Indian Economy

BBA 501
Indian Economy

Credits 04
Total Marks: 100
L 04 Instruction Hours: 60

Learning Outcomes:
To enable the students to understand the salient features of India and her occupational
structure; to assess the relative share of Agriculture, industry and service sector in the
economy and to analyse the fruits of planning.

Course Contents:
Unit-I
Introduction to Indian Economy - salient features of Indian Economy - factors responsible
for economic growth and development, a comparison between India and other developing
economies like China, Pakistan will give a better idea of development.
Unit-II
Economic Planning in India - meaning, features and approaches National Institution for
Transforming India (NITI AYOG) , Latest Five Year Plans - Objectives in general and
achievements.
Unit-III
Agricultural role in Indian Economy- role of agriculture in Indian Economy, objectives,
Problems of low productivity - Land Reforms - need and scope. Causes of food problem in
India , Green Revolution: meaning, importance.

Unit-IV
Agricultural Marketing - Regulated Markets - warehousing - Role of Agricultural Prices
commission (APC), Dual Pricing - Role of FCI. Agricultural Credit: Need and Sources.

Unit-V
New policy intervention in Indian Economy:
Introduction to GST, MSP, PDS. Government initiatives taken for development of agriculture
industry.

Suggested Readings:

S. No. Name of Authors/Books/Publisher/Edition Year of

Publication /
Reprint
1 Rudar Datt & Sundaram, “Indian Economy”, , S. Chand & Co 2010
2 M.L. Hhingam., “Economics of Development & Planning”, 2009
Konark
Publishers, New Delhi.
3 Dr. S. Sankaran, “Indian Economy”, Margan Publication, Chennai 2009

Indian Economy Introduction

Indian economy is termed as the developing economy of the world. Some
features like low per capita income, higher population below poverty line, poor
infrastructure, agriculture based economy and lower rate of capital formation,
tagged it as a developing economy in the world. India has emerged as the fastest
growing major economy in the world and is expected to be one of the top three
economic powers in the world over the next 10-15 years, backed by its robust
democracy and strong partnerships.

Market size
India's gross domestic product (GDP) (at constant 2011-12 prices) was
estimated to be Rs 145.65 lakh crore (US$ 2.06 trillion) for 2019-20, growing
4.2 per cent over the previous year.
India retained its position as the third largest start-up base in the world with
over 8,900-9,300 start-ups as 1,300 new start-ups got incorporated in 2019
according to a report by NASSCOM. India also witnessed the addition of 7
unicorns in 2019 (till August 2019), taking the total tally to 24.
India's labour force is expected to touch 160-170 million by 2020 based on the
rate of population growth, increased labour force participation and higher
education enrolment among other factors according to a study by ASSOCHAM.
India's foreign exchange reserves reached Rs 37.31 lakh crore (US$ 493.48
billion) in the week up to May 29, 2020 according to the data from RBI.

Foreign exchange reserves

Foreign exchange reserves are the foreign currencies held by a country's central bank.
They are also called foreign currency reserves or foreign reserves. There are seven
reasons why banks hold reserves. The most important reason is to manage their
currencies' values.

National Income
Under the broad topic of national income you may hear terms like GDP, GNP,
NNP etc.

GDP: Gross Domestic Product (GDP) is the total money value of final goods
and services produced in the economic territories of a country in a given year.
Total value of goods and services produced in India for 2014-15 is projected to
be around 100 lakh crore Indian rupees or around 2 trillion US dollars at current
market prices. This is the value of Indian GDP when expressed at current
market price.
GDP stands for total value of goods and services produced inside the territory of
India irrespective of whom produced it – whether by Indians or foreigners.

GNP: Gross National Product (GNP) is the total value of goods and services
produced by the people of a country in a given year. It is not territory specific. If
we consider the GNP of India, it can be seen that GNP is lesser than GDP.
Introduction to Indian Economy

Economy before British Rule

To understand the present level of the Indian economy, it is important to

understand the economic system of India during the British rule and post-
independence economic development policies.

 Before the advent of British rule, India had an independent economy. It

was largely primary sector economy and the major occupations were
agriculture, handicrafts, and many other primary sector works.

 The economy was full of resources and a prosperous one. Therefore, high
quality agricultural products and handicrafts made by the Indians were
traded across the world.

Economy during British Rule

 During the British rule, India’s economy became a net raw material
supplier and a net importer of finished products.
 No British economist attempted to measure the per capita income and
national income of India.
 Some of the Indian economists Dadabhai Naoroji, V.K.R.V. Rao, R.C.
Desai and British Findlay Shirras and William Digby attempted to
measure India’s national income. Among all, V.K.R.V. Rao was the
most successful.
 Before independence, India’s economy was solely dependent upon
agriculture.
 85 percent of the Indian population were rural and their main source of
subsistence was agriculture.
 During the British colonial period, agriculture (in spite of being the main
occupation) was suffering from many problems and hence the effective
growth was zero percent.
 Land settlement system was totally in favour of the British.
  Agricultural system was stagnant; however, later there was a gradual
growth, but that was not because of improvement and development of
the agricultural system, but because of the expansion of agricultural
land.

Zamindari System

 Many parts of India (especially Bengal region of east India, today’s West
Bengal and Bangladesh) were practising Zamindari system (Land-
lordship).
 The main work of the Zamindars was to collect the land tax/rent. They
almost did nothing either to improve the agriculture system or the
conditions of the farmers.
 Zamindars’ inhumane attitude affected farmers’ lives very badly. Most
of the regions of the country were facing famine and many other social
issues and problems.
 Some of the regions, during the Zamindari system, evidenced growth that
was only because of the commercialisation of agriculture. In these
regions, the farmers had been forced to produce cash crops instead of
staple food crops.
Major Problems
 The major problems were −
o Drought,
o Flood,
o Poor irrigation system,
o Desalination of soil (Desalination is a process that extracts mineral
components from saline water
o Absence of technology, and
o Poverty.
 India did not undergo any industrialisation as all the raw materials were
exported to the UK.
 Handicrafts and other small-scale industries suffered badly.
 The main intention of British rule was to make India, a market of their
finished products.
  In India, many industries developed even in the time of crisis. For
example, the jute industry in West Bengal and the cotton textile industry
in regions of Gujarat and Maharashtra.

The Industries
 Tata Iron and Steel Company (TISCO) was incorporated in the year
1907.
 By the middle of the 20th century, some other industries such as cement,
sugar, paper, etc. were established.
 As all the above discussed industries were concentrated in some specific
pockets of the country; therefore, there was no improvement in the
condition of the farmers.
 During the colonial period, India became the exporter of jute, cotton,
sugar, indigo, wool, etc. and importer of finished products such as cotton
and silk fabrics, woollen cloth, machinery, and other items.
 More than 50 percent of India’s trade was directed to Britain; remaining
50 percent were traded in other countries including China, Sri Lanka,
and Persia (Iran).
 ‘Muslin’ is a type of cotton textile which originated in Bengal,
particularly, places in and around Dhaka (previously Dacca), now the
capital city of Bangladesh. Hence, it was also popular as ‘Daccai
Muslin’.
 Because of its quality, Muslin earned popularity across the world.
Sometimes, foreign travelers also used to refer to it as malmal shahi or
malmal khas implying that it was worn by, or fit for, the royalty .
The following image shows the dress made up of Muslin (the dress worn by the
lady) and inset (image) shows the Muslin fabrics.

Other Facts

 The surplus income of India was used in setting up the official

infrastructure for the British officers.
 During the British period, some of the infrastructures such as road, rail,
telegraph, ports, water transport, etc. were developed, but all these were
developed not for the benefit of Indians, but, rather to serve the interests
of British officials.
  The railway, which was developed in the 1850s broke the barrier of long
distance travel and trade. It also fostered the commercialisation of Indian
agriculture. But this could hardly be of any help to the farmers.
 The regional disparity was high, as the Madras Presidency (entire South
India) was more into manufacturing and services sector and rest of India
was in the agricultural sector.

Economic Growth

Concept

Economic growth is an increase in the production of goods and services over a

specific period. To be most accurate, the measurement must remove the effects
of inflation.

Economic growth creates more profit for businesses. As a result, stock prices

rise. That gives companies capital to invest and hire more employees. As more
jobs are created, incomes rise. Consumers have more money to buy additional
products and services. Purchases drive higher economic growth. For this reason,
all countries want positive economic growth. This makes economic growth the
most-watched economic indicator.

Historically, rapid economic growth has been accompanied by greater

industrialisation. But more accurately the process of economic growth can be
described in terms of greater commercialisation of economic activities.

How to Measure Economic Growth

Gross domestic product is the best way to measure economic growth. It takes
into account the country's entire economic output. It includes all goods and
services that businesses in the country produce for sale. It doesn't matter
whether they are sold domestically or overseas.
GDP measures final production. It doesn't include the parts that are
manufactured to make a product. It includes exports because they are produced
in the country. Imports are subtracted from economic growth.

Most countries measure economic growth each quarter.

The most accurate measurement of growth is real GDP. It removes the effects of

inflation. The GDP growth rate uses real GDP.

The World Bank uses gross national income instead of GDP to measure growth.

It includes income sent back by citizens who are working overseas. It's a critical
source of income for many emerging market countries like Mexico.
Comparisons of GDP by country will understate the size of these countries'
economies.

GDP doesn't include unpaid services. It leaves out child care, unpaid volunteer
work, or illegal black-market activities. It doesn't count the environmental costs.
For example, the price of plastic is cheap because it doesn't include the cost of
disposal. As a result, GDP doesn't measure how these costs impact the well-
being of society. A country will improve its standard of living when it factors in
environmental costs. A society only measures what it values. 

Similarly, societies only value what they measure. For example, countries like
Sweden and Finland rank high in the World Economic Forum's Global
Competitiveness Report. Their budgets focus on the drivers of economic
growth. These are world-class education, social programs, and a high standard
of living. These factors create a skilled and motivated workforce.

These countries have a high tax rate. But they use the revenues to invest in the
long-term building blocks of economic growth. 

 Rise in gross domestic product

GDP: Gross Domestic Product (GDP) is the total money value of final goods
and services produced in the economic territories of a country in a given year.
Total value of goods and services produced in India for 2014-15 is projected to
be around 100 lakh crore Indian rupees or around 2 trillion US dollars at current
market prices. This is the value of Indian GDP when expressed at current
market price.
GDP stands for total value of goods and services produced inside the territory of
India irrespective of whom produced it – whether by Indians or foreigners.

GNP: Gross National Product (GNP) is the total value of goods and services
produced by the people of a country in a given year. It is not territory specific. If
we consider the GNP of India, it can be seen that GNP is lesser than GDP.

The Factors of Production Important to Economic Growth

The factors of production are what's needed for a company to earn an economic
profit. The four factors of production are:

Concept of Economic Development

Now economic development is no longer considered identical with economic
growth. It means it should consider growth plus progressive changes in certain
crucial variables which determine the well being of the people.

In other words, Economic development is a process of targeted activities and

programs that work to improve the economic wellbeing and quality of life of a
community by building local wealth, diversifying the economy, creating and
retaining jobs. The problem of development must be defined as a selective
attack on the worst forms of poverty. Development goals must be defined in
terms of progressive reduction and eventual elimination of malnutrition,
disease, illiteracy, squalor, unemployment and inequalities.

Factors responsible for Economic Growth and Economic

development

Economic activity refers to a human activity related to production and

consumption of goods and services for economic gain. Non-economic activity is
an activity performed gladly, with the aim of providing services to others
without any regard to monetary gain.

 Population and Manpower Resources

Population is considered as an important determinant of economic growth. Firstly,

population provides labour and entrepreneurship as an important factor service.

Natural resources of the country can be properly exploited with manpower

resources. With proper human capital formation, increasing mobility and division
of labour, manpower resources can provide useful support to economic
development.

On the other hand, higher rate of growth of population increases demand for goods
and services as a means of consumption leading to increasing consumption
requirements, lesser balance for investment and export, lesser capital formation .
adverse (preventing success or development; harmful; unfavourable) balance of
trade, increasing demand for social and economic infrastructural facilities and
higher number unemployment problem.

*Capital formation is a term used to describe the net capital accumulation

during an accounting period for a particular country, and the term refers to
additions of capital stock, such as equipment, tools, transportation assets and
electricity.

*Capital accumulation typically refers to an increase in assets from investment

or profits. Individuals and companies can accumulate capital through
investment. Investment assets usually earn profit that contributes to
a capital base.

 Power Resources Energy Resources

Energy resources like oil, gas, electricity, coal and nuclear energy play an
important role in the economic development. The importance of these
resources has been changing with the passage of time. Energy resources
are very useful in increasing the production of various sectors like
agriculture, industry and transport.

 Education

Education plays very effective role in increasing the rate of development

in the country.. In less developed countries the rate of literacy is very low
which is the main cause of low production is. 

 Technology

Technology means the use of latest inventions in the production of goods.

Technology plays an important role in the economic development. The
under developed countries are poor because there is a lack of technology
and capital. There is also a lack of technical skill and they are using old
methods of production. That’s why the national product is becomes low.

  Social and Cultural Factors

If the attitude of the people is positive towards development then they can
made rapid progress. For the economic development it is the necessary
 that people should leave the useless customs and they start thinking about
their economic conditions.
 Administrative Factor
An effective, honest, strong administration can give big push to the
economic development. Corrupt , dishonest and inefficient administration
is an obstacle in the way of economic development.
 Political Stability
Stable government can play effective role in increasing the rate of
development in the country. It can introduce many reforms and can
prepare the development plans. In less developing countries political
instability has also reduced the rate of development in the country. The
political unrest is one of the main causes of low rate of development in
the underdeveloped countries.
 Entrepreneurship

Entrepreneurship is the fourth factor and includes the visionaries and innovators
behind the entire production process. The entrepreneurs combine all the other
factors of production to conceptualize, create, and produce the product or
service.

 Rise in per capita income

If the population in a country g rows faster than GDP, product per capita (or
income per capita) will decline. For this reason this cannot be termed economic
growth. Many economists have defined economic growth as a sustained
increase in per capita product (or income). The aim should be no quantitative
change (large production) only, but qualitative changes too (i.e. higher
productivity of labour). Only on the basis of qualitative change can an economy
as a whole rise to higher level.
Types of Economies

Closed economy is an economy, which does not have any sort of economic
relation with rest of the world but is confined to itself only. A closed economy
does not enter into any one of the following activities.

 It neither exports goods and services to the foreign countries nor imports
goods and services from the foreign countries.
 It neither buys shares, debentures, bonds etc. from foreign countries nor sells
shares, debentures, bonds etc. to foreign countries.
 It neither borrows from the foreign countries nor lends to the foreign
countries.
 It neither receives gifts from foreigners nor sends gifts to foreigners.
 Normal residents of a closed economy cannot go to other countries to work in
their domestic territory. No foreigner is allowed to work in the domestic
territory of a closed economy.
A closed economy is one that has no trading activity with outside economies.
The closed economy is therefore entirely self-sufficient, which means no
imports come into the country and no exports leave the country. The goal of a
closed economy is to provide domestic consumers with everything they need
from within the country's borders.

 A closed economy is completely self-sufficient, with no imports or

exports from international trade.
 The need for raw materials produced elsewhere that play a vital role as
inputs to final goods makes closed economies inefficient.
  A government may close off a specific industry from international
competition through the use of quotas, subsidies, and tariffs.
 In reality, there are no nations that have economies that are completely
closed.

Why There Are No Real Closed Economies

Maintaining a closed economy is difficult in modern society because raw

materials, such as crude oil, play a vital role as inputs to final goods. Many
countries do not have raw materials naturally and are forced to import these
resources.

For example-  Brazil imports the least amount of goods—when measured as a

portion of the gross domestic product (GDP)—in the world and is the world's
most closed economy. Brazilian companies face challenges in terms of
competitiveness, including exchange rate appreciation and defensive trade
policies. In Brazil, only the largest and most efficient companies
with significant economies of scale can overcome barriers to export.

Open market economy

This allows people to buy goods and services within its economy and to buy
goods and services provided by firms outside of its borders.

One result of this is that it can import deflation and inflation which impacts
monetary policy.

For example, if the U.S. buys an increasing percentage of its goods from
countries like China where costs are cheaper, that lowers costs in the U.S. As
such it imports that deflationary force. All else being equal that would lower
inflation a little bit and monetary policy could be slightly more stimulative as a
result.

On the other hand, if the U.S. buys a set percentage of its goods from countries
like China, and wage pressure keeps driving up prices in China, then that will
cause prices of goods imported into the U.S. to rise each year. All else being
equal that imported inflation would impact monetary policy and rates would
have to be a little bit higher than they'd otherwise be as a result.

 In closed economy, no distinction is required to be made between GNP

and GDP as there is no export and import of goods and services.

 In open economy, which open to do foreign trade, national product may

be greater or less than domestic product depending upon the net inflow or
outflow of goods.
A country may record an increase in if its people have invested massive capital
outside the country and earn big profits therefrom. But this doesn’t ensure the
economic growth of a country. Therefore, the rational approach to the problem
will be to differentiate the term GDP from the term GNP in the context of
economic growth.

GDP will be more accurate in terms of economic growth as compared to GNP.

In this context, the increase in GDP must be steady and prolonged. A short
period increase, as occurs within the boom period of a trade cycle, cannot be
accepted as growth.

Capitalist Economy
 In a capitalist system the products manufactured are divided among people not
according to what people want but on the foundation of Purchasing Power—
which is the ability to buy products and services. Which means an individual
needs to have the money with him to buy the goods and services. The Low-cost
housing for the underprivileged is much required but will not include as demand
in the market because the needy do not have the buying power to back the
demand. Therefore, the commodity will not be manufactured and provided as
per market forces.

or
Capitalism or capitalist economy is referred to as the economic system where
the factors of production such as capital goods, labour, natural resources, and
entrepreneurship are controlled and regulated by private businesses.

In a capitalist economy, the production of all the goods and services is

dependent on the demand and supply in the market that is also known as a
market economy. It is different from the central planning system that is also
known as a command economy or a planned economy.

The main characteristic of a capitalist economy is the motive of earning profit.

The capitalist economy is also characterised by the presence of free markets and
lack of participation by the government in regulating the business.

The origin of capitalism can be traced back to 18th century England that was
undergoing the industrial revolution at that time. As there is no government
intervention in this type of economy, it is also known as a free market economy.

Socialist Economy
This economy system acknowledges the three inquiries in a different way. In a
socialist society, the government determines what products are to be
manufactured in accordance with the requirements of society. It is believed that
the government understands what is appropriate for the citizen of the country,
therefore, the passions of individual buyers are not given much attention. The
government concludes how products are to be created and how the product
should be disposed of. In principle, sharing under socialism is assumed to be
based on what an individual need and not what they can buy. A socialist system
does not have a separate estate because everything is controlled by the
government.

Mixed Economic

Mixed systems have characteristics of both the command and market economic
systems. For this purpose, the mixed economic systems are also called as dual
economic systems. However, there is no sincere method to determine a mixed
system, sometimes the word represents a market system beneath the strict
administrative control in certain sections of the economy.

Salient features of Indian Economy

NITI Ayog

NITI Aayog stands for National Institution for Transforming India. It is a

Government of India initiative to replace Planning Commission. NITI Aayog
involves inputs from both the central and state governments in policy-making
processes. The Prime Minister is the Ex-officio chairman of NITI Aayog. NITI
Aayog also consists a governing council. Chief Ministers of all the states, chief
ministers of Delhi and Puducherry, Lieutenant Governor of all the union
territories are members of this council. Prime minister selects and appoints a
Vice-chairman. Apart from the governing council, NITI Aayog also consists of
two part-time members and four ex-officio members.

 NITI Aayog is the premier policy ‘Think Tank’ of the Government of India,
providing both directional and policy inputs. While designing strategic and long
term policies and programmes for the Government of India, NITI Aayog also
provides relevant technical advice to the Centre and States.
The Government of India, in keeping with its reform agenda, constituted the
NITI Aayog to replace the Planning Commission instituted in 1950. This was
done in order to better serve the needs and aspirations of the people of India.
An important evolutionary change from the past, NITI Aayog acts as the
quintessential platform of the Government of India to bring States to act
together in national interest, and thereby fosters Cooperative Federalism.

At the core of NITI Aayog’s creation are two hubs – Team India Hub and
the Knowledge and Innovation Hub. The Team India Hub leads the
engagement of states with the Central government, while the Knowledge and
Innovation Hub builds NITI’s think-tank capabilities. These hubs reflect the two
key tasks of the Aayog.
NITI Aayog is also developing itself as a State of the Art Resource Centre, with
the necessary resources, knowledge and skills, that will enable it to act with
speed, promote research and innovation, provide strategic policy vision for the
government, and deal with contingent issues.

Chairperson- Shri Narendra Modi, Hon'ble Prime Minister

Vice Chairperson - Dr. Rajiv Kumar

Chief executive officer - Amitabh Kant.

 Full-Time Member- Prof. Ramesh Chand

Full-Time Member- Shri V.K. Saraswat

Full-Time Member- Dr. V.K. Paul

The Centre had in January last year appointed former Planning

Commission Secretary Sindhushree Khullar as the first CEO of the National
Institution for Transforming India (Niti) AayogThe council also consists of
some temporary members who are selected from leading universities
and research institutions.

Features of NITI AYOG

1. To evolve a shared vision of national development priorities, sectors and

strategies with the active involvement of States.

2. To foster cooperative federalism (In India, we can describe federalism as a

distribution of authority around local, national, and state governments) through

structured support initiatives and mechanisms with the States on a continuous

basis, recognizing that strong States make a strong nation.

3. To develop mechanisms to formulate credible plans at the village level and

aggregate these progressively at higher levels of government.

4. To pay special attention to the sections of our society that may be at risk of not

benefiting adequately from economic progress

5. To create a knowledge, innovation and entrepreneurial support system through a

collaborative community of national and international experts, practitioners and

other partners.
6. To focus on technology upgradation and capacity building for implementation

of programmes and initiatives.

7. To actively monitor and evaluate the implementation of programmes and

initiatives, including the identification of the needed resources so as to strengthen

the probability of success and scope of delivery.

8. To undertake other activities as may be necessary in order to further the

execution of the national development agenda, and the objectives mentioned

above.

9. Ensuring that India is an active participant in global debates and deliberations.

Using urbanization as an opportunity to creating a secure habitat via modern

technology.

10. Safeguard our environmental and ecological assets.

11. Eliminate poverty and offer Indians a better chance to live a life of dignity and

respect.

12. Redress inequalities based on gender bias, caste, and economic disparities.

13. Integrate villages into the development process of the country.

14. Provide policy support to more than 50 million businesses – a major source of

employment generation.
Approaches of National Institution for Transforming India (NITI
AYOG)

https://bbamantra.com/12th-five-year-plan-india/

12th Five Year Plan

Why GDP growth is important

1. Rapid growth of GDP produces a larger expansion in total income
and production .
2. Will directly raise living standards of population by providing
them with employment and other income enhancing activities.
3. It generates higher revenues, which help financing programmes

Vision & Aspirations

The broad vision and aspirants which the 12th five year plan seeks to fulfill are
reflected in the subtitle: “Faster, Sustainable and More Inclusive Growth” -The
simultaneous achievement of each of these elements is critical for the success
of the plan.

12th Five Year Plan objectives

https://bbamantra.com/12th-five-year-plan-india/

Challenges of 12th Five Year Plan

Challenges and constrains of 12th five year plan

1. Expenditure on health by centre and states to increase from 1.3% of GDP to

at least 2.0% of GDP by the end of 12th five year plan. (and perhaps even
2.5 % ).
2. At present less than 30% of out pt and less than half of Input capacity of the
country is in the Govt. sector.
3. Majority population relies on the private health care provision which often
imposes the heavy financial burden -Therefore aiming to expand public
sector capacity in health care especially in rural areas.
4. Desperate shortage of medical personal.
5. Increase seats in medical college, nursing colleges.
6. Improve quality of NRHM (National Rural Health Mission) services there by
developing infrastructure. Particularly drinking water, sanitation, nutrition
and immunization programmes.

Achievements of 12th Five Year Plan

Role of Agriculture in Indian Economy

1. Contribution to National Income:

From the very beginning, agriculture is contributing a major portion to our
national income. Although the share of agriculture has been declining gradually
with the growth of other sectors but the share still remained very high as
compared to that of the developed countries of the world.

2. Source of Livelihood:
In India over two-thirds of our working population are engaged directly on
agriculture and also similarly depend for their livelihood. 

3. Source of Food Supply:

Agriculture is the only major source of food supply as it is providing regular
supply of food to such a huge size of population of our country. It has been
estimated that about 60 per cent of household consumption is met by
agricultural products

4. Role of Agriculture for Industrial Development:

Agriculture in India has been the major source of supply of raw materials to
various important industries of our country. Cotton and jute textiles, sugar,
vanaspati, edible oil plantation industries (viz. tea, coffee, rubber) and agro-
based cottage industries are also regularly collecting their raw materials directly
from agriculture.

5. Commercial Importance:
Indian Agriculture is playing a very important role both in the internal and
external trade of the country. Agricultural products like tea, coffee, sugar,
tobacco, spices, cashew-nuts etc. are the main items of our exports and
constitute about 50 per cent of our total exports.

Causes of the Low Productivity of Agriculture in India

Social atmosphere:

Social climate includes customs and traditions. Indian farmer is illiterate and
has no knowledge for latest techniques of production. 

Traditional methods of Cultivation:

Traditional methods of cultivation like manual ploughing, two crop pattern and
old system of irrigation are mainly responsible for low productivity of
agriculture.

Old implements:
Traditional equipment’s like wooden ploughs, sickles and spades are commonly
used. Tractors & Combines are not so common in use. Due to the use of these
old implements agriculture is backward.

Insufficient irrigation facilities:

Due to improper irrigation facility, farmer can produce one crop only in a year.
Only 40% of the agricultural land has permanent irrigation facility.

Lack of credit facility:

Credit facilities are inadequate in rural areas. Farmers can not be able to raise
credit from rural banks easily. They have to depend on ‘Mahajans’ and
‘Shahukars’. These money lenders charge heavy rate of interest. Farmers have
to sell their produce at low price to these money lenders. So farmers have low
Income and thus low productivity.

Lack of High Yielding Variety (HYV) seeds:

HYV seeds are not commonly used. Farmers do not understand their
significance. They cannot afford to buy them and also these seeds are not easily
available.

Improper marketing is a significant factor for low productivity of agriculture.

Farmers fail to get suitable price for their produce. Inadequate means of
transport forces the farmers to sell their produce to local money lenders at low
prices
Green Revolution in India 

The Green Revolution in India refers to a period of time when agriculture in

India changed to an industrial system due to the adoption of modern methods
and technology such as high yielding variety (HYV) seeds, tractors, irrigation
facilities, pesticides, fertilizers etc. This was part of the larger Green
revolution started by Norman Borlaug, which leveraged agricultural research
and technology to increase agricultural productivity in the developing world.
Within India, this started in the early 1960s and led to an increase in food grain
production, especially in Punjab, Haryana, and Uttar Pradesh during the early
phase. The main development was higher-yielding varieties of wheat,
[2]
 and rust resistant strains of wheat.

Importance
As a result of the Green Revolution and the introduction of chemical fertilizers,
synthetic herbicides and pesticides, high-yield crops, and the method of multiple
cropping, the agricultural industry was able to produce much larger quantities of
food. This increase in productivity made it possible to feed the growing human
population.

Norman Borlaug helped introduce this high-yield variety of wheat to other

countries in need of increased food production, and he eventually won a Nobel
Peace Prize for his work with developing high-yield crops and for helping
prevent starvation in many developing countries.

In addition to producing larger quantities of food, the Green Revolution was

also beneficial because it made it possible to grow more crops on roughly the
same amount of land with a similar amount of effort. This reduced production
costs and also resulted in cheaper prices for food in the market.
The ability to grow more food on the same amount of land was also beneficial
to the environment because it meant that less forest or natural land needed to be
converted to farmland to produce more food.

Causes of food problem in India

Population Growth:
Population explosion is one of the major causes of food problem in India. There is
less food production as compared to increasing demand

Low Productivity:
One of the reasons of low agricultural productivity in India is the use of low grade
technology and traditional farming.

Vigorous Farming:
Due to much demand of food in market, the farmer uses the agricultural land
vigorously to earn more money due to which pressure on land increases as a result
its mineral content get reduced year after year.

Natural Calamities:
Frequent occurrence of natural calamities also resulted in the large loss of food
production. These mainly include rainfall which is such that in some areas there is
deficit of water causes drought, at same time some part receives more than normal
rain resulting into floods which directly affect the crop production.

Stages of Economic Planning

Formulation:
The first stage in planning is the formulation of the general objectives of the
plan and their definition in specific quantitative terms.
The task of the formulation of the general objectives of the plan is generally
performed by the Planning Commission alone. The Planning Commission in
India consists of Chairman, Deputy Chairman and six Members. It is the
function of the Commission to formulate a plan for the most effective and
balanced utilisation of the country’s resources.

Adoption:

The adoption of the plan is the function of either the Parliament or the
Government. The Parliament can make any changes in the plan it likes but
generally it does not make any drastic changes in the draft of the plan. There are
little possibilities for making changes in the Plan by the Parliament or the
Government because the Planning Commission consults it fully at the
formulation stage.

Execution:

The Planning Commission is an advisory body and has no executive functions.

The execution or implementation of the Plan is the responsibility of the central
and state governments in their respective areas.

Evaluation:
One of the functions of the Planning Commission is to appraise from time to
time the progress achieved in the execution of each stage of a plan and
recommend the adjustment of policy and measures that such appraisal might be
necessary.

Agriculture Marketing

Indian agriculture contribution to the national gross domestic product (GDP) is

about 25 per cent. Agricultural marketing is mainly the buying and selling of
agricultural products. In earlier days when the village economy was more or
less self-sufficient the marketing of agricultural products presented no difficulty
as the farmer sold his produce to the consumer on a cash or barter basis.

Today's agricultural marketing has to undergo a series of exchanges or transfers

from one person to another before it reaches the consumer. There are three
marketing functions involved in this, i.e., assembling, preparation for
consumption and distribution. Selling on any agricultural produce depends on
some couple of factors like the demand of the product at that time, availability
of storage etc. The products may be sold directly in the market or it may be
stored locally for the time being. Moreover, it may be sold as it is gathered from
the field or it may be cleaned, graded and processed by the farmer or the
merchant of the village. Sometime processing is done because consumers want
it, or sometimes to conserve the quality of that product. The task of distribution
system is to match the supply with the existing demand by whole selling and
retailing in various points of different markets like primary, secondary or
terminal markets. 

Thus agricultural marketing is a series of inter- connected activities involving:-

 planning production,
  growing

 harvesting,

 grading,

 packing,

 transport,

 storage,

 agro and food processing,

 Distribution and sale. .

AGMARK sign is issued and certified by govt. of India directorate of marketing

and inspection an attached Office of the Department of Agriculture,
Cooperation and Farmers Welfare under Ministry of Agriculture & Farmers
.
Welfare an agency of the Government of India. It is used to certify the
authentic standards for agricultural products. Where ISI stands for Indian
Standard Institute. ISI mark is used to certifiy that electronic products follows
the Indian standards.

Regulated Markets

Thus agricultural marketing is a series of inter- connected activities involving:-

planning production,-growing and harvesting,-grading,-packing,-transport,-
storage,-agro- and food processing,-distribution and sale.

The main objective with which the regulated markets are formed is to eliminate
illegal and unhealthy marketing practices, to lessen marketing charges, short-
weights, excessive market charges, unauthorized deduction, adulteration of
produce and the absence of machinery to settle disputes between sellers and
buyers were recognized as the main hindrances in agricultural marketing and.
With these motives, 13 states of India have passed necessary legislation for the
establishment of regulated markets at the dawn of the Fourth Plan.

Later on, gradually all other states have also passed legislation in this respect.
Accordingly total number of regulated markets has increased from about 200 in
1950-51 to 1000 in 1961 and then finally to 7,114 as on 31st March, 2014.

Definition of regulated market:

Regulated market is wholesale market where buying and selling is regulated and
controlled by the state government through the market committee.

OBJECTIVES

 To prevent the exploitation of the farmers by overcoming the handicaps

in the marketing of their products.
 To make the marketing system most effective and efficient so that
farmers may get better prices for their produce and the goods are made
available to consumers at reasonable prices
 To provide incentive prices to farmers for inducing them to increase the
production both in quantitative and qualitative terms
 To promote an orderly marketing of agricultural produce by improving
the infrastructural facilities

NEED FOR REORIENTATION OF MARKET REGULATION

 The benefits of regulation in a market vary directly in proportion to the

availability or creation of market infrastructural facilities in them
  Emphasis in most of the regulated markets has remained mainly on the
construction activities( roads ,yards and building) and on collection of
market fees
 Several weaknesses and malpractices are still reported in the working of
the regulated markets
 Bureaucratization in the management of the regulated markets exists in
most states which resulted in continuation of several malpractices
 Most of the regulated markets do not have qualified staff to manage and
movement of agricultural produce in the country is not smooth.
 Most producers refrain from bringing their commodities to these
regulated markets as they report that there is no additional benefit to
them.
 The regulated markets have indirectly led to monopolization of trade by
the way of granting licenses to different types of market middlemen
which in turn are not allowing others to enter in the business of market
yards.

STATE AGRICULTURAL MARKETING BOARDS/DIRECTORATES

 Delhi Agricultural Marketing Board

 Krishi Maratavahini (Karnataka State Daily Market Price Information)
 Madhya Pradesh State Agricultural Marketing Board
 Maharashtra State Agricultural Marketing Board, Pune
 Meghayala State Agricultural Marketing Board
 Orissa State Agricultural Marketing Board, Bhubaneswar
 Punjab State Marketing Board
 Rajasthan State Marketing Board
 AP Agricultural Marketing Site
  Domestic & Export Market Intelligence Cell, Tamil Nadu Agricultural University and
Agricultural Marketing Board, Tamil Nadu

Agricultural prices commission

It began in 1965 later renamed as Commission for Agricultural Costs and

Prices (CAPC), with a mandate to recommend minimum support
prices [1] (MSPs) and raise productivity and grain production [2]  to serve the
emerging demands of the country. Today, the CACP recommends MSPs of
23 commodities: seven cereals (paddy, wheat, maize, sorghum, pearl millet,
barley and ragi), five pulses (gram, tur, moong, urad, lentil),  seven oilseeds
(groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower,
nigerseed) and four commercial crops [3]  (copra, sugarcane, cotton and raw
jute). These it determines by analysing demand and supply; cost of
production; price trends in the market, both domestic and international;
inter-crop price parity; terms of trade between agriculture and non-
agriculture; and the likely implications of MSP on consumers of that
product. 

 Prof. Vijaya Paul Sharma is currently chairman

Dual Pricing
Dual pricing is a situation in which the same product or service is sold at
different prices in different markets. There are a number of reasons why dual
pricing may be employed, including the following:
 An aggressive competitor may use dual pricing to drastically lower its
price in a new market. The intent is to drive out other competitors and then
raise its prices once the other parties are no longer selling in the market. This
practice can be illegal.
 There may be financial and tax reasons for pricing differently. For
example, adverse currency exchange rates  or currency retention requirements
may make it more difficult to sell into a market, so the seller must raise
prices to offset these costs of doing business.
 Distribution costs may be different in each market. For example,
distributors must be used in one market, while sales can be direct to
consumers in another market. Each distribution variation results in
different margins, unless prices are altered to generate a uniform margin in
all markets.
 Prices may be demand-based. Thus, an airline can offer one price to an
early-booking customer and a higher price to someone attempting to buy a
seat at the last minute.

Role of FCI

The Food Corporation of India (FCI) was set up on 14 January 1965 having its
first District Office at Thanjavur – rice bowl of Tamil Nadu – and headquarters
at Chennai (The Headquarters later shifted to Delhi) under the Food
Corporations Act 1964 

It is one of the largest corporations in India and probably the largest supply
chain management in Asia (Second in world) It operates through 05 Zonal
offices and 24 Regional offices. Each year, the Food Corporation of India
purchases roughly 15 to 20 per cent of India's wheat output and 12 to 15 per
cent of its rice output. The purchases are made from the farmers at the rates
declared by the Govt. of India. This rate is called as MSP (Minimum Support
Price). There is no limit for procurement in terms of volume, any quantity can
be procured by FCI(Food Corporation of India) provided the stock satisfies
FAQ (Fair Average Quality) specifications with respect to FCI.

Ministry of Consumer Affairs, Food and Public Distribution. The Ministry of

Consumer Affairs, Food and Public Distribution is a government ministry of
India. The Ministry is headed by a minister of Cabinet rank. The current
Cabinet Rank Minister Ram Vilas Paswan.

The role of Food Corporation of India is to maintain sufficient buffer stock in

the country and price stabilisation.

 FCI purchases food grains mainly from surplus states such as Punjab,
Haryana and supplies them to deficit states. For example wheat is
transported from Haryana, Punjab to Goa.
 A minimum support price is fixed by the government of India on which
the purchase of food grains is done, but if a farmer gets more than MSP
he is free to sell it wherever he wants.
 The Purchased stock is maintained in godowns aka depots by Quality
control staff of FCI, under which fumigation (Fumigation is a method of
pest control that completely fills an area with gaseous pesticides—
or fumigants—to suffocate or poison the pests within.) and other
procedures are carefully applied.
 Ministry of consumer affairs and Public distribution allocates a particular
amount of food grains to Department of civil supplies, Department of
education, Army supply corps. Under which they lift their allocated stock
in time bound manner.
  There is also a scheme called OMSS or open market sale scheme where
private parties purchase food grains from FCI, but this sale is done only
when stock is surplus and may deteriorate if not processed or consumed.
 The supply of food grains for Mid day meal scheme ( Primary and upper
Primary), APL ( Above poverty line),( Below poverty Line) BPL and
other schemes is done by FCI.
 The Supply of Food grains to army is also done by FCI.

Rail Transit Loss, and storage losses are the two kinds of losses suffered by
FCI.

Transit loss is result of poor handling by handling loaders (such as use of

hooks), while loading and unloading and use of damaged wagons by Indian
Railways for transporting food grains, Sometimes loss in the moisture of food
grains while transporting also causes loss in tonnes which is later written off.

Storage loss is mainly because of poor condition of storage depots because of

which a considerable amount is consumed by rodents and pigeons, which varies
from depot to depot.

To counter the Rail Transit loss freight Container based storage as well as
transport system is being brought into force by FCI.

And a major breakthrough was implementation of Depot online system which

will be immensely beneficial in curbing the various malpractices across India.

Agricultural Credit

Agricultural Credit is defined as a type of financing used to provide funding for

agricultural producers. This may be in the form of letters of credit, loans or
banker’s acceptance documents. This is generally used to provide investment
from outside resources to the farming sector.

Why farmers need credit

Credit is needed in every type of business and agriculture is no exception. The

need for agriculture credit becomes more important when it moves from
traditional agriculture to modern agriculture.

Agricultural labour is often under-employed. Production suffers from weather

risks. The capacity of farmers to save and invest is very low.

The agricultural productivity is low due to low use of inputs. The farmers
therefore, need credit to increase productivity and efficiency in agriculture.

This need is increasing over the years with the rise in use of fertilizers,
mechanisation and rise in prices.

Some of the reasons why farmers need agricultural credit

1. Purchase of new inputs

The farmers need finance for the purchase of new inputs which include seeds,
fertilizers, pesticides, irrigation water etc. If the seed of high yielding varieties
and other modern inputs are made available to the farmers they can increase
productivity not only of land but also of labour.

2. Purchase of implements
Credit is required by the farmers for the purchase of tractors, threshers,
harvesters, water pumping sets etc. The use of appropriate machinery in land
will increase production by growing more than one crop on the same piece of
land at the same time.

3. Better management of risk

Credit enables the farmers to better manage the risks of uncertainties of

price, weather etc. They can borrow money during raining days and pay back
the loans during peak years of crops.

4. Permanent improvement in land

Credit also helps the farmers to make permanent improvements in land like
sinking of wells, land reclamation, horticulture, rotation of crops etc.

5. Better marketing of crops

If timely credit is available to the farmers, they will not sell the produce
immediately after the harvest is over. At that time the prices of agricultural
goods are low in the market. Credit enables the farmers to withhold the
agricultural surplus and sell in the market when prices are high.

6. Facing crises

The credit is required by the farmers to face crisis. The crisis can be caused by
failure of crop, draught of floods.
MSP (Minimum Support Price)

Minimum Support Price (MSP) is a form of market intervention by the

Government of India to insure agricultural producers against any sharp fall in
farm prices. The minimum support prices are announced by the Government of
India at the beginning of the sowing season for certain crops on the basis of the
recommendations of the Commission for Agricultural Costs and Prices (CACP).
MSP is price fixed by Government of India to protect the producer - farmers -
against excessive fall in price during bumper production years. The minimum
support prices are a guarantee price for their produce from the Government. The
major objectives are to support the farmers from distress sales and to procure
food grains for public distribution. In case the market price for the commodity
falls below the announced minimum price due to bumper production and glut in
the market, government agencies purchase the entire quantity offered by the
farmers at the announced minimum price.

The crops that are sown in the rainy season are called kharif crops. (also known
as the summer or monsoon crop) in India. Kharif crops are usually sown with
the beginning of the first rains in July, during the south-west monsoon season.
The crops that are sown in the winter season are called Rabi crops. (also
known as the “winter crop”) in Pakistan and India. The Rabi means, when the
crop is harvested. Crops that are grown in the winter season, from November
to April are called Rabi Crops. Some of the important rabi crops are wheat,
barley, peas, gram and mustard.

Fixation of MSP

 The MSP is fixed on the recommendations of the Commission for

Agricultural Costs and Prices (CACP).
 Factors taken into consideration for fixing MSP include:

o Demand and supply;

o Cost of production (A2 + FL method)

o Price trends in the market, both domestic and international;

o Inter-crop price parity;

o Terms of trade between agriculture and non-agriculture;

o A minimum of 50% as the margin over cost of production; and

o Likely implications of MSP on consumers of that product.

 The Commission also makes visits to states for on-the-spot assessment

of the various constraints that farmers face in marketing their produce, or
even raising the productivity levels of their crops.

 Based on all these inputs, the Commission then finalizes its

recommendations/reports, which are then submitted to the government.

 The government, in turn, circulates the CACP reports to state

governments and concerned Central Ministries for their comments.

 After receiving the feed-back from them, the Cabinet Committee on

Economic Affairs (CCEA) of the Union government takes a final
decision on the level of MSPs and other recommendations made by the
CACP.

 Procurement: The Food Corporation of India (FCI), the nodal central

agency of the Government of India, along with other State Agencies
undertakes procurement of crops.
Why GoI increased the Minimum Support Price of Rabi Crops?

The Government of India increased the Minimum Support Price (MSP) of rabi crops on
September 21, 2020. The MSP on Wheat has been increased by Rs 50 per quintal. The other
crops for which MSP has been increased includes Chana, Mustard, Safflower and Masoor.

 The decision to increase MSP was taken at the meeting of Cabinet Committee
on Economic Affairs.
 The GoI has released Rs 1.13 trillion as MSP to farmers for Rabi crops
including the and pulses, wheat, oil seeds.
 The MSP on grams has been increased by 8.3%, on mustard by 7% and on
barley by 5.7%.

Why MSP has been increased?

The decision to increase the MSP was taken in the aftermath of ongoing protests in Punjab and
Haryana over the passage of two farm bills- the Farmers Produce Trade and Commerce
(Promotion and Facilitation) Bill, 2020 and the Farmers (Empowerment and Protection)
Agreement of Price Assurance and Farm Services Bill, 2020.

Who fixes the MSP?

The MSP is fixed on the recommendations of the Agricultural Costs and Prices Commission. The
commission recommends the prices after visiting to the states for on-spot assessment of
constraints faced by farmers in selling their produce. The Government fixes the price based on
the recommendations and circulated to the state governments and various other concerned
ministries.
Who Procure the food?
The Food Corporation of India is the nodal agency to procure the crops.

NABARD

Background

National Bank for Agriculture and Rural Development (NABARD) was

established on 12 July 1982 by an Act of the Parliament. NABARD, as a
Development Bank, is mandated for providing and regulating credit and other
facilities for the promotion and development of agriculture, small scale
industries, cottage and village industries, handicrafts and other rural crafts and
other allied economic activities in rural areas with a view to promoting
integrated rural development and securing prosperity of rural areas, and for
matters connected therewith.

2. VISION
 
Development Bank of the Nation for Fostering Rural Prosperity.
 
3. MISSION
 
Promote sustainable and equitable agriculture and rural development through
participative financial and non-financial interventions, innovations, technology
and institutional development for securing prosperity.
 
4. OWNERSHIP
 
NABARD is wholly owned by Government of India.

Functions of NABARD:

NABARD was established as a development bank to perform the

following functions:

1. To serve as an apex financing agency for the institutions providing

investment and production credit for promoting various developmental
activities in rural areas;
2. To take measures towards institution building for improving absorptive
capacity of the credit delivery system, including monitoring, formulation
of rehabilitation schemes, restructuring of credit institutions and training
of personnel;

3. To coordinate the rural financing activities of all institutions engaged in

developmental work at the field level and liaison with the Government of
India, the State Governments, the Reserve Bank and other national level
institutions concerned with policy formulation; and

4. To undertake monitoring and evaluation of projects refinanced by it.

5. NABARD gives high priority to projects formed under Integrated Rural

Development Programme (IRDP).

6. It arranges refinance for IRDP accounts in order to give highest share

for the support for poverty alleviation programs run by Integrated Rural
Development Programme.

7. NABARD also gives guidelines for promotion of group activities under

its programs and provides 100% refinance support for them.

8. It is setting linkages between Self-help Group (SHG) which are

organized by voluntary agencies for poor and needy in rural areas.

9. It refinances to the complete extent for those projects which are

operated under the ‘National Watershed Development Programme and
the ‘National Mission of Wasteland Development‘.

10. It also has a system of District Oriented Monitoring Studies, under

which, study is conducted for a cross section of schemes that are
sanctioned in a district to various banks, to ascertain their performance
and to identify the constraints in their implementation, it also initiates
appropriate action to correct them.

11. It also supports “Vikas Vahini” volunteer programs which offer credit
and development activities to poor farmers.

12. It also inspects and supervises the cooperative banks and RRBs to
periodically ensure the development of the rural financing and farmers’
welfare.

13. NABARAD also recommends about licensing for RRBs and

Cooperative banks to RBI.

14. NABARD gives assistance for the training and development of the
staff of various other credit institutions which are engaged in credit
distributions.

15. It also runs programs for agriculture and rural development in the
whole country.

16. It manages their talent acquisition through IBPS CWE conducted

across the country.

GST
The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold
for domestic consumption. The GST is paid by consumers, but it is remitted to the government by
the businesses selling the goods and services. In effect, GST provides revenue for the
government.

GST have a single unified GST system, which means that a single tax rate is applied throughout
the country. A country with a unified GST platform merges central taxes (e.g. sales tax, excise
duty tax, and service tax) with state-level taxes (e.g. entertainment tax, entry tax, transfer tax, sin
tax, and luxury tax) and collects them as one single tax.

Maintaining consistency with the Federal Structure in India, there are going to be two
components of GST in the case of intra-state transactions – Central GST (CGST) and State GST
(SGST). Tax will be levied on the supply of Goods and Services. Centre would levy and collect
Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and
Services Tax (SGST) on all the transactions within a State.

In the case of Inter-State transactions, the Centre would levy and collect the Integrated Goods
and Services Tax (IGST), which would be equal to CGST and SGST. The concerned seller would
levy IGST on the sales of his goods and accordingly pay taxes after adjusting credit of IGST, CGST
and SGST on his purchases.

A 5-tier tax structure of 5 percent, 12 percent, 18 percent, 28 percent and 28 percent + Cess, has
been decided by the GST council. The lower rates have been reserved for the essential items,
whereas the higher rates are for luxury goods.

Benefits of GST

A Simpler and Transparent Tax System - GST will unify a bundle of Indirect
taxes like Excise, VAT, Central Sales Tax, Service tax, etc. Therefore there will
be a lesser burden of taxes on the consumers since the credit chain is not broken
at every transaction. 

No Cascading Effect of Taxes - One of the primary aims of GST is to abolish

the cascading effect of taxes. GST is a destination-based tax and therefore all
the taxes will be collected at the point of consumption. Subsequently, economic
activities within the country will be simplified as the financial barriers among
the States and between the Centre and States will disappear.

Commodities not under GST

A major section of revenue for the States is obtained from the levies on
Alcoholic Beverages, Petroleum Products, Stamp duties, and Municipal levies.
Since the Centre and the States have not been able to reach a mutual consensus,
these levies have been kept out of the GST purview.
Crude Oil, Petrol, Natural Gas, High-Speed Diesel, and other petroleum
products will not attract GST. Therefore, these products will be taxed as per the
current structure