the government’s finances is highly debated.

6 . NABARD initiatives

  • NABARD has started various initiatives for the farm sector like 
    1. NABARD refinances Agro Loans. 
    2. NABARD operates Rural Infrastructure Development Fund.

Problems

  1. Although Short Term Loan quantity has increased, Long Term Investment for building Agriculture infrastructure has decreased.
  2. Loans are not reaching the intended beneficiaries. 
  3. It isn’t easy to monitor the end-use of funds. It is not used for agricultural purposes but for marriage or consumption in most cases.
  4. 44% of agricultural finance is still coming from money lenders and informal sources. 
  5. Banks indulge in coercive actions for repayment, which leads to increased instances of farmer suicides.

8. Insurance

Main problems with previous Farm Insurance Schemes

  1. Low Penetration: Only 22% of agricultural land was covered under crop insurance in 2014.  
  2. Low Sums Insured (SI): The sums insured (SI) were low. It was based on the cost of inputs rather than prospective income. 
  3. High Premium: Huge premium was charged. It was as high as 10% of the sums insured.  
  4. Delayed claims settlement: Claims used to lie unclaimed till six months & beyond.
  5. Low literacy: Farmers don’t know about these schemes and their benefits.
  6. Inadequate Infrastructure: Absence of infra to measure data accurately at farm level.

Pradhan Mantri Fasal Bima Yojana (PMFBY)

PMFBY has been formulated according to the One Nation–One Scheme theme. It replaced the existing two schemes (i.e. NAIS (National Agricultural Insurance Scheme and Modified NAIS) by removing their inherent drawbacks and incorporating the best features of all previous schemes.

Features of PMFBY

Pradhan Mantri Fasal Bima Yojana
  1. Target: To bring at least 50% cropped area under Insurance Cover.
  2. PMFBY removes any artificial capping of the Sums Insured(SI). The SI will be calculated by multiplying the MSP of a crop by the average seven-year yield for the particular village panchayat area where it is grown.
  3. Uniform premium: Farmers will pay a uniform premium of
    • 2 per cent for all Kharif crops
    • 1.5 per cent for all Rabi crops
    • 5 per cent for annual horticultural and commercial crops.
  4. Governments to fully meet the gap between the actuarial premiums and the rates payable by farmers at Union and State levels. 
  5. Use of technology: Government will encourage the use of technology, especially mobiles and remote sensing, for quick estimation and early settlement of losses. 
  6. The scheme is extended to cover post-harvest losses as well.
  7. In 2018, the Centre allowed States to set up their own insurance companies for implementing Pradhan Mantri Fasal Bima Yojana (PMFBY). The move comes after several requests from states.

Working of PMFBY 

  1. Area insured has increased by 38%. It fares well in this regard.
  2. Earlier risk assessment was done at the district level, which was later changed to block level. Now Sum Insured (SI) is measured at Village level, which is closer to reality.

But issues

  1. The critical factor of analyzing the efficacy of an insurance scheme is the ability to settle its claims quickly. PMFBY failed in this aspect as it took several months to pay compensation to the farmers.
  2. There are allegations of profiteering by Insurance Companies.
  3. It is alleged that most of the increase in insured areas is due to mandatory insurance for loanee farmers.  
  4. PMFBY does not cover tenant farmers.
  5. No governance reforms have been initiated. This scheme is also implemented with the help of rusted old machinery consisting of Patwaris and revenue officers.
  6. Lack of farmer awareness: According to the CAG, out of 5,993 farmers surveyed, only 37% were aware of the schemes.
  7. One-size fits all approach: All the farmers in the country have been treated as similar without any option to choose an insurance that meets the specific needs of their region.
  8. No provision for competitive pricing: As per the scheme guidelines, every cluster has a specific insurance company selling insurances, creating infrastructure and manpower for three years. Lack of competition creates a monopoly over the scheme. 

Due to the above issues, various states are replacing PMFBY with their own insurance schemes. E.g., Jharkhand has started its own insurance scheme (in 2021) called Kisan Fasal Rahat Yojana, which will be implemented by Jharkhand’s Department of Agriculture, Animal Husbandry and Co-operative. Gram Sabha has been assigned a major role in accessing crop loss.

Beed Model of PMFBY

The Beed is drought prone district in Maharashtra. The private insurance companies hesitate to do agricultural insurance in the district because many times the insurance claims paid is more than premium collected.

The government has come up with novel solution under which Maharashtra Government has roped in Agriculture Insurance Corporation (AIC) under which the private insurance company will insurance claims upto 110% of premium. On the other hand, if the insurance claims are lesser than 80% of premium, the private insurance company will share part of its profit with AIC.

9. Extension Services

Extension Services are expert services provided to the farmers which can help to improve productivity by providing timely advisory services to farmers to adopt best practices, technology, meet with contingencies, market information etc.

But Problems

  1. In India, there is 1 Extension worker per 800-1000 farmers.
  2. 60% of farmers don’t get any service from Extension workers, according to the NSSO survey.
  3. Farmers depend on the progressive farmer of their area or marketing agent of some company for advice on the product they should use. But the problem is they will suggest only those products which give maximum profits.
  4. There is no lab to farm connectivity.

Steps by the Government

Helplines AgriCIinics Student Ready

Government is well aware that there is an Extension Worker deficit in India. To bridge the gap, the government has taken various steps.

1. Various Apps started

These include

  • mKisan
  • PUSA Krishi App

2. Kisan TV

  • Government can’t send the person to each village, but each village has TVs. Hence, the Government of India started Kisan TV in 2015.

3. AgriClinics and Agribusiness Centres 

  • Agriculture Graduates set these up to provide paid advice to farmers on various issues. The Agriculture Ministry and NABARD support this scheme.

4. Krishi Vigyan Kendras

  • Krishi Vigyan Kendras are set up by the Indian Council of Agricultural Research (ICAR) and Agricultural Universities for frontline demonstration of agriculture technologies on the field, updating farmers about modern agriculture technologies and providing advisories to farmers using ICT.

5. Helplines

  1. Kisan Call Centre schemes
  2. SMS portal for farmers.

6. Student Ready

  • Under this scheme, the village students are given Agro education.

7. Krishi Unnati Mela

  • Fairs organised by ICAR to demonstrate new agricultural technologies to farmers.

10. R&D in agriculture

R&D in Agriculture is facing problems in India because

1. Lack of funds

  • The private sector doesn’t contribute much investment in agriculture research, and Government funding to R&D is decreasing considerably. This funding needs to be increased. 
  • Allocation for agri-R&D in Budget 2021 was just Rs 8,514 crore. It is even lower than a single private global company like Bayer, whose annual spending on agri-R&D is almost Rs 20,000 crore.

2. Problem with ICAR

The problem with ICAR is that a single body does several roles starting from education to research to extension. Hence, it has become the jack of all trades but master of none.  

3. Problem with Agriculture Universities

The agriculture universities have been plagued & not able to do much because of

  1. Resource crunch
  2. Difficulty in attracting talented faculty
  3. Limited linkages and collaborations with international counterparts
  4. Weakening of the lab-to-land connect
  5. Lack of innovation

4. Low quality research

The R&D sector is suffering from ‘technology fatigue’, i.e. no innovative invention done by the scientific community in the previous two decades.

5. Cereal Centric Research

Indian agriculture research has become too much ‘cereal centric’. Instead, Indian farmers must to focus on pulses, oilseeds, horticulture and animal husbandry.

What can be way ahead

  1. Increase expenditure on R&D in Agriculture by Government sector. 
  2. Kremer’s HIV Vaccine Idea / Government Pull System of Research: Private research in crops grown at a small scale can be boosted by offering the winner proportionately large cash, but the IPR for that innovation is transferred to the government.
  3. Address the regulatory lacunae in GM Crops technology: Pass BRAI Act (Biotechnology Regulatory Authority of India) to remove the issues associated with the present regulatory framework under the aegis of Genetic Engineering Appraisal Committee (GEAC).

Introduction to Indian Agriculture

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Last Updated: Feb 2023

Introduction to Indian Agriculture

This article deals with ‘Introduction to Indian Agriculture.’ This is part of our series on ‘Economics’, which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

Introduction

  • The word “Agriculture” is a combination of two words, ‘Agri’ means ‘field’ and ‘Culture’ means ‘cultivation’. Hence, Agriculture is the art or science of producing crops and livestock on a farm.
  • India is considered an agricultural economy because 42 % of its population is still dependent on agriculture for livelihood. Recognizing the importance of agriculture in the Indian economy, Mahatma Gandhi considered agriculture as the “Soul of India”. Pandit Jawahar Lal Nehru said, “Everything can wait, but not agriculture.”

Statistics about Indian Agriculture

With the development of the economy, the percentage of people engaged in agriculture is decreasing, and its contribution to the net GDP of India is decreasing as well.

a . Percentage of Indians employed in the Agriculture Sector

  • In 2018, 42% of Indians were employed in the Agriculture sector.
Percentage of Indians employed in Agriculture Sector

b . Contribution of Agriculture to India’s GDP

  • Its contribution to India’s total GDP has decreased from 51% (in 1951) to 17% (in 2018).
  • It means that 42% of the population lives with only 17% of the total income, clearly substantiating the reason why the people who depend on agriculture are poor. 
Introduction to Indian Agriculture

c . Growth rate of the Agriculture Sector

  • The growth rate of Indian Agriculture is highly volatile because Agriculture in India is vulnerable to market forces and the vagaries of climate.
Growth rate of Indian Agriculture Sector

d . Target = Doubling Farmer’s Income till 2022

  • Modi government has announced to ‘Double the income of farmers till 2022 wrt their 2015 income’. But this seems impossible considering the growth rate trends in previous years.

e . Production of Crops

  • The production of crops has seen significant growth. India has become a food surplus country in contrast to a food deficit country in the 1950s.
Production of Crops in India

Agriculture: Prime Moving Force?

  • The Industrial Sector was selected as the PMF of the economy in the late 1940s (i.e. sector which would take the economy forward). But due to market failure, that sector failed to lead the economy.
  • The policymakers understood that the market would not support the industries without increasing the income of people who depend on agriculture for their livelihood. As a result, in 2002, the Government of India announced agriculture as the PMF. 
  • It has been observed that 1% growth in the agriculture sector leads to 0.5% growth in the industrial sector & a 0.7% increase in national income.

Ministries related to Agriculture

Following ministries are related to Agriculture and Allied activities

1. Ministry of Agriculture and Farmer’s Welfare

  • This Ministry looks after the agriculture sector in India.
  • It has two departments viz. 
    1. Department of Agriculture and Farmers Welfare: It is concerned with all the issues of agriculture and farmers.
    2. Department of Agriculture Research and Education: Mainly concerned with research work through the Indian Council of Agricultural Research (ICAR) and agricultural education through Central Agricultural Universities at Imphal (Manipur), Pusa (Bihar) and Jhansi (UP).

2. Ministry of Fisheries, Animal Husbandry and Dairying

  • The government separated this department from the Ministry of Agriculture and made it a full-fledged ministry.
  • It has two separate departments 
    1. Ministry of Animal Husbandry and Dairying 
    2. Ministry of Fishery 

3. Ministry of Co-Operation

  • A separate ministry named the Ministry of Co-operation was set up in 2021. Earlier, it was under the Ministry of Agriculture. 
  • The rationale of separate Ministry
    1. To cleanse the politicization, corruption and inefficiencies prevailing in the cooperative sector.  
    2. Use cooperative societies to increase farmers’ income in a more efficient way.

4. Jal Shakti Ministry

  • The Ministry of Jal Shakti looks after the irrigation needs of farmers.
  • It has two separate departments
    1. Department of Water Resources, River Development and Ganga Rejuvenation
    2. Department of Drinking Water and Sanitation

MS Swaminathan Commission

Official Name: National Commission of Farmers (2004-06) headed by MS Swaminathan.

Main Recommendations

1. Farmer’s Income

  • MSP should be at least 50% more than the weighted average cost of production. (Most Important)
  • The “net take-home income” of farmers should be comparable to civil servants. 

2. Land Reforms

  • Distribute ceiling surplus and wastelands to the landless farmers. 

3. Irrigation Reforms

  • There should be more emphasis on rainwater harvesting.
  • Aquifer recharge should become mandatory. 

4. Credit and Insurance

  • Establish an Agriculture Risk Fund to provide relief in natural calamities.  
  • Issue Kisan Credit Card.
  • Develop an integrated Crop-Livestock-Human health insurance package for farmers. 

5. Governance

Set up State level Farmers’ Commission with the representation of farmers for seeking dynamic government response wrt farmers’ problems. 

Important Schemes

From Core Schemes, those related to agriculture are

1. Rashtriya Krishi Vikas Yojana (RKVY) – Raftaar

  • Rashtriya Krishi Vikas Yojana was started in the UPA regime to achieve 4% annual growth in the agriculture sector.
  • In 2017, the Modi government renamed and rebranded it to RKVY-RAFTAAR.
  • It provides 
    1. Funding for Infrastructure development (warehouse, cold storage, market facility etc.)
    2. Training & skill development (for beekeeping, floriculture, mushroom cultivation etc.)
    3. Financial support to farmers to start Agri-enterprise after getting the training. 
    4. Fund Agri start-ups.

2. Green Revolution – Krishi Unnati Yojana

  • It is an Umbrella Scheme consisting of 11 schemes or missions.
  • The Ministry of Agriculture runs it.
  • Schemes under this are

2.1 Mission for Integrated Development of Horticulture (MIDH)

  • The scheme to promote horticulture covering fruits, vegetables, root and tuber crops, spices, flowers, plantation crops etc., was introduced in 2014-15.
  • Under it, there are 6 sub-schemes
1 National Horticulture Mission (NHM)
2 Horticulture Mission for North East & Himalayan States (HMNEH)
3 National Bamboo Mission (NBM)
4 National Horticulture Board (NHB)
5 Coconut Development Board (CDB)
6 Central Institute for Horticulture (CIH)

This programme is designed to leverage the geographical specialization of horticulture clusters and the development of pre-harvest, harvest and post-harvest activities. 

2.2 National Food Security Mission (NFSM)

  • NFSM aims to increase the production of wheat, rice, pulses, commercial crops, coarse cereals and vegetable oils.

2.3 National Mission for Sustainable Agriculture (NMSA)

  • To encourage organic manures, bio-fertilizers, and cropping practices for soil and moisture conservation measures. 
  • Soil Health Card and Paramparagat Krishi Vikas Yojana have been started under this scheme.

2.4 Submission on Agriculture Extension (SMAE)

  • To provide extension services to farmers like Kisan Helplines, Kisan TV, information about market price, weather forecast etc.

2.5 Sub-Mission on Seeds and Planting Material (SMSP)

  • To promote new technologies in seed production, processing, storage, certification etc.

2.6 Sub-Mission on Agricultural Mechanisation (SMAM)

  • To increase farm mechanization to increase the productivity of Indian farmers.

2.7 Sub Mission on Plant Protection and Plan Quarantine (SMPPQ)

  • To minimize crop damage by insects, pests, nematodes, weeds, rodents, etc. and to protect agricultural biosecurity from alien species like Lantana (Congress Grass).

2.8 Integrated Scheme on Agriculture Census, Economics and Statistics

  • For agriculture data collection, which can be used for R&D and policymaking.

2.9 Integrated Scheme on Agricultural Cooperation (ISAC)

  • To provide financial assistance to farmer cooperatives for agricultural marketing, processing, storage etc.

2.10 Integrated Scheme on Agricultural Marketing (ISAM) 

  • To do marketing of Indian agriculture.

2.11 National e-Governance Plan – Agriculture (NeGP- A)

  • To enhance the reach of extension services- about cropping methods, market prices etc., to the farmers.

3. Agriculture Infrastructure Fund (AIF)

  • It is a central sector scheme operational from 2020-21 to 2029-30. 
  • Aim: Provide medium- and long-term debt financing to create post-harvest management infrastructure and farming assets.
  • Under the scheme
    1. Rs 1 lakh crore is planned to be given to banks and financial institutions, which will provide loans to farmers, cooperative societies, Farmer Producer Organizations etc., for the creation of assets.
    2. Interest subvention of 3% is provided if the loan is lesser than Rs 2 crore.
    3. The government provides a credit Guarantee if the loan is lesser than Rs 2 crores.

4. PM Kisan Sampada Yojana

  • SAMPADA = Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters 
  • It is an umbrella scheme formed by incorporating all the schemes of the Ministry of Food Processing. These schemes include 
    1. Mega Food Parks
    2. Integrated Cold Chain Infrastructure Scheme
    3. Food Safety Infrastructure Scheme
    4. Infrastructure for Agro-processing Clusters
    5. Creation of Backward and Forward Linkages
    6. Creation of Food Processing & Preservation Capacities. 
    7. Operation Green for Tomato, Onion and Potato (for combating inflation in these vegetables)
  • Objectives of the Sampada Scheme
    1. To create jobs in the food processing industry
    2. Reduce food wastage 
    3. Boost Mega Food Parks and Cold Chain Infrastructure

5. Pradhan Mantri Krishi Sinchai Yojana

  • Dealt in Chapter

Strengths & potential of Indian agriculture

  • 17% share in GDP of Agriculture & allied activities.
  • 42% population depends on agriculture & allied activities for employment.
  • First rank in milk production, accounting for 17% of world production.
  • India is the largest producer of fruits like banana, coconut, cashew, papaya, pea, cassava, pomegranate etc.
  • India is the largest producer & exporter of spices. 
  • India is the second-largest producer of vegetables, fruits & fish.
  • Weather permits multiple crops throughout the year.  

Characteristics of Indian Agriculture

  1. Indian agriculture is mainly of the Subsistence type. 
  2. Intensive farming is carried out in a limited area. 
  3. Less-mechanized: The level of mechanization is deficient.
  4. Low-per-person productivity. 
  5. Division of land throughout generations has led to land fragmentation. 
  6. Poor forward & backward linkages. 
  7. The underdeveloped food processing industry leads to low-value addition.
  8. Poor agro-infrastructure like cold storage, refrigerated vans etc.
  9. Indian agriculture is more focused on food grains (cereal crops). 
  10. Diversity of crops: The variety of inter-crop and intra-crop is large. 
  11. India has the highest percentage of the geographical area under cultivation globally.
  12. Mixed agriculture is practised in India, where farmers practice agriculture and livestock /fishery/ poultry.
  13. Indian agriculture is heavily dependent on rainfall for irrigation.
  14. Climate and edaphic factors in India are favourable for agriculture.
  15. Minimum attention is paid to fodder crops.

Problems of the Indian Agriculture Sector

Since independence, Indian agriculture has advanced significantly, with chronic food shortage giving way to food self-sufficiency despite a 1.5-fold rise in population. In 1966-67, before India’s Green and White Revolutions, Indian wheat and milk production was just around one-third of American output. Presently, Indian wheat output is 60 per cent higher than America’s, while Indian milk output is 50 per cent higher. However, these tremendous increases in aggregate production do mask some disquieting trends.

1. Excessively Cereal Centric

  • Although India has become self-sufficient in food production, at the same time has become excessively cereal-centric and input-intensive as the present cropping pattern consumes a large amount of land, water, and fertilizer. 

2. Reducing Per Capita land

  • In India, 87% of farmers are Small and Marginal (i.e. owning less than 2 ha land).

3. Marketing Problems 

There are a large number of marketing problems wrt Indian agriculture like

  1. APMC Act issues
  2. Lack of Warehouses
  3. The Food Processing Industry is not developed.
  4. Significant price fluctuations, especially sharp fall in prices.

4. Monoculture

  • Monoculture uses the land to cultivate one crop type, usually for multiple years in a row. E.g., Punjab’s 83% land is devoted to rice and wheat alone.
  • Impact 
    1. It decreases land productivity.
    2. It leads to an inadequate response to fertilizers. 
    3. It decreases the health of the soil.
    4. Crops become more susceptible to pest attacks. 
    5. It impacts nutritional security.

5. Water Challenge

  • India grows water-intensive crops like sugar, which uses 2000 lt, and rice which uses 5000 lt of water to produce a kilogram.
  • Despite being one of India’s most scarce natural resources, India uses 2 to 4 times more water than China or Brazil to produce a unit of a food crop.
  • 70% of fresh water in India is used for Agriculture, which is the highest globally. 
  • India uses a “flood” irrigation method using the canal and well irrigation facilities, which is highly inefficient.
  • Subsidies on power for agricultural use incentivize wasteful use of water.
  • According to an analysis by NASA, India’s water tables are dropping by 0.3 metres annually.

6. Climate change

The increased frequency of extreme weather events adversely affects agricultural production through soil erosion, pest attack, crop failure etc. 

7. Low Productivity

  • India’s per-hectare yield is very low in all crops. 
  • Except for Punjab & Haryana, all other states fare poorly wrt China. Analysis of per hectare yield of rice corroborates this fact.
China 6700 kg/ha
Punjab 6000 kg/ha
India 2400 kg/ha

8. Second Generation problem of the Green Revolution

  • Misuse and abuse of the technologies responsible for the Green Revolution, like fertilizer, groundwater, etc., have negatively impacted natural resources (soil, water, biodiversity) and, consequently, challenged the long-term sustainability of agriculture. 

9. Faulty Government policies 

  • Due to vote bank politics, the government keeps increasing the Minimum Support Price of wheat, rice and sugarcane. On the other hand, MSP is not announced for vegetables and fruits, especially tomatoes, onions etc.
  • Fertilizer subsidy, especially on Urea, leads to wrong usage practices & harms the fertility of the soil in the long run, apart from increasing the government’s fiscal deficit. 

10. Minimum Export Price (MEP) issue

  • Whenever International prices are higher than Indian prices, the Government sets the Minimum Export Price high so that farmers cannot export their products and benefit from higher international prices. It is mainly done to protect Indian consumers from inflation. 
  • E.g., if the Onion price in India is ₹50/kg and that in the international market is ₹100/kg, the Government will set MEP at ₹125/kg.  

11. ECA (Essential Commodities Act)

  • Whenever the price of any agricultural product (like an onion) increases, the government use provisions of this act to harass those farmers who have stored their product in warehouses for better price realization.

12. Inflation Targeting Policy

  • The new Inflation Targeting Policy uses CPI to set monetary policy (which has a 46% food component). Hence, inflation increases when the price of food crops increases, and RBI takes steps to decrease agro-product prices.

Due to MEP, ECA & Inflation Targeting, we can say that Government policies have pro-consumer rather than pro-producer bias as far as agro products are concerned.

Famous Scams

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Last Updated: May 2023 (Famous Scams)

Famous Scams

This article deals with ‘Famous Scams.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

1. Roopal Panchal IPO Scam (2003-05)

  • Period of Scam: 2003 to 2005
  • Roopa Panchal forged documents to create multiple DEMAT Accounts (she opened more than 55,000 Demat Accounts).
  • At that time, PAN Card wasn’t mandatory for IPO Applications up to ₹50,000.
  • Since she was bidding from multiple accounts, there was more chance of allotment of shares in IPO sale. 
  • After that, she sold those shares in the Secondary Market at a high rate and earned a lot of money. 
  • She was busted and jailed. 

To stop such scams, PAN Card was made compulsory for all bidding.

Roopal Panchal IPO Scam

2. Harshad Mehta & Ketan Parekh Scam

  • Both used the same idea => Gathered a large amount of money from banks and started to buy a share of the particular company, raising its price. The common public thought to invest their money in shares of these companies since their price is rising. But after raising the price, they sold all those shares at a high price and earned huge profits. 
Harshad Mehta & Ketan Parekh Scam

Why are these types of scams are bad?

  • If we don’t stop them, small investors will lose faith. It will hurt the deepening of the Capital Market in India.

How to contain such Scams?  – Circuit Breaker

  • SEBI introduced Circuit breakers to stop these types of scams. 
  • In this, trading of a particular share showing high volatility is stopped by Stock Market for a particular time
Famous Scams

3. Chit Fund Scams

Two major Chit Fund Scams have happened in the recent past.

  • Rose Valley Scam (West Bengal) – Gautam Kundu (scam worth ₹40-60 Thousand Crore)  
  • Saradha Chit Fund Scam (WB) – Sudipto Sen

What is Chit Fund?

  • Chit Funds are a rotating savings and credit association system practised in India.
  • In Chit Fund, all the members who have subscribed to a particular Chit Fund Scheme contribute equally every month for a pre-determined period. The person who gives the lowest bid takes money for that month, distributing the remainder equally between all members.  
  • Agent (Foreman), the organiser of a particular Chit Fund Scheme, gets his Fixed Commission. 
  • The person who has already taken the bid continues to pay his subscription fee for the remaining months.
  • They are also known as ‘Kuri’ or ‘Fraternity Fund’ or ‘Committee’ (in Punjab) or ‘Rotating Savings and Credit Institution (ROSCA)’.

Chit Fund

Laws to regulate Chit Funds

  • Supreme Court Judgement says that Chit Fund is a type of Contract. Since Contracts are in Concurrent List, both State and Centre can make law on it. Accordingly, Union and State Governments have made laws to regulate them.
    • Union: Chit Funds Act, 1982 (Chit Fund Managers have to register with Ministry of Corporate Affairs)
    • States: Some states like Andhra, Kerala, Tamil Nadu, West Bengal etc., had made their laws. (Chit Fund Managers have to register with State Government)
  • Hence, Chit Fund Manager can either register with the State government or Central Ministry and run Chit Fund Schemes legally.

How do frauds happen?

  • Farmer can store his produce in Warehouse and get Negotiable Warehouse Receipt(NWR). 
  • After that, the farmer can sell these Warehouse Receipts to traders in Commodity Exchange. The trader can get delivery from the Warehouse using a receipt after a certain number of days (T + days SYSTEM).

Recent steps to control Chit Funds

  • SEBI REGULATION 2014: Amendment in SEBI act was done by the Parliament, which states that if pooled money in any scheme is more than ₹100 crore, it will be categorized as Collective Investment Scheme and comes under SEBI Regulation.
  • Banning of Unregulated Deposit Schemes Bill, 2018: Bill prohibits Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. Strict penalties and jail terms have been provided in the bill. 

What needs to be done

  • Improve financial literacy of the investors. 
  • Resolve multiple regulation problems. Implement FSLRC (Financial Sector Legislative Reforms Commission/ Justice BN Srikrishna Committee Report) to make Unified Financial Agency (UFA).
  • Powers to impose a heavy penalty on the non-registration of such schemes should be given to the regulator. 

4. NSEL Scam

How trading happens in Commodity Exchanges

  • Farmer can store his produce in Warehouse and get Negotiable Warehouse Receipt(NWR). 
  • After that, the farmer can sell these Warehouse Receipts to traders in Commodity Exchange. The trader can get delivery from the Warehouse using the Receipt after a certain number of days (T + ‘x’ days SYSTEM).
NSEL Scam

NSEL Scam

  • NSEL is the name of the Commodity Market Exchange promoted by Jignesh Shah. 
  • Commodity Exchanges earn Money by taking a certain percentage of the price of the commodity they sell as their share.
  • In the scam, Jignesh Shah used to generate fake warehouse receipts and sell those receipts to traders. In the meantime, he used to gather real receipts from farmers as actual settlement takes place after some time (under the T+ ‘x’ days System). But he couldn’t sustain this system for long, and the whole scheme busted. 
  • The whole scam was of tune of ₹5600 Crore. 

When this scam happened, Commodity Market Exchanges were under the regulation of the Forward Market Commission (under Agriculture Ministry). But after that, SEBI took over the regulation of Commodity Market Exchanges.

Steps taken by Government to stop such Scams

  • Empowered SEBI: New provisions of the amended SEBI Act, 2014 
    • Made it mandatory for money pooling schemes collecting over Rs.100 crore to register with SEBI. 
    • Enhanced the powers of SEBI, giving the authority to conduct searches, confiscate assets such as property and bank accounts and detain suspected violators, making it one of the most powerful regulators in the world. 
  • Budget 2021 announced that The government intends to formulate a new Security Market Code by merging SEBI Act, Depositors Act, Securities Contracts (Regulation) Act and Government Securities Act. 
  • Budget 2021 also announced that the government intends to make Investor’s Charter to address investors’ issues and create a proper redressal mechanism. Charter will also include the rights and responsibilities of investors.
  • Depositor Protection Acts by States: State Depositor Protection Acts empowered district magistrates to take action against any entity collecting unauthorised deposits. Twenty states and Union Territories have already enacted Depositor Protection Act. 
  • Creation of alternate schemes & Financial Inclusion: Merely curbing the Ponzi schemes won’t solve the problem. Thus, while SEBI is doing the job of the market watch, RBI is directing the banks to ensure financial inclusion.  

Investment Funds

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Last Updated: May 2023 (Investment Funds)

Investment Funds

This article deals with ‘Investment Funds.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here .

Introduction

  • It is quite difficult for ordinary people to understand economic concepts and invest in bonds and equity after analyzing the market. There is an easy option for such people to invest in Investment Funds that gather money from ordinary people to invest in such securities and other projects and are managed by Fund Managers with expertise in financial matters. 
  • Fund Managers take money from investors and give them units made with the backing of investments.
  • Later, Manager gets a return from the investments in the form of interest, dividend, charges etc. and distribute this return among Investors based on the share they have in Fund after cutting his fee.

1. Mutual Funds

Mutual Fund
  • Mutual Fund Manager is a financial intermediary.  
  • Mutual Fund Manager mops up money from a group of investors to invest in different asset classes like shares, bonds etc., to generate returns for investors. In return, the Manager gives Units backed by the assets to the Investors.  
  • When a Mutual Fund manager gets returns in the form of dividends and interest from the assets in which investors’ money was invested, it is distributed among investors in the proportion of Units held by them.
  • Each unit has a fixed maturity period. After that time, the investor returns the unit & get back his initial investment /money.  
  • Latest regarding Mutual Funds: A large number of Mutual Fund managers had invested money in bonds issued by IL&FS, which suffered a loss after the crisis. In fear, people stopped investing money in all Mutual Funds, hitting this sector very hard.

Types of Mutual Funds

It can be classified in many ways

1 . Portfolio Nature

Equity Mutual Funds Invest only in Equity
Debt Mutual Funds Invest only in Debt instruments
Gilt Edged Mutual Funds Invest only in Gilt Edged Bonds only ( and thus have very less return )

2. Income & Risk

Growth Fund Eg : Equity (80%) & Debt (20%)
Balanced Fund Eg  : Equity : Debt = 50:50
Income Fund Eg :  Equity : Debt = 20:80

2. Hedge funds

Hedge funds
  • The hedge fund is open to a limited range of very high net worth individuals (HNI). In simple words, it is a private Mutual Fund for High Net-worth Individuals 
  • Their only aim is to get maximum return in the quickest time.
  • Under this, HNI individuals give money to the Hedge Fund Manager in return for units with the promise of high returns. Hedge Fund Manager then play in the market to make money in different ways like investing in junk bonds, Arbitrage, Leverage, Short Selling etc.
  • SEBI Regulations on hedge Funds 
    • Each member must be paying at least ₹1 crore.
    • SEBI has placed strict norms on Hedge Funds. 
  • Examples of Hedge Funds Managers in India: Karvy Capital, Motilal Ostwald etc.
  • Technically they are Alternate Investment Funds (AIF) Cat III.

Side Topic: Alternative Investment Funds

It is a technical classification under SEBI norms:

1. AIF Category I

  • They generate positive spillover effects on the economy. 
  • E.g., Venture Capital Funds, Angel investors funds, SME Funds, social venture funds, infrastructure funds. 
  • SEBI norms are easy on them.

2. AIF Category II

  • Neither in Cat-1 nor Cat-3. E.g. Private Equity or debt fund. 

3. AIF Category III

  • The AIF Category III funds indulge in excessively risky investments to generate high returns in a short time. 
  • E.g. Hedge Funds. 
  • SEBI norms are stricter; otherwise, they may destabilize the capital market. 

3. REITs: Real Estate Investment Trusts

REITs
  • REITs are for High Net-worth Individual (HNI), and the Minimum Investment in REITs can be ₹ 2 lakh.
  • SEBI regulates REIT Fund Managers.
  • REIT Fund Managers give Units to investors and invest money in Real Estate Projects on the verge of completion but finding it difficult to raise loans from Banks or other NBFCs.  
  • When a real estate project completes and starts generating rent, they get their share of the rent from that which is paid to investors based on the proportion of units held by them. 

4. InvITs

InvITs
  • InvITs are Infrastructure Investment Trust. 
  • InvITs are the same as REITs, with the only difference being that they invest in Infrastructure Projects like airports, highways, ports, gas grids etc.
  • RBI has allowed Banks to invest 10% of net owned funds in REITs & InvITs. Further, IRDAI has allowed insurers to invest in InvITs and REITs subject to the condition that they can’t invest more than 10% of their outstanding investment in single InvITs and REITs.

National Highways Authority of India (NHAI) launched its InvIT in FY22 to facilitate the monetization of roads and attract foreign and domestic institutional investors to invest in the roads sector. 

Benefits of REITs & InvITs

  • These instruments are successfully tried & tested in the US, UK, Australia, Japan etc.
  • Stressed developers can get new finance and help complete projects facing financial crunch.
  • It has the potential to help in saving banks from NPAs.
  • REITs and InvITs provide new investment opportunities to people.
  • They will help to channel household savings towards nation-building.

5. Sovereign Wealth Fund

Sovereign Wealth Fund
  • These funds are sovereign, i.e. under the direct control of the nation-state.
  • Sovereign Wealth Funds are state-owned investment funds, wherein the country parks its surplus budget. This money is later used in making investments and earning more money in return. 
  • Examples: Abu Dhabi Investment Authority (ADIA) ‘s funds, Qatar Investment Authority (QIA), Saudi Arabia’s Public Investment Fund etc.

6. P-Notes / Participatory Notes

P Notes
  • Suppose a foreigner wishes to invest in India but does not want to go through the hassles of registering with SEBI, getting a PAN card number, opening a DEMAT account etc. So, he will approach SEBI registered foreign institutional investors (FII) such as Morgan Stanley, Citigroup or Goldman Sachs. He will pay them & instruct them to purchase particular shares and bonds on his behalf and store them in their Demat account. FII will give him P-Notes in return, and he will receive interest and dividends accordingly. He may also sell those P-notes to a third party. The P-Note holder also does not enjoy any voting rights in relation to security referenced by the P-Note.
  • In simple terms, P-Notes are Offshore derivative Instruments that derive the value from the underlying Indian shares and bonds. 

P-Notes are considered harmful to Indian economy because:

  • P-note investors are not directly registered with SEBI; the identity of the actual investor and source of funds remain disguised. Hence, it may allow India’s ‘black money’ stashed away from India through ‘hawala’ to get invested back in the market. Again, ‘terrorist organizations’ might have been using this route, too. 
  • If the P-Note owner sells his P-Notes to another foreign investor, the Government of India will be deprived of taxes. (Compared to a scenario where an Indian shareowner sells his shares to another Indian investor, the government gets securities transaction tax and capital gains tax on his profit).

=> Therefore, SEBI is tightening the control over P-Notes.