Indian Agriculture

Mainstay of Indian Economy

Since independence, undergone a change from being the sector
contributing the highest share to the GDP to one contributing the lowest
share.
Agriculture is a state subject.
GDP contribution (Agriculture and allied sector)
o 56.5 pc in 1950-51
o 15.7 pc in 2008-09 and 14.6 pc in 2009-10. It was 19 pc in 2004-05.
(2004-05 prices)
o Agricultural GDP grew by 0.4 pc in 2009-10 and -0.1 pc in 2008-09.
Employment
o 75.9 pc in 1961
o 59.9 pc in 1999-2000
o 58.2 pc in 2008-09
o 1999-2000: Number at 237.8 million
GCF
o Share in total GCF 2009-10: 7.7 pc (2004-05 prices)
o GCF as % of agricultural GDP: 2007-08 16.3, 2008-09(P) 19.67,
2009-10(QE) 20.3
o GCF as % of total GDP: 2007-08 2.69, 2008-09P 3.09, 2009-10QE
2.97
Contributes to agricultural growth and industrial demand
Contributed 10.59 pc of total exports in 2009-10.
Due to the large number of workforce in this sector, the growth of
agriculture is a necessary condition for inclusive growth.
Food grains production
o Highest in 2008-09: 234. 47 mn t
o 2009-10: 218.11 mn t

Agriculture and Industry

Agriculture as
o Supplier of wage goods to the industrial sector
o Provider of raw materials
o Consumer of agricultural capital goods produced by industry
Stagnation in agriculture
o Get data on CAGR

Land Reforms

Great scarcity and uneven distribution of land

Focus of agricultural policies in the initial years was on institutional
changes through land reforms
Two objectives of land reforms in India
o To remove the impediments to agriculture that arise due to the
character of agrarian structure in rural areas
o To reduce or eliminate the exploitation of tenants/small farmers
Four main areas of land reforms in India

o Abolition of intermediaries (zamindars)

o Tenancy reforms
o Land ceilings
o Consolidation of disparate land holdings
Economic arguments for land reforms
o Equity
o Small farms tend to be more productive than large farms
o Owner cultivated plots of land tend to be more productive that
those under sharecropped tenancy
Abolition of zamindari was successful while the other three areas of land
reforms met with limited success
Operation Bargha. Also, LR in Kerala
Regional trends in LR
Effect of land reforms
o On tenants
Absentee landlordism declined
Tenancy declined. In some cases, tenants were evacuated
from the land.
In some cases there was a drift of tenants into landless
Where tenants had not been evicted, tenancy was pushed
underground
o On equity
o On productivity
o On agrarian power relations
The National Commission on Farmers has placed the unfinished agenda in
land reform first in its list of five factors central overcome an agrarian
crisis
Way forwards
o Land reforms that make tenancy legal and give well defined rights
to tenants, including women, are now necessary

Technology and Green Revolution

In the
o
o
o

early 60s India faced several crises

It had to fight two wars: Pakistan and China
Severe drought in 1965 and 1966
US was using PL-480 food supply as a means to twist Indias arms to
meet US interests
This called for an overhaul of the agricultural strategy and the need to be
self-sufficient in food production
Three phases of green revolution
o 1966-1972
o 1973-1980
o 1981-1990
1966-1972
o C Subramaniam and MSS
o 1965: Agricultural Prices Commission and Food Corporation of India
set up

Introduction of HYV seed of wheat from Mexico created by CIMMYT

Under the new agricultural policy, the spread of HYVs was
supported by public investments in fertilisers, power, irrigation and
credit
o Food grain production shot up
1966-67: 74 mt
1971-72: 105 mt
o India became nearly self-sufficient in food grains
o What led to the increased production?
Favourable pricing policy led to adequate incentives
National research system proceeded to indigenise the new
seeds to tackle their shortcomings
Availability of inputs including canal water, fertilisers, power
and credit
Subsidies
Role of credit began to be important after 1969
1973-1980
o This phase saw many challenges
o Consecutive droughts in 1972-73
o Oil shock
o Production fell. Imports began again.
o Thereafter, government increased fertiliser subsidies
o Groundwater irrigation increased in importance
o HYV technology extended from wheat to rice
1981-1990
o 1986
Rice prod: 63.8 mt (1964: 37)
Wheat prod: 47 mt (1964: 12 mt)
o Even when the worst drought of the century struck in 1987, food
needs could be adequately met due to buffer stocks
o HYV technology spread eastward to states like West Bengal and
Bihar
o The impact of HYV technology had started to plateau however
o Input subsidies kept on increasing
o 1991: Input subsidy was 7.2 pc of agricultural GDP
What was the impact of highly regulated policies on agriculture?
o There were barriers on pricing, movement and private trading of
agricultural produce
o The external sector was burdened with various tariff and non-tariff
barriers to agricultural trade flows
o The overvalued rupee produced an anti-export environment for
agriculture
o High protection to industry produced high industrial prices and
adverse terms of trade for agriculture, reducing the relative
profitability of the primary sector
What was the aim of agricultural pricing in pre-reform era?
o Ensure inexpensive food for consumers
o Protect farmers incomes from price fluctuations
o Keep the balance of payments in check
Agriculture in post-reform era
o
o

Impact: 1. Growth in PCI led to an increase in food demand and also

diversification. 2. Terms of trade between agricultural and industrial
prices improved in favour of agriculture
o Increased profitability has led to increase in private investments
which are now double the public investment in agriculture.
o Growth rates
1980s: 3 pc
1990s:
2000s:
Tenth Plan: 2.47 pc (as against 7.77 pc of overall economic
growth)
o This has however not translated into reduction of poverty
o There has been an increase in both urban and rural inequality
Deceleration in agricultural growth
o Declined during 90s
o Deceleration in the growth of area, production and yield
o Food production of Rabi crops has off late equalled the Kharif crops.
This has to an extent reduced the over dependence on monsoon
and imparted some stability to agricultural production
o Area-wise, the deceleration was more in case of the Indo-Gangetic
region
The instability in agricultural growth is more in states with high
percentage of rain-fed areas
Acreage: declining trend in most crops during the period 1995-96 to 200405
Productivity: sharp decline (1995-2005). Healthy performance of cotton
and maize though
o

Major factors affecting growth potential

Lack
o
o
o
o

of long term policy perspective

No long term strategy for agricultural development
National Agricultural Policy was announced only in the year 2000
Sectoral priority to industry from the second FYP
Weaknesses of policies followed for agricultural development
Policies provided little incentives for the farmers as the prices
were depressed and the sector was disprotected vis a vis
other sectors of the economy
Inward-looking policies
Excessive price based focus than non-price factors like water,
infrastructure, R&D, extension services etc
Investment in Agriculture and Subsidies
o There have been cutbacks in agricultural investment and extension,
but not in subsidies
o Agricultural subsidy as pc of GDP:
o Public investment in agriculture declined from 4 pc of agriculture
GDP in 1976-1980 to
o Subsidies on fertiliser, power and irrigation have contributed to soil
degradation

It is important to reduce subsidies and increase public investment in

crucial areas such as soil amelioration, watershed development,
groundwater recharge, surface irrigation and other infrastructure
o Public Sector GCF in agriculture stood at less than Rs 50 bn at 199394 prices
o It is imperative to reduce these subsidies for stepping up public
investment in agriculture
o After 2003, the investments have started to increase. In 2006-07
public sector GCF was 3.7 pc of agricultural GDP and total GCF was
12.5 pc of agricultural GDP
o Three areas should get priority in public investments
Rural roads
Electricity
Irrigation projects
<all three of them are under Bharat Nirman project>
o Complimentarity between public and private sector capital
formation in agricultural sector. Public sector can create
infrastructure while the private investment is essential for short
term asset building mainly in the areas of mechanisation, ground
levelling, private irrigation etc
Lagging research and development efforts
o After the green revolution, there has been no major breakthrough in
agricultural research. GM is a promising area but its safety has not
yet been conclusively established.
o Poor productivity in India compared to other countries and even
compared to world average
o India, however, has the largest public agricultural research
establishment in the world. ICAR and agricultural universities
o India spends only 0.3 pc of agricultural GDP for research as
compared to 0.7 pc in other developing countries and 2-3 pc in case
of developed countries.
o There is hardly any scope for expansion of area. Hence, productivity
must increase to keep up with the increasing demand. R&D has a lot
of role to play here
o New varieties of seeds need to be developed suited to different
regions of the country
o The research system should be responsive to the changing needs
and circumstances
Technology generation and dissemination
o Fixed land. Hence technology
o Focus on yield as well as sustainable use of land
o Focus should be on specific requirements of each agro-climatic
region
o Ned to develop much stronger linkages between extension and
farmers
Rising soil degradation and over-exploitation of groundwater
o Around 40 pc of Indians total geographical area are officially
estimated as degraded
o Soil health is deteriorating in Punjab and Haryana
o

Degradation of natural resources

Subsidies vis-a-vis investments and farm support systems
Agricultures terms of trade and farm price volatility
o Ensure rapid development of backward farm linkages
Summary: Need to correct the policy bias against agriculture, make higher
investments, develop new varieties of seeds, conserve natural resources
like land and water and provide incentives to the farmers to adopt
modernisation

Some Issues in Indian Agriculture

Low public investment

Halt in the modernization of agriculture
Agricultural indebtedness
Farmer suicides
Agricultural imports and future markets

Subsidies

Talk about bringing urea under the Nutrient Based Subsidy (NBS) system
and decontrolling its prices
Downsides
o Fertilizer subsidy touched almost 1 lakh crore in 2008-09
o Promotes overuse of fertiliser and thereby catalysing soil
degradation
o As a result, agricultural production in the bread baskets of the
country has stagnated, posing a threat to the food security of the
country
o Drylands do not receive the benefit of crores of subsidy given in
fertilizers

Government Intitiatives

Green Revolution
National Policy on Agriculture, 2002
National Policy for Farmers, 2007
o Major policy provisions include provisions for asset reforms, water
use efficiency, use of technology, inputs and services like soil
health, good quality seeds, credit, support for women etc
o Focus on millets as well
o

Agriculture during the 11th plan

Flagship schemes
o Rashtriya Krishi Vikas Yojana
o National Food Security Mission
o National Horticulture Mission (2005-06)
o Integrated Scheme of Pulses, Oilseeds and Maize

Technology Mission for Integrated Development of Horticulture in

North-east and Himalayan States (2001-02)
o National Mission for Sustainable Agriculture
o National Mission on Micro Irrigation was launched in 2010 in
addition to the earlier Micro Irrigation Scheme launched in 2006
o National Bamboo Mission
Avg growth of 2.03 pc against the Plan target of 4 pc per annum.
For sustainable and inclusive growth
o Must focus on the small and marginal farmers as well as female
farmers
o Group approach should be adopted so that they can reap economies
of scale
o Bring technology to farmers
o Improving efficiency of investments
o Diversifying while also protecting food security concerns
o Fostering inclusiveness through a group approach
Irrigation
o Envisages creation of an additional potential of 16 mn ha
o Bharat Nirman aims to bring an additional 1 crore ha of land under
irrigation by 2012
o Accelerated Irrigation Benefits Programme still on
o

Irrigation

45 pc of nearly 175 mn ha of cropped area is irrigated

Trends
o Nearly trebled from 24 mn ha in 1953-64 to 75 mn ha in 1998-99
o It accounts for the largest part of total investments in the
agricultural sector
o Importance of ground water as an irrigation source has also
increased considerably
Uneven access
o Inter-regional variance
o Inequality in access within the farming population
Areas of concern
o Depletion of ground water
o Environmental concerns
o Costs
Steps to take
o Improving water use efficiency
o Water governance
o Economic incentives for efficient use
Govt Schemes
o Accelerated Irrigation Benefits Programme was started during 199697. It extends assistance for the completion of incomplete irrigation
schemes
o
In 11th FYP refer previous section

Way Forward

Second green revolution (?)

Relook at all the issues offering forward and backward linkages in the
agricultural production cycle
Focus on oilseeds, pulses and coarse cereals
Coarse cereals: high nutrition, can be grown in dry areas, enhance fertility
of soil in rotation
PDS should be reformed: coarse cereals should also be provided through
PDS
Timely availability of credit at affordable costs
Wider extension of insurance facilities to the farm sector
Water and irrigation infrastructure
Drip irrigation
Organic manures should be popularized and their commercial production
encouraged
Educate farmers about technology and agricultural techniques

Food Security

Food security should also incorporate nutritional security. This requires

emphasising the increase in production of pulses, fruits, vegetables,
poultry and meat.
Interpreted broadly
Includes nutritional security which particularly incorporates maternal
health and infant health due to the involvement of the nutritional aspect
Also covers employment security (?)
Affordability, accessibility and availability
Food security seeks to address all the three dimensions of hunger: chronic,
hidden and transient
It also is the first step towards inclusive development

Public Distribution System

High procurement prices

Irrigation

The total irrigation potential in the country has increased from 81.1 mn
hectares in 1991-92 to 108.2 mn hectares in March 2010.
1996-97: Accelerated Irrigation Benefit Programme initiated
Reservoir Storage Capacity: 151.77 billion cubic metres

Agricultural Pricing

To ensure
o Remunerative prices to growers
o Encouraging higher investment and production
o Safeguard the interest of consumers by making sure that adequate
supplies are available

It also seeks to evolve a balanced and integrated price structure in the

perspective of the overall needs of the economy

Investment in Agriculture

FAO estimates that global agricultural production needs to grow 70 pc by

2050 in order to meet projected food demand
Hence investment should grow by a whopping 50 pc
In India, public investment in agriculture has witnessed a steady decline
from the 6th FYP onwards
Share of investment in agriculture has been between 8-10 pc
Most of this has gone into current expenditure in the form of increased
output and input subsidies
Though private sector investment has been increasing, it has not proved
to be enough
Decreased public spending in creation of supporting infrastructure in rural
areas has discouraged private investment in this sector
Some of the measures could be
o Investment in general service like R&D, education, marketing and
rural infrastructure
o Increased investment in rainfed areas
o Private sector participation
o Increased investment for sustainable development

WTO and Agriculture

Uruguay Round multilateral trade negotiations were concluded after 7

years of negotiation in December 1993
The WTO Agreement on Agriculture was one of the main agreements
which was negotiated
Agreement on Agriculture contains provisions in three broad areas of
agriculture
o Market Access
o Domestic Support
o Export Subsidies
Market Access
o This is the most important aspect of the negotiation because all
countries restrict market access while only few have export
subsidies and domestic support
o This includes tariffication, tariff reduction and access opportunities
o Tariffication means that all NTTBs should be withdrawn (such as
quotas, minimum export prices etc)
o Adopts a single approach using a tiered formula

Single approach: everyone except LDCs have to contribute by

improving market access for all products
o Sensitive products: All countries can list some sensitive products
and are allowed flexibility in the way these products are treated,
although even sensitive products have to see substantial
improvements in market access.
o Special and differential treatment
Purpose: for rural development, food security and livelihood
security
Specifically, special treatment is to be given to developing
countries in all elements of the negotiation', including
lesser commitments in the formula and long implementation
period
Special products: developing countries will be given
additional flexibility for products that are specially important
for their food security, livelihood security and rural
development.
Special Safeguard Mechanisms: is intended to provide
contingent protection to poor farmers in developing countries
from negative shocks to import prices or from surges in
imports. [Safeguards are contingency restrictions on imports
taken temporarily to deal with special circumstances such as
a sudden surge in imports. AoA has special provisions on
safeguards. In agriculture safeguards, (unlike normal
safeguards) can be triggered automatically when import
volumes rise above a certain level or if prices fall below a
certain level; and it is not necessary to demonstrate that
serious injury is being caused to the domestic industry]
o AoA requires (from 1995)
36% average reduction by developed countries, with a
minimum per tariff line reduction of 15% over six years
24% average reduction by developing countries with a
minimum per tariff line reduction of 10% over ten years
Domestic Support (subsidies)
o AoA structures domestic support into three categories
Green Box
Amber Box
Blue Box
o Green Box
Non (or minimal) trade distorting subsidies
They have to be government funded and must not involve
price support
They tend to be programmes that are not targeted at
particular products and include direct income supports for
farmers that are not related to current production levels or
prices. They also include environmental protection and
regional developmental programmes. These subsidies are
therefore allowed without limits
o

Amber Box
All domestic support measures considered production and
trade fall into the amber box
These include measures to support prices, or subsidies
directly related to production quantities
These supports are subject to limits which are allowed: 5% of
total production for developed countries, 10% for developing
countries
Reduction commitments are expressed in terms of a Total
Aggregate Measurement of Support (Total AMS)
o Blue Box
This is the amber box with conditions conditions designed
to reduce distortion
Any support that would normally be in the amber box, is
placed in the blue box if the support also required farmers to
limit production
At present there are no limits on spending on blue box
subsidies.
Export subsidies
o Developed countries are required to reduce their export subsidy by
36% (by value) or 21% (by volume) over the six years
o For developing countries the % cuts are 24% (by value) or 14% (by
volume) over 10 years
Indias commitment
o As India was maintaining QRs due to balance of payments reasons
(which is a GATT consistent measure), it did not have to undertake
any commitments in regard to market access
In India, exporters of agricultural commodities do not get any direct
subsidy. Indirect subsidies are given
o

Food Processing

Food processing is a large sector that covers activities such as agriculture,

horticulture, plantation, animal husbandry and fisheries
Ministry of Food Processing indicated the following segments within the
Food Processing industry:
o Dairy, fruits and vegetable processing
o Grain processing
o Meat and poultry processing
o Fisheries
o Consumer foods including packaged foods, beverages and
packaged drinking water
Industry is large and has grown after 1991. However, of the countrys total
agriculture and food produce, only 2 per cent is processed.
FP has 9% share in manufacturing
Structure
o 42 pc: Unorganised
o 33 pc: SSI
o 25 pc: Organised

Constraints & Drivers of Growth

Changing lifestyles, food habits, organized food retail and urbanization are the key
factors for processed foods in India, these are post-liberalization trends and they give
boost to the sector.
There has been a notable change in consumption pattern in India. Unlike earlier, now the
share and growth rates for fruits, vegetables, meats and dairy have gone higher
compared to cereals and pulses. Such a shift implies a need to diversify the food
production base to match the changing consumption preferences.
Also in developed countries it has been observed that there has been a shift from
carbohydrate staple to animal sources and sugar. Going by this pattern, in future, there
will be demand for prepared meals, snack foods and convenience foods and further on
the demand would shift towards functional, organic and diet foods.
Some of the key constraints identified by the food processing industry include:

Poor infrastructure in terms of cold storage, warehousing, etc

Inadequate quality control and testing infrastructure

Inefficient supply chain and involvement of middlemen

High transportation and inventory carrying cost

Affordability, cultural and regional preference of fresh food

High taxation

High packaging cost

In terms of policy support, the ministry of food processing has taken the
following initiatives:

Formulation of the National Food Processing Policy

Complete de-licensing, excluding for alcoholic beverages

Declared as priority sector for lending in 1999

100% FDI on automatic route

Excise duty waived on fruits and vegetables processing from 2000 01

Income tax holiday for fruits and vegetables processing from 2004 05

Customs duty reduced on freezer van from 20% to 10% from 2005 06

Implementation of Fruit Products Order

Implementation of Meat Food Products Order

Enactment of FSS Bill 2005

Food Safety and Standards Bill, 2005

Mega Food Parks

Apart from these initiatives, the Centre has requested state Governments to
undertake the following reforms:

Amendment to the APMC Act

Lowering of VAT rates

Declaring the industry as seasonal

Integrate the promotional structure

Plan Schemes
During the 10th Plan, the Ministry implemented Plan schemes for Technology
Upgradation/Modernization/Establishment of Food Processing Industries,
Infrastructure Development, Human Resource Development, Quality Assurance,
R&D and other promotional activities.
In the 11th Plan, it has been proposed to continue assistance to the above
schemes with higher levels of assistance. In the 11 th Plan, the Ministry proposes
to launch a revamped Infrastructure Scheme under which it will promote setting
up of Mega Food Parks, cold chain infrastructure, value added centres and

packaging centres. The Mega Food Park Scheme will provide backward and
forward linkages as well as reliable and sustainable supply chain. The emphasis
will be on building strong linkages with agriculture and horticulture, enhancing
project implementation capabilities, increased involvement of private sector
investments and support for creation of rural infrastructure to ensure a steady
supply of good quality agri/horticulture produce. It will provide a mechanism to
bring farmers, processors and retailers together and link agricultural production
to the market so as to ensure maximization of value addition, minimize wastages
and improve farmers' income. The Mega Food Park would be a well-defined
agri/horticultural-processing zone containing state of the art processing facilities
with support infrastructure and well established supply chain. The primary
objective of the proposed scheme is to facilitate establishment of integrated
value chain, with processing at the core and supported by requisite forward and
backward linkages. It is envisaged that the implementation of the projects would
be assisted by professional Project Management Agencies (PMA) from concept to
commissioning. In 11th Plan it is planned to support establishment of thirty (30)
Mega Food Parks in various parts of the country.
Vision 2015 on Food Processing Industries
A vision, strategy and action plan has also been finalized for giving boost to
growth of food processing sector. The objective is to increase level of processing
of perishable food from 6% to 20%, value addition from 20% to 35% and share in
global food trade from 1.6% to 3%. The level of processing for fruits and
vegetables is envisaged to increase from the present 2.2% to 10% and 15% in
2010 and 2015 respectively. The Cabinet has approved the integrated strategy
for promotion of agri-business and vision, strategy and action plan for the Food
Processing Sector, based on the recommendations made by the Group of
Ministers (GOM).
Integrated Food Law
An Integrated Food Law, i.e. Food Safety and Standards Act, 2006 was notified on
24.8.2006. The Act enables in removing multiplicity of food laws and regulatory
agencies and provide single window to food processing sector. Ministry of Health
& Family Welfare has been designated as the nodal Ministry for administration
and implementation of the Act.
National Institute of Food Technology Entrepreneurship & Management
(NIFTEM)
The Ministry has set up a National Institute of Food technology Entrepreneurship
& Management (NIFTEM) at Kundli (Haryana). The Institute will function as a
knowledge centre in food processing. Certificate of Incorporation of NIFTEM as a
section 25 Company under the Companies act 1956 has been obtained.

SWOT Analysis of FoodProcessing Industry

Strengths

Abundant availability of raw material

Priority sector status for agro-processing given by the central Government

Vast network of manufacturing facilities all over the country

Vast domestic market

Weaknesses

Low availability of adequate infrastructural facilities

Lack of adequate quality control and testing methods as per international

standards

Inefficient supply chain due to a large number of intermediaries

High requirement of working capital.

Inadequately developed linkages between R&D labs and industry.

Seasonality of raw material

Opportunities

Large crop and material base offering a vast potential for agro processing
activities

Setting of SEZ/AEZ and food parks for providing added incentive to develop
greenfield projects

Rising income levels and changing consumption patterns

Favourable demographic profile and changing lifestyles

Integration of development in contemporary technologies such as electronics,

material science, bio-technology etc. offer vast scope for rapid improvement and
progress

Opening of global markets

Threats

Affordability and cultural preferences of fresh food

High inventory carrying cost

High taxation

High packaging cost

Subsidies

Fertilizer Policy: Urea is the only fertilizer under statutory price control.
Government of India has introduced nutrient based subsidy with effect from 1st
April, 2010 in respect of phosphatic and potassic fertilizers. Under the policy,
subsidy is based on the nutrient (N,P,K and S) content of the decontrolled P and
K fertilizers. Price of Urea has been increased by 10% while price of other
subsidized fertilizers are being maintained around current levels. Additional
subsidy on micronutrients has been introduced on Boron and Zinc, to begin with.
In order to promote the concept of balanced use of fertilizers and to encourage
use of micronutrients, several fertilizers fortifed with Boron and Zinc have been
incorporated in the Fertilizer (Control) Order, 1985.