Professional Documents
Culture Documents
Structure 10.0 Objectives 10.1 Introduction: Delineating the Issues and Concerns 10.2 Examining the Issues
10.2.1 10.2.2 10.2.3 10.2.4 10.2.5 10.2.6 10.2.7 10.2.8 Shrinking Land Base and Declining Access to Land Irrigation System: Its Expansion and Utilisation Availability and Access to Credit Availability and Use of Other Inputs: Fertilisers, Seeds and Pesticides Prices, Costs and Profitability Agricultural Marketing Agreement on Agriculture under WTO Investment in Agriculture
10.3 Let Us Sum Up 10.4 Exercises 10.5 Some Useful Books 10.6 Answers or Hints to Check Your Progress Exercises
10.0 OBJECTIVES
After going through this unit, you shall be able to: identify the issues and concerns of Indian agriculture; subdivide the issues and concerns to various areas of agricultural sector; analyse the problems around each issue and examine various aspects of the different issues; deduce some policy imperatives relating to each issue; and infer the overall policy structure which can accommodate different issues and concerns.
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marketing of output at remunerative prices; issues relating to costs, prices and profitability; investments in fixed capital formation for a long term growth and technological upgrading in agriculture etc. The variety of issues and concerns relating to agriculture is, indeed, large. A systematic study of these issues and concerns must begin by identifying them and dividing them into categories, which facilitates their proper understanding. Identifying and classifying the issues and concerns will enable us to clearly understand their importance in relation to the agricultural sector. We shall be able to focus on their impact and draw inferences regarding the desirable nature and extent of change for the benefit of the sector. The issues and concerns that will be taken up in this unit are listed as under: 1) Shrinking Land-base and Declining Access to Land
One of the major issues facing Indian agriculture at present is the evershrinking land availability due to conversion of agricultural land into the nonagricultural uses. Coupled with this ever-shrinking land base is the problem of subdivision of holdings particularly among small and marginal farmers, the issue of under utilisation of available cultivable land and the issue of land degradation. This issue influences the long-term structure of agriculture and its organisation. 2) Irrigation System: Its Expansion and Utilisation
Irrigation is one input for agricultural production, which can easily be separated from other inputs. The system of irrigation in India has received considerable importance in view of the shrinking land base. Irrigation can be a means of augmenting land use. Expansion of irrigation potential has been taking place since independence but the utilisation of the potential and its distribution raises certain issues that need to be addressed. 3) Availability and Access to Credit
Some of the perennial issues concerning the availability and access to credit have continued to persist despite vast changes in the institutional support for the supply of credit to agriculture. These issues need to be examined and some of the policies governing the credit support system need to be critically reviewed. 4) Availability and Use of Other Inputs: Fertilisers, Seeds and Pesticides
Irrigation and credit are the two important inputs into agriculture, which are examined separately because of their special place in agricultural inputs. Issues and concerns relating to other inputs namely fertilisers, seeds and pesticides are examined in a separate sub-section. 5) Prices, Costs and Profitability
The economic issues of income generation in agriculture critically hinge on the prices received by the farm sector, prices paid (costs) and the profitability. These issues need to be addressed and examined separately. 6) Marketing System 29
There are several problems in the agricultural sector, which are related to the system of marketing. These will be examined here in sub-section 10.2.6.
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7)
This agreement has raised certain new issues and accentuated some of the others. These need to be examined. 8) Investment in Agriculture
Long-term development of the agricultural sector demands a fair share of investment flowing to agriculture in particular and the rural sector in general. Availability of fixed capital, strong and vibrant agricultural infrastructures are vital requirements of the agricultural sector. The list of issues and concerns mentioned above is by no means exhaustive; there are several other issues and concerns governing agriculture. It is not even an ordered set of issues; they are not presented here in the order of their importance. It is interesting to note that while corporate management is becoming increasingly systematised and is scaling new and newer heights, the issues governing the management of agriculture have continued to persist. Political tug of war over the solutions raises din and dust which shrouds these issues and their solution.
ii) Under-utilisation of the available agricultural land is another aspect of the land base shrinking and declining access to land. There can be diverse reasons for such under-utilisation. It may be due to the land being used as current fallow. Such land is left fallow for some seasons and acts as a possible feeder to net sown area. Even though small farmers tend to utilise their land more fully but agricultural holdings of socially disadvantaged groups like scheduled castes and scheduled tribes are characterised by greater under-utilisation. The possible reason could be poorer quality of land. iii) Inequalities in the access of land are seriously affecting the production base of cultivating households at the bottom of the farm size hierarchy. Data show that land base of marginal landowners has not improved over time. It appears that the benefits of land redistribution have percolated only up to the middle level of peasantry. The land base available to these 30
categories of households has further declined due to continuously growing population pressure coupled with lack of alternative employment opportunities. The huge proliferation of extremely small and economically non-viable holdings is, therefore, becoming a serious issue. It is also becoming a major handicap in improving the livelihood of the vast multitude of tiny farmers. iv) Not only has the land-base of the farmers been shrinking over time, there has also been a deterioration in the quality of land. Land degradation has already become a serious concern in several parts of rural India. Most of this degradation has been caused by human action and comparatively much less by the natural factors. Although the usual perception is that degradation caused by human actions is attributable largely to the poverty of the farmers; this may be only partially true. No doubt, land degradation is a localised problem and depends not only on the agro-climatic and socio-economic conditions of the region but also and perhaps more importantly on the farmers access to productive assets. Strategies of poor farmers for a sustained livelihood flow are not profit maximising strategies which are adopted by the rich farmers. Since the sustenance of land-poor depends on the sustained productivity of their meagre land resource, they cannot perhaps afford to allow the quality of their land to deteriorate. On the contrary, the land rich usually go for short-term gains from the produce of the land and can afford to absorb and overlook some degree of deterioration in quality. The policy-makers have adopted several institutional interventions to mitigate the problem of ever shrinking land base and declining access to land; these measurers include, among others, the implementation of several land reform and land development programmes at the Government level. These policy initiations, though undertaken to make land reform programmes more effective and thereby improve access to land, have not yielded the desired results. For instance, consolidation of holdings has not been implemented satisfactorily in most of the states. Similar is the case with the implementation of land ceiling acts; the area declared surplus far exceeds the area actually redistributed. The number of beneficiaries covered is also small and not necessarily the most needy. Computerisation of land records, an essential prerequisite for the successful implementation of consolidation of land holdings and land ceiling laws has yet to be fully implemented. Farmers have taken initiatives at their own level in overcoming the impact of declining access to land by improving the productivity of their limited land base. Their attempts have been towards allocating and using land in an optimal manner partly by diversifying to high value crops and partly through launching of non-crop enterprises. Diversification leads to an improvement in land productivity. Institutional interventions have steadily undergone a change in their format and approach. For example, land development programmes have undergone a change from sectoral approach to watershed approach. The programmes initiated under the watershed approach were formulated in response to the increasing environmental crisis and non-sustainability of agriculture in the rain fed and semi and areas. These integrated programmes have been evolved keeping in view the need for conservation and development of national resources, particularly land, water and vegetation. In this context, it has been increasingly recognised that there is a need for fresh grass-roots level
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institutional building involving the landless and land-poor to manage the watershed programmes. All these policy interventions notwithstanding, the net outflow of agricultural land in recent years, is a matter of great concern. To some extent, such an outflow is expected due to outbidding of agricultural lands by non-agricultural land users. Nevertheless, the outflow of productive agricultural land, particularly in areas endowed with a strong infrastructure base for agriculture must be checked through appropriate legal measures. Many states have witnessed a continuous decline of area under common property resources. Such a phenomenon particularly harms the interests of the poor and underprivileged. Appropriate policy measures are required to put a halt to such a process.
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Declining area under canal irrigation despite an increase in expenditure on major and medium irrigation sector is a matter of serious concern for the policy-makers and planners. The reasons assigned for such a trend are: a) The irrigation projects taken up since the beginning of 1990s required relatively higher amount of investment because of the nature of terrain and topography in which projects were to be constructed. There were a large number of projects which had been taken up in the past but had not been completed either due to shortage of funds for investment or for other factors leading to delays and cost over-runs. Policy-makers were themselves questioning the advisability of continuing investment into new major and medium irrigation because of the sharply increasing cost of the projects. With worsening fiscal situations both for the Central and the State Governments, the flow of capital or investment into irrigation was declining while recurring expenditure was on the rise for the existing projects.
b)
c)
Another matter of major concern in respect of irrigation is that tank irrigation, which is not only a low-cost source of irrigation but also predominantly managed by the users themselves, has been declining steadily. Traditional water management structures and institutions have been quite often cited as solutions to the problems of water-resource management. Moreover, the current emphasis on the rainwater harvesting also suggests a greater use of the tank irrigation and irrigation through other water bodies which are rain-fed. There is, thus, a need to blend the modern scientific knowledge with the traditional wisdom to create a sustainable water management system. Growing use of underground water for irrigation purpose has created the problem of progressive decline in water table. This has reduced the recharging capacity of dug wells, not only in hard rock regions but also in the other regions. As a consequence, the investment required for increased use of ground water is continuously on the rise. In some cases, farmers with fewer resources are forced to leave the wells owing to very poor yield of water. This competitive deepening of wells not only increases the cost of water but also affects the small and marginal farmers, who mostly use dug wells, adversely. The small and marginal farmers are, thus, finding themselves in a piquant situation in the competition for use of ground water. Indian agriculture has witnessed a substantial increase in the irrigation potential. However, the performance of the irrigation system leaves much to be desired. Moreover, the structure of the existing system is becoming increasingly ground water dependent with hazardous consequences on the sustainability of the structure. It is becoming apparent that the operation of the system particularly in respect of its structure, allocation and distribution of water, relationship between users and the bureaucracy needs to be reorganised. The priority accorded to the construction of physical structures has to be tampered with the effective use of the existing structures and efficient management of the system as a whole. This would call for a fresh review of the surface water potential and the feasibility of its conversion into realised irrigation facility. The issue of surface water pollution due to release of industrial effluents into rivers and canals has to be brought within the realm of such a feasibility exercise. There should also be a more effective management of the existing irrigation potential. The reforms in the
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management of Indias irrigation system are overdue. The question of involvement of users in the management may be examined. There is a need to put a halt to the overexploitation of ground water. In this context, the pricing of electricity for pumping, even diesel prices, besides the issue of access to other sources of irrigation needs to be reviewed. A financial issue of considerable concern is that of pricing of water for irrigation. Farmers preference for tube wells may be partly due to low price of electricity but largely due to the control over the availability of water. The feasibility of a direct charge for water use from ground water sources in order to build alternative rain-harvesting sources at the village level may be given a fair trial. Of late, there have been a number of schemes which are being implemented to improve the use of water and development of water resources. The Special Foodgrains Production Plan of 1987, the Advanced Irrigation Benefit Programme of 1996, water saving cum productivity enhancing technology in some states (e.g. drip irrigation, sprinkler irrigation) have received some attention. The continued implementation of these schemes must, however, be contingent upon the benefits that flow from the existing investment into these schemes. In recent decades, institutional reforms in this regard are getting priority. As a consequence, several states are realising that institutional reforms are necessary to achieve desired results from irrigation development. Accordingly, these states have initiated measures to improve the irrigation management. These measures relate to the following: 1) Participatory Irrigation Management: This is at present receiving a great deal of attention. Legislations are being amended and programmes being implemented for management of irrigation system with the participation of user bodies. The ultimate impact will be realised over a longer period of time. 2) Financing Irrigation: Mobilising resources for canal irrigation projects both new and existing ones calls for urgent steps. This may mean an integrated plan for investment and recovery through appropriate user charged use of existing financial institutions like NABARD, RIDF and others for facilitating flow of credit for such products and a management mechanism which assumes a recovery from the beneficiaries may be explored seriously. To sum up the issues and concerns relating to irrigation system, it needs to be stated that the growth of irrigation potential since independence has been substantial. But the utilisation has remained a problem. Moreover, in the recent decades, the structure of irrigation system is getting increasingly tilted towards ground water irrigation partly because of the farmers control over the system and also because of the lack of access to the surface water irrigation. Yet another factor could be the price-subsidisation of use of electricity for operating the tube wells or the diesel prices for gensets and pump sets. Resulting decline in the water table has serious consequences on the small and marginal farmers whose access to ground water is becoming increasingly costly. Reduced investment in canal irrigation, higher recurring costs of existing medium and major irrigation projects have further given a set back to
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the use of surface water. The system requires a review for the sustained growth of agriculture which is critically dependent on water-resources. Check Your Progress 1 Note: i) 1) Space is given below each question for your answer. ii) Check your answer(s) with those given at the end of the unit. State the four different aspects of shrinking land base and diminishing access to land. .. .. .. .. .. 2) State any three issues that relate to the irrigation system in Indian agriculture. .. .. .. .. .. 3) Give an account of the growth of the irrigation system in India. .. .. .. .. ..
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There has also been a priority accorded to credit to be given by commercial banks to agriculture. The banks were required to lend 13.5 per cent of their total credit to agriculture. This has of late been revised by the Advisory Commercial Committee on the Flow to Agriculture and Related Activities to 18 per cent (also known as V.S. Vyas Committee). Subsidised interests rates for the agricultural sector were also recommended. With the fall in the interest rates and lending rates in the past few years, the subsidy element has considerably disappeared. Specialised institutions in the form of regional rural banks were set up to cater to the needs of small producers and other disadvantaged sections of the rural sector. Considerable progress has been made in the supply of credit to agriculture as well as creating a network of outlets of credit. From a total institutional credit of only Rs. 214 crore to agriculture in 1960-61, the total credit available to the agriculture sector in 2003-04 has risen to nearly Rs. 87 thousand crore. In spite of a plethora of measures and substantial increase in agricultural credit, a number of issues and concerns still remain. These are as follows: i) Inadequacy of the Amount Following table shows the increase in the flow of institutional credit to agriculture since 1990-91.
Table 10.1: Flow of Institutional Credit of Agriculture in Recent Years (Rs. crore)
Source Co-operative Banks Commercial Banks including Regional Rural Banks Total 1990-91 4608 5010 1995-96 10479 11553 2000-01 20801 32026 2001-02 23604 39441 2002-03 24296 46514 2003-04 26959 60022
9618
22032
55827
62045
70810
86981
The per hectare availability of credit given to 16.5 crore hectares that were cultivated in 1990 did not exceed Rs. 600. In the year 2003-04 assuming 18 crore hectares is the gross cropped area in the country, per hectare availability is well below Rs. 5000. Besides the overall inadequacy of capital for agriculture, the institutional credit flow has hardly been able to cover the rural poor. At the countrywide level, nearly 50 per cent of the rural households are still outside the ambit of formal credit system. Moreover, not more than 14 per cent of the total scheduled commercial bank credit has been made available to the rural borrower. Given that 78 per cent of the population is located in rural areas, the highly inadequate proportion of credit available to the rural sector becomes evident. Neglect of the small and marginal farmers coupled with the general level of inadequacy of credit further accentuates the inequalities within the farming sector. Rich and larger farmers have a better access to institutional credit than the marginal and small farmers. Yet another fallout of the inadequacy of the credit flow to sector is that agriculture will find it difficult to diversify to high value crops.
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ii) High Cost of Rural Credit Operations By all standards, rural credit operations are high cost operations. Among the factors influencing this is the non-profitability of large number of farming enterprises. Absence of infrastructure and supportive system in rural areas further adds to the cost. With the general lack of familiarity with the nature of farm operations and timing of requirement, the credit agencies find it difficult to decide. The transaction costs therefore tend to rise. Situation is further worsened due to high establishment costs. Since the rural credit institutions continue to be modelled on the urban banking system with high cost of wages and salaries, their operations tend to have a higher cost. Unless rural credit institutions adapt themselves to the realities of the rural banking needs, they will continue to remain loss-making units. Yet another dimension of the high cost of rural credit operations is the existence of non-performing assets or lack of recoveries. This proportion has decreased over time. Part of the blame must be assigned to the lapses on the part of lending institutions. (Lapses may have to do with those in project preparations, timing of release of credit, amount of credit sanctioned etc.). There is certainly a need to improve recoveries but the credit products must be designed specifically to suit the farmers needs. In times of crop failure or other calamities, linkage of credit to agricultural (or crop) insurance scheme may be of considerable help. iii) Declining Share of Commercial Bank Credit to Agriculture
In the period following economic reforms, there has been a significant decline in the advances by the commercial banks to the agricultural sector. This has declined to 11-12 per cent of net bank credit. The position is pretty difficult in the eastern and north-eastern states. The Rural Infrastructure Development Fund (RIDF) started a decade ago, presumably as a temporary measure to provide infrastructure support to agriculture in lieu of the falling share of commercial bank credit, seems to have been turned into an easy way of meeting the stipulated obligations. As a consequence, individual needs of the farmer for investment and production credit are not being met. This declining priority to agriculture is apparently explained by the effort on the part of the banks to reduce transaction costs and minimise risks. Focus of the new agenda for the future of the banking sector is to relegate the responsibility of credit supply to agriculture to the co-operative sector, regional rural banks and non-banking financial companies. The Governor of Reserve Bank of India in delineating the agenda for the future for the banking sector states that: ... It is useful to note that the nature of competition and accountability to shareholders, governing the functioning of commercial banks which would make their foray into rural credit predominantly subject to commercial considerations. There is a need for legal and institutional changes relating to governance, regulation and functioning of rural co-operative structure and regional rural banks who have to be critical instruments for rural credit in future. iv) Micro-finance The programme of linking Self-Help Groups (SHGs) of the rural poor with the banking system was launched in 1992. Over the years, this has emerged as a major micro-finance programme in the country. 560 banks including 48
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commercial banks, 196 regional rural banks, and 316 co-operative banks are now actively involved in the operation of this programme. The SHG-bank linkage has provided the rural poor access to the formal banking system. The programme provides thrift linked credit support to the members of SHGs. While the programme directly benefits the members, it also helps the banks in reducing their transaction costs as well as risk in delivering small loans. A notable aspect of the programme is that 90 per cent of the groups linked with banks are exclusively women groups. In conclusion, it may be stated that 60 per cent of the credit requirement of the farmers are now being met by institutional sources and the remaining 40 per cent by informal sources. As stated earlier, the total amount of credit is certainly highly inadequate for the growth of agriculture. Small and marginal farmers, including tenants who account for nearly 80 per cent of holdings and one-third of area operated, depend far more heavily on informal sources. The role of the moneylender has not been eliminated and given the fact that the relative share of commercial bank credit is on the decline, the role of the moneylender is likely to increase.
10.2.4 Availability and Use of Other Inputs: Fertilisers, Seeds and Pesticides
There has been a noticeable growth in fertiliser consumption in India. It has increased from less than 14 kg. per hectare of gross cropped area in 1970-71 to almost 90 kg. per hectare of gross cropped area in 2003-04. The rising trend has been steady with only minor fluctuations propelled by rainfall fluctuations. Research studies reveal that fertilisers have contributed almost 50-60 per cent to the increased foodgrains production. Fertiliser use has been on the rise coupled with the use of improved seeds, better irrigation and access to credit. Even small farmers have been applying fertiliser to their land in no less a measure than the large farmers. One of the major concerns that has emerged over the years in the application of fertiliser is that the farmers application of fertiliser has been different from that recommended on the basis of soil tests. Farmers have been substituting low priced N (nitrogenous fertiliser) for the high priced P (phosphorous) in order to increase profitability. The distortion of NPK ratio was the worst in North India where the application of N is much higher than P&K, while West Bengal, Karnataka, Tamil Nadu have been almost sticking to the recommended ratio of NPK. The indiscriminate use of fertilisers has led to leaching of nitrates into ground water and depositing of phosphorous in surface water through soil erosion. Trends in fertiliser consumption show that deviations from the trend are noticeable in periods marked by a rapid increase in fertiliser prices. Price rise in general leads to a significant reduction in the consumption of potash, a moderate reduction in the consumption of phosphorous and a nominal reduction in the consumption of nitrogen. Price has been considered the main factor influencing the use of fertiliser. As a consequence, fertiliser subsidy has been used as a major instrument for promoting the use of fertiliser with the basic objective of improving production of foodgrains. Subsidy was also a means of spreading the use of fertiliser in areas, which had not used the fertilisers i.e. less developed areas. The latter objective has, however, not been achieved, as there is higher consumption of fertiliser in the developed regions and states as compared to the less developed regions and states.
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The overall share of fertiliser subsidy in the total explicit subsidies to agriculture has gone up from 35 per cent in 1980s to about 50 per cent in the later half of 1990s. Fertiliser subsidies that amounted to just Rs. 4,389 crore in 1990-91 increased to Rs. 12,662 crore during 2004-05. A sizeable portion of such subsidy benefits the farmers in irrigated regions, as fertiliser consumption in rain fed regions is very low. Moreover, fertiliser subsidy is given to the fertiliser industry. It is a known fact that fertiliser industry has now become incompetitive over time by manipulating its costs and keeping the cost of production artificially high, a significant part of the fertiliser subsides is absorbed by the industry as a reward for its production inefficiency. Seeds Seed is a necessary input for agricultural production. Use of better and improved seeds is vital for increased productivity. The green revolution was propelled by the availability of high yielding varieties (HYV) of seeds; of course, the need for the availability of other inputs like irrigation, credit and pesticides was equally vital. Availability and use of quality seeds is essential for attaining higher crop yields and sustained growth in agricultural production. Distribution of assured quality seeds is as important as the production of such seeds. A Central Seeds Act governs the production, certification and distribution of all types of seed and prescribing seed certification standards. In addition, the Government allows seed companies to produce and sell seeds that have not been officially released. As a part of Indias obligation under TRIPS agreement of the WTO, the protection of Plant Varieties and Farmers Right Act, 2003 was enacted to protect the intellectual property rights of the plant breeders and to stimulate investments in R&D for the new plant varieties. The Act involves setting up an authority for implementing the provisions of the Act. Indian seed industry has shown impressive growth. Cereals have the maximum share in the production and distribution of certified seeds; rice and wheat dominate in their share of such seeds. Private seed companies concentrate more on hybrids and high value vegetable crops. One of the major concerns relating to the availability of seeds is the large gap between the demand and supply for almost all crops. The gap is as high as 70 per cent in the case of wheat as well as maize. In case of groundnut, the gap is even higher at 80 per cent. In the case of rice as well as jowar, the gap remains high. It is an irony that while seed production is less than the demand, the seed companies have faced the problem of carryover of seed production. Most of the seed used in India is produced by the farmers themselves. Private seed companies as well as public sector corporations like the National Seeds Corporation, State Farms Corporation of India etc. market seeds through network of distributors and dealers. A seed bank scheme has also been introduced in 1999-2000. Genetically engineered varieties of some seeds could be more productive and insect resistant. Even as the Task Force on Agriculture Related Applications Biotechnology (Chairman Dr. M.S. Swaminathan) has submitted their report on the long-term bio-technology, there is a considerable resistance to the adoption of such technology by a breed of environmentalists. The success of such a programme is dependent upon a number of uncertainties. Even though
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the productivity of such varieties is higher, the acceptability of the produce is posing problems. Pesticides It has been estimated that nearly 30 per cent of potential food production is lost due to insects, pests, weeds, rodents etc. Studies show that output loss due to insect pests is particularly high for cotton at 50 per cent, 30 per cent for pulses, 25 per cent for rice, 20 per cent for sugarcane and around 5 per cent for wheat. Till 1957-58, the use of pesticides was not much known to the farmers. However, with the introduction of new agricultural technology, the use of pesticides became necessary, as the new crop varieties were disease and pest prone. The awareness about chemical pesticides has increased phenomenally. Initially paddy, tobacco and chillies accounted for 80 per cent of the pesticide use, the largest share being used for tobacco. Presently cotton and rice account for most of the pesticide consumption. More than two-thirds of the pesticides are used for cotton crop and rice. India has comparatively less stringent environmental protection regulations and has consequently become a preferred manufacturing base for many multinational players in the Asia Pacific region. The pesticide industry in India is regulated by the Insecticides Act, 1968. The economy-wide average of pesticide consumption in India is low at about 400 g. per hectare. But pesticides have been used indiscriminately and improperly leading to widespread contamination of environment. Moreover, studies reveal that there is a considerable incidence of ineffective use of pesticides because of there incautious and irrational use. The actual quantity of toxicants needed to destroy a pest is much less than what is actually applied; the rest appears as residue. The problem of pesticide residues in India is particularly serious in the case of cereals, pulses, fruits, vegetables, milk and milk products. Pesticide residues in several crops with export potential e.g. cotton, rice, plantation crops etc. have adversely affected the export performance in respect of these crops. On the whole, the availability and use of inputs like fertilisers, seeds and pesticides have grown over the years. In the process, a number of issues like the balanced use of fertiliser, fertiliser price & subsidy and management of the subsidy have arisen. The gap between the production and requirement of improved quality certified seeds and the indiscriminate use of pesticides persist. It is desirable to improve the rates of production and productivity but there is an equally important need to disseminate knowledge among farmers. An organisational set-up which operates at the village level or closer to block of villages with the Surveillance of Panchayats would perhaps be more effective. Check Your Progress 2 Note: i) Space is given below each question for your answer. ii) Check your answer(s) with those given at the end of the unit. 1) Identify the different issues related to the flow of institutional credit to agriculture. ..
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.. .. .. .. 2) State the role of micro-finance in providing bank credit to the rural poor? .. .. .. .. .. 3) State some issues relating to fertiliser subsidy. .. .. .. .. .. 4) Briefly state the issues and concerns relating to the use of chemical pesticides in India. .. .. .. .. ..
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incomes, a system of Minimum Support Prices (MSP) has been put in place for some crops. This MSP system acts as an insurance against excessive price fall in the years of boom in production. These are prices at which the Government is willing to buy any amount of grain from the farmer. There is a general consensus that MSP must fully cover the cost of production but there is considerable debate on what constitutes true element of cost. Specifically, the debate refers to the appropriateness of not only the so-called paid out costs but also the imputed value of the services of family labour and land in the calculation of the full average cost. A price covering such a complete cost is deemed to be a forward-looking floor because it ensures cash incomes to farmers over and above the actual money expenditure incurred. Moreover, it incorporates the principal of input return parity, since family inputs are given the same remuneration that they could notionally earn outside the family farming activity. It will be important to note that all the factors influencing the decisions to estimate the imputed costs are not necessarily based on market considerations. For instance, the statutory minimum wages are used to impute labour cost rather than the actual wages paid. The impact of political influences and farm lobbies on the fixation of MSP is thus evident. There is no doubt that the interest of the farmer as also the need for selfreliance propels the Government to adopt a policy of price support. Government has been announcing the MSP for 24 major crops such as paddy, wheat, jowar, bajra, maize, ragi, pulses, oilseeds, cotton, jute, sugar-cane and tobacco. Thus, a very large number of crops are covered by the MSP system. This not only entails a considerable workload for the Government machinery, the financial commitment is also increasing. The manageability of such a system over a long period of time may be suspected. The application of MSP should be to a limited number of crops which are facing a sustained increase in production because of some technical break through. Long-term support and guarantee may not be very helpful in improving the efficiency of the agricultural sector in the country. Moreover, MSP should be fixed with reference to the cost of production in the least-cost state. Price interventions by the Government by way of MSP have resulted in some distortions in the cropping pattern. One of the major factors influencing the cropping pattern is the income accruing to the farmer or the expected income from cultivating a crop. As a risk averter generally, the Indian farmer has preferred crops which not only have a high yield per hectare but also a price support accompanied by elaborate procurement operations. In addition, the prices of these crops have risen relatively faster. Lower yield rates for coarse cereals and pulses, high cost of production for these crops and the lower scale of procurement operations have all contributed to the farmers switching to the production of rice and wheat. That the MSP for wheat and rice have increased sharply over the past few years may be observed from the following table.
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Table 10.2: Minimum Support Prices for Wheat and Paddy during the Past Few Years (Rupees per quintal) Paddy Year 1990-91 1995-96 2000-01 2001-02 2002-03 2003-04 2004-05 Actual MSP 205 360 510 530 530 550 560 Index 1990-91=100 100.0 175.6 248.8 258.5 258.5 268.3 273.2 Actual MSP 225 380 610 620 620 630 640 Wheat Index 1990-91=100 100.0 169.3 271.1 275.6 275.6 280.0 284.4
It is obvious that over the last fifteen years the rise in MSP for both wheat and paddy has been nearly there-fold. The index for paddy has increased from 100 in 1990-91 to more than 273 in 2004-05. The rise in the wheat MSP is even sharper. It may be significant to note that most of the increase took place during the decade of 1990s when the rate of growth of production and productivity was decelerating in both these crops. If this rise is all to be attributed to the rise in cost of production of the two main crops of Indian agriculture, then certainly the economics of cultivation needs a critical examination and a major shift in the technology of cultivation is called for. However, if a major part or some part of the increase in MSP is attributable to the influence of farm lobbies in fixing the MSP, the basic paradigm of accelerated economic growth in India is under a severe strain. Coupled with the fact that suicides among farmers have been on the rise while there has been a significant rise in prices, the issues of efficient production techniques becoming available to the farmers is of critical importance. Incomes of some farmers may increase through the MSP system but incomes of most farmers will rise, if the productivity levels rise. Moreover, the basic issue of allocative efficiency should not be distorted by price interventions like the MSP becoming a permanent element of agricultural price policy. An alternative development path for agriculture needs to be chartered sooner than later. The MSP system has also been a factor contributing to the growing stocks of foodgrains with the attendant problems of high carrying and storage costs besides increasing food subsidies. It also causes strain on the fiscal system besides the credit advanced to the Food Corporation of India for carrying out the procurement and distribution operations. It can also crowed out the direct credit to the farming sector. An analysis of the prices and costs shows that the MSP is more likely to have introduced distortion in the agricultural sector of the country particularly in respect of wheat and rice crops. It has also been inimical to the efficient allocation of resources within the agricultural sector. The system of minimum support prices has been able to keep the incomes of the farmers with large marketable surplus high but has been responsible for a fiscal strain and increasing funds being blocked in food storage more than required for reasonable food security and reasonable level of price stability.
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exchanges have started functioning but are yet to pick up a major momentum in the area of futures trading in agricultural commodities. The major agricultural commodities traded at these exchanges were soya oil, guar seed, gram, cotton, jute, rubber, wheat, pepper, turmeric etc. These exchanges have introduced various innovations, which would increase efficiency of agricultural marketing in the country. The development of a system of physical delivery of commodities backed by warehouse receipts system is expected to help eliminate rigidities in the trading of physical goods. This system blends together the protection against both price as well as quality risks. The National Commodity and Derivative Exchange has launched pilot projects to help farmers understand the concept and benefits of hedging the price risk on the trading platform of an Exchange prior to harvesting. Such a system is likely to help the farmers with large marketable surplus. It may also enable the co-operative marketing federations to realise better prices for their members. A sound regulatory system must, however, be put in place, if the futures market in commodities is to function efficiently. Some of the measures recently introduced in the area of improving marketing system for agricultural commodities have considerable potential for benefiting the farmers. Their impact can, however, be gauged only after some time when some of these measures like contract farming, futures trading in agricultural commodities or other provisions of the new APMC Act are tried for some time. In theory, these steps are expected to reduce the marketing hazards which the farmers face despite the existence of regulated markets.
ii) Under export subsidisation there was a commitment to reduce all types of subsidies for promoting the growth of exports, including transport or credit subsidies. Under Special and Differential Treatment (SDT) provisions, exporters in the developing countries could avail of transport subsidy and other support for promoting exports. The level of reduction
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for the developed countries was again 36 per cent in six years (19952000) and for the developing countries, it was 24 per cent in 10 years. iii) There was also an agreement on the reduction of domestic subsidies. Some subsidies were, however, exempted on the ground that they had no or minimal distorting effect on production and trade. Some called Green box measures included Government support for research and extension. Others called Blue box measures referred to income support. The non-exempt subsidies were to be divided into two categories: (i) product specific support, and (ii) non-product specific support. The product specific support referred to a subsidy to different crops whereas the non-product specific support referred to subsidy on inputs which could not be allocated to a specific crop. Their sum was called the aggregate measure of support (AMS). The developed countries were to reduce their AMS by 20 per cent over a period of six years whereas the developing countries had to reduce their support by 13.3 per cent over a period of ten years. The Agreement on Sanitary and Phyto-sanitary (SPS) measures deals with food safety and animal and plant health standards. WTO does not set the standards but the member countries are expected to follow the standards set by international organisations. They can also set their own standards, if they are higher than the international standards. Effective implementation of the Agreement on Agriculture (AOA) apparently seems to be the most significant factor for ensuring a transparent trade in agriculture. However, various loopholes in AOA have left a lot of scope for the developed countries to heavily subsidise their agricultural products. Even after 10 years of the existence of WTO, the production and trade of agricultural products across the world remains highly distorted. OECD countries as well as USA have, in fact, increased subsidies under one pretext or the other. There are also increasing demands from these countries for better market access for their agricultural products in the developing countries through tariff reduction and increased in tariff quotas but they have avoided negotiations on reduction of domestic support and elimination of export subsidies. The adverse effects of the lifting of quantitative restrictions by India and high export and production subsidies given by the developed countries on Indias agricultural export are quite evident. The share of agricultural export in Indias total exports has been on the decline. This share has shrunk from more than 20 per cent in 1996-97 to less than 12 per cent in 2003-04. In contrast, the share of agricultural imports of the country in the total imports has remained steady at about 5 per cent. As such, the prospects of increasing agricultural exports besides substantial diversification seem to be gloomy, WTO regime notwithstanding. Volatility in international prices can have a significant influence on Indias trade. Already oilseeds producers in the country are facing hardship due to volatility in international prices. Therefore, suitable policy action has to be taken to protect the onslaughts of foreign producers. Due to low crop productivity and high cost of production, prices of agricultural products in India are less competitive. It is becoming increasingly clear that WTO-AOA has not benefited India in terms of agricultural exports. India could have joined in terms of increased agricultural exports if the domestic support and export subsidies were
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substantially reduced in the developed countries and market access enhanced through reducing quota tariffs. After the removal of quantitative restrictions, the main problem for India is from the heavily subsidised agricultural exports of the developed industrial countries. There is a considerable amount of evidence that export prices of some of the agricultural products are far below their costs of production. This can persist only through veiled or open subsidisation of exports. The WTO can, therefore, hardly make a massive change in the flow of trade on a free-market basis. This is only a wish which can hardly be fulfilled in a world where trade is going on among unequals. Industrialised countries like USA, EU etc. can go to any extent to protect their economic gains and institutions. In the unipolar world, they seem to have the muscle strength also for achieving their goals.
The share of agriculture in Gross Capital Formation (GCF) in the agriculture as a per centage of GDP has not been only less than two per cent over all these years but has been declining almost consistently. In particular, the share of public sector in the total gross capital formation in agriculture has been steadily on the decline. Declining public investment in the sector is a serious
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issue because it is not only critical for the development of the agricultural infrastructure but also for attracting private sector investment in the agricultural sector. Public sector investment has a multiplier effect on the investment in any sector. For example, public investment in building a reservoir can boost investment in the building of channels from the reservoir or pumping of water in the command area. It may be added that relative share of agricultural sector in the total Gross Capital Formation in the economy has also declined both in the public as well as private sector. The major concern is that even though the relative share of agriculture in the GDP has been steadily declining, the relative decline in the investment in the sector has been far steeper. In an economy where opportunities for employment outside the agriculture sector are not growing at all or are growing at rates far below the rate of growth of labour force, the consequences of the decline in investment in agriculture can be serious. Moreover, with growing pressures for globalisation i.e. opening up of the economy, the need for diversified agricultural sector is obvious. Diversification calls for more and not less investment. Policy-makers need to review their investment allocation policy soon enough; otherwise backlogs of investment will create further complications. Check Your Progress 3 Note: i) Space is given below each question for your answer. ii) Check your answer(s) with those given at the end of the unit. 1) Explain the relationship between cost of production and minimum support prices in three sentences. .. .. .. .. 2) State some of the major concerns related to the implementation of MSP. .. .. .. .. 3) Briefly explain the meaning of contract farming and state its benefits, if any. .. .. .. .. ..
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..
4)
Has India gained from the WTO AOA? Give reasons in support of your answer. .. .. .. ..
5)
10.3
LET US SUM UP
After the implementation of economic reforms in the economy in the early 1990s, Indian agriculture has entered a challenging phase of opportunities for globalisation and diversification. The challenge lies in establishing the institutional structure which facilitates in making use of the opportunities. The hopes have remained somewhat in the realm of dreams. Investment in agriculture has been declining. The impact of decline in public sector investment in agriculture is even more pronounced. As a consequence, investment in rural infrastructure as well Research and Development has adversely affected growth in agriculture. Moreover, there has been retrogression in the availability of institutional credit to agricultural sector. The sector has been treated as a large sink for the disguisedly employed labour force or surplus labour force. Bulk of assistance in the form of subsidies is pocketed by a minority of large and medium farmers. There are, however, potentials which need to be realised. One of them is that Indian peasantry has proved time and again that they have a robust common sense. They can adopt themselves quite quickly to the changing environments. The institutional base has grown in size and only its efficiency needs to be improved. It may sound a clich but is nevertheless relevant that it is men who man these institutions who are unable to rise to the needs of the institutions. Moreover, an agreed programme of action is all that is needed and not a programme which is adjusted to the needs of electoral gains. Policy initiatives can lead to some gainers and some losers. The ultimate gain to the economy and a thrust towards growth will reduce the losses of the losers. Choice of policy initiatives should be guided by the ultimate gain and not by the choice of allies and adversaries. Political realities of policy formulation and implementation have to be sensitised to the growth requirement.
10.4
1)
EXERCISES
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How far the policy measures taken by the Government have been effective in putting a halt to shrinking land base and declining access to land?
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2) 3) 4) 5) 6) 7) 8) 9)
Explain the consequences of the growing structure of the irrigation system in India. What are the implications of inadequacy of credit from the institutional sources to the agricultural sector? Critically comment on the growth of consumption of chemical pesticides in India. Explain the implications of minimum support price system on the economy of India. Which measures would you like to suggest for future trading in agricultural commodities? Illustrate how the developed countries are failing to fulfil their obligations under WTO? Explain the consequences of decline in investment in agriculture. How is declining investment in agriculture a matter of concern? What are its implications?
10) Which issues and concerns arise in the context of the use of fertilisers, seeds and pesticides? 11) Give an account of measures that have been taken in recent years to enhance the efficiency of the marketing system for agriculture. Evaluate these measures.
10.6
Check Your Progress 1 1) 2) 3) 50 See Sub-section 10.2.1 See Sub-section 10.2.2 See Sub-section 10.2.2
Check Your Progress 2 1) 2) 3) 4) Inadequate amount of credit, heavy dependence on informal sources of credit, decline in the relative share of bank credits. See Sub-section 10.2.3 under the subhead (iv) Micro-finance. See Sub-section 10.2.4 See Sub-section 10.2.4 under sub head Pesticides.
Check Your Progress 3 1) 2) 3) 4) See Sub-section 10.2.5 (para 3) See Sub-section 10.2.5 See Sub-section 10.2.6 (contract farming) See Sub-section 10.2.7 (last para)
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