Module 1: AGRICULTURE

Introduction:
Agriculture is the backbone of Indian Economy because of its high share in employment and
livelihood creation. It is most important sector of Indian economy from the perspective of
poverty alleviation and employment generation. The share of agriculture in national income has
been declining from 56.5 percent in 1950-51 to 39.6 percent in 1980-81, 26.3 percent in 2001-02
and only 3.9 percent in 2016-17. This is explained by the fact that whereas overall GDP has
grown by an average of 8.62 percent during 2004-05 to 2015-16, agricultural sector GDP has
increased by only 3.46 percent during the same period. It remains an important sector as it
accounts for about 54.6 percent employment in the country (Census 2011). It is supplier of food,
fiber, labour and raw materials for the development of industry and services. The surplus
resources available in agriculture sector could be transferred for rapid industrialization as well as
for tertiary sector growth. There are demands as well as supply side linkages of agriculture
sector.

Role of Agriculture in Indian Economy:

1. Share in National Income

The share of agriculture in national income is often taken as an indicator of economic

development. As the country progresses, the dependence on agriculture declines. Normally,
developed countries are less dependent on agriculture as compared to underdeveloped countries.
For example, only 2 percent of GDP is derived from agriculture in USA and UK. The share of
agriculture in national income has been declining from 53.5 percent in 1950-51 to 39.6 percent in
1980-81, 26.3 percent in 2001-02 and only 13.9 percent in 2016-17.

2. Largest employment providing sector

In 1972-73 about 73.9 percent of the working population was engaged in agriculture and allied
activities. This percentage fell to 64.8 percent in 1993-94, 48.9 percent in 2011-12 and 43
percent in 2016-17. Development of other sectors of economy has not been sufficient to provide

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employment to the increasing additions to working population who are therefore, forced to fall
back upon agriculture even if their marginal productivity is zero or nearly so. This gives rise to
disguised unemployment. The percentage of economically active population engaged in
agriculture is very much less in developed countries. For example, in Japan and France 4 percent
and USA and UK only 2 percent of male workers are engaged in agriculture.

3. Source of large supplies of food and fodder

Because of heavy pressure of population in labour-surplus economies like India and its rapid
increase, the demand for food increases at a fast rate. The existing levels of food consumption in
these countries are very low and with a little increase in per capita income, the demand for food
rises steeply. The income elasticity for food is very high in developing countries. Therefore,
unless agriculture is able to continuously increase its marketed surplus of foodgrains, a crisis is
likely to emerge. Many developing countries have faced this crisis therefore they are compelled
to import large quantities of foodgrains.

4. Contribution to capital formation

Unless the rate of capital formation increases to a sufficiently high degree, economic
development cannot be achieved. Since agriculture happens to be the largest industry in
developing countries like India, it can and must play an important role in pushing up the rate of
capital formation. If it fails to do so, the whole process of economic development will suffer a
setback. It facilitates intersectoral transfers of capital needed for industrial development
including infrastructure. Therefore, generation of surplus from agriculture will ultimately
depend on increasing the agricultural productivity considerably.

5. Providing raw materials to industries

Agriculture provides raw materials to various industries of national importance. Sugar industry,
jute industry, cotton textiles industry, etc are some of the examples of some such industries
which depend on agriculture for their development. The entire range of food processing
industries depends on agriculture. Therefore, unless agriculture develops, these industries will
also remain backward.

6. Market for Industrial Products

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Since more than two thirds of the population in India lives in rural areas, increased rural
purchasing power is essential for industrial development. If the agricultural output and
productivity increases, the income of the rural sector will increase this will led to an increased
demand for industrial products and the process of industrial development will also receive a
boost up. It helps to widen the domestic market for industrial goods through increased
purchasing power within the rural sector.

7. Importance in International Trade

Three agriculture based exports of India- cotton textiles, jute and tea- accounted for more than 50
percent of export earnings. It also increases the foreign exchange earnings through agricultural
exports. If we add the export of other agricultural commodities like cashew, tobacco, coffee,
sugar, etc. the share of agriculture in total exports rose to around 70 to 75 percent. Agricultures’
share in India’s total exports was 44.2 in 1960-61. This fell to 30.7 percent in 1980-81 and 12.7
percent in 2016-17. However, during certain years, the country had to face severe drought
conditions and large-scale of imports of foodgrains as well as dairy products, vegetables animal
and vegetable oils and raw materials also been also experienced by India.

8. Role in poverty reduction

Agriculture contributes less than 15 percent of India’s GDP yet it continues to employ more than
half of the workforce. Moreover, an average Indian still continues to spend almost half of his\her
expenditure on food. Since agriculture continues to be a source of livelihood and food security
for a vast majority of low income, poor and vulnerable sections of the society, its role in poverty
reduction is significant. The experience of BRIC indicates that a 1 percent growth in
agriculture is at least two or three times more effective in reducing poverty than the same
growth coming from non-agriculture sectors. India is still home to the largest number of poor
and malnourished people in the world, a higher priority to agriculture will achieve the goals of
reducing poverty and malnutrition as well as achieving inclusive growth.

Thus we may conclude that, “Agriculture has to be kept at the centre of any reforms agenda
or planning process, in order to make a significant reduction of poverty and malnutrition
and to ensure long term food security for the poor.”

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Causes of Low Productivity in Indian Agriculture

1. Pressure of population on land:

There is heavy pressure of population on land. Too many people depend on agriculture rendering
many with hardly any work or no work at all. This situation has resulted in disguised
unemployment wherein the contribution of many to total output is zero or at times even negative.
In fact, the non-agriculture sectors, in last five decades, have not even been able to expand at
sufficiently rapid pace. In 2001, about three forth of rural working population was employed in
agricultural sector. Such pressure of population is partly responsible for division, sub-division
and fragmentation of land holdings. Productivity of small uneconomical holdings is also very
low.

2. Land degradation:

According to Government of India, nearly half of country’s 329 million hectares of soil could be
categorized as degraded. Almost 43 % of land suffers from high degradation causing 33 to 67 %
loss of yield. A study estimated that, in India, agricultural output loss due to degradation
amounted to about $ 1.9 billion a year.

3. Land tenure system:

Zamindari system is the most important reason of low agricultural productivity in India. This
system, highly exploitative, has drained out every capacity, willingness and enthusiasm of the
cultivators. Though the acts/ legislations have been passed for its abolition, it did not break the
strength of Zamindars (now the large land- owners) in India. Regulation of rent, security of
tenure, ownership rights for tenants etc. did not make position of tenants better. In fact, tenancy
continues to be exploitative and tenants have to pay exorbitant rates of rent. Hence it is difficult
to increase productivity only through technological means without abolition of Zamindari.

4. Lack of credit and marketing facilities:

Low productivity is the result of poor inputs both in quantity and quality. The Indian farmers are
capable and intelligent enough to improve agriculture. Unfortunately due to non-availability of
loan on fair rate of interest and lack of marketing facilities, the cultivators are not able to invest

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the required the amount of resources in agriculture. Even the marketing facilities are very poor
along with supporting services like transport, warehousing, gradation etc. Poverty compels the
farmers to sale the product immediately after the harvest at low price. It is the poverty which
prevents them from facing any risk in agriculture.

5. Uneconomical holdings:

Agricultural land in India is divided and sub-divided due to the law of inheritance. According to
National Sample Survey in 2010-11, about 85 % of total land holding had size of less than 2
hectares. Most of these holdings are not only small but they are fragmented into number of tiny
plots, so cultivation can be carried out only with labour-intensive techniques. This results in low
productivity as modern techniques of production cannot be adopted on such small holdings.

6. Outdated production techniques:

Most of the Indian farmers continue to use outdated agricultural techniques. Wooden ploughs
and bullocks are still use by a majority of farmers. The methods of sowing, transplanting,
harvesting, thrashing, irrigations facilities etc. are still outdated and modern inputs requires more
money which a majority of cultivators cannot afford. Hence agricultural productivity has
remained low.

7. Inadequate irrigational facilities:

Gross crop area in India was 192.20 million hectares and only 45 % of this area had irrigation
facilities till 2009-10. That means 55 % of gross cropped area continues to depend on
vagaries of rain which is often uncertain, inefficient and irregular. Even in areas having
irrigation facilities, potential is not fully utilized, either due to defective management or higher
cost, which keeps poor farmers away from its use.

8. Social environment:

Illiteracy, outdated and meaningless traditions and superstitions are also responsible for
preventing improvement in agriculture. Majority of farmers have low aspiration and poor work
culture. For them agriculture is a way of life rather than a commercial activity. This approach

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also is responsible for making farmers casual and not serious, hard working towards agricultural
activities.

Measures to increase agricultural productivity in India:

The causes given above suggest measures to increase agricultural productivity. Following
measures have been taken to improve it:

1. Implementation of land reforms:

Ownership of land provides the required incentive for improving land productivity. In India, land
reforms were introduced in the post-independence period but its implementation was
unsatisfactory. Government of India has taken special attempts for implementing land reforms
legislation forcefully. Unless this is done, cultivators will have no incentive to invest in land and
adopt new agricultural techniques for increasing productivity.

2. Integrated efforts for management of land and water resources:

In India, half of the country’s soil is degraded due to water logging, Salinization etc. This proves
the urgency of an integrated and efficient management of our land and waterresources. Improved
seeds can play important role in improving productivity. Hence farmers should be encouraged to
make use of improved seeds after examining soil conditions and availability of water in different
areas. Farmers should be educated and trained in the methods of sowing, manuring and irrigating
the HYV seeds. Irrigation makes multiple cropping possible and that’s how productivity can be
enhanced.

3. Plant protection:

Approximately 10% to 30% of crops in India are damaged by insects, pests and disease (i.e.
app 1.5 lakh crores each year) and most of the farmers are unaware of the medicines and
insecticides developed in recent years. Hence it is essential, at government level to carry out
awareness programme for cultivators with the help of technical staff. Spraying of pest at nominal
rate should be provided by the government.

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 4. Provision of credit and marketing:

An effective use of HYV seeds, fertilizers, pesticides, agricultural machinery and irrigation
facilities are possible only when farmers have financial resources. Hence it is necessary to
strengthen the credit cooperative sector and free it from the clutches of large land owners. Credit
cooperatives, commercial banks, Regional Rural Banks with NABARD have helped farmers by
providing institutional credit.

For good marketing system, government has promoted measures like cooperative marketing,
regulated markets, expansion and modernization of market network and state trading. All these
aim at avoiding exploitation of cultivators and provided them with better prices for their
products.

5. Incentives to the producers:

Incentives to the producers can go a long way in encouraging them to increase productivity.
Incentives such as, implementing land reforms rigorously and vigorously, ensuring timely
availability of agricultural inputs, guaranteeing remunerative prices of produce to farmers,
implementing crop insurance schemes to cover the risk of damage crops and other risks in
agriculture and social recognition and conferment of awards, merits, certificates, etc.

6. Agricultural research:

Agriculture research is conducted by ICAR (Indian council of Agricultural Research), various

agricultural universities and other institutions. Research in this regard required to be conducted at
different regional centers for evolving HYV seeds, testing quality of soil, suggesting measures to
improve soil conservation and reclamation, improving quality of agricultural implements,
avoiding wastage in agriculture etc.

7. Extension services and better management:

Just like industry, even agriculture requires better management for improving their level of
productivity. Farmers have to be educated for more efficient use of resources, particularly land,
irrigation facilities and agricultural implements. A related problem is the extension of science
and technology in agriculture. This can be fulfill if there is a vast network of managerial staff

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engaged in dissemination of information about agricultural techniques and modern methods of
production. Other tasks of this extension staff could be ensuring proper warehousing and
marketing facilities, arranging for timely supply of agricultural inputs and advising farmers on
day-to-day problems in carrying out agricultural activities.

With all the above measures for improving agricultural productivity 12th Five Year Plan focuses
on higher cropping intensity i.e. development of cultivable wasteland. Future increase in
production will have to come mainly from yield improvement and with this focus National Food
Security Mission (NFSM) was formulated in the 11th Five Year Plan

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Food Inflation in India- Analysis and Remedies

Introduction:

Food inflation in India was very high around double digits during UPA II government from 2009
to 2014. In a country which has largest mass of poor and malnourished people and where an
average household still spends 45% of its expenditure on food, high rate of food inflation speaks
of bad macroeconomic management. It is not only poor economics but also bad politics.
Invariably such high rate of food inflation have unsettled the government, as people feel that
their savings are fast eroded and basic necessities for existence are getting out of their hands.
This was experienced in India in October 2013 when UPA II lost elections, since food inflation
was major issue in the election campaign.

Hence how to control high rate of food inflation was the top priority agenda for the newly
elected NDA government in 2014. They had number of meetings under the chairmanship of the
prime minister and had taken new measures to control high rate of food inflation.

It is interesting to note that during NDA rule (1998-99 to 2003-04), the average rate of food
Inflation was 4.1 % and it was below the overall inflation in the country for all commodities.
During UPA-I (2004-05 to 2008-09) the average food inflation rate accelerated to 5.9 % but still

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it was below the overall inflation for all commodities. However in UPA II period (2009-10 to
2013-14) things changed dramatically. Average food inflation galloped to 10.3 % and it was
higher than overall inflation for all commodities in the country. It is this period which indicates
gross mismanagement of macro economy.

Features of food inflation in India:

1. Food inflation is composed of two segments- food articles and food products.

Food articles contain fresh and largely unprocessed food items like cereals, pulses, oilseeds,
fruits and vegetables, milk, meat etc. whereas food products are processed food items like
edible oil, sugar etc.

The rate of inflation has been generally higher in food articles than food products. This has
important implications for developing food processing industry to contain food inflation.

2. The price indices of protein foods and fruits and vegetables have increased faster
than cereals from 2011-12 to 2013-14. More than 70 % of the food articles inflation was due to
increased demand for fruits, vegetables, milk and milk products, eggs etc. These food articles
are rich in vitamins and proteins and their demand increases with the rise in incomes whereas the
consumption of cereals decreases with the rising income. This has important implications for
policy diversification of agriculture as well as need to build efficient value chains to save on
large post-harvest losses of perishable food items.Theory tells us that prices are an outcome of
supply and demand. Supply curve is basically a marginal cost curve and demand is represented
by marginal revenue curve. But according to Ashok Gulati and Shweta Saini, in real world
during recent past, food inflation was the outcome of three factors.
 Rising farmers’ wages
 Rising global prices of food
 Loose fiscal and monetary policies.

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1. Rising farmers’ wages:

During the UPA II period (2009-10 to 2013-14), the nominal farm wages grew by a phenomenal
average rate of growth of 19 %. This was more than triple the rate registered in the earlier
periods of NDA and UPA- I. this was unprecedented in Indian history. It is also for the first time
that Indian rural labor force shrank in absolute numbers during 2004-2011. This may have also
put pressure on farm wages. Rising farm wages significantly affects the marginal cost curve of
supplies if agricultural products, as farm wages account for roughly 35 % to 40 % of overall paid
costs of farmers. Prices of agricultural products had to incorporate these rising labor costs as the
productivity gains were not able to offset these rising costs.

 Rising global prices of food

When global food prices erupted in 2007-08, its transmission on Indian food prices was not
immediate because Indian Trade Policy had been quite restrictive. India put a ban on exports of
Wheat and Rice. This kept our food inflation relatively low in 2007-08. Gradually, over the
years, despite export control, India could not insulate its domestic prices from what was
happening in global markets. The FAO food price index stood at 210 in 2013. Interestingly,
Indian food price index also equated 210 in 2013. This shows a remarkable convergence in
global and domestic food prices. Thus the high global food inflation, reflected in India too,
though with little time lags.

 Loose fiscal and monetary policies in India

In 2008-09, fiscal deficit increased by 132 % in a single year over 2007-08. This was partly due
to the synchronized ‘Global Financial Stimulus’ that G-20 countries (including India) had
decided to give to the global economy to avert any possibility of economic recession, which was
much feared in 2008. This led to rising money supply (M3), which was growing at around 16 %
to 18 % per annum during 2008 to 2013. With overall GDP deceleration after 2011, these loose
fiscal and monetary policies were putting pressure on commodity prices, particularly food prices.

Some argue that the rising food inflation is due to the hikes in Minimum Support Prices (MSPs).
There was an annual average 20 % rise in the MSP of both Rice and Wheat from 2007-08

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to 2008-09. However, cost of production for most of the crops has increased sharply, primarily
due to labor costs, which have been accounted for while understanding the hikes in MSPs.

Remedies: Policy Options

1. NDA government has taken cabinet decision to offload 15 million tonnes of grains from
Food Corporation of India (FCI) godowns, to be allocated under Public Distribution System
(PDS). The tag line of this government is that the grains should reach people’s stomach rather
rot in FCI godowns.
State governments have been advised to de-list fruits and vegetables from the Agriculture
Produce Marketing Committee (APMC) Act. Onions and potatoes are put under the essential
commodities Act and to raid hoarders of these commodities. (However, food inflation remain
high even in August 2014 and price rise shifted from Onions and tomatoes). This would help to
control food inflation.

2. There is no need to control rising farm wages, since it is due to overall development
process in the country. What is suggested is to restructure MGNEREGA Act. Currently,under
MGNEREGA Act, workers can work on farms of SC/ STs and marginal farmers. This can be
amended to all farms upto 4 hectares, where in half of the payment is made by the farmer and
another half comes from MGNEREGA account of the government. This way, the labor cost of
production in agriculture can be constrained and the labor productivity can be ensured on farms
as private farmers will not pay unless MGNEREGA workers perform properly.
3. As far as influence of prices on domestic food inflation is concerned, in February 2011,
after touching a peak, global food prices are moderating. So suggestion for India is to reduce
high import duties on various food products, so it can moderate food inflation in India. In
India, most of the fruits and vegetables attract duties above 30 %. For e.g. potatoes and tomatoes
are at 30 %, garlic at 100 %, apples at 50 %. Only onions are currently at zero. If import duties
are brought down on all these vegetables and fruits, it can significantly give some relief to
domestic food inflation.
4. Growing Fiscal deficit is another real cause of food inflation in India. Therefore, it must
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be contained to some rational level. FRMB Act, 2003, had laid down 3 % of GDP as the
prudent level of fiscal deficit but in 2008-09the fiscal deficit for the center had crossed 6 % of
GDP. This is gross mismanagement of macro economy. Three subsidies viz. fuel, food and
fertilizers along with loan waivers and expanded MGNEREGA were responsible for this
deficit. Hence these need to be pruned and made much effective. There are large leakages and
inefficiencies in the delivery of these subsidies to the targeted groups. Hence subsidy money can
be transfer to targeted beneficiaries through Aadhaar (UDI) route directly to their bank account.
For every family to have at least one bank account, NDA government has taken bold move
towards financial inclusion through Pradhan Mantri Jan DhanYojana (PMJDY). This move
expects to control leakages and reduce subsidy bills, thereby containing the fiscal deficit
and relieving pressure on food prices in India.
5. There could be many other measures such as freeing fruits and vegetables from APMC
Act, incentivizing organized retail to buy directly from farmer’s organizations, bypassing
the Mandi system, developing more food processing industry, developing cold storage and
efficient value chains etc. all of these can help in stabilizing food prices at lower levels.
Unless these strong measures are taken, the food prices are likely to remain somewhat high in
India.

However, the recent food inflation trends (2016-17) highlighted following facts:

i. Demand for food being relatively income elastic, with an increase in income, the demand
for protein food and high quality food increases causing demand and supply mismatch.
ii. Demand and consumption of pulses in India being very high, it needs urgent attention
towards boosting this crop production (suggesting India’s second Green Revolution for
pulses).
iii. Transactions in fruits and vegetables have always been cash intensive. After
demonization, due to distress sale by farmers, the prices fall down to all time lower in
Indian history (3.2% in January 2017).

Along with above reasons, good production, import and better supply management were equally
responsible for reduction in the food inflation in India.

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ISSUES AND POLICIES FOR HIGHER GROWTH IN AGRICULTURE IN
INDIA

According to Economic Survey 2013-14, the major challenges faced by NDA government
which came in power in May 2014, include-

 Low productivity in agriculture

 Soil degradation due to declining fertilizer- use efficiency
 Market distortions that prevent the creation of national common market
 Changing role of government in production and distribution in the current scenario of
bumper production and stocks
 Phased shifting to direct transfer of food and fertilizers subsidies.

There are three goals of agricultural development. These are:

a) Achieve 4 % growth in agriculture and raise incomes by increasing productivity,

diversification to high value agriculture and marinating food security.
b) Sharing growth by focusing on small, marginal farmers, women and backward regions
etc.
c) Sustainable development of agriculture by focusing on environmental issues.

To achieve these goals, there are seven areas which need focused reforms in the short and
medium terms. These are:

 Land issues
 Irrigation and water management
 Subsidies and investments
 Domestic market reforms and diversification
 Credit
 Price policy
 Research and extension.

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  Land issues:

There are many issues on land in agriculture. Some argue that small size of a farm is responsible
for low productivity of agriculture. But the experience of China and other East Asian countries
show that it is not constraint. Basically we have to ensure land leasing, create conditions
including credit whereby the poor can access land from those who wish to leave
agriculture. There are some emerging land issues such as increase in demand for land for non-
agricultural purposes including Special Economic Zones (SEZs), displacement of farmers,
tribal’s and others due to developmental projects. Hence there is need for careful land
acquisition.

On the other hand, Indian soils are gradually degrading because of soil erosion, loss of organic
carbon, nutrient imbalance, Stalinization etc. The prevailing policies of Minimum Support
Prices (MSPs) and input subsidies have encouraged inappropriate use of fertilizers and water,
led to inefficiency in production and neglect of production of those crops which are not covered
under MSPs. Highly subsidized chemical fertilizers lead to nutrient imbalance and deficiency of
micro nutrients. Adoption of HYV seeds has lead to increased use of the pesticides. If theses
pesticides are not use efficiently and carefully then they can cause contamination of soil and
water.

 Irrigation and water management:

Water is the leading input in agriculture. Development of irrigation and water management are
crucial for raising levels of living in rural areas. Major issues of concern in irrigation are: decline
in rural investment, low recovery of costs, wastages and inefficiencies in water use and non-
involvement of user farmers. Both investment and efficiency in use of water are needed.
Major areas of reforms in irrigation are- prioritizing and increasing public investment, raising
profitability of groundwater exploitation and augmenting ground-water resources, rational
pricing of irrigation water and electricity and involvement of user farmers in management of
irrigation systems. Recent study indicates that impact of drought is less severe in recent
years due to underwater recharge in last few years. Groundwater can be exploited in Eastern
region. Watershed development and water conservation by the community are required for water
management. National Rainfed Area Authority has big responsibility in this matter.

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  Subsidies and investments:

Another issue that needs to be focus on for agricultural growth relates to reducing pressure of
subsidies and escalating investment. Agricultural subsidies encourage inefficiency in the use
of resources which leads to environmental degradation. There is trade-off between subsidies
and investments and it is being shown that returns to investment are three times higher than on
the subsidies. Hence, it is important to rationalize subsidies and enhance investment.

In the early 1980s, the share of public sector investment and private sector investment (including
household sector) in agricultural investment has increased. In the year 2011, private corporate
investment has increased due to food processing and dairy sub-sectors.

 Domestic market reforms and diversification:

Assured market and remunerative prices are very important for agricultural growth. The MSP
policy should lead to diversification in cropping patterns towards non-cereals. The development
of markets and post- harvest infrastructures were not able to keep pace with growth of
agricultural production over time. In many states, agricultural markets were underdeveloped and
farmers have to sell even rice and wheat crops at much below the MSP.

Over time, farmers have diversified production towards high value crops, especially fruits and
vegetables. Its share in total value of crop output increased from 16 % in 1980-81 to 28 %
in 2009-10. This diversification of agriculture is basically due to diversification of diet.
However, to sustain the diversification towards high value commodities and connect it towards
benefits of farmers, good infrastructure in terms of assured market, better road connectivity, cold
storage, post-harvest technology etc and supportive policy to attract private investments are
required.

Further, vertical integration of services related to farming, warehousing and other logistics,
processing and relating can help direct farm-firm linkages by lowering the transaction and
transportation costs and strengthening the supply chain to enhance value addition. To promote
diversification of agriculture and participation of private investors, an amendment to ‘APMC
Act’ known as “APMC Model Act” was enacted in 2013. This act allowed direct transaction

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between the producer and the retailer in several states through various institutional mechanisms
such as producer’s associations, cooperatives and contract farming. Reservations for many
products for SSIs were recently relaxed and fiscal incentives such as reduction in excise and
corporate duties were given to food producing industries.

In India, major share of food retailing is still confined to unorganized sector but organized food
retail is slowly becoming popular and the top ten Indian food and grocery retailers have grown at
average annual rate above 70% per annum during 2002-07. This trend is likely to continue
further. To ensure the inclusion of small farm holders in the new supply chain, tenancy reforms
and clear regulations for contract farming should be evolved and implemented. Food retail trade
is a major economic activity and needs attention to ensure livelihood of the poor.

 Credit: Since large number of small and marginal farmers and other venerable group
remain excluded from the opportunities and services provided by the financial sector. Public
policy is aimed by social and developmental banking in the form of meeting rural credit needs
and reducing the role of informal sector credit.
Though there have been some improvements in flow of farm credit in recent years,
but government has to be careful towards four distributional aspects of agricultural credit. These
are-

a) Share of small and marginal farmers in agricultural credit.

b) Fall in credit-deposit ratios in rural areas.
c) Significant regional inequalities in rural credit.
d) Narrowing of branch network in rural areas.

Ultimately the credit expansion is successful only if the productivity of small and marginal
farmers improves. However, credit expansion for farmers cannot sustained by the banking
system alone, as there is need for other measures like proper seeds and fertilizers, good
marketing system for better prices, irrigation, research and extension facilities etc. Credit
expansion should take into account the risk element faced by farmers in cultivation while
framing policies.

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 Price policy: To recommend remunerative prices for farmers, APC (Agriculture Price
Commission) was established in India in 1965. Later it was renamed as the Commission for
Agricultural Costs and Prices (CACP).
The main aim of CACP is to evolve a balance and integrated price structure taking
into account the overall needs of the economy with due interest of both producers and
consumers.
Assurance of remunerative and stable price environment is essential for farmers to
raise productivity through increase in investment and use of modern inputs.
On the recommendations of CACP, government decides Minimum Support Price
(MSP) for 25 items each year including important cereals as well as pulses, oilseeds, cotton,
jute and sugar cane.
For improving farmer’s income it is necessary to control the cost of production and
make India’s crop production competitive with that of major productivity countries in the
world. However cost of cultivation is one of the important determinants of setting MSP and
has been showing rising trend. Labour cost is the important component of the total cost of
production and increase in wage rates affects the overall cost. Mahatma Gandhi National
Rural Employment Guarantee act (MGNREGA) is responsible for raising the cost of
agricultural labour, because many labourers previously engaged in farming are switching to
work provided under MGNREGA. This trend has resulted in increasing use of farm
implements and machinery in crop production.
Hence, the price policy should balance the needs of producers against those of
consumers. For many years, MSP was in favor of cereals like rice and wheat but in recent
years, even protein rich crops like pulses are also covered. As a result production of pulses
has increased. Similar incentives must be given for other nutrient rich foods like fruits,
vegetables, milk, fish etc. So that supply of these items will increase with increase in
production as well as consumer’s interest will be protected by making theses food items
available to them at affordable prices.

 Research and Extension: New and efficient technology is essential for agricultural

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growth. Studies have shown that at least one-third of the future growth in productivity should
come through innovations in crop technologies. Generally, private sector research and seed
industry focus on crops and varieties with massive commercial market and scope. Public sector
research needs to take into account farmer’s need for the crops as per prevailing agro-climatic
conditions.
One of the reasons for low factor productivity in India is less focus on science and
technology in agriculture. Public sector investment for agriculture research and
development is only 0.6 % of the agricultural GDP, which needs to be raised to at least 2 %
of the agricultural GDP. The resource conservation technologies like zero tillage, non-pesticide
management etc. are some emerging technologies, which need to be first understood and
analyzed for local adaptation and then adopted by the farmers.
As mentioned by National Commission on farmers, there is knowledge gap in the
existing technology. Hence extension services become crucial for improving agricultural
productivity. In view of high variability in agro-climatic conditions, research has become
location specific.

Professional approach is required for higher growth in agriculture. A big push is

required for reforms in supply side for agriculture. Focus has to be on small and marginal
farmers and resource poor regions. So far strategies concentrated on wheat and rice in irrigated
areas. But for future growth, dual strategy is required. High value non-cereals crops like fruits,
pulses, vegetables, milk, meat etc. have to be covered. The focus of government policies should
be on rainfed areas and small farmers.
Apart from high growth, efficiency (cost reduction) is also needed in globalised
world. Group approach among farmers should be encouraged in order to get inputs at cheaper
rates and marketing of output at higher prices. There is need to concentrate on delivery system
also. Thus India’s large number of farmers can benefit if there are right policies and effective
implementation.

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 THE NATIONAL FOOD SECURITY ACT, 2013
Introduction:

Today India has largest mass of poor and malnourished people in the world. India has
one-sixth of the world’s population and one-third of the world’s poor. One in every three
malnourished children in the world is from India.

Globally “poverty” is defined as those living on less than $ 1.25 per day,
invariably leads to poor nutrition and food insecurity. Lack of proper sanitation, limited or no
access to safe drinking water and high levels of female illiteracy multiplies the problems.
Therefore, government of India has given high priority to ensure food security of its growing
population.

The concept of food security assures not only making enough quantities of food
available in the market through enhanced production or imports but also making it economically
affordable to the poor. The government of India has been devising many targeted food based
welfare, programmes to deliver ‘food security’ to the poor of the country.

TPDS (Targeted Public Distribution System) is a major food based welfare scheme
of the government in India. But due to various operational and economic inefficiencies it has
been a subject of massive criticism.

The food security policies of government are expanded further through enactment of
National Food Security Act (NFSA). Under this act, 67% of Indian populations have access to
certain amount of food as their legal right. The act clusters some selected existing food based
welfare schemes and a conditional cash transfer scheme.

The NFSA, 2013 was notified on 10 th September 2013 and was retrospectively
implemented since 5th July 2013. The Act provides for a legal right to receive food
gains/cooked meals at subsidized prices or free of charge, by persons belonging to eligible
households. In the case of non-supply of food grains or meals, the person is entitled to a
food security allowance from the government. The act is globally seen as the biggest

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experiment in the world history of food based welfare schemes by any government. By ensuring
that, the persistent problems of food and nutritional security of the Indian population has been
addressed.

The TPDS forms the largest component of NFSA 2013. The TPDS provides for right
to receive food grains at subsidized prices by persons belonging to eligible households. The Act
is extended to cover 75 % of rural population and 50 % of urban population making coverage of
67 % of total Indian population. This figure clearly indicates that Act process goes beyond the
immediately recognizable Below Poverty Line families.

The key provisions of TPDS under the Act are-

 Types of beneficiaries- There are only two types of beneficiaries under the Act’s TPDS,
viz: Priority and Antyodaya Anna Yojana (AAY)
 Entitlements- The Act under TPDS continue to provide/ distribute 35 Kg/card/ month
for all beneficiaries.
 Central Issue Prices- The Act freezes the issue prices for all beneficiaries.
 Enforceable by Law and Force Majeure- The Act provides for supply of food security
allowance by central government in case of non-supply of food grains. However in
situation of force majeure like war, earthquake, cyclone, drought etc. when regular supply
of food grain is adversely affected, the liability doesn’t apply.
 Coverage of Population- The Act provides for 75 % of rural and 50 % of urban
population to receive subsidized grains.
 Identification of beneficiaries- The Socio- Economic and Caste Census (SECC) survey
under planning commission would help to identify state-wise beneficiaries under the Act.
 Extension of TPDS by States and UTs- NFSA allows the states to continue with state
specific food distribution welfare schemes as complementary scheme.
 Reforms in TPDS under NFSA- Reforms measures were undertaken progressively by
central and state governments, which include-doorstep delivery of foodgrains to TPDS
outlets, application of information and communication technology tolls, diversification of
commodities distributed under PDS over the period, etc. Provision for transparency and
accountability in TPDS include disclosure of records, conduct of social audit and setting
up of vigilance committees, have also been made in the Act besides grievance redresal

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 mechanism. All these reforms under TPDS machinery are supposed to inform the basis of
NFSA.
 Other Welfare Schemes under NFSA 2013- The Act contains entitlements for meal to
pregnant women and lactating mothers and for children upto 14 years of age.
 Conditional Cash-Transfer Scheme- Under the Act, every pregnant women and
lactating mother is entitled to receive maternity benefits not less than Rs. 6000.
Thus NFSA 2013 addresses the issue of food security by taking a life-cycle
approach, as it address the needs of individuals at different stages of their life through the
range of food schemes and cash transfers. However, there are apprehensions that this Act
may fail to deliver on the promises made or will deliver at a huge cost, which may not be
worth the price.

Operational challenges of NFSA 2013

1) Uncertain production and procurement of food grains:

The biggest challenge faced by the country while implementing NFSA is to ensure an adequate
supply of food grains every year. Indian agriculture is sill largely rainfed and it experiences
drought almost every four to five years. Climatic change is indicating that the frequency and
intensity of such droughts and extreme weather events is going to increase. Under such
situations, production and procurement of grains can fluctuate widely. With such uncertain
production and procurement, how can one be sure of delivering a legally required 61.2 million
tonnes of foodgrains every year through PDS?

2) Ambitious coverage:

The NFSA 2013 is subjected to wide criticisms due to its ambitious coverage. In India, where
less than 22 % people are below the poverty line, the coverage of 67 % population is not only
undesired but also highly inefficient. Even the coverage of people under the Act is lower than the
actual existing coverage in many states and UTs, under TPDS. The beneficiaries under the NFSA
are 81.5 crore people; whereas the number of ration cards issued under the existing TPDS are
already 119.5 crore. Several of these cards are fake and need to be weeded out.

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 3) Increase in government intervention in grains market

There is also issue of those states that have been distributing highly subsidized food to even a
large percent of population of their states. For example, Tamil Nadu has universal coverage and
Chhattisgarh has 90 % coverage of their population. For their extra grain needs, government will
have to keep larger buffer stocks. This will lead to increasing government intervention in grains
markets and greater control on operation of free grain markets, which will ultimately push up the
cost of operation of NFSA.

4) Irrational and inefficient practices:

Monopolization of grains market by the government resulted in less quantities of grains

available in the open market. Further causing rise in prices. Under the Act, government by
providing subsidized grain tried to save income of the beneficiaries, so that such saving can be
used by them for meeting their other needs. But, such high priced grain in the open markets
implied that the beneficiaries would be given food subsidy from one hand through NFSA, but it
would be taken away from the other due to high prices in the open market.

5) Financial unsustainability:

In the due process of Act implementations large procurement and stocking of grains by
government will result in slowing of the natural process of diversification of agriculture in line
with changing demand patterns in favor of high value products. States of Punjab, Haryana,
Andhra Pradesh, Madhya Pradesh and Chhattisgarh have built strong procurement machinery
and without their help central government cannot run its NFSA. These states can start putting
more taxes and commissions on procurement of grains by the center. This will lead to blowing
up the food subsidy bill, making the whole process financial inefficient and almost
unsustainable.

6) Unnecessary overloading of the system:

Most of the farming families, under normal circumstances, on an average, retain about one third
of their production for self consumption at home. Small and marginal farmers were holding
larger percent for self consumption. but now with NFSA covering 75 % of the rural population,
these small and marginal farmers expect government to give them at least half of their cereals

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needs at highly subsidized prices. This is leading to a peculiar situation; small and marginal
farmers are bringing large percent of their produce to the government for procurement and
expect the same to be given back to them at Rs. 3 or Rs. 2 per kg. This is putting unnecessary
pressure on logistics and storage facilities.

7) Unfair practices:

The PDS system is plagued by inefficiencies and leakages. Studies have shown that on an
average 40 % of wheat is supplied by government in India does not reach the intended
consumers. In states like Bihar, the leakage rate is 71 %.

8) Withdrawal of NFSA under force majeure/ dilution of objective:

Withdrawal of NFSA provisions under force majeure dilutes the very objective of the Act of
ensuring food security of the poor who are the worst impacted in situations like drought, floods,
wars etc. Government absolves from its responsibility of providing food security to the needy in
the times when they need it the most.

9) Financial Implications:

The direct cost of food subsidy for a full year roll out to distribute 61.2 million tonnes of grains
was Rs. 1,40,192 crores in 2014-15 and Rs. 1,57,701 crore in 2015-16. These expenses do not
include additional investment expenditures, which through NFSA document identifies but does
not quantify. According to Gulati and Jain, a rough cost estimate of rolling out NFSA works out
to be Rs. 2,00,000 crore, if one has to stabilize food grains production and create good quality
logistics and other infrastructure to ensure regular and smooth supplies of grains in the TPDS
without much risk.
These are the key challenges of NFSA 2013.

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Way Forward:
Though NFSA 2013 was introduced as a right strategy for Poverty alleviation but one
question remains: how one can achieve economic access to food more efficiently?
The answer lies as follows:
 To substitute the present system of physically distributing grains with Conditional Cash
Transfers (CCT) based on the platform created by the Aadhaar Unique Identity Schemes.
As this system would require fingerprints of all those drawing benefits from the government and
can deposit the cash directly in their accounts. The leakages can be reduced drastically.
 CCT scheme would also imply greater efficiency of the domestic grains market by
reducing the government’s intervention levels.
 This also gives the consumers greater autonomy in deciding, their diet plan. (The
success of CCT was well demonstrated by studies in Mexico, Brazil and lately even in Pakistan).
The option to choose from cash or grains should be given to people at all times. However, for
those identified tribal or remote areas, which still would require a physical distribution of grains,
the existing process could be continued.
 Even the government would need to keep critical reserves of only 15-20 million tonnes
against any possible drought- much less than the amount of grains maintained as buffer stock
now. This would help to reduce and stabilize prices of food in the open market.
 Moving to CCT would also allow the natural process of diversification towards high
value products, augment farmer’s income and allow consumers to eat more nutritious food.
Thus, a win-win situation for both the government and the consumers.
Lastly it must be noted that the problem of malnutrition is multi-dimensional.
Malnutrition is not affected by food intake alone, it is also influenced by access to health
services, quality of care for the child and pregnant mother as well as good hygiene
practices. Research has revealed that at least three factors are important to control malnutrition
amongst children-
a) Nutritious food
b) Access to better sanitation and hygiene especially safe drinking water and toilets
c) Better female education.
Without making a dent on these three factors, the problem of malnutrition is likely to stay in
India for long time.

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