This article deals with ‘Industrial Corridors.’ 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
To give impetus to the industrial sector in India, the Government of India is building a large number of Industrial Corridors.
1. DMIC – Delhi Mumbai Industrial Corridor
In 2006, an MoU was signed between India & Japan regarding this.
The project is funded by Japan and is worth more than $90 billion.
The aim is to spur economic growth in the surrounding areas, create jobs, and remove infra bottlenecks.
Indian Railways is also constructing Western Rail Freight Corridor to extract maximum leverage out of DMIC.
It covers 7 states and UTs i.e.
Delhi
Haryana
UP
Rajasthan
Gujarat
MP
Maharashtra
2. Amritsar-Kolkata Industrial Corridor (AKIC)
AKIC project involves developing the 150-200 km band on either side of the Eastern Dedicated Freight Corridor (EDFC) to Industrial Corridor in a phased manner.
It is funded by the Government of India.
The aim is to spur economic growth in the surrounding areas, create jobs, and remove infra bottlenecks.
It covers 7 states, i.e.
Punjab
Haryana
Uttarakhand
Uttar Pradesh
Bihar
Jharkhand
West Bengal
3. Bengaluru-Mumbai Economic Corridor (BMEC)
The United Kingdom funds BMEC.
It covers the states of Maharashtra and Karnataka.
This article deals with ‘Food Inflation.’ 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
Following the green revolution, India has achieved a surplus in cereal production, especially in wheat and rice. However, producing fruits and vegetables remains a challenge for the country. The seasonal fluctuations in onions, tomatoes, and pulses continue to be a primary concern for Indians.
Recent trends in food inflation are as follows
Causes of Food Inflation
1. Supply side bottlenecks
Shortage of commodities due to poor monsoon or excessive monsoon as Indian agriculture is excessively dependent on monsoon.
Post-harvest losses due to unavailability of cold storage and warehouse
The Food Processing Industry is not well developed in India, leading to inflation of particular vegetables or fruits in the offseason.
Hoarding by the merchants leads to artificial scarcity.
2. Demand-side factors
Due to the growth of the middle class in India, their disposable income has increased. As a result, the demand for green veggies and fruits has also increased. It pushes the prices upward.
3. Faulty government policies
Successive governments have increased the MSP of wheat and rice due to vote bank politics. On the other hand, the MSP of fruits and green vegetables is not announced. Although the MSP of pulses is announced, it is very low compared to wheat and rice. Hence, farmers prefer to grow wheat and rice instead of pulses or vegetables, leading to inflation.
4. Climate change and global warming
Due to global warming, the weather has become erratic. Frequent heat waves lead to the destruction of nascent flower buds of vegetables.
Rains have become erratic as well. For example, onion prices touched the Rs 100/kg mark in 2020 due to excessive rainfall in Nagpur and the surrounding area, destroying onions.
The frequency and severity of pest attacks have increased as well. E.g., the locust attack of 2020 in Rajasthan, Madhya Pradesh etc. which destroyed crops at a large scale, was the result of global warming.
5. Inefficient supply-chain with many mediators
The end product reaches the consumer in India after passing through various intermediaries. Each mediator tries to profit by increasing the original cost without adding value. As a result, the end price becomes higher than the actual price.
Case of Inflation in Pulses
Prices of pulses are prone to inflation which can be corroborated by the following graph showing trends in the price of Tur dal.
Reasons for the price rise of pulses
Wheat and rice cultivation was promoted after the green revolution. Due to the introduction of a new HYV of wheat & rice, their productivity increased. Such HYVs were not introduced for pulses. As a result, their productivity is low.
The economic survey reveals that most of the irrigated & fertile land is dedicated to wheat, rice & sugarcane, and pulses are grown on unirrigated lands. It decreases the productivity of pulses further.
Despite the increase in the MSP of pulses, the farming community has a lack of interest to produce them as there are no proper infrastructural facilities for their procurement at MSP compared to Wheat and Rice.
Rise of Middle Class in India: There is a well-known economic law that when the income of people rises, they move towards a high-protein diet. Due to this, the demand for Pulses has increased, resulting in higher prices.
The peculiarity of Indian Society: With the increase in income, people go towards a protein-rich diet & this phenomenon is seen in all societies. But other societies, unlike India, diversify their diet to a large number of livestock products, as seen in China. Empirical evidence shows that dietary diversification towards livestock products, particularly meat products, in India has been slow due to cultural factors. Most of the population depends on Pulses for protein, causing a Supply-Demand gap.
Case of Inflation of Edible Oil
Reasons for the inflation in Edible Oil
La-Nina conditions affect edible soybean oil production in Argentina and Brazil.
Fluctuation in international prices: India imports 60% of its edible oil consumption, making it vulnerable to international movements in prices. The fluctuations in international prices and volatility in the rupee conversion rate impact the prices of edible oil.
Sunflower oil, which makes up 15 per cent of our total edible oil imports, is procured mainly from Ukraine and Russia. It suffered due to the Russia-Ukraine war.
Due to a shortfall in production and to secure their supplies, producer countries levied high export taxes, increasing the price for oil importers (like India).
Edible oil is diverted for the generation of biofuels.
Supply chain disruptions due to Covid.
Edible oil is grown on unirrigated land in India, thus making it susceptible to the vagaries of climate.
The scheme will focus on North East and Andaman, and Nicobar Islands.
The main components of the scheme include
Price Assurance to the producers.
Training farmers for cultivation and seed management.
Support industries to set up oil palm processing units.
The Indian government is concentrating on Oil Palm because it gives 10 to 46 times more oil per hectare than other oil crops.
National Food Security Mission (Oilseeds)
Government intervenes to produce foundation and certified oil seeds.
The government distributes mini-kits of High Yielding Varieties (HYV) of oil seeds.
Increasing MSP: Government has increased the MSP of oilseeds to encourage farmers to grow oilseeds. For example, in 2021 Government increased the MSP of Rice and Wheat by 2%, whereas that of rapeseed-mustard by 8.6%.
Import duty of crude soya bean, sunflower oil and soya bean oil has been reduced.
Essential Commodities Act 1955 aimed at ensuring adequate availability of the scheduled essential commodities at fair prices to ordinary people.
Targeting Rice Fallow Areas (TRFA) for the cultivation of Pulses and Oilseeds: The pulses and oilseeds can be harvested on the land where rice was harvested previously by using the residual moisture left in the soil.
Promotion of alternates: The government of India is promoting the production of secondary oils, especially rice bran oil, to decrease India’s import dependence on edible oil.
Steps taken by the governmentto control Food Inflation
1. Creating Buffer
The government has created a buffer of food items susceptible to inflation, especially Pulses and onions. E.g., the buffer of 23 LMT of pulses and 2.08 LMT of onions was created in 2021-22 and released in a calibrated manner to contain the price rise.
2. Minimum Export Price
It is the minimum price below which agricultural products can’t be exported to other countries. To fight inflation in a particular product, the government raises the Minimum Export Price so that farmers are forced to sell their product in India, and its supply is increased in the local market.
3. Fiscal Policy Measures
The government has imposed higher export duties on items such as wheat, rice and pulses (to make exports expensive). On the other hand, it has reduced import duties on items such as palm oil, sunflower oil
4. MoUs with countries
India has signed MoUs with top exporters of pulses like Mozambique and Myanmar to deal with the future shortage in the supply of pulses.
Similar MoUs have been signed with Egypt and Turkey for the supply of onions.
5. Price Stabilisation Fund
Under this scheme, the government has given interest-free loans to FCI, NAFED and other central agencies to procure pulses and green vegetables and sell them to the common public at a reasonable price in case of inflation.
6. Operation Greens for Tomato, Onion & Potato (TOP)
Operation Greens was started for vegetables, similar to Operation White for milk. It aims to end the issue of inflation in vegetables as Operation White did for milk.
Operation Greens targets Tomato, Onion & Potato in the first phase.
7. Open Market Sale Scheme
FCI sells the grain in the open market to increase supply and curb price rise in food inflation.
8. Essential Commodities Act (ECA)
Under the provisions of ECA, the Union government can declare any commodity as an Essential Commodity and notify the stock limit on that for a specific period. The government uses this to fight against hoarders who create artificial scarcity.
9. Free distribution of seeds
The government has started the free distribution of seeds to attain self-sufficiency in pulses.
10. New Monetary Policy Framework
Under the new Monetary Policy Framework, RBI has been mandated to keep inflation at 2-6%.
11. Kisan Rails
The government of India has started the Kisan Rail service for the speedy transportation of perishable food items from areas of production to areas of consumption.
This article deals with ‘Agricultural Exports.’ 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 agriculture exports were worth $ 50.2 billion in 2021, constituting between 2.5-3% of the world agriculture trade
Analysis
Main exports
Basmati Rice, Marine Products, Spices, Wheat, Sugar and Tea
Main export destinations
USA, China, Saudi Arabia, Iran, Nepal and Bangladesh.
Importance of Agri-Exports
Addressing crash of prices due to glut/surplus: Farmers suffer during bumper crops. Exporting the surplus produce will help to maintain the prices.
Increase Farmer’s Income: It can help achieve the ambitious target of ‘Doubling farmer’s income till 2022’.
Earn Foreign Exchange: Agricultural exports will help India to earn Foreign exchange.
Create Jobs: By integrating Indian agriculture with global value chains via agricultural exports, more jobs can be created.
Issues with Indian Agro Exports
Lack of Stable Agricultural Trade Policy Regime: Indian Agricultural Policy is not stable. The government frequently change the policy to tame inflation, thus impacting exports. For example, the government increases the Minimum Export Price (MEP), due to which certain Indian Agricultural Exports become uncompetitive in the world market.
Frequent rejections: Indian agro-products frequently fail to meet the phytosanitary and quality standards set by different countries, especially European Union and the USA.
Lack of value addition: India exports raw agriculture due to the underdeveloped Food Processing Industry. Hence, the rate of return is low.
Lack of uniformity: Foreign importers hesitate to buy such products.
Infrastructure and Logistics: Poor connectivity of the landlocked production areas (E.g. Bihar, Jharkhand, North-Eastern states and hilly regions, etc.) to the ports is a stiff challenge.
Constitutional Issue: “Agriculture” is a state subject, whereas “trade and commerce” is a Union subject under Schedule 7 of the Indian constitution. The two fail to collaborate to increase agricultural export.
Agriculture Export Policy, 2018
Objectives
Double agricultural exports from $ 30+ Billion to $ 60+ Billion by2022.
Double Indian share in world agro-trade from 2% to 4%.
Diversify the destinations and don’t just focus on Europe and US.
Stable Trade Policy Regime and don’t change policies like Minimum Export Price on an ad-hoc and reactionary basis.
Reforms APMC Act like removal of perishables from APMC Act.
Provide Infrastructure and logistic support by building Mega food parks, State of Art testing facilities etc.
Develop Farm to Port projects (like farm-to-fork).
A separate fund for promoting and marketing ‘Brand India‘ in Agricultural products will be created.
Attract private investments in agro-export-oriented activities.
The Agro-start-up fund will be created.
The government will help exporters with Sanitary and Phytosanitary (SPS) issues via FSSAI, APEDA etc., so that the EU / USA doesn’t ban their products.
This article deals with the ‘ Sugarcane Pricing Issue.’ 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.
Importance of the Sugar Industry
The sugar industry is vital as
It is India’s second largest agro-based industry, next only to cotton.
5 crore farmers are directly or indirectly involved in this.
India’s annual sugarcane production is around 35 crore tons, which is used to produce 2.6 crore tons of sugar.
India’s domestic sugar production is more than domestic consumption.
Regulated Nature of Sugar Industry
The sugar industry is highly regulated.
Regulations at Farmer Level
Farmers are obliged to sell produce at the nearest mill only. Mills are obliged to purchase from all farmers.
Wrt sugarcane pricing, the Union government announces the Fair and Remunerative Price (FRP) suggested by the Department of Food and Public Distribution and approved by Cabinet Committee on Economic Affairs.
State governments announce State Administered Prices (SAP),which are usually higher than Union’s FRP due to vote bank politics.
Regulations at Mill Level
Mills must purchase from all farmers at FRP or SAP (whichever is higher).
Sugar mills can buy sugarcane only from farmers within a specified radius, known as Cane Reservation Area.
The government also fixes the Minimum Selling Price of sugar (which as of 2021 is Rs 3,100 per quintal).
The Centre also fixes the mill-wise sales quota of sugar.
Centre’s Sugarcane (Control) Order mandates mills to pay the FRP within 14 days of cane purchase from farmers, failing which 15% annual interest is charged on the due amount for the delay period.
Government levy: Earlier, mill owners had to give 10% of their production to the central government at the government-determined price (which was much lower than the market price). This provision has been abolished now.
Main Problem of the Sugar Industry (price related )
The cost of Production of Sugar (of Mills) is greater than the Market Price of Sugar.
Significant arrears of sugar farmers towards Sugar Mills to the tune of ₹22,000 crores are still lying.
Union and State governments announce high FRP & SAP due to vote bank politics.
The sugar industry has a seasonal character – mill, and the workers remain idle for almost half a year.
The sugar recovery rate in India is less than 10% compared to Java and Hawaii, where it is up to 14%.
Low Sugar Prices in World Market: The world is sugar surplus. Mill owners can’t increase the price of sugar due to the import of foreign sugar.
WTO ruling against Sugar Pricing Regime: Australia, Brazil, and Guatemala filed a complaint against India in 2019 that the Indian government supports its sugarcane farmers that go against the WTO principles and breach the de-minimus limit. In 2021, WTO Dispute Settlement Body ruled against India.
The Union government should devise a proper mechanism to arrive at FRP. Presently, Union Government doesn’t reduce FRP even if sugar prices are low.
Proper utilization of the by-products of Sugarcane like Ethanol, Bagasse etc.
The industry association opines that if states announce SAP higher than FRP, the state governments should bear such price differential.
Power generation using cogeneration technology & generating revenues by selling extra electricity.
Steps taken already
Union Government has given soft loans with low interest to sugar mill owners to pay the arrears of farmers.
Import duty on the import of sugar was increased from 50% to 100%.
Export duty on exporting sugar has been scrapped.
National Policy on Biofuels, 2018: It has set the target of 20% ethanol blending of petrol by 2030 to provide a market for the by-products of the sugar industry.
State-Specific Steps: In 2020, the Maharashtra government gave a state guarantee for loans to Sugar Cooperatives to buy sugarcane from farmers on time.
Side Topic: Ethanol
Ethanol is a by-product of the sugar industry
Use: It can be used as fuel by mixing with petrol.
To offset their losses, Sugar Mills can go towards Ethanol manufacturing.
This article deals with ‘Farm Loan Waivers.’ 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.
Earlier Farmer Loan Waivers
1990
VP Singh Government waived loans of farmers up to ₹10,000.
2008
Manmohan Singh Government waived loans of farmers costing 52,000 crores to exchequer. Due to loan waivers, the Congress government was re-elected, setting a bad precedent for various state governments.
2016 to 2020
State governments like Punjab, UP, Karnataka etc., have announced various loan waivers for state farmers due to tremendous pressure from farmer lobbies.
Arguments in Favor
Economic Survey 2020 opined that peasant borrowers suffer from a problem of “debt overhang”. It refers to a situation where the borrower’s current income is used up in repaying the accumulated debt, leaving little incentive to invest either in physical or human capital. Debt waiver can clean up the borrowers’ balance sheet and is likely to lead to new investments and an increase in demand as disposable income in the hands of farmers will increase.
Industrialists are given significant cuts in case the Industrial sector faces stress. Hence, farmers should also be given a cut on loans when the agriculture sector faces stress. The agriculture sector has been facing tremendous pressure since demonetization due to a decrease in demand and a rapid fall in the prices of agricultural commodities.
Farm Waiver can help to solve the issue of farmer suicides due to their inability to pay loans.
Problems with Loan Waivers
Loan Waivers create a moral hazard for borrowers, who have no incentive to stick to credit discipline. Economic Survey (2020) noted that the 2008 waiver by the Government of India led to increased loan defaults on future loans. Economic Survey (2020) was of the view that waiver helps only when the beneficiaries are genuinely distressed but fuels even greater default when relief is not made conditional to genuine distress.
It adversely impacts the banking sector’s health, especially when they are suffering their huge NPA problem.
Schemes are prone to serious exclusion and inclusion errors. Loans from non-institutional sources ( 44%) are not covered.
It could lead states to violate their FRBM targets. E.g., the UP waiver cost the government ₹ 36,000 crores. In Punjab, Loan Waiver constitute 0.83% of GSDP (Punjab Budget 2018).
Crowding out impact: Farm waivers could squeeze out private spending by firms.
Domino Effect: Farm waiver by one state forces other states to imitate this, opening the Pandora Box.
Due to farm waivers, the government fails to develop the agricultural infrastructure. For example, in 2016-17 alone, a cumulative sum of Rs 3.1 lakh crore was given as loan waivers in India, an amount that could have increased India’s irrigation potential by 55%.
The farmer who will get a farm waiver will become non-creditworthy in the eyes of the bank.
Way forward
By giving loan waivers, Governments are just trying to correct the symptoms of the crisis without paying serious attention to the root cause of the underlying crisis. The best way out can be
Implementation of Swaminathan Report.
Encourage livestock to supplement their income.
Promote Pradhan Mantri Fasal Bima Yojana to create a safety net in crop loss.
Increase the resilience of Indian agriculture by building irrigation infrastructure.
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.
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.
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 )
MSPs are important because
It enhances the production of targeted crops.
Protect farmers against the bumper crops which bring down the market prices.
Protect farmers from the cartelization/price-fixing by the mandi-merchants.
Motivate farmers to adopt improved crop technologies.
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
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.
Food Corporation of India (FCI)
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.
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
Inputs like seeds, fertilizers, pesticides and hired labour
Diesel, electricity to run tractors and pumps.
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
MSP provides financial assurance and security to the farmers.
Production of targeted crops increases. For example, India, once an importer of wheat, is now one of the largest producers.
Historically, the increased production has helped India in achieving food security.
Protect farmers from exploitation of middlemen
Cons
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.
MSP mainly focuses on rice and wheat, resulting in the attainment of food security at the cost of nutrition security (aspulses, oilseeds, and coarse cereals are not grown).
MSP regime concentrated on wheat, and rice has led to monoculture, destroyed agricultural biodiversity and led to massive consumption of pesticides.
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.
MSP benefits only large farmers because large farmers have a surplus to sell.
It goes against WTO Obligations as overall subsidies given to the agriculture sector, including MSP subsidies, exceed the De-Minimus limit.
MSP goes against the Principle of Laisse Faire (Free Market Principles).
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.
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
Three models have been suggested by NITI Aayog ( Price Deficiency Payment (PDP)), Market Assurance Scheme (MAS), (Private Procurement & Stockist Scheme (PPSS))
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.
Market Assurance Scheme: State will procure from the farmer and sell it. The Centre will compensate the state for losses incurred.
Private procurement and stockist Model: Under this, private entrepreneurs would do procurement at MSP announced by the government.
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
MSP & procurement has limited geographical reach (mainly operational in Punjab, Haryana, UP only).
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
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
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.
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?
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.
Government can procure all the crops through its agencies such as FCI, NAFED etc., at MSP.
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.
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
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.
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.
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.
Due to the repetitive cropping pattern and increased cropping intensity, soil fertility has decreased.
An exponential rise in the tube wells has declined the water table in Punjab and Haryana.
Large scale loss of biodiversity and indigenous varieties of crops has been lost forever.
Increased use of fertilizers, pesticides and herbicides has led to chemical contamination and toxicity of the soil.
It has led to extensive water pollution, which has polluted underground water.
It has increased the instances of cancer, renal failure, stillborn babies, and congenital disabilities due to overuse of pesticides & herbicides.
It has led to the rise in malaria incidence due to waterlogging.
There were Socio-Economic Impacts as well
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.
Dominant castes like Jatts, Jats, Yadavs, Kurmis etc., started to assert themselves in politics because of their numerical superiority and newly acquired wealth.
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
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.
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.
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.
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 is leading to
Changes in Mean Temperature
Excess or deficit in rainfall
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 theKuttanad 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:
Reduce the impact of climate on agriculture.
Reduce the impact of agriculture on climate (agriculture produces 25% of world GHG emissions and 63% of India’s methane emissions)
Increase in productivity as well as incomes of farmers.
It is a new concept and is at a nascent stage in India.
