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 Table of content
Indian Economy: Growth and development __________________________ 7
History Of Indian Economic Growth: _________________________________________________________ 7
P RESENT FEATURES OF INDIAN ECONOMY ________________________________________________ 10
INDIAN ECONOMY: GENERAL ISSUES ________________________________________________________ 10
Need for the economic growth in India ______________________________________________________ 11
Impact of Covid-19 on Indian Economy ______________________________________________________ 12
SLOWDOWN IN INDIAN economy and measures ______________________________________________ 12
Industrial Revolution 4.0 And India _________________________________________________________ 13
INDIAN PLANNING __________________________________________ 15
Indian Planning history ___________________________________________________________________ 16
Need for Planning in economic development _________________________________________________ 16
Objectives of Planning ____________________________________________________________________ 16
Achievements of Indian Planning ___________________________________________________________ 17
Failures and Shortcomings of Indian Planning _________________________________________________ 18
NITI AAYOG ____________________________________________________________________________ 18
Niti Aayog Vs Planning Commission _________________________________________________________ 19
Criticisms of NITI Aayog___________________________________________________________________ 20
Way Forward ___________________________________________________________________________ 21
MOBILISATION OF RESOURCES ________________________________ 21
Introduction ____________________________________________________________________________ 22
NEED FOR RESOURCE MOBILIZATION________________________________________________________ 22
NEED for Resource mobilisation in India _____________________________________________________ 22
ROLE OF SAVINGS AND INVESTMENT ________________________________________________________ 22
Role of Fiscal Policy in Resource Mobilization _________________________________________________ 23
ISSUES AND CHALLENGES IN MOBILISING RESOURCES __________________________________________ 23
STEPS TAKEN FOR EFFECTIVE UTILISATION OF RESOURCES ______________________________________ 24
RECOMMENDATIONS FOR EFFECTIVE UTILISATION OF RESOURCES________________________________ 24
TAXATION ________________________________________________ 26
Deficits: Trend as per the Budget 2022-23 ____________________________________________________ 26
Observation of Economic survey 2021-2022 __________________________________________________ 26
TAXATION: GENERAL SCENARIO OF INDIAN TAXATION _________________________________________ 27
Implications of Low Tax to GDP ratio ________________________________________________________ 27
DIRECT TAXATION _______________________________________________________________________ 28
INDIRECT TAXATION _____________________________________________________________________ 31
Goods and Service Tax (GST) _______________________________________________________________ 32
Tax evasion ____________________________________________________________________________ 36
 TAX-AVOIDANCE ________________________________________________________________________ 37
GLOBAL MINIMUM Corporate TAX__________________________________________________________ 38
TAX TERRORISM AND HARRASSMENT _______________________________________________________ 40
TAXATION: DEVELOPMENTS in recent times __________________________________________________ 40
Banking, Insurance and Finance in India __________________________ 43
Banking sector __________________________________________________________________________ 43
Privatization of Banks ____________________________________________________________________ 44
Monetary Policy and targeting of Inflation ___________________________________________________ 45
STATUS OF NPAs ________________________________________________________________________ 46
Asset Reconstruction Company (ARC) _______________________________________________________ 47
NARCL and IDRCL: Basic functioning and working mechanism ____________________________________ 48
Insurance sector ____________________________________________ 49
Health Insurance ________________________________________________________________________ 51
Cyber Insurance Policy ___________________________________________________________________ 52
FinancIAL sector ____________________________________________ 53
Social Stock Exchange (SSE)________________________________________________________________ 54
Disinvestment: “government has no business being in business” _________________________________ 55
PROMPT CORRECTIVE ACTION (PCA) ________________________________________________________ 56
The Revised Scale-Based Regulatory (SBR) Framework for NBFC Regulation_________________________ 56
FINTECH SECTOR ___________________________________________ 57
Digital Payment Ecosystem ________________________________________________________________ 57
National Strategy for Financial Education (NSFE) - (2020-2025) ___________________________________ 59
Revised Priority Sector Lending (PSL) Guidelines _______________________________________________ 60
Development Bank for Infrastructure Funding ________________________________________________ 61
New Umbrella Entity (NUEs) for Payment System ______________________________________________ 62
INSOLVENCY AND BANKRUPTCY CODE ______________________________________________________ 63
PAYMENT BANK_________________________________________________________________________ 65
DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION (DICGC) (AMENDMENT) ACT, 2021 ______ 65
India’s External sector ________________________________________ 66
Observations of economic survey 2021-2022: Trends in External sector ____________________________ 66
Export led growth model for India __________________________________________________________ 66
Forex Reserves __________________________________________________________________________ 68
POVERTY _________________________________________________ 68
Introduction ____________________________________________________________________________ 68
Types of Poverty ________________________________________________________________________ 69
Estimation of Poverty in India ______________________________________________________________ 69
Challenges in Estimating Poverty ___________________________________________________________ 70
 SOLUTION FOR EFFECTIVE MEASUREMENT OF POVERTY ________________________________________ 70
Poverty concept by Amartya Sen ___________________________________________________________ 70
Why poverty numbers are important? _______________________________________________________ 70
CAUSES of Poverty _______________________________________________________________________ 71
Consequences of Poverty _________________________________________________________________ 71
MULTIFACETED EFFECTS OF POVERTY _______________________________________________________ 72
Female face of poverty: “FEMINIZATION OF POVERTY” _________________________________________ 72
Role of self-Help groups (SHG) in poverty alleviation ___________________________________________ 73
Financial inclusion and poverty alleviation ___________________________________________________ 73
Impact OF poverty ON Human development __________________________________________________ 73
Poverty Alleviation Programmes in India _____________________________________________________ 73
COVID-19 and Poverty: SOCIAL AND ECONOMIC DIMENSIONS ___________________________________ 74
Social Sector____________________________________________________________________________ 75
Social Mobility __________________________________________________________________________ 75
Reasons FOR NON-EFFECTIVITY OF POVERTY ALLEVIATION PROGRAMMES _________________________ 75
SOLUTIONS FOR EFFICIENT EXECUTION OF POVERTY ALLEVIATION PROGRAMMES ___________________ 76
Strategies for poverty reduction in rural areas ________________________________________________ 76
The Global Multidimensional Poverty Index (MPI) 2021 _________________________________________ 76
Employment, UNEMPLOYMENT and skill development ________________ 77
EMPLOYMENT __________________________________________________________________________ 77
JOBLESS GROWTH IN INDIA: _______________________________________________________________ 78
Unemployment _________________________________________________________________________ 80
TRENDS OF EMPLOYMENT: Observation of economic survey 2021-2022 ___________________________ 80
Informal Employment ____________________________________________________________________ 83
SKILL DEVELOPMENT _____________________________________________________________________ 85
APPRENTICESHIP IN INDIA ________________________________________________________________ 88
Inclusive Growth & issues arising from it __________________________ 88
Meaning and Introduction to inclusive growth ________________________________________________ 89
Elements of Inclusive Growth: _____________________________________________________________ 89
Need of inclusive growth in India ___________________________________________________________ 89
Challenges in achieving inclusive growth _____________________________________________________ 90
Way forward ___________________________________________________________________________ 90
ENVIRONMENT VS DEVELOPMENT DEBATE: backlog for Inclusive development _____________________ 91
Current Developments PERTAINING TO INCLUSIVE GROWTH: ____________________________________ 92
AGRICULTURE SECTOR IN INDIA: CRITICAL PERSPECTIVE ____________ 95
INTRODUCTION _______________________________________________________________________ 95
BASIC FUNDAMENTALS: AGRICULTURE & ALLIED SECTOR _________________________________ 96
 CURRENT STATUS OF INDIAN AGRICULTURE _____________________________________________ 96
SIGNIFICANCE OF AGRICULTURE SECTOR FOR INDIA ______________________________________ 97
ISSUES IN AGRICULTURE SECTOR IN INDIA_______________________________________________ 97
PRICE FLUCTUATIONS IN AGRICULTURAL PRODUCTS _____________________________________ 98
CONSEQUENCES OF AGRARIAN CRISIS ___________________________________________________ 99
FRAGMENTED LAND HOLDINGS ________________________________________________________ 100
NEGATIVE IMPACTS SMALL LANDHOLDINGS: ___________________________________________ 100
DOUBLING FARMER’S INCOME ________________________________________________________ 101
FARMER'S SUICIDE ___________________________________________________________________ 103
HORTICULTURAL SECTOR ______________________________________________________________ 104
PRECISION FARMING _________________________________________________________________ 106
RAINFED AGRICULTURE _______________________________________________________________ 107
AGRICULTURE FINANCES AND ASSOCIATED ISSUES ______________________________________ 108
CROP INSURANCE ____________________________________________________________________ 110
POLICY INTERVENTION PMFBY 2.0 _____________________________________________________ 110
NEED FOR SOCIAL SECURITY SCHEMES FOR FARMERS ___________________________________ 111
AGRICULTURAL EDUCATION ___________________________________________________________ 111
R&D IN AGRICULTURE ________________________________________________________________ 114
ECONOMIC SURVEY 2021-2022 AND R&D IN AGRICULTURE ______________________________ 114
AGRICULTURE EXTENSION _____________________________________________________________ 114
FARM MECHANIZATION _______________________________________________________________ 115
SEED INDUSTRY ______________________________________________________________________ 117
ZERO BUDGET NATURAL FARMING (ZBNF) ______________________________________________ 118
VALUE CHAIN AND RURAL INFRASTRUCTURE ___________________________________________ 119
INTEGRATED FARMING SYSTEM (IFS) ___________________________________________________ 120
COVID-19 AND ITS IMPACT ON AGRICULTURE __________________________________________ 121
AGRICULTURE: DEVELOPMENTS IN RECENT TIMES ______________________________________ 122
CROPPING PATTERN _________________________________________123
Factors Affecting the Cropping Pattern _____________________________________________________ 125
Problems with current cropping pattern ____________________________________________________ 125
Benefits of Crop Diversification ___________________________________________________________ 127
AGRICULTURAL Credit and INDEBTNESS IN INDIA _________________ 128
SITUATION OF INDEBTNESS OF FARM HOUSEHOLDS _____________________________________ 128
IRRIGATION SYSTEM _______________________________________ 130
Importance AND Need for Irrigation _______________________________________________________ 131
Micro-irrigation SYSTEM _________________________________________________________________ 131
GOVERNMENT INITIATIVES: ______________________________________________________________ 134
 Ground water Depletion in India __________________________________________________________ 135
IRRIGATION: Current Developments _______________________________________________________ 136
Storage, transport & marketing of agricultural produce _______________ 137
STORAGE AND WAREHOUSING OF AGRICULTURE PRODUCE ______________________________ 137
2. TRANSPORT OF AGRICULTURAL PRODUCE ____________________________________________ 141
3. MARKETING OF AGRICULTURAL PRODUCE ___________________________________________ 141
4. AGRICULTURE EXPORTS ____________________________________________________________ 146
E-TECHNOLOGY IN THE AID OF FARMERS ________________________ 151
SIGNIFICANCE OF ADOPTING E-TECHNOLOGY in agriculture ____________________________________ 151
Uses of e-technology for farmers __________________________________________________________ 151
Challenges and constraints in adoption of e-technology in agriculture ____________________________ 154
Issues related to direct and indirect farm subsidies ___________________ 155
Need for Farm Subsidies _________________________________________________________________ 156
Indirect Farm Subsidies __________________________________________________________________ 157
Indian Subsidies programme______________________________________________________________ 158
FOOD SUBSIDY: NATIONAL FOOD SECURITY ACT (NFSA) 2013 ___________________________________ 161
DIRECT CASH TRANSFER/DIRECT BENEFIT TRANSFER (DBT) _____________________________________ 162
WTO AND SUBSIDIES REGIME _____________________________________________________________ 163
MINIMUM SUPPORT PRICE (MSP) ___________________________ 164
Importance and benefits of MSP regime ____________________________________________________ 165
Problems and challenges associated with the MSP regime ______________________________________ 166
Fixing MSP price Calculations _____________________________________________________________ 169
Sugar Industries in India _________________________________________________________________ 170
CHALLENGES OF SUGAR INDUSTRY IN INDIA: ________________________________________________ 171
PUBLIC DISTRIBUTION SYSTEM (PDS) ________________________ 172
Issue associated with PDS in India _________________________________________________________ 174
PDS and TPDS__________________________________________________________________________ 175
Food Security __________________________________________________________________________ 176
Buffer Stock ___________________________________________________________________________ 178
ECONOMICS OF ANIMAL REARING ___________________________ 180
Significance/ importance of Animal rearing: _________________________________________________ 181
Challenges in the livestock development: ___________________________________________________ 181
LAND REFORMS ___________________________________________ 186
FATORS RESPONSIBLE FOR SUCCESS OF LAND REFORMS _______________________________________ 188
LAND REFORMS AND AGRICULTURE PRODUCTIVITY ___________________________________________ 190
Digitization of land records _______________________________________________________________ 191
Model Tenancy Act (MTA) 2021 ___________________________________________________________ 193
Green Revolution ____________________________________________195
Second Green Revolution for Sustainable Livelihood __________________________________________ 199
Evergreen Revolution ___________________________________________________________________ 200
FOOD PROCESSING INDUSTRY ________________________________ 201
Constraints/issues in development of Food Processing Industries in India _________________________ 204
Government’s Initiative to promote food processing sector: ____________________________________ 205
Supply Chain Management _______________________________________________________________ 206
FOOD PROCESSING INDUSTRY: CURRENT DEVELOPMENT ______________________________________ 208
Changes in industrial policies and their effects on industrial growth _____ 210
Industries in India: Introduction ________________________________ 211
30 YEARS OF LPG REFORMS: PERSISTENT CHALLENGES ________________________________________ 211
Medium, Small and Micro Enterprises and Covid-19 ___________________________________________ 212
Textile Sector __________________________________________________________________________ 213
Semiconductor industry _________________________________________________________________ 215
INFRASTRUCTURE _________________________________________ 216
ENERGY ______________________________________________________________________________ 219
DISCOMs: PRESENT STATUS, CHALLENGES AND STRATEGIES ____________________________________ 223
Renewable Energy ______________________________________________________________________ 224
R EASONS FOR THE GROWT H OF RENEWABLE ENERG Y ___________________________________________ 225
SOLAR POWER AND INDIA: _______________________________________________________________ 226
INFRASTRUCTURE: RoadS ________________________________________________________________ 228
INFRASTRUCTURE: Railways ______________________________________________________________ 234
INFRASTRUCTURE: AVIATION _____________________________________________________________ 239
Ports and Waterways ___________________________________________________________________ 242
Logistics Sector ________________________________________________________________________ 244
INVESTMENT MODELS ___________________________________________________________________ 247
 INDIAN ECONOMY: GROWTH AND DEVELOPMENT

While the term economic growth refers to increase over time in a country's real output of goods and services i.e.
product per capita, the term economic development, in contrast, is more comprehensive. It implies progressive
changes in the socio-economic structure.

History Of Indian Economic Growth:

 On 15 August 1947, India woke to a new dawn of freedom. The leaders of independent India had to decide,
The type of economic system for our nation.
 Industrial Policy Resolution of 1948 and the DPSPs of the Indian Constitution reflected the outlook of
Promoting the welfare of all rather than a few.
 The Planning Commission (1950) was set up with the Prime Minister as its Chairperson. With it the era of
five-year plans had begun.

THE GOAL OF FIVE-YEAR PLANS:

 To achieve a high growth rate which will improve the living standard of the residents of
Growth: India. Providing Economic stability for prosperity and a Self-reliant economy.
 Increasing the capacity of an economy to produce goods and services within the
country from one period of time to another.
 Modernization refers to the integration of technology in the economy, innovation,
inventions, and advancement in technology play a huge part in upgrading our economy
and increasing its output.
Modernization:  One example would be the introduction of modern agricultural techniques which
increased output.
 The first seven five-year plans gave importance to self-reliance which means avoiding
Self-reliance: imports of those goods which could be produced in India itself.
  It is important to ensure that the benefits of economic prosperity reach them as well
Equity instead of being enjoyed only by the rich.

T HE N EW E CONOMIC P OLICY OF 1991

BACKGROUND:
 Inefficient management is the origin of the financial crisis of the Indian economy in the 1980s.
 Government expenditure has begun to exceed its revenue by such large margins that meeting the
expenditure through borrowings became unsustainable.
 Inflation, that is, prices of many essential goods rose sharply.
 Foreign exchange reserves declined to a level that was not adequate to finance imports for more than two
weeks.
 India approached the IMF and received $7 biIlion as loan with conditions to liberalise and open up the
economy.
 Removing the restrictions on the private sector, reducing the role of the government in many areas and
removing trade restrictions between India and other countries were the main conditions India had to follow.
 The New Economic Policies (NEP) of 1991 announcement India agreed to the conditionalities of the World
Bank and IMF.

THE NEP (1991) CONSISTED OF WIDE-RANGING ECONOMIC REFORMS:

 The thrust of the policies towards creating a more competitive environment in the economy and removing
the barriers to entry and growth of firms.
 New policy can broadly be classified into two groups:
1. Stabilisation measures: These are short term measures, to correct the weaknesses developed in the
balance of payments and to bring inflation under control.
2. Structural reform policies: There are long-term measures, improving the efficiency of the economy and
increasing its international competitiveness.

LIBERALISATION:

 Industrial licensing was abolished for almost all but product categories but few remain
such as — alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics,
aerospace and drugs and pharmaceuticals.
Deregulation of  Reservation for the public sector, only industries reserved were part of defence
Industrial Sector: equipment, atomic energy generation and railway transport.

 Small-scale industries have now been de-reserved and many goods produced by them,
the market has been allowed to determine the prices of goods.

 Major aim of financial sector reforms is to reduce the role of RBI from “regulator to
facilitator” of the financial sector.

 The reform policies led to the establishment of private sector banks, Indian as well as
foreign.
Financial Sector  Foreign investment limit in banks was raised to around 50 percent.
Reforms:
 Certain conditions have been given freedom to set up new branches without the
approval of the RBI.
  Foreign Institutional Investors (FII) such as merchant bankers, mutual funds and
pension funds, are now allowed to invest in Indian financial markets.

Tax Reforms:  Tax reforms concerned with government’s taxation and public expenditure policies,
which are collectively known as its fiscal policy.

 Since 1991, There is been continuous reduction in the taxes on individual incomes as
it was felt that high rates of income tax were an important reason for tax evasion.

 The rate of corporation tax, which was very high earlier, has been gradually reduced.

 Simplification of tax procedures and law’s is another component of reforms in this

area.

 Multiple procedures have been simplified in order to encourage better compliance

on the part of taxpayers and the rates also substantially lowered.

Foreign Exchange  Before 1991, the Indian rupee was overvalued in terms of US $ and other important
Reforms: currencies. This overvaluation of the Indian rupee discouraged our exports and
encouraged imports.

 To correct this distortion the devaluation of Rupee in 1991 was made.

 Liberalization of the trade and investment regime was initiated to increase

international competitiveness of Indian industrial production.

 The aim was also to promote the efficiency of local industries and adoption of modern
technologies.
Trade and  Quantitative restrictions on imports were decreased in order to protect domestic
Investment industries.
Policy Reforms:
 The main trade policy reforms were aimed at:

o Quantitative restrictions which aim at dismantling on imports and exports

o Reduction of tariff rates

o Licensing procedures removal for imports

PRIVATISATION:
 Privatization has a very broad meaning in economics. Everything that ranges from the introduction of private
capital to selling government-owned assets to transitioning to a private economy.
 This was done in two ways:
1. Withdrawal of the government from ownership and management of public sector companies
2. Outright sale of public sector companies
 Special status to the PSUs has been granted as Maharatnas, Nauratnas and Miniratnas. to improve the
efficiency of PSUs by giving them autonomy in taking managerial decisions.

GLOBALISATION:
 Globalization means the integration of the economy of the country with the world economy.
 It is the outcome of the set of various policies that are aimed at transforming the world towards greater
interdependence and integration.
 Creation of networks and activities that will transcend economic, social and geographical boundaries.
 Outsourcing: In outsourcing a company hires regular service from external sources, mostly from other
countries, which was previously provided internally or from within the country like legal advice, computer
service, advertisement. Multinational corporations, and even small companies, are outsourcing their services
to India where they can be with a reasonable degree of skill and availability of cheaper cost of labour.

P RESENT FEATURES OF INDIAN ECONOMY:

 Middle income developing market economy: The economy of India is characterised as a middle-income
developing market economy on the basis of Gross National Income by IMF.
 Liberalisation Policy (1991): The end of the Cold War and an acute balance of payments crisis led to the
adoption of a broad economic liberalisation in 1991. It started with opening the economy to FDI and gradually
dismantling the license to economy sectors.
 Inequality: In India, the top 10 percentage of population income share grew from 30% in the 1980s to over
56% in 2019.
o Recent report by Oxfam has found that the Covid-19 pandemic deeply exacerbated existing
inequalities in India and around the world.
 Demographic dividend: In the age group of 15-
59 years, India has 62.5% of its population in
working age.
 Mixed Economy: India has adopted mixed
economy model, public sector (government-
owned) business enterprises exist alongside the
private sector.
 Agriculture Based Economy: Agriculture and
allied sectors provide around 14.2% of Indian
GDP while 53% of total Indian population is
based on the agriculture sector.
 Overpopulation: In every decade Indian
population increases by about 20%. During the
2001-11 population increased by 17.6%.
 Low capital formation: Indian economy has registered a fairly robust growth in the four years between 2014-
15 and 2017-18, but the story on savings and investment in the economy has not been so heartening.
 Poor saving rate: India’s slowing economy took a toll on much-needed savings with the savings rate touching
a 15-year low.
o The Covid-19-induced spike in household financial savings rate in 2020-21 waned substantially in a
counter-seasonal manner.
 International Trade: India's main partners are the United States, China, the United Arab Emirates, Saudi
Arabia, Iraq, Hong Kong, and Singapore. Indian trade balance is structurally negative, given that India imports
nearly 80% of its energy needs.
 Gross Domestic Product: According to the economic survey 2021, India’s real GDP to record a 11.0% growth
in FY2021-22 and nominal GDP to grow by 15.4% – the highest since independence.
o India is the world's sixth-largest economy by nominal GDP. The third-largest by purchasing power
parity (PPP) according to the IMF’s World Economic Outlook (April 2021).

INDIAN ECONOMY: GENERAL ISSUES

 Low National and Per Capita Income: India's GDP per capita almost tripled from $439 in 2000 to $1,346 in
2010, but has since only increased to around $2,000 in 2019.
o The Per Capita Income in real terms during 2020-21 is estimated to attain a level of ₹ 85,929 as
compared to ₹ 94,566 in the year 2019-20.
 Vast inequalities in income and wealth: According to Oxfam International, the top 10% of the Indian
population holds 77% of the total national wealth.
 Predominance of agriculture: India’s situation in 1950- 51, more than 55 % of our GDP came from the
agricultural sector.
 o GDP Contributions in 2021-22, however, the contribution of this sector toward GDP came down to
19.9 % (ES- 2021). Workforce in 2022, 41.49 % of the workforce were employed in agriculture.
 Population Pressure: In 2011, The growth rate in India was 1.3 % per annum. India’s population is now 1.21
billion (2011 census). India ranks second next only to China in 2021.
 Massive unemployment: Economic growth rate being slow on the one hand, and rapid growth of population
on the other hand, has accentuated the problem.
o Indian agriculture had a considerable amount of underemployment and disguised unemployment.
 Scarcity of capital and low rate of capital formation: India is a capital-poor country, capital per head is
low. This scarcity of capital causes overall backwardness of the Indian economy.
o Net savings and net investments increased to 31.4 % and 29.5 % of GDP respectively in 2020-21.
 Underdevelopment of Infrastructure: India’s physical infrastructure financing gap is huge, and it is growing
exponentially.
o It is estimated that, by the world bank, India’s infrastructure financing gap is $1 billion a day.
 Low level of Productivity: Use of Advanced and sophisticated technology is rather an exception in India. With
limited growth of technological institutions, we are using primitive methods of technology leading to overall
low productivity.
 Climate change:
o India is particularly vulnerable to the effects of climate change, with around 68% of the country being
prone to drought, 60% to earthquakes.
o The Impact of climate change is evident from the fact that India incurs losses of around $9-10 billion
annually, due to extreme weather events as pointed out by the Economic Survey of 2017-18.
o More than 6 crore Indians are facing acute water shortages in 2020-21. Delhi and Bangalore are two of
the 21 cities that could deplete their groundwater by 2025.
o The 2019 Chennai water crisis was a water crisis occurring in India, most notably in the city of Chennai in
Tamil Nadu. On 19 June 2019, Chennai city officials declared that "Day Zero", or the day when almost no
water is left.

CONCLUSION:
 In Spite of COVID-19 pandemic, public spending on social sector has increased in 2020-21 and efforts
continued through Atma Nirbhar Bharat Rojgar Yojana, higher allocation under MGNREGS, Garib Kalyan
Rozgar Abhiyan and path-breaking labour reforms etc. India’s progress towards a vibrant economy is deep-
seated in investing in social capital and Infrastructure.

Need for the economic growth in India

 To improve the situation of stunted Industrial
Development of Indian industrial sector.
 India's bulk of Population is largely dependent on a
stagnating, low productivity semi-feudal agriculture
sector that needs to move in high income and high
productivity sectors.
 Mass Poverty and Low Per Capita Income are prevalent
scenarios in Indian landmass that need to be sustainably
removed from the country.
 High Rate of Growth of Population leading puts extra
pressure on limited resources of the country, that need
to rationalise so the economy can perform at optimum
speed.
 Low Level of Literacy is still prevalent in India. The literacy rate in the country is 74.04 percent, where females
are reduced 65.46% rate according to the 2011 decadal census.
 Lack of infrastructure is hindering economic growth, there is fear in economists that due to such issues India
might be stuck in the middle-income trap.
 Regional disparity in development causes challenges like violent conflicts, unplanned and haphazard
migration e.g. Insurgency in North-east and Left wing extremism in large parts of central and eastern states
of India.

Impact of Covid-19 on Indian Economy

GENERAL IMPACT OF COVID-19

 At -23.9% contraction for the first quarter of 2020-21, India’s growth showed one of the highest contractions
globally.
 In response The Government announced Rs 20Lcr Atma Nirbhar Bharat COVID-19 Economic stimulus
package.
 The salient features of the package include:
o A stimulus to MSMEs through a Rs 3Lcr ($40bn) loan scheme
o Helping other stressed business sectors such as NBFCs, power distribution companies and the real
estate sector
o Provisioning of free food grains to migrant workers for the next two months
o Provisioning of a Rs 1Lcr ($13bn) subsidy to agricultural cooperative societies
o Hiking the allocation for the MGNREGS by Rs 40,000cr ($5.3bn)

 The 2020-21 real GDP growth for India is forecast in the range of (-) 5.8% (RBI) to (-) 14.8% (Goldman Sachs).
 The OECD in its September 2020 Interim Economic Outlook has projected a contraction of (-) 10.2% in FY21
for India.
 Due to a sharp contraction in nominal GDP growth, central and State tax revenue, both may contract. In the
first quarter of 2020-21, the Centre’s gross tax revenues contracted by (-) 32.6%.
o Excise duty on liquor is the third-largest source of income for a number of states, nearly 10-15% of
total tax collection for some states.
 The CAG-based data pertaining to 19 States shows a contraction of (-) 45% in their own tax revenues.
o Government introduced a simplified personal income regime with reduced rates—a move that’s in
line with the streamlining of the tax code.
 Some estimates indicate that the tax and non-tax revenue and non-debt capital receipts in the current fiscal
may fall well short of the budget estimates by an amount higher than ₹5-lakh crore.
 If one adds the Centre’s and States’ fiscal deficit, the combined fiscal deficit amounts to 13.8% of GDP.
 The IMF, in its June 2020 update of the World Economic Outlook, estimated the fiscal deficit of India and
China at 12.1% of GDP. India doesn’t have adequate resources to support a fiscal deficit of nearly 14% of GDP.
 Reversal of economic progress: Economic contraction is not merely a GDP number for economists to analyse
and debate. It means a reversal of many years of progress.
 Employment scenario: Around 27 per cent and 30 per cent of the households had no income during the
lockdown. Urban households 43% reported more loss of income compared to their rural counterparts 24%
 Societal and psychological elements: There is an upsurge in social issues, including psychological disorders,
domestic violence, suicides, etc. Children are getting depressed as well.

SLOWDOWN IN INDIAN economy and measures

REASONS FOR SLOWDOWN

 Low investment: Calculation of Gross Fixed Capital Formation is a way of measuring investment in economy
and capital formation. It has been declined from 34.3% in 2011 to 28.8% in 2018.
o The private sector investment in capital formation has also declined from 26.9 percent in 2011 to
21.4 percent in 2018.
 Lethargy in Insolvency and Bankruptcy Code (IBC): Implementation of IBC has met limited success. It has
been unable to resolve insolvency cases in a time-bound manner which is mandatorily to be completed within
330 days.
 Restriction in global trade: Trade war between USA and China and other global trade wars has impacted
growth all over the world. Overall top economies in Europe and North America restricting their market access
to other countries.
 Prevalence of Unemployment: India’s unemployment rate in October 2020 rose to 8.5%, the highest level
since August 2016, according to data released by the Centre for Monitoring Indian Economy (CMIE).
 Crisis in agriculture: There is a crisis in agriculture that runs deep. The agriculture sector employs over 50%
of the workforce, contributing to only about 14% of the GDP.
 Credit issues in agriculture: Outstanding agricultural credit amounts to more than half the agriculture sector’s
output, but institutional credit is accessed by only 61% of farm households, which means a big chunk of farm
lending is still in the hands of usurious moneylenders.
 De-Industrialisation: The share of manufacturing in GDP and employment is lower than it was 25 years ago.
About 80,000 jobs are expected to be cut by retailers due to the ongoing COVID-19 pandemic.
o National Infrastructure Pipeline to boost infrastructure sector: It aims to invest Rs 111 lakh crore by
2025 in a range of projects spanning across sectors.
 Decline in exports: India’s exports in April 2020 contracted by 60% year-on-year (Y-o-Y). The US dollar value
of merchandise exports stagnated during the last three years. Thus, following steps were taken:
 Tax Refunds: Export promotion with cost to government at additional 90 billion rupees ($1.3 billion) a
year
 Credit: Export Credit Guarantee Corporation (ECGC) covers both commercial and political risks on export
credit transactions.
 RoDTREP Scheme: Which aims to reimburse the taxes and duties incurred by exporters which are not
getting exempted or refunded under any other existing scheme.
 Consumption: Private consumption contributes nearly 55-60%, to India’s GDP has been slowing down.
According to reports, the latest consumption expenditure survey shows that real household consumption fell
by 3.7 percent, to Rs 1,446 in 2017-18, from Rs 1,501 in 2011-12.
 Global Slowdown and Retreat of Globalization: With rising retreat of globalization like Brexit, Trump’s
protectionist policies and the US-China trade war, global sentiments have remained poor making the
prospects of an export led growth bleak.
 Structural Shift in the economy: The slowdown is also part of a longer-term structural shift wherein the
Economy is shifting gears from the high investment era to a low investment era as well as a transition from
being cash-driven economy to a digitally enabled economy.
 Demonetisation and GST collapse: Demonetisation and GST has led to a collapse in private consumption as
consumers suddenly prefer to hoard cash or keep it in the bank and investments have also been affected
mainly by the small and medium businesses (SMEs).
o Measures were undertaken to boost the MSME sector including improving access to credit, wider
access to markets, technological up-gradation of MSME through a hub and spoke model.

Industrial Revolution 4.0 And India

 In news: Recently the Ministry of Railways and Department of Science & Technology have joined hands in
partnership with IIT Kanpur for taking up a unique project.

INDUSTRIAL REVOLUTION 4.0:

 IR 4.0 is a Part of joint initiative of the World Economic Forum and India government. India becomes the
fourth country to have such a centre after the US, Japan, and China.
 Increased productivity: It is a name given to the current trend of automation, interconnectivity and data
exchange in manufacturing technologies to increase productivity.
 4th one in line: It is the fourth industrial era since the inception of the initial Industrial Revolution of the 18th
century.
 Fusion of multiple technology: The key elements of the fourth revolution are the fusion of technologies
ranging from the physical, digital to biological spheres.
 Cyber-Physical Systems: It is a complex Cyber-Physical Systems which synergizes production with digital
technologies, the Internet of Things, Artificial Intelligence, Big Data & Analytics, Machine Learning and Cloud
Computing.
 A technological age: The Fourth Industrial Revolution is a term that describes the technological age.
 New center in India: Prime Minister of India gave an institutional shape to the expression by launching the
Centre for Fourth Industrial Revolution in India.

Revolutions Time period Remarks

First 18th to 19th centuries Development of Iron, textile industries and steam engines
Second 1870 – 1914 Invention of new things like Telephones, light bulbs and internal
combustion engines were developed.
Third Ongoing since 1980s Advancement of technology with electronic and mechanical
devices to digital technology. Personal computers, internet.
Fourth Phrase first used in 2016 It includes emerging technologies like robotics, artificial
intelligence, quantum computing, biotechnology, Internet of
Things (IoT), 3D printing, etc. It merges physical, digital and
biological spheres.

IMPACT OF INDUSTRIAL REVOLUTION 4.0:

 Increased Productivity: Implementation of Industrial Revolution 4.0 will lead to the increase productivity in
overall economy with seamless automation
 Cascading effect: After the initial spreading in the various sectors, it will push for the Services and business
models improvement.
 IT security: With new understanding in various system mechanisms and security standardisation will help to
better secure the information technology system in the world using new tools
 Machine safety and better working conditions: Industrial Revolution 4.0 will vastly improve the automation
in various industries that will reduce the hazardous job for workers in various industries.
 Strengthening infrastructure, improving connectivity: new tools developed by the Strengthening
infrastructure, improving connectivity will be implemented in the administrative and physical system that will
help to reduce human induced errors.

INDIA AND INDUSTRIAL REVOLUTION 4.0:

 Poverty alleviation: It can play a major role in alleviating poverty.
 Low-cost health care: Better and low-cost health care can be achieved through AI-driven diagnostics,
personalized treatment, early identification of potential pandemics, and imaging diagnostics, among others.
 Increasing farmer income: Enhancing farmer’s income by providing them with the latest technologies,
improvement in crop yield through real-time advisory, advanced detection of pest attacks, and prediction of
crop prices to inform sowing practices.
 Physically able person: Artificial intelligence can be used to empower and enable specially-abled people.
 Ease of living: new revolution will help for the ease of living and ease of doing business using smart
technologies.

NEGATIVES ASPECT OF INDUSTRIAL REVOLUTION 4.0:

 Segregated job Market: With this revolution, it is also possible that in the future, talent, more than capital,
will represent the critical factor of production. This will give rise to a job market increasingly segregated into
low-skill/low-pay and high-skill/high-pay segments, which in turn will lead to an increase in social tensions.
 Effect on identity: It will affect our identity and all the issues associated like our sense of privacy, our notions
of ownership, our consumption patterns, the time we devote to work and leisure, and how we develop our
careers, cultivate our skills, meet people, and nurture relationships.
 Increase inequality: It is likely to increase inequality in the world as the spread of machines increases markets
and disrupts labour markets. Inequality represents the greatest societal concern associated with the Fourth
Industrial Revolution.
 Rising gap in wealth: The largest beneficiaries of innovation tend to be the providers of intellectual and
physical capital, the innovators, shareholders, and investors which explains the rising gap in wealth between
those dependent on capital versus labour.
 Reduced Employment: As automation substitutes for labour across the entire economy, the net displacement
of workers by machines might exacerbate the gap between returns to capital and returns to labour.

WAY FORWARD:
 Gender Equality: It is important to strengthen women’s voice and leadership, eliminating violence and
harassment at work and implementing pay transparency policies in order to achieve gender equality.
 Protection to vulnerable group: A guaranteed social protection from birth to old age that supports people’s
needs over the life cycle should be provided
 Institutional help for transition: Investments in the institutions, policies and strategies that will support
people through future of work transitions should be increased.
 Human friendly economic model: Distributional dimensions of growth, the value of unpaid work performed
in the service of households and communities and the externalities of economic activity, such as
environmental degradation should be taken into account for a human centric business and economic Model
 Rules and regulation: There are a need for an international governance system for digital labour platforms
should be established to protect minimum rights of workers
 Labour Guarantee: All the countries need to pledge for a universal labour guarantee, it will help to protects
fundamental workers’ rights, an adequate living wage, limits on hours of work and safe and healthy
workplaces.
 Changing the notion of one-time learning: It is important to provide a universal entitlement to lifelong
learning that enables people to acquire skills and to reskill and up skill.

INDIAN PLANNING

PREVIOUS YEAR QUESTION:

 How are the principles followed by the NITI Aayog different from those followed by the erstwhile 2018
Planning Commission in India?

Introduction
When the British left India in 1947, there was nothing to be proud of or be happy about except for the freedom.
The problems were many before the Indian government and besides mass poverty there was the problem of food
shortage and inflation. Illiteracy, lack of health care, lack of infrastructure etc. were other serious problems faced
by the country. As a long-term strategy. ‘Planning’ for economic development was the answer to solve these
problems.

Indian Planning history

M. Visvesvaraya is regarded as a pioneer of economic planning in India. His book “Planned Economy for India”
published in 1934 suggested a ten-year plan, with an outlay of Rs. 1000 crore and a planned increase of 600% in
industrial output per annum based on economic conditions of the time. The Industrial Policy Statement published
just after independence in 1948 recommended setting up of a Planning Commission and following a mixed
economic model.

Meaning of Planning
 Preparation of priorities: Preparing a list of the problems facing the economy. Rearranging the list on the
basis of priority. The top priority issue which needs to be addressed immediately should be placed at number
one and so on.
 Identifying the problems: The next step is to identify the problems which are to be solved in the immediate
short run and the other problems which are to be addressed over the long period.
 Fixing a target: It is in order to achieve the desired goal. The target could be a specified time period within
which the problem must be solved.
 Estimation of resources: Estimating the number of resources needed for achieving the target. Resources
include financial resource, human resource, physical resource etc.
 Mobilizing the resources: It is another important task. This means that the planners must know the sources
of arranging the required resources. For example, in case of financing the plan, the planners must make the
budget and spell out the different sources of finding.
 Execution and review: Once the resources are arranged, the implementation and execution process starts in
an organized manner to achieve the desired goal. To make sure that everything is running smoothly periodic
review must be done till the final achievement is realised.

Need for Planning in economic development

 Goals and means: consciously directed activity with predetermined goals and predetermined means to carry
them out.
 Instrument or technique: It can be conceived as an instrument or technique or mechanism whereby the use
pattern of resources is carried out.
 Mobilization of resources: The mobilization of adequate resources and provision of resources to continue
the programme over a long period are two of the most important things to implement.
 Circumvent expenses: Planning is also necessary to avoid wasteful expenditure, minimize cost, meet the
target in time and optimal use of resources.
Objectives of Planning
Considering the socio-economic problems, the various
objectives of planning in India are:
 Economic development: This is the main objective of
planning in India. Economic Development of India is
measured by the increase in Gross Domestic Product
(GDP) and Per Capita Income.
 Increase in employment: An important aim of economic
planning in India is to better utilise the available human
resources of the country by increasing the employment
levels.
 Self Sufficiency: India aims to be self-sufficient in major
commodities and also increase exports through economic
planning.
 Economic Stability: Economic planning in India also aims at stable market conditions in addition to the
economic growth of India. This means keeping inflation low while also making sure that deflation in prices
does not happen.
 Social Welfare and Provision of Efficient Social Services: The objectives of all the five-year plans as well as
plans suggested by the NITI Aayog aims to increase labour welfare, social welfare for all sections of the society.
 Regional Development: Economic planning in India aims to reduce regional disparities in development.
o For example, some states like Punjab, Haryana, Gujarat, Maharashtra etc. are relatively well
developed in comparison to other states like Bihar and Chhattisgarh.
 Comprehensive and Sustainable Development: Development of all economic sectors such as agriculture,
industry, and services are one of the major objectives of economic planning.
 Reduction in Economic Inequality: Measures to reduce inequality through progressive taxation, employment
generation and reservation of jobs has been a central objective of Indian economic planning since
independence.
 Social Justice: It aims to reduce the population of people living below the poverty line and provide them
access to employment and social services.
 Increased Standard of Living: Increasing the standard of living by increasing the per capita income and equal
distribution of income is one of the main aims of India’s economic planning.
 Modernization of the economy: Lack of modern technology is a major reason for Indian economy to suffer
from low productivity in agriculture and lack of industrial development.

Achievements of Indian Planning

 Increase in National Income and Per Capita Income: During the planning period national income has
increased manifold. The average annual increase in national income was registered to be 1.2 per cent from
1901 to 1947.
o The per-capita income at current prices during 2018-19 is estimated to have attained a level of
₹1,26,406 (₹10,533.83 monthly).
 Development in Agriculture: Agricultural productivity has also marked an upward trend during the plan
period. The production of food-grains which was 510 lakh tonnes in 1950-51 increased to 176.4 million tonnes
in 1990-91 and further to 211.9 million tonnes in 2001-02 and 305.44 million tonnes in 2020.
 Development of Industry: In the first five-year plan much of the capital was invested to develop the industry
and defence.
o About fifty per cent of the total outlay of the plans was invested for their development. As a result,
industrial production has increased to a great extent.
 Development of Transport and Communication: During the planning period, much attention has been paid
towards the development of transport and communication.
o In the first two plans, more than one-fourth of the total outlay was invested on the development of
transport and communication.
 Self-Reliance: During the last five decades, considerable progress seems to have been made towards the
achievement of self-reliance. We are no longer dependent on other countries for the supply of food-grains
and a number of agricultural crops.
 Employment Generation: Emphasis was laid on the creation of larger employment opportunities, such as,
emphasis on the establishment of small and cottage industries, spread of technical education, development
of self-employment schemes, creation of larger industries, improvement of agriculture and service sectors
etc.
 Price Stability: Attaining economic stability has been considered as one of the major objectives of economic
planning throughout the entire plan period.
 Capital Formation: In India due to the development of agriculture, industry and defence, the rate of capital
formation has also increased.
 Social Justice: The planning in India has an objective of sustained growth with social justice.
o As a result, these plans have been ensuring the improvement of living standards of the people,
removal of poverty, creation of additional jobs, and reduction in inequalities of income and wealth.
 Development of Science and Technology: In the era of planning, India has made much progress in the field
of science and technology. At rank 48, India stands among the top 50 countries in the Global Innovation Index
(GII) 2020 with a score of 35.6.
 Social and Miscellaneous Services: It consists of such vital services as education, health and family planning,
housing, labour welfare and welfare of backward classes etc. and a considerable amount has been allotted in
our five-year plans for the provision of these services.

Failures and Shortcomings of Indian Planning

 Rise in Prices: Price stability has been one of the objectives of every five-year plan in India. But almost all the
plans witnessed considerable rise in price-level.
o In the first plan, the price level came down. In all other plans, the prices recorded a steep rise.
 Increase in unemployment: During the period of five-year plans, unemployment went on rising. At the end
of the first five-year plan 53 lakh persons were unemployed.
 Neglect of Agriculture: The five-year plans failed to pay attention to the agricultural sector except for the first
five-year plan.
o The share of agriculture in GDP declined from about 50 percent during 1950-51 to about 21% percent
of the GDP in 2020.
 Slow Growth in Production Sector: Capital intensive industries in urban areas were given precedence over
small scale industries in the rural areas. In agriculture, the green revolution continues to be confined largely
to wheat and rice crops.
 Inequality in Distribution of Income and Wealth: One of the main objectives of five-year plans has been to
minimise inequality in distribution of income and wealth. But the plan witnessed only an increase in
inequality. This inequality is found not only in the industrial sector but in the agriculture sector also.
 Widespread Poverty: Failure to address the problem of unemployment has resulted in widespread poverty
in the country.
o The first four plans failed to address the problem of poverty. It was only during the fifth five-year plan
that measures were taken to tackle poverty directly by introducing various poverty alleviation
programmes.
 Inefficient Administration: Plans are formulated after a good deal of discussion and deliberation but their
targets are not achieved due to inefficient administration, dishonesty, vested interest and red tapism etc.
 Lack of Strong Foundation: In spite of the fact that twelve five-year plans have rolled by still the economic
base is far from being strong. We are still dependent on weather for a good harvest.
 Political Instability: Political instability and inefficient administration are the major hurdles in successful
implementation of the plans.
 Extra Ambitious: Indian plans are criticised on the ground that their targets are very ambitious. Two factors
that may account for its criticisms are:
o first shortage of resources and
o second faulty implementation of the plans.
o The gap between the targets and achievements underlines the failures of the plans.
 No increase in the Standard of Living: All the five-year plans of India aimed at raising the standard of living of
the people and even the basic necessities have not yet been provided to the people.
o On an average, a normal healthy person needs 2500-2700 calories per day (for men) but in India per
capita availability of food is 2200-2400 calories.
NITI AAYOG
 National Institution for Transforming India, was formed via a resolution of the Union Cabinet on 1 January
2015.
 The Governing Council of NITI Aayog is chaired by the Hon'ble Prime Minister and comprises Chief Ministers
of all the States and Union Territories with legislatures and Lt Governors of other Union Territories.
 An important evolutionary change, NITI Aayog acts as the quintessential platform of the GoI to bring the
States to act together in national interest, and thereby fosters cooperative federalism.

KEY FUNCTIONS OF NITI AAYOG

 Vision of national development: To evolve a shared
vision of national development priorities sectors and
strategies with the active involvement of States in the
light of national objectives
 Foster cooperative and competitive federalism:
Through structured support initiatives and
mechanisms with the States on a continuous basis,
recognizing that strong States make a strong nation
 Planning: To develop mechanisms to formulate
credible plans at the village level and aggregate these
progressively at higher levels of government.
 Economic strategy and policy: To ensure, in areas that
are specifically referred to, that the interests of national security are incorporated in economic strategy and
policy.
 Work on marginalised society: To pay special attention to the sections of our society that may be at risk of
not benefiting adequately from economic progress.
 Policy framework developments: To design strategic and long-term policy and programme frameworks and
initiatives, and monitor their progress and their efficacy.
 Advisory functions: To provide advice and encourage partnerships between key stakeholders and national
and international like-minded Think tanks, as well as educational and policy research institutions.
 Collaborative community: To create a knowledge, innovation and entrepreneurial support system through a
collaborative community of national and international experts, practitioners and other partners.
 Settle disputes and differences: To offer a platform for resolution of inter-sectoral and inter departmental
issues in order to accelerate the implementation of the development agenda.
 Modernisation and evolution: To maintain a state-of-the-art Resource Centre, be a repository of research on
good governance and best practices in sustainable and equitable development as well as help their
dissemination to stake-holders
 Monitoring and evaluation: 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
 Capacity building: To focus on technology upgradation and capacity building for implementation of
programmes and initiatives

Niti Aayog Vs Planning Commission

DIFFERENCES

PARAMETERS NITI AAYOG PLANNING COMMISSION

NITI Aayog has not been given the mandate
The Planning Commission had the power to
Function or powers to impose policies on States. NITI
impose policies on States and for the
Aayog is basically a think-tank or an advisory
projects approved by the Planning
body. Commission.
The powers for allocation of funds have not
The Planning Commission had the power to
Allocation of been given to the NITI Aayog. The powers are
allocate funds to the State Governments and
funds with the Finance Ministry. various Central Government Ministries for
various programme and projects at National
and State Levels.
In NITI Aayog, State Governments have to State Governments did not have much role
Role of state play a more proactive role. to play apart from taking part in the
governments meetings. The State Government’s role was
confined to the National Development
Council.
 The Governing Council of NITI Aayog has The National Development Council had
Governing Lieutenant Governors of Union Territories Lieutenant Governors and State Chief
Council and State Chief Ministers. Ministers. Planning Commission had to
report to the National Development
Commission.
The CEO of NITI Aayog is appointed by the Planning Commission secretaries were
Appointments Prime Minister. Secretaries are known as appointed through the usual process.
CEOs.
The number of full-time members in NITI The last Planning Commission had eight full-
Aayog could be lesser than the numbers that time members. The Planning Commission
Members the Planning Commission had. did not have any provisions for the
Based on the requirements, there are part- appointment of part-time members.
time members appointed in NITI Aayog.
Under NITI Aayog organisation structure The Planning Commission organizational
new posts were created – CEO, Vice- structure consisted of full-time members,
Organizational Chairperson. The CEO has the rank of a member secretary and a Deputy
structure secretary. Four Cabinet members would Chairperson
serve as ex-officio members. NITI Aayog has
two-part time members and five full-time
members.
In NITI Aayog, the final policy would bear The Planning Commission first formulated
Policy fruit after due consultations are held with policies and then State Governments were
formulation State Governments in the policy formulation consulted regarding the allocation of funds
stage. for the programmes or projects.
NITI Aayog is also an Executive Body as it is The now-defunct Planning Commission was
Constitutional not mentioned in the Constitution of India, an Executive Body.
backing and it was not established by an Act of
Parliament.

SIMILARITIES
 Primary motive: The main aim of both these boards of people is to create for the development of this nation.
 Constitutional mandate: Like the planning commission, NITI Aayog is also a non-constitutional body which is
not responsible to parliament.
 Planning tenure: Both of these boards create plans for the long-term ranging from 5-7 years.
 Meeting time period: Both the boards gather annually to discuss and formulate the plans.

Criticisms of NITI Aayog

 Transformation limits: NITI Aayog cannot transform a deeply unequal society into a modern economy that
ensures the welfare of all its citizens, irrespective of their social identity.
 Limited role or Influence in policy making: It has no role in influencing public or private investment. It does
not seem to have influence in policy making with long-term consequences. For instance, demonetisation and
the Goods and Services Tax.
 NITI Aayog is still in its infancy: It is trying to find out what its role should be because the role of a think tank
is not an easy one.
 Non-critical body: If it is a think-tank, it has to maintain a respectable intellectual distance from the Govt. of
the day. Instead, we see uncritical praise of the Govt-sponsored schemes / programmes.
 Limited answerability: It is not able to answer specific questions like, why 90% are working in the unorganised
sector? And moreover, as on date, more and more informalisation is taking place in the organised sector.
 Not done much for women upliftment: Labour force participation rate of women is also declining, when
neighbours like Bangladesh are registering an increase.
Way Forward
 Dedicated time Period: Decentralization of planning should be done, but within a five-year plan framework.
 Administrative lacunae: Bureaucratic inertia needs to be shaken, specializing it and fixing the accountability
on the basis of performance.
 Agent of change: NITI Aayog could emerge as an agent of change over time and contribute to the
government’s agenda of improving governance and implementing innovative measures for better delivery of
public services.
 Representation of Aayog: NITI Aayog continues to be representative of an efficient, transparent, innovative
and accountable governance system in the country with distinguished work ethics.
 Should be an opinion-based body: NITI Aayog should act as a force for persuasion, not control centre. Its role
should be to promote local systems solutions to national problems.
 Diversification and women inclusion: All stakeholders including women must be involved in the
implementation of a plan in a large, diversified and democratic country. Thus, planning should be devolved
to State governments, and even to the third tier of city and district governance.
 Transformational approach needed: It requires new methods to speed up ‘organisational learning’ amongst
stakeholders in the system who must make plans together and implement them together. Thus, it is not good
enough to have a plan, there must also be a strategy for its cooperative implementation.

MOBILISATION OF RESOURCES
Introduction
 Resource Mobilization is the identification, organization and utilization of the available material resources
within the country (including financial resources) to further its objectives of development missions and plans.
 It is the process of-
o Assembling and organizing things for achieving collective goals.
o Freeing up locked resources.
o Essential for the development, implementation and continuation of work.
o For achieving the national mission.
 In real terms, Resource mobilization means expansion of relations with the resource providers, the skills,
knowledge and capacity of proper use of resources.

NEED FOR RESOURCE MOBILIZATION

Resources are needed for every type of economy, whether it is a police state or a democratic welfare state. Every
economy strives to fulfil some basic needs and aspirations of its citizen and for that it does following works:
 Allows spending and utilization of resources.
 It is helpful in maintaining Organizational Sustainability.
 It is crucial to any organizations existence, as any organization, be it in the public sector or private sector,
must continually generate new business to maintain a perpetual presence.
 Maximize use of domestic capital and skills.
 It keeps a check and guarantees continuation of the organization’s (government or non-government) service
provision.
 Diversifies and expand resources.
 Formulates an independent budget (fund).
 It paves the way for improvement of the available services and products.
 Sustains the nation and its policies.

NEED for Resource mobilisation in India

 Social Welfare: For maintaining socio-economic activities of people, the government requires resource
mobilization for social welfare of the state.
 Equal opportunity: A welfare state is socialistic in nature. It is based on the principles of equality and is keen
to provide equal opportunity to all. It also aims to ensure equitable distribution of wealth.
 Economic welfare: It exercises control over all economic activities. In a welfare state, all the private
enterprises are regulated by the government.
 Financial welfare: It provides even the basic facilities to its citizens. Furnishing services to each and every
individual is its duty.
 Commercial welfare: It undertakes and runs various enterprises. Ownership and operation of industrial
enterprises, business and other commercial activities are also done by welfare governments.
 Justice: It ensures justice for all. In a welfare state, the common man has to deal with the authorities for many
of their needs.
 Private welfare: It is the function of a welfare state to regulate and control all private enterprises engaged in
economic activities. Such control includes registration, licensing, taxation etc.
 Labourers welfare: The welfare of labourers also comes under the purview of the duties of the welfare state.
 Legislative welfare: They are bound to make legislation to prevent exploitation of workers, and to ensure the
security and welfare of those who work in industrial enterprises, factories, companies and all other sectors of
employment.

ROLE OF SAVINGS AND INVESTMENT

 Cooperatives: These are an autonomous association of persons united voluntarily to meet their common
economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled
enterprise.
 Credit union: It is a member-owned financial cooperative, democratically controlled by its members, and
operated for the purpose of promoting thrift credit at competitive rates, and providing other financial services
to its members.
 Finance and Leasing Association (FLA): It is the trade association for the consumer credit, finance and asset
finance sectors. Members of FLA include: banks, subsidiaries of banks and building societies etc.
 Bank : These are the financial institutions that accept deposits from the public and create credit. Banks are
the perhaps prime Financial Institutional source of resource mobilization.
 Angel investors: These are those who invest in small start-ups or entrepreneurs are another important source
of resource mobilization in an economy. Often, angel investors are among an entrepreneur’s family and
friends.
 India Innovation Fund : It is a SEBI registered venture capital fund that invests in innovation led, early stage
Indian firms. The focus areas include Information and Communication Technologies and Life Sciences.
 Venture Capital (VC): It is a type of private equity, a form of financing that is provided by firms or funds to
small, early-stage, emerging firms that are deemed to have high growth potential, or which have
demonstrated high.
 Capital network: Finding investors, pitching, due diligence, term sheets, exits and more.
 Merchant bank: which is a company that deals mostly in international finance, business loans for companies
and underwriting. These banks are experts in international trade, which makes them specialists in dealing
with multinational corporations.
 International trade financing companies: These companies provide services which include such activities as
lending, issuing letters of credit, factoring, export credit and insurance.
 Specialized financial institutions: they concentrate mainly on financing specialized economic and social
activities.

Role of Fiscal Policy in Resource Mobilization

 Promoting economic growth: In democratic countries, fiscal policy is a powerful and desirable weapon on
which the government can rely for promoting economic growth.
 Resource Mobilisation: Resource mobilization is of strategic importance for bringing about rapid economic
growth. It is, therefore, necessary to achieve a higher ratio of savings to national income.
 Taxation: A well-conceived scheme of taxation is an important way of raising the ratio of savings to national
income which is one of the crucial determinants of the rate of economic growth.
o To raise the saving ratio for acceleration of growth.
o To improve investment in the private sector so that a higher rate of investment is achieved.
 Fiscal policy: can be so devised that not only the objective of rapid capital accumulation or growth, but also
other objectives of economic policy, such as equitable distribution of income and wealth, price stability and
promotion of employment opportunities can be achieved.
 Expenditure Side: There is a positive need for public investment, especially in those spheres of economic
activity where the private investments are not easily attracted.

Thus, fiscal policy is of crucial importance in accelerating the pace of economic growth in developing countries.
Fiscal policy, if properly designed, is an efficient and equitable way of mobilizing resources for augmenting public
investment.

ISSUES AND CHALLENGES IN MOBILISING RESOURCES

 Limited Domestic public resources: It makes least developed countries (LDCs) highly dependent on external
resources which limit their policy space and create some dependency. Their economic vulnerability is further
exacerbated by indebtedness.
 Weak Domestic taxation: taxes are not broad-based and tax evasion is common in developing countries
which squeeze out the chances for public expenditure.
 Fiscal policies: The fiscal discipline is hardly seen in developing countries. They often resort to deficit financing
to pursue development.
 Lack of National and sub-regional development banks with rural penetration: Though India is enjoying the
presence of big national and international banks but the financial inclusion at rural level has been a myth.
 Small developing countries face problems: Moreover, the 2008 financial crisis brought national development
banks back onto the policy agenda, as countries sought sources of long-term financing to stimulate economic
recoveries, and there is greater international acceptance of such banks.
 Illicit financial flows: It involves resources that have been obtained, transferred or used illegally or illicitly. A
common concern with regard to illicit financial flows from developing countries is the identification of flows
considered potentially damaging to economic development.
 Opaque International Financial System: In developing economies, vital development resources are being lost
because of the ease with which capital flight can flourish in the context of a burgeoning yet opaque
international financial system.
 Structural problems of political governance: it is closely related to the idea that illicit capital flows from
developing economies are indicative of deeper structural problems of political governance in these countries.
 International tax cooperation: In general, international tax cooperation assumes particular importance in a
world of hyper globalization, in which tax systems in some countries can affect public revenue collection in
other countries.
 Lack of Multilateral development Banks: Financing needs to support the achievement of the Sustainable
Development Goals are considerable.
 Lack of financing: It is not due to a shortfall in global savings. Most are in the form of developed country
securities and other assets that offer low returns. Multilateral development banks and other international
banks, existing and new, are therefore needed to bridge finance from end-savers to development projects.

STEPS TAKEN FOR EFFECTIVE UTILISATION OF RESOURCES

 Indian Resource Panel (InRP): GOI has established the Indian Resource Panel (InRP) — an advisory body under
the MoEFCC to assess resource-related issues facing India and advise the government on a comprehensive
strategy.
 International Resource Panel (IRP) in 2007: At a global level, UNEP established it as a central institution to
provide independent scientific assessments on sustainable use of natural resources and their environmental
impacts and policy approaches to promote decoupling economic growth from environmental degradation.
 Judicious use of resources is an important part of several SDGs i.e., GOAL 2: Zero Hunger; GOAL 6: Clean
Water and Sanitation; GOAL 7: Affordable and Clean Energy.
 Paris climate change: Utilisation of resources can help meet India’s Nationally Determined Contributions
(NDC) commitments under the 2015 Paris Climate Change Agreement.
 Infrastructure development: National Housing and Habitat Policy, 2007 and the Pradhan Mantri Awas Yojana
(PMAY), 2015 emphasize on developing appropriate ecological design standards for building components,
materials and construction methods.
 Manufacturing Stage: flagship programmes like “Make in India” that provide special assistance to energy
efficient, water efficient and pollution control technologies through Technology Acquisition and Development
Fund (TADF).
 Reduced waste generation: It will contribute towards fulfilling the goals of Swachh Bharat.
 Utilitarian approach: MoEFCC is running an eco-labelling scheme. Weaker sections like women, children, SC,
ST, OBC etc should be brought into mainstream.
 Reduce, Reuse and Recycle: There are policies existing to tackle all types of waste ranging from hazardous
waste to Municipal Solid Waste (MSW), Construction and Demolition (C&D) waste, plastic waste and e-waste.

RECOMMENDATIONS FOR EFFECTIVE UTILISATION OF RESOURCES

 Promotion of:
o Right employment opportunities for human resources
o Skill development programs
o Technology development to promote quality in manufacture and performance of product.
o Improve availability and lowering costs of green products in the markets.
o Green public procurement
 o Industrial clusters development.
 Regulation, Economic Instruments:
o Viability Gap Funding (VGF) that can help businesses overcome the barriers and become competitive
over time by building scale and upgradation of technology.
o Policy reforms across life cycle stages focussing on their design, emphasis, integration or implementation.
o Tax reforms can play an important role in steering the economy towards resource efficient practices and
circular economy. Value-added taxes should be levied on value-added activities like mining, construction,
and manufacturing.
 Institutional Development:
o A dedicated institutional set up for development, assessment of resources measures should be
established.
o Four factor of production- land, labour, capital and organization – should come to together. There should
be an atmosphere for growth and investment.
 Other measures:
o In India, tax collected is very less. The tax base has to be widened.
o Greater reliance on Domestic Resource Mobilisation (DRM) is vital to elevating economic growth,
accelerating poverty reduction and underpinning sustained development.

CONCLUSION
Resource in the form of investment is the most important factor affecting growth. Hence, resource
mobilization to boost investment has always been a priority. The task of mobilizing resources involves
deliberate decisions on selection of major investments, control of expenditures, monitoring of
performance and realization of planned level of economic activity. Going further, it also includes
prevention of tax evasion and tax avoidance.
 TAXATION

Deficits: Trend as per the Budget 2022-23

o Fiscal Deficit (21-22): stood at 9.2 % of GDP.
o Effective Revenue Deficit: also increased to 7.3 % of GDP in 2020-2021.
o Primary Deficit: increased to 5.8 % of GDP.
o Revenue Deficit: 7.3% of GDP.

Observation of Economic survey 2021-2022

 The tax collections have been buoyant for both direct and indirect taxes.
o The gross monthly GST collections have crossed ` 1 lakhs crore consistently since July 2021.
o The buoyant tax collections of both direct and indirect taxes, along with the non-tax revenue
boosted by RBI’s surplus transfer to the Government, have contributed to the increase in the
revenue pool.
 Net tax revenue to the Centre, which was envisaged to grow at 8.5 per cent in 2021-22 BE relative to
2020-21 PA, grew at 64.9 per cent during April to November 2021 over April to November 2020.
 The corporate income tax registered a growth of 90.4 per cent over April-November 2020 and 22.5 per
cent over April-November 2019.
 There was no revenue shortfall. Government earned more tax revenue compared to its budget estimates.
TAXATION: GENERAL SCENARIO OF INDIAN TAXATION
 Tax is the money paid by the taxpayers to the government. Tax is
compulsory payment and not voluntary payment or donation made by the taxpayers.
It is levied and extracted by the government through legislation. If taxpayers fail to pay the taxes or evade
taxes, it is punishable by law.
 The tax system in India is mainly a three-tier system which is based between the Central, State Governments
and the local government (such as Municipality and Panchayats).
 Low compliance in India: In FY18, just 6.84 crore (4.5% of India’s total population) entities filed their Income
Tax Returns.
o In India, only 6.08 cr individuals pay taxes (~4.9%) much below the desired level of 23% and only 15.5%
of net national income is reported.
o India's Gross tax to GDP which was 11% in FY19, fell to 9.9% in FY20 and marginally improved to 10.2%
in FY21 (partly due to decline in GDP) and is envisaged to be 10.8% in FY22,
o this is much lower than the emerging market economy average of 21 percent and OECD average
of 34 percent.
o According to the World Bank, tax revenues above 15% of a country’s GDP are a key ingredient for
economic growth and, ultimately, poverty reduction.
o Higher Tax-to-GDP ratio means that an economy's tax buoyancy is strong as the share of tax revenue
rises in sync with the rise in the country's GDP.
o Low tax base: Indian tax laws offer a complete exemption to the agricultural sector, which employs the
largest category of India’s working population.
o Hence, this effectively leaves just about 16.5 crore people who can be realistically expected to
pay taxes, only around 7.4% adults in India pay income tax.

REASONS FOR POOR TAX TO GDP RATIO:

 Generous government policy: Multiple central governments have not paid heed to the low tax to GDP ratio
due to various political issues.
 Zero tax liabilities: The actual number of people who pay tax is lower because of those who report zero tax
liabilities.
 Tax exemption: High tax exemption systems in India have benefited the richer private sector.
 Large Informal sector: In India has a relatively large informal/unorganised sector, and tax evasion is more
rampant in the informal sector compared to organised sector.
 Basic issues: Like Low per capita income, high poverty, keeps tax collections low are prevalent in India.
 Vast agriculture sector: Out of 25 crore households in India, 15 crores belong to the agricultural sector which
are exempted from taxes.
 Parallel and black economy: An unaccounted income and expenditures exists which goes untaxed in various
parts of the parallel economy.
 High tax dispute: India has one of the highest numbers of disputes between tax administration and taxpayers,
with lowest proportion of recovery of tax arrears.
 Indirect tax ratio: India’s direct to indirect tax ratio is roughly 35:65. This is in contrast to most OECD
economies where the ratio is the exact opposite, 67:33 in favour of direct taxes.
 Another factor that contributes to the low tax to GDP ratio is low per capita income and high poverty.

Implications of Low Tax to GDP ratio

 Due to a decrease in tax revenues, the Indian State becomes incapable of spending on national security,
welfare system, public goods, etc.
 There is heavy borrowing due to the low tax revenue of the government, this causes a persistent deficit
bias in fiscal policy.
 Such a system creates political incentives for the government to borrow money to buy votes rather than
work on building an effective tax system that will lead to economic growth and development.
 Widespread tax evasion goes unchecked which hampers growth and most of the tax burden falls on the
high-productivity sectors that need growth.
  Lower tax collections decrease the capacity of the government to incur expenditure for welfare schemes.
 There is increased dependence on indirect taxes which are regressive in nature.
 There is an increase in social inequality due to the asymmetric distribution of economic resources in
society.

DIRECT TAXATION

MERITS OF DIRECT TAXATION:

 Progressive Tax: It is related to the ability to pay principle. So, an important tool to reduce inequalities of
income and wealth.
 Elasticity: A direct tax can be varied according to the needs of the government as well as according to the
changes in the income of the people. For example – if the income of the people rises, the government may
increase the direct tax and vice versa.
 Certainty: A person liable to pay direct tax knows with certainty how much he has to pay and when he has to
pay.
 Equity: It is generally progressive (based on ability to pay principle). Through its rich people can be made to
pay more taxes than poor. Similarly, in case of necessity, low-income group people can be given relaxation
and the super-rich can be made to pay more. Thus, an important tool to reduce income inequalities.
 Important tool in Fiscal policy: For example – In case of high inflation, the government may increase the
direct tax rate to reduce money in the hands of people so as to bring down the consumer demand. Similarly,
to boost demand and improve employment, the government can reduce rates of direct tax.
 Reduce volatility: The Direct tax helps in international currency exchange rates by imposing Tobin Tax.
 Addresses inflation issues: Government increases taxes during inflation in order to reduce the necessity for
goods and services, which leads to a decrease in inflation.

DIRECT TAXATION RELATED ISSUES IN INDIA:

 Tax Evasion and avoidance: People in India try to evade tax by some illegal means or by taking the benefit of
some loopholes in the Indian tax system.
 Complex corporate tax rate structure: The current differential in effective corporate tax rate across sectors
is very high. The exemptions to corporate tax are not equitable vertically.
 Rationalisation: The taxation system is complicated and there is an urgent need for rationalization and
simplification. There is a lack of clarity with respect to complex taxation frameworks.
 Outdated Income Tax Act: It contains certain provisions that have become superfluous, outdated or
inconsistent with the objectives of these provisions. Indian corporate tax rate is several points higher than
even the median countries from OECD which acts as an incentive to carry out Transfer Pricing.
 Balance between direct and indirect taxes: The contribution of direct taxes has declined from 60% in 2010-
11 to 52% in 2017-18. Increasing share of indirect taxes in revenue is alarming as indirect taxes are regressive
which hurt poor people more.
 Cross border transactions: Source rule of taxation for non-residents was linked to physical presence
(permanent establishment) which has led to protracted litigation, base erosion and profit shifting.
 Synchronisation with global economy: Since India is much more integrated with the world globally in terms
of business linkages and capital account convertibility, the differential treatment of foreign and domestic
companies in the country should be gradually phased out.
 Narrow tax base: wider and broader tax base will help to deal with the problem of potential revenue loss due
to lower tax rates and simplified tax structure.
 Protracted tax litigation: In India has not only put a burden on Indian judiciary but has also cost the
government exchequer. Tendency of tax officials to initiate an action without the necessary justification or
assessment is reflected from low success rate of appeals (~30%).

WAY FORWARD: DIRECT TAX

 Reducing effective tax rate: High tax rate in Indian discourages investments and growth, relative to other
Asian countries and hurts equity investment also.
 Rationalising tax exemption: The exemptions are not given based on predetermined rules. Instead, these are
devised through an opaque political process of selecting between demands of various competing groups.
 Reducing sectoral differences: The tax system is not equitable horizontally since the differential in effective
tax rate across sectors is very high. For example, in 2014-15, a sample of cement manufacturers, consultancy
service firms, and banking service firms paid an effective tax rate of 9 %, 16 %, and 35 %, respectively.
 Increasing Vertical inequity: The exemptions to corporate tax are not equitable vertically. For example, in
2014-15, small companies having a profit of up to Rs. 1 Crore paid an average tax rate of 29.37% while
companies having a profit of greater than Rs. 500 Crore paid an average tax rate of only 22.88 %.
 Double taxation: The income from operations of partnership firms is subjected to a tax twice: first, profits of
the business entity are taxed and the individual owners’ incomes are taxed.
 Arresting tax evasion: While the provision to exempt agriculture income, is meant to protect farmers, non-
agricultural entities sometimes use it to evade taxes by declaring agriculture as the source of their income.
 Reduction in tax terrorism: It is needed through clarity in taxation framework in the country and by reducing
the discretionary powers of the tax department.
 New Act: For the needs to provide for alternate methods of dispute settlement such as negotiation, mediation
and conciliation.
 Level playing field: Between large businesses and start-ups & young companies. A complicated tax structure
in effect helps large business groups who can manipulate the system with the help of their in-house tax
experts.
 Raja Chelliah Committee: Tax Reforms Committee:
o Reducing the cost of imported inputs by lowering the customs duties.
o Reduction in the number of Customs tariff rates and its rationalization.
 Vijay Kelkar Committee: Task Force on Direct & Indirect Taxes
o The taxpayer services: It should be extended both in quality and quantity and taxpayers should get
easy access through the internet and email.
o PAN coverage: It should be expanded and it should cover all citizens.
o Block assessment: of search and seizure cases should be abolished.
o Clearing backlog: To clear the backlog, the department should outsource the data entry work.
o Time bound refunds: All returns and issues of refunds should be completed in a four-month period.
Dispatch of refunds should be outsourced.
o Empowerment: The CBDT have to empowered with appropriate administrative and financial powers.
 Akhilesh Ranjan Committee Recommendations:
o Reducing the residency threshold: The committee has proposed reducing the 182 days residency
threshold (to be considered as Indian Tax Resident), to 90 days, as far as such persons are concerned.
o Double Tax Avoidance Treaty (DTAA): Suitable amendments be carried out to the effect that the
DTAA shall be applicable 'along with' domestic law, essentially providing that where the tax rate under
DTAA is less than under the Indian Income Tax Act, the former shall prevail.
o It suggested for Direct Tax Code with following features:
 Litigation Management: Amendments in Section 147 and Section 148 of the I-T Act,
empowering the tax officer to reopen assessment cases based on predefined criteria.
 The I-T officer can go back up to six years to scrutinise the books of accounts of the
assessees.
 Currently, these provisions are prone to the interpretation. 40% of litigation happens
because assessees challenge reasons given by officers for reopening cases.
 Increasing the threshold limit for opening cases: Currently it is Rs 1 lakh and above. Also, the
pre-defined criteria to select cases for scrutiny will be tightened.
 Assessment proceedings should be made faceless, and an option be allowed to the public to
seek clarifications on tax matters from CBDT.
 Reduced Burden of Tax Compliance: Tax compliance based on global trends and best
practices.
 This is expected to increase clarity among taxpayers and also expand the tax base.
 Use of Artificial Intelligence (AI) in the tax-compliance and administration process.
  Proposal of introducing collaborative compliance in direct tax administration, which would
integrate data from banks, financial institutions and the Goods and Services Tax (GST)
network to ensure that the scope of taxable income increases.
 Personal Income Tax: A rejig in rates between 5% to 20%.
 Currently, the personal income tax structure has three categories based on age — for
people below the age of 60, for people above the age of 60 but less than 80, and the
third for people of 80 years and above.

GOVT. INITIATIVE to Improve DIRECT TAXATION:

 The monetary threshold has been raised: From Rs. 20 lakhs to Rs. 50 lakhs for appeal before Income Tax
Appellate Tribunal (ITAT), from Rs. 50 lakhs to Rs. 1 crore for appeal before the High Court and from Rs. 1
crore to Rs. 2 crores for appeal before the Supreme Court.
 Expansion of scope of TDS/TCS: For widening the tax base, several new transactions were brought into the
ambit of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS).
 Concessional rate: The Finance Act, 2020 has provided an option to individuals and co-operatives for paying
income-tax at concessional rates if they do not avail specified exemption and incentive.
 Dividend Distribution Tax (DDT): The Finance Act, 2020 removed the DDT in order to increase the
attractiveness of the Indian Equity Market.
 Vivad se Vishwas: Under Vivad se Vishwas, declarations for settling pending tax disputes are currently being
filed. This will benefit the Government by generating timely revenue and also to the taxpayers by bringing
down mounting litigation costs.
 Encouraging digital transactions: In order to facilitate the digitalisation of the economy and reduce
unaccounted transactions.
 Increasing Tax Compliance:
o The CBDT launched E- Sahyog portal to facilitate online filing of the returns.
o Project Saksham was launched by CBIC to help in implementation of GST.
o In extension of Indian Customs Single Window Interface for Facilitating Trade (SWIFT)
 Digitization and formalization: Push towards digitalization and formalization will increase the expansion of
the tax net.
 Advanced Pricing Agreements (APAs): APA is an agreement between a taxpayer and tax authority
determining the transfer pricing methodology for pricing the tax payer’s international transactions for future
years.
 General Anti-Avoidance Rules (GAAR): Effective from April 1st, 2017, is a set of rules which helps the revenue
authorities to decide whether a particular transaction has commercial substance or not and tax liability
associated with a genuine transaction.
 Place of Effective Management (POEM): The guidelines were introduced for the determination of residency
of foreign companies, applicable from FY 2017-18. If PoEM of a firm is in India, then its worldwide income
would be taxed here.
 Information sharing agreement: India has also entered into an information sharing agreement with the USA
under Foreign Account Tax Compliance Act (FATCA) of USA.
 Operation Clean Money and Project Insight: They were launched to use data analytics to improve tax
compliance and effectively utilize information in tax administration.
 Corporate Rate Cut: To boost industrial activity and increase compliance, tax rate for all corporations is
reduced from 30% to 22%.
o Effective tax rate for all domestic companies would now be 25.17%. New manufacturing companies
will have to pay an even lower corporate tax rate of 15%.

NEED OF DIRECT TAX REFORMS:

 Rationalization and simplification: The rate structure has broadly remained the same in the last 20 years.
Further, there is a need for rationalization of exemptions and a rethink of incentives on savings (such as small
savings schemes like PPF).
 Corporate tax rate structure: Phasing out exemptions which are not equitable vertically (small firms end up
paying more taxes) and also there is a loss of revenue due to large numbers of exemptions.
 Widen tax base: It will help to deal with the problem of potential revenue loss due to lower tax rates and
simplified tax structure.
 Reducing tax litigations: Tendency of tax officials to initiate an action without the necessary justification or
assessment is reflected from low success rate of appeals (~30%).
 Need of Technology infusion: In the tax administration to improve efficiency of tax collection as well as to aid
the taxpayer.

INDIRECT TAXATION

MERITS OF INDIRECT TAXATION:

 Wider Coverage and Broad Based: The effect of Indirect taxes is felt by more or less all the people in the
society. It has to be paid (both by rich and poor) when they purchase tax-imposed commodities.
 Sin Tax/Consumption Control: It can be used as a tool to discourage consumption of undesirable goods. For
example, by Imposing taxes on luxury goods and making them more expensive.
 Convenience: Govt imposes indirect taxes on manufacturers. However, they are finally paid by consumers.
They are convenient in the sense that taxpayers (consumers) pay taxes in small amounts.
 Elastic: It is elastic in nature. Since it has wider coverage, any small increase in tax will bring in large revenue.

INDIRECT TAX ISSUES:

 High tax rate: On automobiles and building & construction material at a time when demand conditions are
compressed has caused further slowdown in these sectors.
 Data privacy: Current Implementation of GST required registration at humongous scale for input-based tax
crediting and creating a common database of registered traders to be managed centrally. This has emerged
as a major challenge to GST’s IT landscape, along with technical glitches.
 List of exclusions: Petroleum products (crude oil & natural gas), diesel, petrol, aviation turbine fuel, potable
alcohol and real estate which contribute 35-40% of indirect tax revenue, are still out of GST’s ambit.
 Complex GST Structure: The World Bank study said that the Indian GST rate was 2nd highest among 115
countries with a national value-added tax.
 Tax Frauds: In absence of viable means of invoice matching, the fake invoice industry has emerged.
 Agriculture: Farmers are required to pay GST on agro-chemicals, fertilizers, safety kits (eyewear, masks and
gloves), drip irrigation systems etc. but don’t receive input tax credit.
 Low GST collection: The full potential of the reforms is still to be unleashed. GST revenues have been falling
short of the target.
 Complex tax compliance: Current four different rates, several exemptions & cesses, separate rate for gold
etc undermine eventual goal of simplifying tax compliance & leads to foregoing efficiency gains.
 Challenge of multiple rate: Such as high cost of auditing the classification of products into tax slabs across
every stage and long standing litigation in case of disputes.

INDIRECT TAXATION: WAY FORWARD

 Eliminating the generation of black money. Tax reform should be seen as part of a larger government agenda
of cleaning up the system so that no black income is generated.
 Expanding the tax base: A larger tax base, achieved through tax reforms, can also allow reduced across-the-
board tax rates, thereby supporting investment, expanding output and enhancing economic growth.
 Supporting investments through a predictable and stable tax policy: We can achieve this by simplifying tax
laws and regulations, and minimizing discretionary powers to the tax authorities provided by the statutes.
 Minimizing tax interface: There is also a need to improve the interface of tax authorities with the taxpayers,
thereby making the process more taxpayer friendly.
 Efficient GST operational system: We need to develop an efficient GST operational system and minimise the
disruption caused by the transition from the current indirect tax regime to the GST.
 Rationalising GST Rate: We should move gradually towards fewer numbers and lower levels of rates. Since
the GST system will expand the tax base, we should be able to lower the tax rates without loss of revenue.
 Rationalisation of custom duty: To the extent feasible without violating our WTO obligations, we should unify
all custom duties at 7%. Entrepreneurs perpetually complain about inverted duty structure.
 Custom clearances: We need to improve procedures for custom clearances. A single-window for customs
clearance (SWIFT) needs to be extended to all partner govt agencies.
 Dispute resolution strategy: As recommended by the Tax Administration Reform Commission (TARC), the
CBDT and CBIC should each create a separate disputes management vertical, which is separate from the tax
collection functions.
 Performance assessment of tax officials: A key factor behind the increased number of tax disputes is the
tendency of tax officials to initiate an action without the necessary justification or assessment. This is
reflected in the low success rate of 30% they have in tax appeals filed by taxpayers across different courts.

GOVT. INITIATIVE IN INDIRECT TAXATION:

 GST introduction: It was introduced on July 1, 2017 (by 101st Constitutional amendment) as the biggest
indirect tax reform by subsuming around 17 indirect taxes like excise duty, VAT, service tax, luxury tax etc.
 Turant Customs: Central Board of Indirect Taxes and Customs has rolled out faceless assessment of
consignments under the initiative ‘Turant Customs’.
 Administrative Reforms: Based on the recommendations of the Tax Administration Reforms Commission
under Parthasarathy Shome, a Tax Policy Research Unit headed by the Revenue Secretary has been for better
research capability on fiscal topics and a Tax Policy.

Goods and Service Tax (GST)

 Comprehensive tax: It is meant to be a single, comprehensive tax that will subsume all the other smaller
indirect taxes on consumption like service tax, etc
 Single tax: It is a single tax on the supply of goods and services, right from the manufacturer to the end
consumer.
 Destination-based: GST is a destination-based indirect tax and is levied at the final consumption point.
 Subsumed Tax: Under GST, 17 indirect taxes like excise duty, VAT, service tax, luxury tax etc are subsumed.
 Taxes not subsumed under GST: Basic Custom Duty, Anti-Dumping Duty, Central Excise on Petroleum
Products, VAT on alcohol for human consumption, Stamp Duty, Property Tax (levied by local bodies),
Professional Tax etc.
 Coverage: GST is currently levied on every product [except petroleum products, alcohol, real estate &
electricity] in four slabs of 5, 12, 18 and 28% along with cess & surcharge, if applicable.

CURRENT TREND IN GST COLLECTION:

 As per the economic survey 2021-2022: With the revival of the economy, the Goods and Services Tax has
emerged as a buoyant source of revenue for both the Centre and the States.
 The GST collections for the Centre were 61.4 per cent of BE during April to November 2021.
 Gross GST collections, Centre and States taken together, were `10.74 lakh crore during April to December
2021, which is an increase of 61.5 per cent over April to December 2020 and 33.7 per cent over April to
December 2019.

NEED OF GST REGIME:

 Poor compliance rate: It leads us to less revenue realisation due to tax avoidance, lack of technical
intervention and dismal database management.
 Taxation Problem: Lack of quantifiable and verifiable taxation data pertaining to poor integration and
database management.
 Use of technology: Lack of use of technology resulted in poor assessment and compliance rate. More
vulnerable to frauds, fake claims etc.
 Lack of cooperative federalism: In fiscal regime, envisaged in GST in terms of GST Council.
 Interface in taxation system: High human interface in taxation system lead into the situation of harassment,
license and inspector raj and high level of corruption.
 Lack of uniformity: In returns, refunds, registrations and procedures for registration of taxpayers, Uncertainty
in the system of classification of goods and services, refunds and taxation rates.
 Multiplicity of taxes: Which results in confusion and complexity. This also increases operational and
compliance costs.
 Fragmentation of tax market: Lack of single market and single tax hinders ease of doing business in india.
 Cascading effect: Pre-GST indirect taxation system had a cascading effect → results in multiple layers of
taxation, inflation and economic inequality.

GST BENEFITS:
 Good coverage: GST covers both goods and services, with standard rates, minimal number of
cess/surcharges.
 Low interface: GST online portal and e-way bill system reduces the interface between tax-officials and the
assesses, thereby reducing the scope of harassment, bribery and Inspector Raj.
 Ease of doing: Improving the Ease of doing business and business environment overall.
 Input credits: GST provides input credits to suppliers thereby incentivizing them to sell with invoice at every
stage. Thus, GST will expand our tax base and improve tax collection, and deter tax evasion. GST Input credit
system reduces the cascading effect of taxes.
 Increase in revenue: Federal nations such as Canada and Australia shifted from VAT to GST regime. It helped
boost their revenue, GDP and exports. Thus, GST will help to create a unified common national market for
India, catalyse “Make in India”.
 Reducing old tax problem: State government charged VAT on sale of goods, but VAT rates were not uniform
throughout India. Old system provided scope for ‘rate arbitrage’ (buying from another state for profiteering,
even if the same item was available in the home state).
 Uniformity: SGST/UTGST rates are uniform throughout India, so there is no scope of rate arbitrage. Whether
you buy a laptop from Chennai or Mumbai the GST% tax rate will be the same.

SUCCESS:
 Tax Compliance: GST has been successful in increasing compliance among small traders through the
Composition Scheme.
 Self-policing mechanism: GST helps to check tax evasion and expand the tax net.
 Seamless flow of input tax credit: It is made possible when all the suppliers of a business pay GST on the
GSTN network. So each business will make sure that its suppliers have paid the GST, so that they can take
input tax credit.
 Cascading of taxes: Introduction of GST has significantly reduced cascading of taxes through better ITC and
inclusion of taxes like central sales tax, octroi, purchase taxes & luxury taxes etc.
 Revenue Base: GST has helped the Government to expand the revenue base by about 85% in the past two
years from 65 lakhs to 1.2 crore.
 Technology: For all front-end services (registration, payments etc.) and backend IT modules (processing of
returns, audits, assessments, appeals) reduces interface between tax collector and taxpayer, thereby
reducing corruption, generates quality quantifiable data to enable better policy making, improves GDP
estimation, encourages compliance gain due to linkage & exchange of information between income-tax &
GST departments.
 GST Council: GST council has emerged as a successful example of cooperative federalism and its functioning
has been free from political predilections.
 Revenue Collections and Buoyancy: Relative buoyancy of GST revenue compared to pre-GST period is a result
integrated the entire value chain from raw material to retail.
 Rationalization of taxes type: Currently, around 97.5% articles are covered by 18% or lower GST slab, a
significant reduction from tax rates under VAT regime where standard VAT rate was 14.5% along-with excise
duty at 12.5%
 Re-engineering of supply chain: GST has presented an opportunity to reduce physical supply chain costs.
 Consolidation of storage points: Lead to the reduction in the number of inefficient nodes (e.g. opening
branch offices merely to avoid inter-state sales tax) in supply chains has helped such companies to reduce
their distribution costs.
 E-Way Bills: It marks a shift from departmental policing model to self-declaration model for movement of
goods, enabling hassle free inter-state movement of goods by eliminating the requirement of separate transit
pass for each state.

CHALLENGES:
 Digital infrastructure and data privacy: Implementation of GST required registration at humongous scale for
input-based tax crediting and creating a common database of registered traders to be managed centrally. This
has emerged as a major challenge to GST’s IT landscape, along with technical glitches.
 Input tax credit: Matching concept for claiming input tax credit not implemented and matching concept
requires a buyer to reconcile his tax payments with the tax collected, deposited that creates a mismatch
problem. Any incorrect or unmatched transactions filed by supplier leads to denial of credit to the buyer.
 Refund problem for exports: Exporters are facing acute crunch of working capital due to issues such as delays
in refund of Integrated Goods and Services Tax (IGST) on export.
 Complex GST Structure: World Bank study said that the Indian GST rate was 2nd highest among 115 countries
with a national value-added tax.
 Multiple tax slabs: Four different rates, several exemptions & cesses, separate rate for gold etc undermine
eventual goal of simplifying tax compliance & leads to foregoing efficiency gains.
 High tax rates: On automobiles and building & construction material at a time when demand conditions are
compressed has caused further slowdown in these sectors.
 Agriculture: Farmers are required to pay GST on agro-chemicals, fertilizers, safety kits (eyewear, masks and
gloves), drip irrigation systems etc. but don’t receive input tax credit.
 GST Dues: Several states had written to the finance minister regarding delays in payment of GST due by the
centre.
 Tax Frauds: In absence of viable means of invoice matching, the fake invoice industry has emerged. So far,
9,385 cases of tax fraud by this means have been detected involving an amount of ₹45,682 cr.
o To curb tax evasion by way of fake invoicing, the Central Board of Indirect Taxes and Customs (CBIC)
had recently made it mandatory for businesses with monthly turnover of more than ₹50 lakhs to
pay at least 1% of their GST liability in cash.
 Room for simplification and rationalization: GST revenues have been falling short of the target. Budget
Estimate for 2018-19 for the Central government was ₹7.43 lakhs —the actual collection was 22% lower at
₹5.81 lakhs cr. Hence, there is a need for further simplification and rationalization.
 List of exclusions: Petroleum products (crude oil & natural gas), diesel, petrol, aviation turbine fuel, potable
alcohol and real estate, which contribute 35-40% of indirect tax revenue, are still out of GST’s ambit.

WAY FORWARD:
 Greater coordination: Between the Central Board for Direct Taxes (CBDT) and Central Board for Indirect Taxes
& Customs (CBIC) could yield better results. IT Department has already incorporated GST registration and
turnover information in their return formats.
 Stabilise the system: GST started on a positive note and the benefits for all stakeholders are evident. It is now
time for the Government to stabilise the system, remove uncertainty, facilitate compliance by easing
processes and expand the tax base to make the GST a real success
 A single authority: For sanctioning and processing GST refunds has been proposed to simplify the procedure
for exporters. Under the proposed reform, a single tax office will assess, check and sanction refunds of both
centre and state GST portions.
 Increasing tax base: The GST taxable base must include petroleum products, especially aviation turbine fuel
and natural gas, real estate and electricity. Inclusion of real estate will clean up the land market and will lead
to revenue gains on the direct tax side as well as more transactions will be reported.
 Modal rate: Although indirect taxes tend to be regressive in nature, a low standard or modal rate with a small
list of exemptions is the ideal GST structure that the Government should try to achieve. Loss of revenue would
be compensated by higher demand and better compliance.
 Revenue performance of Composition Scheme: It needs to be improved by ensuring better compliance
among small traders. Single format annual return - Introduction of new GST single format annual return form
and matching of invoices is expected to substantially improve compliance.
 GST Council: They must be assisted by a strong technical secretariat comprising administrators, economists,
accountants and lawyers etc.
o At present, the GST Council relies on the analysis done by the “fitment committee", which consists of
the nominated officials of the Tax Research Unit in Central Board of Indirect Taxes and Customs
(CBIC), and officials of the commercial taxes department from some states.

GST TUSSLE: C HALLENGES FOR FISCAL FEDERALISM

 As per the estimates the GST Compensation Fund was projected to face a shortfall of about ₹2.35 lakhs crore
at the end of the current financial year.

KEY DIMENSION OF GST TUSSLE:

 Financial Federalism: The tussle between the Centre and states over the GST compensation is the biggest
tension point in the federal system
 GST Compensation for the State’s: The states are demanding full compensation from the Centre, but the
Union government is asking the states to bridge the gap through market borrowing.
 Cut in Compensation: It is the biggest cause of tension in the federal system because there are states who
will never agree to any cut in compensation. Most of the state’s already rejected the Centre’s proposals to
bridge the revenue gap through market borrowing.
 Yearly Rise: The Centre is supposed to provide compensation to the states for loss of revenue arising from
the implementation of the GST, along with a 14% annual rise, until 2022.
 Act of God: In a letter to the states the Union government had reneged on compensating the states for GST
shortfalls, claiming covid-19 being an ‘Act of God’ has squeezed options.
 Moral Vs. Legal Obligation: Previously The attorney general said that the government has no legal obligation
to pay full GST compensation to states. But the state government is demanding that the Center government
is morally bound to pay the full compensation.

IMPACT:
 Macroeconomic Constraint: it is clear the GOI continues to see the dispute as a revenue-sharing problem
between the Centre and the states, rather than as the macroeconomic constraint on India’s growth.
 Increase burden of tax: The goods and services that bear an additional layer of tax in the form of a
compensation cess will have to bear that burden for many years beyond 2022, when it was supposed to be
lifted.
 Crumpling the revenues of state’s: The states collectively outspend the Centre by almost 10 percentage
points of GDP in a normal year. Crimping their revenues is guaranteed to deprive the economy of a vital
component of demand, and dampen growth.
 Impediment in the Economic Recovery: At a time when the private sector is hard-pressed to survive, it is
government expenditure that has to do the heavy lifting when it comes to economic recovery. But tussle for
the GST will cost on the Economic recovery front of India.

WAY FORWARD:
 Cess fund: Full compensation must be given and the cost of that compensation must be met from the cess
fund
 Conciliatory approach: The Union Government of India needs to take a conciliatory approach toward solving
GST tussle. It will be beneficial if problems get sort of outside the judiciary. Beginning with the accepting the
moral obligation for GST compensation to the state’s.
 Reducing the compensation: It is time for states to accept the realities and agree to a lower level of
compensation, ideally linked to the growth rate of the Indian economy in nominal terms.
 Need to accept current realities: States government can’t turn blind sight to the aftermath of the pandemic
and reduction in overall GST revenue due to it.

CONCLUSION:
 The tussle between the Centre and the states over how to compensate the states for GST revenue shortfalls
deprives the economy of this vital source of growth. That is bad policy, quite distinct from the failure to meet
a statutory promise, repeated on the floor of Parliament by the Central Government. They need to reassure
states on their fiscal security on transiting to GST, Which would mean for federal relations.

Tax evasion
 This is where an entity wilfully does not pay taxes that are due to the government.

REASONS:
 High rate of taxation: High rate of taxation causes a burden to taxpayers. So, they find ways to avoid tax.
 Failure to curb bribery: There should be an adequate system to curb bribery and corruption among officials.
They help taxpayers to avoid tax by taking an agreed share of profit out of evaded tax.
 Lack of simplified procedures: Tax structure in India is complex and people find it hard to go to different
departments for a single matter.
 Existence of large numbers of taxes: Existence of large numbers of different type of taxes causes burden on
taxpayers.
 Complex tax laws and loopholes to avoid tax in laws: Indian tax law is complex. In the same law, people find
provisions to escape from tax liability.
 Frequent changes in Government and Political instability: Frequent changes and political instability is
another reason for non-implementation of a well-defined tax system. Different governments implement
different tax systems and it becomes difficult to follow.
 Frequent changes in tax policies: Tax policies in India are changed frequently by the government. It creates
confusion among taxpayers and officials about the relevant provisions.
 Deficiencies in implementing Penalty Provisions: it leads to lax behaviour in the taxpayer which further
deteriorates the situation.

INITIATIVES OF GOVT:
 PMLA- 2002: This act provides a mechanism for preventing money laundering and cases are heard at PMLA
Adjudicating Authority and High Court.
o It also empowers the RBI, SEBI, IRDAI and other regulators to make norms for Banks/NBFCs & punish
the errant parties.
 Benami Transactions Prohibition Act (BTPA- 1988/2016): Benami refers to properties that buyer registers in
the name of his relative, personal staff (Driver, Gardner) or a non-existent/ fictitious person to avoid tax
authorities’ attention.
 Tax (Evasion) disclosure schemes: Under such amnesty schemes, a tax-evader can declare his undisclosed
income, pay the taxes and penalty. Income Tax Department will not pursue a case against him.
 Income Declaration Scheme (IDS): Offer was 45% (30% tax + 7.5% surcharge + 7.5% penalty). of the
undisclosed income shall be taken away by the government.
 Pradhan Mantri Garib Kalyan Yojana (PMGKY): Launched after Demonetization Validity - Dec 2016 To April
2017. Around 50% of the undisclosed income shall be taken away by Govt. as Tax + Penalty + Pradhan Mantri
Garib Kalyan Cess. The scheme was not so successful, hardly around INR 5000 cr. declared.
 Sabka Vishwas Scheme (Legacy Dispute Resolution) in budget-2019: Above ₹ 3.75 lakhs crore tax revenue is
locked in the service tax and excise duty related cases.
 SC’s SIT on Black Money 2014: Chairman: Retd. SC Justice M. B. Shah, and senior tax officials. They
recommended various measures against Black Money hidden in India, in overseas banks, P-Notes etc.
 Operation Clean Money 2017: Income Tax Dept. verified large bank deposits made in the aftermath of
demonetization.
 Project Insight 2017: Income Tax Dept. hired L&T Infotech Ltd. to develop an integrated platform for data
mining & tracking tax evaders.

TAX-AVOIDANCE

Meaning: People will not hide the transaction, they will declare transactions in their official records, but will use
legal loopholes to avoid paying taxes.

DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) & ROUND TRIPPING:

 Meaning: It is a tax treaty signed between two or more countries.
 Objective: A taxpayer resides in one country and earns income in another, then he need not pay (direct) tax
twice in two countries for the same income.
 Taxation avoidance: E.g. India Mauritius DTAA (1982): If a Mauritius person/ company buys shares in India
and sells them at profit, then he need not pay Capital Gains Tax (CGT) in India. Only the Mauritius government
can ask CGT from him and vice-versa.
 Loophole: India has around 10-20% CGT whereas Mauritius has around 0-3%. So many Indian Politicians,
Businessmen and Bollywood actors would transfer the money using Hawala to their shell companies in
Mauritius, and then make those Mauritius shell companies invest back in Indian assets & avoid paying Indian
CGT.
 Round Tripping: Money that leaves the country through various channels and makes its way back into the
country as foreign investment. Similar loophole in India Singapore DTAA. In 2016, the government amended
the treaties, even Mauritius and Singapore investments in India will be subjected to Indian taxes.

BASE EROSION & PROFIT SHIFTING (BEPS):

 Meaning: When MNCs shift profit from its source country to a tax-haven to avoid/ reduce paying taxes, it's
known as “BEPS”.
 2019-July: India ratified the OECD’s joint Multilateral Convention to Implement Tax Treaty Related Measures
to Prevent BEPS (commonly referred to as MLI) Multinational Company (MNC).

TRANSFER PRICING:
 Meaning: Transfer pricing happens whenever two subsidiary companies that are part of the same
multinational group, trade with each other.
o For this purpose, Authority for Advance Rulings (and their Appellate bodies) have been set up under
the Income Tax Act, Customs Act and even GST Act.
 Advance Pricing Agreement (APA): For instance, any company or corporation approached AAR and an
agreement was signed between taxpayer and a tax authority that “Transfer price of ₹ y is agreeable to both
of us, and will not attract any notices / raids / litigations afterwards.”

PLACE OF EFFECTIVE MANAGEMENT (POEM):

 Sufficient economic activity: A PoEM is aimed at ensuring that sufficient economic activity takes place in a
particular country and determining a foreign company’s residential status
 Setting up shell subsidiaries: It also helps to assess if companies are setting up shell subsidiaries abroad to
evade taxes.
 Mean a place: It has been defined to mean a place where key management and commercial decisions that
are necessary for the conduct of the business of an entity as a whole are, in substance, made.
 Guidelines: PoEM guidelines in India became applicable from FY16-17.
 The shift to PoEM: It Signifies a shift from an objective criterion for tax residence to subjective criteria.
 Budget 2015: Introduced the concept of POEM.
GLOBAL MINIMUM Corporate TAX
 Corporation tax: It is a direct tax imposed on the net income or profit that enterprises make from their
businesses.
 Applicability: It would apply to companies’ overseas profits. Therefore, if countries agree on a global
minimum, governments could still set whatever local corporate tax rate they want.
 Least 15% rate: G7 would back a GMCTR of at least 15%, and put in place measures to ensure taxes were paid
in the countries where businesses operate.
 Avoiding double taxation: If companies pay lower rates in a particular country, their home governments
could “top-up” their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax
haven.

Why NEEDED:
 Huge Tax loss: India’s annual tax loss due to corporate tax abuse is estimated at over USD 10 billion.
 Reducing Tax Loss: Income from intangible sources such as drug patents, software and royalties on
intellectual property has migrated to low tax jurisdictions (tax base erosion of the higher-tax jurisdictions).
 Loophole in current system: These companies typically rely on complex webs of subsidiaries to hover profits
out of major markets into low-tax countries such as Ireland or Caribbean nations, panama etc.
 Uniformity: GMCR will end a decades-long “race to the bottom” in which countries have competed to attract
corporate giants with ultra-low tax rates and exemptions. And it will bring uniformity in corporate taxation
worldwide.

CHALLENGES:
 Lower tax rate: It is a tool they can use to alternatively push economic activity. Also, a global minimum tax
rate will do little to tackle tax evasion.
 Uniting Nations: Getting all major nations on the same page is a problem, since the GMCTR impinges on the
right of the sovereign to decide a nation’s tax policy.
 Policy Issues: A global minimum rate would essentially take away a tool that countries use to push policies
that suit them.

INDIA’S STAND:
 Steps in the same direction: In September 2019, the government had reduced the corporate tax rate to 22%
for companies that gave up all exemptions and incentives. Further, a 15% rate was offered to new
manufacturing firms. The effective tax rate, inclusive of surcharge and cess, for Indian domestic companies is
around 25.17%.
 Positive interpretation: India is likely to benefit from the global minimum 15% corporate tax rate pact as the
effective domestic tax rate is above the threshold, and the country would continue to attract investment.
 Open to discussion: While taxation is ultimately a sovereign function, and depends upon the needs and
circumstances of the nation, the government is open to participate and engage in the emerging discussions
globally around the corporate tax structure.

Proposed Two Pillar Solution: The global minimum tax rate would apply to overseas profits of multinational firms
with $868 million in sales
 PILLAR 1 (MINIMUM TAX AND SUBJECT TO TAX RULES):
o Governments could still set whatever local corporate tax rate they want, but if companies pay
lower rates in a particular country, their home governments could “top up” their taxes to the 15%
minimum, eliminating the advantage of shifting profits.
 PILLAR 2 (REALLOCATION OF AN ADDITIONAL SHARE OF PROFIT TO THE MARKET JURISDICTIONS):
o Allows countries where revenues are earned to tax 25% of the largest multinationals’ so-called
excess profit – defined as profit over 10% of revenue.
 The agreement calls for countries to bring it into law in 2022 so that it can take effect by 2023.
 The countries that have created national digital services taxes (like equalization levy Indian government)
will have to repeal them.
WAY FORWARD
 Making further discussion: Much still needs to be ironed out, including the metrics that will determine how
and to which multinational companies the tax will be applied.
 Scope of increased coordination: There should be appropriate coordination between the application of the
new international tax rules including the Digital Services Taxes. Any final agreement could have major
repercussions for low-tax countries and tax havens.
 Getting support from various countries: A G20 meeting scheduled for Venice in July 2021 will see
whether the G7 accord gets broad support from the world's biggest developed and developing countries.

GENERAL ANTI-AVOIDANCE RULE (GAAR):

 Avoid tax payment: Indians and foreigners avoid tax payment in India through loopholes like DTAA, POEM,
BEPS, Transfer Pricing etc.
 Parthasarathi Shome panel: Then UPA Govt setup economist Partha sarathi Shome panel who suggested
GAAR, they were incorporated in Income Tax Act in 2012.
 Empowerment: GAAR empowers Income Tax officials to send notices to both Indians and foreigners for
suspected Tax Avoidance. For Tax evasion, we have separate laws- PMLA, UFIA, BTPA.
 Issues with GAAR: Critics alleged GAAR will result in tax terrorism, harassment, no ease of doing business. So
successive Budgets kept delaying the GAAR implementation. Finally done on 1st April 2017.
Taxation on Virtual Digital Assets
In news: The government has prepared for a particular tax framework on taxation of virtual digital assets in
Budget 2022-23, in response to the remarkable surge in transactions in virtual digital assets.
Status of Cryptocurrency in India
 The Subhash Chandra Garg Committee (2019) recommended a ban on private cryptocurrencies on
account of concerns such as volatility, instability, security risk and risk of funding illegal activities.
 The Government has sought to introduce the Cryptocurrency and Regulation of Official Digital Currency
Bill, 2021.
o This bill seeks to (a) Ban all the private cryptocurrencies (b) Issue official digital currency to be
issued by RBI.
The term "virtual digital assets" is defined as follows under Section 2 of the Income Tax Act, clause 47A:
o any information, code, number, or token (not being Indian currency or foreign currency), generated
through cryptographic means or otherwise, by whatever name called, providing a digital representation
of value exchanged with or without consideration, with the promise or representation of having inherent
value, or functions as a store of value or a unit of account, including but not limited to investment
schemes; and
o Any other digital asset may be included or excluded from the definition of virtual digital asset by the
Central Government by publication in the Official Gazette.
under Section 115BBH of the Income Tax Act, any income from transfer of any virtual digital asset shall be taxed
at the rate of 30%.
o 1% TDS (Tax Deducted at Source) will be deducted under Section 194S on payment made above a
monetary threshold in relation to transfer of virtual digital assets.
Significance of taxing virtual digital assets
 Owing to the high volatility and risky nature of income, people will be discouraged from investing due
to high tax rates and the inability to balance losses against other sources of income.
 Regulation of Digital Assets: It will pave the road for virtual digital assets to be classified as a distinct
asset class. Giving virtual assets as an example.
 Because definitions are dynamic, the government can include or reject new virtual digital assets as
needed.
 Taxes will aid in the development of more revenues, lowering the fiscal deficit, and giving funding for a
country's overall economic growth.
TAX TERRORISM AND HARRASSMENT
 Meaning: Tax Terrorism' essentially means undue exercise of power by tax authorities to levy taxes using
legal or extra-legal means, high handedness.
o The IT Act allows CBDT to send notices just based on suspicion that one has under-reported his
income or miscalculated taxes.
 The issue of tax terrorism in India may be classified in different aspects such as: Retrospective legislation;
Judicial Indiscipline; Not following binding law; Mindless Appeals, Revisions and Reopening of cases; Coercive
action during Search and Survey; Defiance of law in favour of the Assessee.

TAXATION: DEVELOPMENTS in recent times

Lottery, Gambling, Betting Taxable under GST Act: SC
 In news: Recently Supreme Court of India give verdict that Lottery, gambling, betting is taxable under GST
Act
 In a significant verdict, the Supreme Court held that the levy of GST on lotteries, betting and gambling does
not amount to hostile discrimination and is not violative of right to equality under the Constitution. It also
upholds the validity of the provisions under the Central GST Act, 2017 empowering authorities to tax.

KEY DIMENSION:
 Within the ambit of GST: The court held that lottery, betting and gambling are actionable claims. It comes
within the definition of ‘goods’ under Section 2(52) of the Central Goods and Services Tax Act, 2017.
 Hostile discrimination: A three-judge Bench led by Justice Ashok Bhushan said the levy of GST on lotteries
does not amount to hostile discrimination.
 Good in Actionable claim: When Act, 2017 defined the goods to include actionable claims and included only
three categories of actionable claims, i.e., lottery, betting and gambling, for purposes of levy of GST.
 Rational decision to include in Actionable Claim: The Court has ruled that there was rationale for the
Parliament in including these three actionable claims for tax purposes, and leaving others.
 Past Regulation and Taxation: The court ruled that State regulation, including taxation in one or other form,
on lottery, betting and gambling, has been in existence for decades.
 Parliament’s Power on inclusive definition: Ruling also clarified that Parliament had an absolute power to go
for an inclusive definition of the term “goods to include actionable claims” like lottery, gambling and betting.
 Governments stand: The central government’s put a stand that the Parliament has the competence to levy
GST on lotteries under Article 246A of the Constitution. Article 246A which special power has to be liberally
construed empowering the Parliament to make laws with respect to GST.

CONCLUSION:
 Gambling has always been a part of the Indian culture especially that this country is a big fan of sports like
cricket. Sports betting is something that is practiced throughout the country. After the cheap internet data
boom like other online and offline gambling and lottery businesses had also shown good progress. SC decision
to tax is welcome decision which will help in tax accumulation and level playing field.

Equalization Levy for Non-Resident E-Commerce Firms

 In news: Recently Government of india rules out FAQ on equalisation levy on non-resident e-commerce firms.
 The 2% equalisation levy was introduced in the 2020-21 Budget and came into effect from April 1. The tax
would be levied on consideration received by e-commerce operators from online supply of goods or services.

ABOUT EQUALISATION LEVY:

 Equalisation Levy was introduced in 2016, it aimed at taxing business to business transactions. The levy was
applied at a rate of 6% on certain specified services such as online advertisement and any provision for digital
advertising.
 The finance act 2020 amended the finance act 2016, introducing a new equalisation levy@2%. Finance Bill
2020 proposes to expand the scope of the “Equalisation Levy” to include the consideration received by e-
commerce operators from e-commerce supply or services to be taxed at a rate of 2%.
 A new section 165A was added in addition to the existing section. This levy has an effective date of 1 April
2020.
 The amendment is applicable at the rate of 2% on the amount of consideration towards e-commerce supply
and services made or provided by an e-commerce operator to following person:
o A person resident in India
o A non-resident
o A person who buys goods or services using an IP address located in India
 E-commerce operator: It has been defined as a non-resident that owns, operates, or manages a digital or
electronic facility or platform for online sale of goods or the online provision of services.

INCLUDING:
 Online sale of goods owned by the e-commerce operator
 Online provision of services provided by the e-commerce operator
 Online sale of goods or provision of goods facilitated by the e-commerce operator

CONCLUSION:
 This Equalisation levy imposed by the government will have a major impact on non-residents supplying goods
and services via digital means. The definition of the term E-commerce supply and service is wide in nature
as the compliance burden is on the non-resident e-commerce operator which could lead to potential issues
on compliance with added costs.

Indian Digital Tax Discriminatory: USTR

 In news: Recent report of the Office of the United States Trade Representative states (USTR) that India’s
Digital Services Tax (DST) is discriminatory in nature.

INDIA’S DIGITAL SERVICES TAX (DST):

 India had adopted the operative form of its Digital Services Tax or DST on March 27, 2020.
 The DST imposes a 2% tax on revenue generated from a broad range of digital services offered in India.
 That includes digital platform services, digital content sales, digital sales of a company’s own goods, data-
related services, software-as-a-service, and several other categories of digital services.
 India’s DST only applies to “non-resident” companies which applied from April 1, 2020.

KEY DIMENSION FROM THE USTR REPORT:

 Impact on American commerce: The U.S. has determined that India’s Digital Services Tax is discriminatory
and has an adverse impact on American commerce and is actionable under the trade act.
 Double taxation: In the report, the USTR describes DST as “an outlier” which burdens U.S. companies by
subjecting them to double taxation.
 Discriminatory criteria: The USTR in the federal register stated that DST, by its structure and operation,
discriminates against U.S. digital companies.
o Due to the selection of covered services and its applicability only to non-resident companies.
o it also alleged that the U.S. non-resident providers of digital services are taxed, while Indian providers are
not.
 Permanent establishment in India: The DST taxes companies with no permanent establishment in India,
contravening the tax principle that companies should not be subject to a country’s corporate tax regime
absent a territorial connection to that country.
 Principles of international taxation: The USTR alleged that DST is unreasonable because it is inconsistent with
principles of international taxation, including due to its application to revenue rather than income,
extraterritorial application, and failure to provide tax certainty.

INDIA’S RESPONSE:
 No extra-territorial application: The India establishment has stated that the DST does not have extra-
territorial application as it applies only on the revenue generated from the country. The 2% equalisation levy
does not discriminate against U.S. companies as it applies equally to all non-resident e-commerce operators.
 Retrospective element: In a statement the Govt has stated that there is no retrospective element as the levy
was enacted before the first day of April, 2020, which is the effective date of the levy.

WAY FORWARD:
 Clarity in Provision: DST provision creates uncertainty for companies regarding key aspects of it, including the
scope of taxable services and the universe of firms liable to pay the tax, India needs to provide clarity on tax
provision which will help in tax compliance.

CONCLUSION:
 The Government of India is examining the decision notified by the U.S. for appropriate action keeping in view
the overall interest of the nation. Indian establishment has to tax the foreign MNC to create balanced
competition in india. Which will also help to neutralize the cheap credit availability and Traditional expertise
in the technology sector. That will definitely give breathing space to Indian digital companies.

RETROSPECTIVE TAXATION
In the News? Recently, parliament enacted the Taxation Laws (Amendment) Act, 2021 to amend the Income-tax
(IT) Act, 1961 and the Finance Act, 2012, scrapping the 2012 retrospective tax law.

Retrospective Taxation
 It is a ‘backward looking’ tax, used by nations to remove taxation anomalies through new or additional charge
on past transactions to overcome the misuse of legal loopholes by companies.
 It allows a country to pass a rule on taxing certain products, items or services and deals and charge companies
from a time behind the date on which the law is passed.
 The retrospective tax law was passed in 2012 following a Supreme Court verdict in favour of US-based
Vodafone.
 The Dutch arm of Vodafone Group bought a Cayman Islands-based company in 2007, which indirectly held a
majority stake in Indian firm Hutchison Essar Ltd—later renamed Vodafone India—for $11 billion.

Proposed Changes in Bill:

 Amendments to the Income-tax Act and Finance Act, 2012 to effectively state that no tax demand shall be
raised for any indirect transfer of Indian assets if the transaction was undertaken before 28th May 2012.
 Tax raised for the indirect transfer of Indian assets before May 2012 would be "nullified on fulfillment of
specified conditions" such as the withdrawal of pending litigation and an undertaking that no damages claims
would be filed.
 It also proposes to refund the amount paid by companies facing trail in these cases without interest thereon.

Significance of the Bill:

 Better tax clarity: The bill marks a step
in the direction of addressing the long-
pending demand of foreign investors
seeking the removal of retrospective
tax for the sake of better tax clarity.
 investment-friendly business
environment: This would help in
establishing an investment-friendly
business environment, which can
increase economic activity and help
raise more revenue over time for the
government.
 This could help restore India’s reputation and improve ease of doing business.
 The amendment while maintaining the “sovereign right to taxation”, also provides a reasonable opportunity
to companies to resolve the issue.
 It is a welcome move for foreign investors, and it will directly result in attracting more foreign investments.
 Quick recovery of the economy is the need of the hour. In this direction, foreign investment would play an
important role in promoting faster economic growth and employment
 It is in line with the government’s commitment to creating a non-adversarial tax environment.
 The move is expected to end litigation with 17 companies, including Vodafone and Cairn, apart from
addressing criticism about uncertainty
 The amendment also balances two different objectives.
o One, the policy of the government to have a predictable tax regime.
o Two, India’s concern towards the adjudication of Indian tax law happening through foreign
tribunals.
o This is an attempt to find a solution through the sovereign means of Indian law and not through
arbitration
Conclusion
An investment-friendly business environment is the need of the hour to boost the economy post pandemic.
Bureaucrats need to continuously keep themselves updated about possibilities and learn from international
practices to avoid such tax avoidances.

BANKING, INSURANCE AND FINANCE IN INDIA

Banking sector

"The banks are the lifelines of the economy and play a catalytic role in activating and sustaining economic
growth, especially, in developing countries and India is no exception," S S Mundra, Deputy governor of the
RBI.

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56
regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to
cooperative credit institutions As of September 2021.

CHALLENGES IN THE BANKING SECTOR:

 Poor asset quality: These are loans which are not repaid back by the borrower and prone to become Bad
loans or NPA. According to IMF report, 36.9% of the total debt in India is at risk.
 Poor Capital Adequacy: The Capital Adequacy Ratio measures how much capital a bank has. When this falls,
the bank has to borrow money or use depositors' money to lend. This money, however, is riskier and costlier
than the bank's own capital.
 Unhedged forex exposure: The wild gyrations in the forex market have the potential to inflict significant
stress in the books of Indian companies who have heavily borrowed abroad. This stress can affect their ability
to pay back debt to Indian banks.
 Employee and technology: Public sector banks especially government-owned banks have yet to embrace
technology to offer better products and services.
 Balance Sheet management: many banks have tried to delay setting aside money as provisions and tried to
restructure loans off-record. This is even more problematic considering the poor capital adequacy in Indian
banks.
 Not enough Rural Branches: Most of the rural branches are running at a loss because of high overheads and
prevalence of the barter system in most parts of rural India.
 Bureaucratisation: The smooth functioning of banks has been hampered by red-tapism, long delays, lack of
initiative and failure to take quick decisions.
 Political Pressures: Such pressures are created in the selection of personnel and grant of loans to particular
parties without considering their creditworthiness.

WAY FORWARD:
 Advancement in technology: The banking sector is laying greater emphasis on providing improved services
to their clients and upgrading their technology infrastructure to enhance customer’s overall experience as
well as give banks a competitive edge.
o RBI Governor has recently inaugurated Reserve Bank Innovation Hub (RBIH) in Bengaluru.
o Its mandate is to promote innovation across the financial sector by leveraging technology and
creating an environment which would facilitate and foster innovation.
 Improvement in systems and procedures: Refining the systems and procedures may help banks economise
their risk-weighted assets, which will help reduce capital requirements to some extent.
 Financial inclusion: To bridge the gap between rich and poor, the poor people of the country should be given
proper attention to improve their economic condition. RBI has initiated several measures to achieve greater
financial inclusion, such as facilitating no-frills accounts and GCCs for small deposits and credit.
 Big Banks: The Narasimham Committee Report (1991), emphasised that India should have three or four large
commercial banks, with domestic and international presence, along with foreign banks.
 Need for Differentiated Banks: Though the universal banking model has been widely preferred, there is a
need for niche banking to cater to the specific and varied requirements of different customers and borrowers.
 Revolution of Information Technology: Effective use of technology has become critical for managing the risks
associated with the banks.
o Neo-Banks bridge the gap between the services that traditional banks offer and the evolving
expectations of customers in the digital age. They are changing the face of fintech and could one day
eclipse traditional banks.
 Blockchain Banking: Risk management can be more specific and the neo-banks can leverage the technology
to further (digital) financial inclusion and finance higher growth of aspirational/new India.
 Mitigating Moral Hazard: Fifth generation banking reforms should focus on the need for higher individual
deposit insurance and effective orderly resolution regimes to mitigate moral hazard and systemic risks with
least cost to the public exchequer.
 ESG Framework: Differentiated Banks also may be encouraged to get listed on a recognised stock exchange
and adhere to ESG (Environment, Social Responsibility, and Governance) framework to create value for their
stakeholders in the long run.
 Empowering Banks: The government should tighten the loose ends by allowing them to build diversified loan
portfolios, establishing sector-wise regulators, bestowing more powers to deal effectively with wilful
defaulters.
 Improving governance and bringing transparency: Banks Board Bureau providing assistance to Public Sector
Banks to restructure their business strategies.
o Assisting banks with the strategies to deal with issues of bad loans or stressed assets.

CONCLUSION:
 The present scenario calls for a paradigm shift and there has to be a multidimensional approach through
which existing digital platforms, infrastructure, human resources, and policy frameworks are strengthened
and new technological innovations are promoted to improve its resilience and maintain financial stability.

Privatization of Banks
 The Union Budget 2021 has announced the privatisation of two Public Sector Banks (PSBs) and one general
insurance company in the upcoming fiscal 2021-22.
 History: The government decided to nationalise the 14 largest private banks in 1969. The idea was to align
the banking sector with the socialistic approach of the then government. SBI had been nationalised in 1955
itself, and the insurance sector in 1956.
 The current steps of privatisation, along with setting up an Asset Reconstruction Company (Bad Bank)
entirely owned by banks, underline an “approach of finding market-led solutions” to challenges in the
financial sector.

REASON FOR PRIVATISATION:

 Degrading Financial Position of Public Sector Banks: Years of capital injections and governance reforms have
not been able to improve the financial position of public sector banks significantly.
 Stressed assets: Many of them have higher levels of stressed assets than private banks, and also lag the latter
on profitability, market capitalization and dividend payment record.
 Part of a Long-Term Project: Privatisation of two PSBs will set the ball rolling for a long-term project that
envisages only a handful of state-owned banks, with the rest either consolidated with strong banks or
privatised.
 Strengthening Banks: The government is trying to strengthen the strong banks and also minimise their
numbers through privatisation to reduce its burden of support.
 Selection of Banks: The two banks that will be privatised will be selected through a process in which NITI
Aayog will make recommendations, which will be considered by a core group of secretaries on disinvestment
and then the Alternative Mechanism.
 Private Banks were unreliable: There were 361 private banks which "failed" across the country in the period
from 1947 to 1955, translating to an average of over 40 banks per year.

Present ISSUES WITH PUBLIC SECTOR BANKS (PSBs):

 High NPAs: Compared with private banks, they continue to have high NPAs and stressed assets although this
has started declining.
 Impact of Covid: After the Covid-related regulatory relaxations are lifted, banks are expected to report higher
NPAs and loan losses. As per the RBI’s recent Financial Stability Report, gross NPA ratio of all commercial
banks may increase from 7.5% in September 2020 to 13.5% by September 2021. This would mean the
government would again need to inject equity into weak public sector banks.
 Rising Market Share: Private banks’ market share in loans has risen to 36% in 2020 from 21.26% in 2015,
while PSBs share has fallen to 59.8% from 74.28%.
 Better Products and Services: Private sector banks have expanded the market share through new products,
technology, and better services, and also attracted better valuations in stock markets.

WAY FORWARD:
In order to improve the governance and management of PSBs, there is a need to implement the recommendations
of the PJ Nayak committee. Rather than blind privatisation, PSBs can be made into a corporation like LIC. While
maintaining government ownership, this will give more autonomy to PSBs.

Monetary Policy and targeting of Inflation

MONETARY TRANSMISSION – BANK LENDING AND DEPOSIT RATES: AS per the economic survey 2021-2022
 RBI has reduced repo rate by 250 bps since February 2019 (the current easing cycle).
 The transmission has been slightly higher in public sector banks than private sector banks in the overall
current monetary easing cycle, though it was higher for private banks in April-November 2021.
 The credit growth had been declining since 2019.
o The credit growth was 5.3 per cent at beginning of April 2021 and started to increase since then,
but was still modest and stood at 7.3 per cent as on 17th December 2021.

ISSUES AND CHALLENGES WITH INFLATION TARGETING IN INDIA:

 Disregards the Multi-faceted role of RBI: In a developing country like India, it is not practical for the central
bank to focus exclusively on inflation without taking into account the larger development context.
 Empirical Evidence against Inflation Targeting in India: The RBI has been able to maintain a stable rate of
Inflation within the mandated range since the last 2-3 years.
 o However, in spite of a stable rate of Inflation, the Indian economy is facing challenges on multiple
fronts such as sluggish GDP growth rate.
 No Clear link between Price Stability and Financial Stability: Global Financial Crisis (2008) has proved that
price stability alone cannot lead to financial stability and the excessive focus of the Central banks on price
stability may lead to neglect of other crucial functions such as regulation leading to the economic crisis.
 Unemployment status: The unemployment has increased to a 45 year high of 6.1%. There has been
contraction in the manufacturing activity, agriculture sector is staring at agrarian distress.
 Poor Monetary Policy Transmission (MPT): The Inflation targeting is more suited to the developed economies
since the MPT in such economies is quite efficient.
o However, in case of India, the MPT is quite inefficient and this can in turn reduce the effectiveness of
Inflation Targeting.
 Hinder GDP Growth: In order to contain Inflation, the RBI would be required to increase the rate of Interest
by following the contractionary monetary policy.
o However, increase in the rate of interest on the loans leading to decrease in investment and
consumption expenditure leading to decline in the GDP growth rates.
 Does not address the Supply Side Inflation: Inflation in India may take place due to supply side bottlenecks
such as increase in global crude oil prices, poor monsoon, floods etc.
o Under such circumstances, RBI would have a limited role to play in easing the rate of inflation.

BENEFITS OF THE INFLATION TARGETING:

 Enhanced Transparency: explicitly mandated inflation targets bring in more clarity and predictability with
respect to the rate of Inflation and monetary policy formulation.
 Promote Growth: Low and moderate level of inflation would incentivise the investors to undertake the
investment in the economy leading to the promotion of higher growth and development.
 Autonomy and Accountability of RBI: If the RBI fails to maintain the Inflation within the target, then it would
be required to submit in writing the reasons for its failure. Such a provision enables the RBI to enjoy autonomy
and at the same time, enables the Government to have enhanced accountability over the actions of the RBI.
 Empirical Evidence: Inflation targeting has been quite successful in some of the advanced economies such as
the UK, New Zealand etc. These advanced economies have been able to maintain moderate rates of inflation
for a much longer time leading to increased macro-economic stability.

CONCLUSION:
COVID-19 has altered the near-term outlook, necessitating urgent policy interventions, active monitoring and
further timely measures to prevent emergence of supply chain bottlenecks and build-up of retail margins. At this
juncture, policy support from all sides – fiscal, monetary and sectoral – is required to nurture recovery and
expedite return to normalcy.

STATUS OF NPAs
AS per the Economic survey 2021-2022
 The Gross Non-Performing advances (GNPA) ratio (i.e., GNPAs as a percentage of Gross Advances) and
Net Non-Preforming (NNPA) ratio of Scheduled Commercial Banks (SCBs) continued to decline since 2018-
19.
 GNPA ratio of SCBs decreased from 7.5 per cent at end of September 2020 to 6.9 per cent at end-
September 2021. NNPA ratio of SCBs was 2.2 per cent at end-September 2021.
Why there has been decrease in NPAs?
 Recapitalising the banks: Government of India announced recapitalization of PSBs to the tune of Rs. 2.11
lakh crore in October 2017.
o both demand and time has recorded acceleration in their growth, leading to an increase in
aggregate deposits by 9.6 percent.
 Reforms for better transparency and objective lending: Under the PSB Reforms Agenda, PSBs have
created Stressed Asset Management Verticals to focus attention on recovery and entrusted monitoring
of loan accounts of above Rs. 250 crores to specialised monitoring agencies.
  The consolidation of Banks is also seen as a way out of the NPA issue through the “strong” banks
absorbing the strain on the books of weaker banks.
 Project Sakshat: to resolve the problem of NPAs through a market led approach.
o The Reserve Bank of India (RBI) allowed domestic banks to directly sell their bad loans in
manufacturing and infrastructure sectors to investors abroad as part of one-time settlement
(OTS) exercises.
Implications of Low level of NPAs
 On borrowers: Banks may begin lowering interest rates on some products once non-performing assets
decrease.
 On economy: Economy will grow as there will be more availability of credit from the security market
which increases employment generation and development of the country.
 On bank: It increases the profitability & liquidity of the banks as annual return on assets comes increases
and also the amount given as loan also gets opened which can now be used for some return earning asset
otherwise.
o Banks can grow faster when the availability of credit increases.
o The Monetary Policy Transmission becomes faster for banks to pass on the RBI-induced rate
reductions.
o Banks eases credit to small and medium enterprises (SMEs) that are India's potential for
prosperity of an entrepreneurial middle class.

Asset Reconstruction Company (ARC)

 ARC have been proposed to be set up by state-owned and private sector banks, and there will be no equity
contribution from the government, as proposed in the budget of 2021-22.
 At the time of the Asian Financial Crisis, India’s NPAs stood at a whopping 14.4 per cent. It was in this context
that the Narasimham Committee (1998) recommended setting up an ARC specifically for purchasing and
resolving stressed assets.
 Following this, the SARFAESI Act, 2002 was enacted in December 2002 which provides the legal basis for the
setting up ARCs in India.
Benefits of Bad bank
 Improvement in the balance Sheet of the Banks due to decrease in the NPAs.
 Unlocking of the capital that was earlier locked up as provisioning requirements.
 Enable the Bank to focus on their core areas of accepting deposits and lending loans. The function of
recovery of bad loans gets transferred to the specialist Bad Bank.

OBJECTIVES OF ARC:
 It is a specialized financial institution that buys the Non-Performing Assets (NPAs) from banks and financial
institutions so that they can clean up their balance sheets.
 This helps banks to concentrate in normal banking activities. Banks rather than going after the defaulters by
wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.

FUNCTIONS OF AN ASSET RECONSTRUCTION COMPANY (ARC):

 Acquisition of financial assets
 Change or takeover of Management / Sale or Lease of Business of the Borrower
 Rescheduling of Debts
 Enforcement of Security Interest
 Settlement of dues payable by the borrower

NEED OF ARC:
 Effective bankruptcy system: In 2002, India lacked an effective bankruptcy system. There was no market for
corporate control of distressed firms.
 RBI report: In a report released by Reserve Bank of India (RBI), it was said that banks' gross non-performing
assets may rise to 13.5% by September 2021, from 7.5% in September 2020 under the baseline scenario.
 Peculiar institutional ecosystem: ARCs were originally designed for this peculiar institutional ecosystem. They
were required to hand over the distressed business back to the original promoter once they had generated
enough value to repay the debt.
 Urgent need: Of the existing ARC, only 4-5 are adequately capitalised, while the more-than-dozen remaining
are thinly capitalised. It necessitates the need to set up a new structure to resolve stressed assets urgently.
 For acquiring strategic control: ARCs should be able to fully participate in this market and attempt successful
turnarounds by acquiring strategic control over distressed businesses.
 For public welfare: In a solvent company, shareholders have stronger incentives than creditors to maximise
enterprise value. If ARCs could hold more equity instead of debt in the resolved company, they would also
have a stronger incentive to take strategic control to ensure successful turnaround.
 Softening provisioning requirement: High level of NPAs makes the lending difficult for banks, as they have to
keep supplementary capital (provisioning requirement) under the Basel Accord. Bad banks by way of
absorbing NPAs.
 Rise in NPAs: NPAs in the banks are around 7% currently. If situation deteriorates, then by Sep 2021, these
are expected to rise to 15%. The Covid disruption has already created a lot of stress in the banking system.
 Problems with IBC: The bad bank idea was first floated in the Economic Survey 2017. In fact, there is already
IBC to deal with bad loans, but the recovery rate is not higher. The current framework of bankruptcy code is
not yielding a good value for banks.
 Limitations of existing ARCs: Existing ARCs have acquired a debt of ₹3.88 trillion as of June 2019. However,
there are still nearly ₹10 trillion worth of stressed assets in the system so clearly the extent of the problem
(and opportunity for ARCs) continues to be immense.

ARC AND BUDGET OF 2021-22:

 Setting up of National Asset Reconstruction Company Ltd (NARCL), the proposed bad bank for taking over
stressed assets of lenders, was announced in the Budget for 2021-22.
 The plan is to create a bad bank to house bad loans of ₹500 crore and above, in a structure that will contain an
ARC and an Asset Management Company (AMC) to manage and recover dud assets.
 The gross bad loans in the banks could increase to 13.5% by September 2021 (in the worst-case scenario,
14.8% – highest in two decades).
 As of 2020, stressed assets of Rs. 2-2.5 lakh crore remain unsolved in approximately 70 large accounts.

NARCL and IDRCL: Basic functioning and working mechanism

 Central Government guarantee of Rs.30,600 crore to back Security Receipts issued by National Asset
Reconstruction Company Limited (NARCL) for acquiring stressed loan assets.
 NARCL has been incorporated under the Companies Act and has applied to Reserve Bank of India for
license as an Asset Reconstruction Company (ARC). NARCL has been set up by banks to aggregate and
consolidate stressed assets for their subsequent resolution. PSBs will maintain51% ownership in NARCL.
 IDRCL is a service company/operational entity which will manage the asset and engage market
professionals and turnaround experts.
o Public Sector Banks (PSBs) and Public FIs will hold a maximum of 49% stake and the rest will be
with private sector lenders.
 GoI Guarantee of up to Rs 30,600 crore will back Security Receipts (SRs) issued by NARCL. The guarantee
will be valid for 5 years.
o The guarantee shall cover the shortfall between the face value of the SR and the actual
realisation. GoI’s guarantee will also enhance liquidity of SRs as such SRs are tradable.
 The NARCL will acquire assets by making an offer to the lead bank. Once NARCL’s offer is accepted, then,
IDRCL will be engaged for management and value addition.
 Government guarantee will be invoked to cover the shortfall between the amount realised from the
underlying assets and the face value of SRs issued for that asset, subject to overall ceiling of ₹30,600
crore, valid for 5 years.
o Since there shall be a pool of assets, it is reasonable to expect that realisation in many of them
will be more than the acquisition cost.
  Capitalization of NARCL would be through equity from banks and Non-Banking Financial Companies
(NBFCs). it will also raise debt as required. The GoI guarantee will reduce upfront capitalization
requirements.
Issues with NARCL
 Lack adequately trained man force.
 Mere Shift of Bad Asset: With PSBs as stakeholders and at top positions, NARCL risks the mere shift of
bad loans from government owned banks book to government backed NARCL.
 Risk of Moral Hazard: Shifting of NPAs without accountability risks moral hazard of reckless lending which
can further amplify the problem.
 According to Ex-RBI Governor Raghuram Rajan, the Setting up of Bad Bank would merely lead to transfer
of Assets from one entity to another.
Way forward
 Focus on EASE 4.0 (Enhanced Access quality service Excellence): commits PSBs to tech-enabled,
simplified and collaborative banking to further the agenda of customer-centric digital transformation.
 strengthening of Securitization and Reconstruction of Financial Assets and Enforcement of Securities
Interest (SARFAESI Act) and Debt Recovery Tribunals, as well as setting up of dedicated Stressed Asset
Management Verticals (SAMVs) in banks for large-value NPA accounts have brought sharper focus on
recovery.
 Strengthen IBC regime and promote pre packed insolvency.
Conclusion
The arrival of NARCL comes at a good time, as the assets of the existing 28 ARCs are restricted, and the RBI is
trying to expand the role of ARCs in stressed asset resolution. At the same time, we must not lose sight of the
need of training the workforce at ARCs and banks in order to improve not only ARC performance but also to
reduce future hazards.

INSURANCE SECTOR
 Insurance is the cardinal element in the operation of national economies. It protects the health and assets
of the people and stimulates business activities to operate in a cost-effective manner.
 The insurance market in India holds great potential to act as a booster for the Indian economy. With the rise
of population and poverty in the country, there is a looming risk of uncertain financial losses.

BACKGROUND:
 General Insurance Business (Nationalisation) Act, 1972: The entire general insurance sector in India was
nationalised by the GOI with taking over shares of 50+ Indian insurance companies and undertakings of 52
insurers carrying general insurance business in India and it was nationalised through this Act.
 IRDAI establishment: GOI set up the Malhotra Committee to suggest reforms for the insurance sector in
India. Following the recommendations, the IRDAI was established in 1999 to regulate and develop the
insurance sector in India.
 Private sector insurance reforms: Opened the sector to both private and foreign players in 2000. The recent
notification of GoI to increase FDI from 49% to 74% for insurance intermediaries announced in the Union
Budget of 2021.

DATA AND FIGURES:

 In India, the overall market size of the insurance sector is expected to US$ 280 billion in 2020.
 The life insurance industry is expected to increase at a CAGR of 5.3% between 2019 and 2023.
 India’s insurance penetration was pegged at 3.76% in FY20, with life insurance penetration at 2.82% and non-
life insurance penetration at 0.94%.

ISSUE IN THE INSURANCE SECTOR:

 Low penetration: In 2019, India's life insurance penetration stood at around 2.82%, while the non-life
insurance penetration was much lower at 0.94%. The overall penetration for the industry was 3.76% in 2019.
 Issue of Insurance Gap: The insurance penetration stood at 3.76% for FY19, which is low in comparison with
global levels.
 Government sector dominated: The insurance sector has transitioned from being an exclusive state
monopoly to a competitive market, but public-sector insurers hold a greater share of the insurance market.
 Nascent Non-life Insurance: Life insurance dominates the sector with a huge share of 74.7%, with non-life
insurance accounting for the remaining 25.3%.
o In the non-life insurance sector, motor, health, and crop insurance segments are driving growth.
India’s non-life insurance penetration is below 1%.
 Women’s access to insurance is limited: In emerging markets, women are overly represented in the informal
sector, with no ‘employer’ in the traditional sense.
 General risk involved: Insurance products catering to speciality risks such as catastrophes and cyber security
are at a nascent stage of development in the country.
 Rural-Urban insurance divide: According to the NSO report, people in rural areas about 79.5% and for urban
areas about 83.7% paid for their medical expenses from their savings.
 Capital Starved Insurers: Insurers in India lack sufficient capital, and their financial health is in a precarious
state. Further, investment in the insurance sector got dwindled due to the crisis in banks and NBFCs sector.
o FDI initiative for growth and penetration: The recent notification of GoI to increase FDI from 49% to
74% for insurance intermediaries announced in the Union Budget of 2021.
 Awareness of the general public: Majority of the population are not aware about the various government
initiatives and schemes for insurance coverage.

GOVERNMENT INITIATIVES:
 Formation of LIC: The establishment of the LIC in 1956 can be seen as a major step ahead in guaranteeing
social security to the citizens of India.
 Establishment of the IRDA: IRDA to regulate and promote the insurance business in India. Its objectives
include enhancing competition, customer satisfaction and ensuring the financial security of the insurance
market which is a major backbone of the Indian economy.
 Government schemes: Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana,
Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Jan Aarogya Yojana among others.
 Financial help to farmers: Pradhan Mantri Fasal Bima Yojana and Restructured Weather Based Crop Insurance
Scheme aim at providing financial help to the farmers in the event of crop loss thus stabilising farmers’ income
in India.
 Health security: Ayushman Bharat, Aam Aadmi Bima Yojana, Employees’ State Insurance Scheme, Rashtriya
Swasthya Bima Yojana etc. provide health insurance to a large number of people in India.
 State government initiatives: Swasthya Sathi (West Bengal), Yeshasvini Health Insurance Scheme
(Karnataka), Mukhyamantri Amrutam Yojana (Gujarat), Karunya Health Scheme (Kerala) and others.

WAY FORWARD:
 Model Insurance Village (MIV): The IRDAI has mooted the concept of MIV to boost insurance penetration in
rural areas.
 Need For awareness generation: There is a need for complementary thrust to spread awareness and improve
financial literacy, particularly the concept of insurance, and its importance.
 Equality with women: Women should also have a broader policy framework in insurance by collecting proper
data and the approach should have practical solutions.
 Rural centric approach: In this context, government insurance schemes such as Pradhan Mantri Jan Arogya
Yojana, Pradhan Mantri Fasal Bima Yojana, etc. are notable steps in the right direction.
 Technology intervention: Another area that necessitates regulatory scrutiny is that of application of
technology in insurance. E.g., the emergence of ‘InsurTech’, ‘Policy Bazaar’ designed to make the claim
process simpler and more comprehensible.
 Magnified role of regulator: It must ensure that insurance is not denied to lower-income people, insurers
facilitate a simple online process and players do not overcharge or add hidden costs.
 Comprehensive and affordable insurance: The idea is to offer comprehensive insurance protection to all the
major insurable risks that villagers are exposed to and make available covers at affordable or subsidised cost.
 Demographic factors and retirement planning: India has a growing middle class, young insurable population
and growing awareness of the need for protection and retirement planning will support the growth of Indian
life insurance.
 Insurance Amendment Bill, 2021: The Bill amends the Insurance Act, 1938 to increase the maximum foreign
investment allowed in an Indian insurance company.
CONCLUSION:
 Demographic factors, coupled with increasing awareness and financial literacy, are likely to catalyse the
growth of the sector. An enhanced regulatory regime that focuses on increasing insurance coverage is the
need of the hour.

Health Insurance
“Health Insurance for India’s Missing Middle” A report by NITI aayog released recently.
Status of health Insurance in India
India's health-care system is decentralized, allowing for health insurance to be optional. There are many different
types of health insurance plans available in India.
● Health insurance systems subsidized by the government, such as the Centrally Sponsored AB- PMJAY
and state-specific schemes like the 'Arogya Karnataka Scheme.'
● Employee State Insurance Scheme (ESIS) managed by Employee State Insurance Corporation (ESIC),
central departments such as Railways and Defense have separate programmes for their employees, and
paramilitary has huge hospitals in border areas are all examples of social health insurance (SHI) systems.
● PVHI (private voluntary health insurance) plans
The report highlighted the insurance coverage gap for 30 percent of India's population, or 40 crore people,
dubbed the "missing middle."
● The non-poor portions of the population are positioned between the impoverished poorer sections and
the comparatively well-off organized sector who, despite having the financial capacity to pay for
contributory health insurance, remain vulnerable to impoverishing health expenditure.
● There are various groupings in both urban and rural locations, spanning all expenditure quintiles.
In rural areas, it mostly consists of the self-employed (agricultural and non-agriculture) informal sector, while in
urban areas, it consists of a wide range of jobs – informal, semi-formal, and formal.
Causes of low penetration of insurance sector
● Customer satisfaction issues: There is a lack of information among customers, and customers see it as a
cost rather than a long-term asset that might save them.
● Issues with product design: Insurance plans are frequently complex and difficult to comprehend. There
is also a lot of paperwork and formalities to do.
● Unavailability of branches in rural regions: While there have been some branches in tier II and III cities,
there are few branches in rural areas that provide health insurance.
Importance of expanding India's insurance coverage
● Increased health insurance coverage decreases catastrophic and impoverishing health expenditure by
setting a limit on the maximum health expenditure that an individual or household can spend.
● Individuals who have a high out-of-pocket expenditure (OOPE) are at danger financially: India's high
OOPE is due to a lack of health insurance coverage and the costlier provision of health services in the
private sector.
○ As a result, insurance is a vital mechanism for individuals to protect themselves from catastrophic,
unpredictably high health-care costs, which can force families into poverty.
○ Out-of-pocket spending as a percentage of total health spending is 48.8%, according to National
Health Accounts (NHA) projections for 2017-18.
 ○ According to a Brookings India analysis based on NSSO surveys, healthcare costs put nearly 7% of
India's population into poverty every year.
● Expanding health insurance coverage is a critical step and a road in India's efforts to achieve Universal
Health Coverage.
What needs to be done?
The report has recommended three models for increasing the health insurance coverage in the country.
● The first model focuses on increasing consumer awareness of health insurance,
● The second model is about “developing a modified, standardized health insurance product” like ‘Arogya
Sanjeevani’.
○ A “slightly modified version” of the standardised Aarogya Sanjeevani insurance product will help
increase the update amongst the missing middle.
○ The modified product should have lower waiting periods. It should also include out-patient
benefits through a subscription model to increase the value of healthcare provided.
● The third model expands government subsidized health insurance through the PMJAY scheme to a wider
set of beneficiaries.
○ This model can be utilized for segments of the missing middle which remain uncovered, due to
limited ability to pay for the voluntary contributory models outlined above.
● sharing of the government scheme data with the private insurance companies: Such databases will help
ease the identification of, and outreach to potential customers by insurers
Conclusion
A combination of the three models, phased in at different times, can ensure coverage for the missing middle
population. the focus should be on expanding private voluntary insurance through commercial insurers.

Cyber Insurance Policy

 Cyber risk is commonly defined as exposure to harm or loss resulting from breaches of or attacks on
information systems. This policy will protect the policyholders from cybercrimes.

FEATURES OF THE CYBER INSURANCE POLICY:

 Provides protection: The policy provides protection in case of theft of funds due to cyber event/hacking of
insured's bank account/credit card/debit card/mobile wallet by a third party.
 Provides prosecution expenses: It provides expenses to prosecute the stalker.
 Covers cost of data restoration: The policy covers data restoration costs due to malware.
 Phishing cover: It also provides a phishing cover.
 Fraudulent use protection: As per the committee report, it provides protection against the fraudulent use of
bank account/credit card/debit card/e-wallet by third parties to make online purchases over the internet.
 Spoofed email attack policy: The policy provides expenses in respect of financial losses as a result of a spoofed
email attack and provides expense to prosecute perpetrators.
 Defamation/invasion of privacy: It provides defence costs in third party claims in defamation/invasion of
privacy due to insured's publication/broadcasting of any digital media content.
 Protection in cases of extortions: It provides protection for extortion loss as a result of cyber extortion threat
and provides expense to prosecute perpetrators.
 Data and policy breach: It also provides indemnity for defence costs and damages in claims lodged by a third
party against the insured for data breach and or policy breach.

CHALLENGES AND STRATEGIES IN INDIA’S CYBER SECURITY:

 International Convention: India has not joined the Budapest Convention. This is because the convention
allows for cross border access to data to carry out investigation and India believes that such cross-border
access to data can infringe on National Sovereignty.
 PPP Framework for Cyber Security: Presently, most of the cyber security operations are carried out by the
Government agencies such as CERT-In. Given the fast-changing nature and intensity of cyber threats, there is
a need to leverage private sector expertise in combating cybercrimes through PPP framework.
 Securing Secure Cyber Ecosystem:
o Appointment of Chief Information Security Officer (CISO) in all the Organisations.
o Earmark certain percent of funds towards enhancing cyber security
o Provide tax incentives to companies to upgrade information infrastructure
o Investment in R&D to improve Cyber Security- Big data, AI, ML etc.
 Skilled Professionals: Recently, according to a report published by NASSCOM, India needs around 10 lakh
cyber security experts. However, presently there are only around 64,000 professionals.
 Strengthen IT act and National Cyber Security Policy 2013: present legal and facilitative framework to fight
cybercrimes i.e., IT Act and NCSP, 2013 are outdated and not well-equipped enough to handle technologically
advanced cybercrimes.
 Awareness generation: Enhancing Awareness among the people through the awareness campaigns.

GOVERNMENT INITIATIVES TO TACKLE CYBER ATTACKS:

 Cyber Surakshit Bharat Initiative: It was launched in 2018 with an aim to spread awareness about cybercrime
and build capacity for safety measures for Chief Information Security Officers (CISOs) and frontline IT staff
across all government departments.
 National Cybersecurity Coordination Centre (NCCC): Its mandate is to scan internet traffic and
communication metadata coming into the country to detect real-time cyber threats.
 Cyber Swachhta Kendra: In 2017, this platform was introduced for internet users to clean their computers
and devices by wiping out viruses and malware.
 National Computer Emergency Response Team (CERT-In): It functions as the nodal agency for coordination
of all cyber security efforts, emergency responses, and crisis management.
 NCIIPC: Protection and resilience of critical information infrastructure with the National Critical Information
Infrastructure Protection Centre (NCIIPC) operating as the nodal agency.
 Information Technology Act, 2000: The Act regulates use of computers, computer systems, computer
networks and also data and information in electronic format.
 Indian Cyber Crime Coordination Centre (I4C): The I4C will assist in centralising cyber security investigations,
prioritise the development of response tools and bring together private companies to contain the menace.

INTERNATIONAL MECHANISMS:
 The International Telecommunication Union (ITU): It is a specialized agency within the United Nations which
plays a leading role in the standardization and development of telecommunications and cyber security issues.
 Budapest Convention on Cybercrime: It is an international treaty that seeks to address Internet and computer
crime by harmonizing national laws, improving investigative techniques, and increasing cooperation among
nations. It came into force on 1st July 2004. India is not a signatory to this convention.
 Internet Governance Forum (IGF): It brings together all stakeholders i.e., government, private sector and civil
society on the Internet governance debate.

CONCLUSION:
 The security and insurance of an enterprise should be analysed for effectiveness from time to time. Since
businesses work in a structured yet complex environment consisting of security, policies and changing
technologies, involving complex interactions and interoperations, there is a need to assess the system with a
holistic approach.

FINANCIAL SECTOR
Introduction
 Commercial banks, non-banking financial firms, investment funds, money markets, insurance and pension
companies, and real estate are all part of the financial industry.
 It lies at the heart of an economy, allowing for the efficient mobilisation and distribution of financial
resources.
 It works with customers in the business and retail sectors to provide financial services.

Social Stock Exchange (SSE)

 In News: A Social Stock Exchange (SSE) has been proposed by the finance minister in the 2019-20 Union
Budget. Consequently, a Working Group (under Ishat Hussain) was set up by SEBI which recommended that
Non-Profit Organisations be directly included in SSEs.
 A Social Stock Exchange is a platform that allows the listing of a Social Enterprise on stock exchanges to
provide an alternative fund-raising structure. Social enterprise is a revenue generating business aimed at
achieving a social objective.

NEED OF SSE:
 There is no existing large and significant funding platform for social enterprises.
 SSE will expand the donor pool for social enterprises to include retail and institutional investors.
 SSE will supplement the social welfare objectives of government and promote inclusive growth as funds
would be made available to Social Enterprises which work in underserved and backward areas.
 Promote Impact Investment ecosystem in India. Impact Investing refers to investing in companies which aim
at creating environmental and social impact alongside financial gains.

BENEFITS OF SSE:
 Elicits public participation in social causes through equity route
 Standardizes the process making fundraising easy and cheaper
 Improve regulatory oversight over NGOs thus boosting their credibility
 Provides additional capital to support entrepreneurs working to improve lives of underserved populations
 Provides a common platform to social enterprises and impact investors.
 Provides alternate route for Banks, NBFCs to raise capital
 Improve public service delivery and support important social sectors
 Unlocks large pool of social capital with blended financial structure

CHALLENGES IN SSE:
 Confusion whether exchange will involve trading in securities issued by non-profit bodies
 No benchmark for valuing Social Initiatives
 No proper record: NGOs are generally not good at record keeping which affects channelizing and tracking of
funds
 Low return on investment in monetary terms: less attractive for bulk investors
 Limited to registered companies only: leaving unregistered firms doing good work in various sectors.
 Accreditation at all levels: among investors, social businesses, intermediaries as upholding genuineness
becomes difficult
 High compliance costs for Social Enterprises may mean smaller ones may be marginalised further.

RECOMMENDATIONS OF ISHAAT HUSSAIN WORKING GROUP:

 SSE to be housed within the Bombay Stock Exchange or National Stock Exchange.
 Social enterprises must be allowed to be listed directly via the issuance of bonds (zero-coupon) and a range
of funding mechanisms.
 Among the funding mechanisms suggested are some existing ones like Social Venture Funds (SVFs) under the
Alternative Investment Funds (AIF).
 Minimum Reporting Standard is envisaged for organisations which would raise funds under the SSE.

WAY FORWARD:
 Define Social Enterprises clearly for realization of an effective regulatory framework
 Frame Proper Policies and laws- empowering SEBI and upholding accountability and transparency
 Devise different ROI methodology for calculating value of instruments issued by social enterprises e.g. Social
Impact Assessment
 Education, training and awareness to allow social businesses to attract capital
 Research and development to provide right framework and enable investors to make more holistic decision
 Regular assessment and coordination between different bodies
 Promote maximum transparency and accountability

CONCLUSION:
 India being home to more than 2 million Social Enterprises, is in urgent need of operationalising the Social
Stock Exchange to provide the sector an impetus to truly supplement the government’s efforts at ensuring
public welfare.

Disinvestment: “government has no business being in business”

REASONS FOR DISINVESTMENT OF INDIAN PSU:
 Reduced Growth: Indian PSUs had shown a very negative rate of return on capital employed.
 Inefficiency: Indian PSUs had become and were continuing to be a drag on the Government’s fiscal resources
turning to be more of liabilities to the Government than being assets.
 Negative Impact on Economy: The national GDP and gross national savings were also getting adversely
affected by low returns from PSUs.
 In August 1996, the Disinvestment Commission, chaired by G V Ramakrishna was set up to advise, supervise,
monitor and publicize gradual disinvestment of Indian PSUs. However, the Disinvestment Commission ceased
to exist in May 2004.
 National Investment Fund (NIF) was constituted in November, 2005, into which the proceeds from
disinvestment of Central Public Sector Enterprises were to be channelized.
 The Department of Disinvestment has been renamed as Department of Investment and Public Asset
Management (DIPAM) from 14th April, 2016 which has been made the nodal department for the strategic
stake sale in the PSUs.

IMPORTANCE OF DISINVESTMENT:
 In the short run, it is helpful in financing the increasing fiscal deficit.
 Financing large-scale infrastructure development.
 Investing in the economy to encourage spending.
 Expansion and Diversification of the firm.
 Repayment of Government Debts: Almost 40-45% of the Centre’s revenue receipts go towards repaying
public debt/interest
 Investing in social programs like health, education and welfare schemes for poor.
 It can help in generating a better environment for investment.
 Disinvestment also assumes significance due to the prevalence of an increasingly competitive environment,
which makes it difficult for many PSUs to operate profitably. This leads to a rapid erosion of the value of the
public assets making it critical to disinvest early to realize a high value.
 It is expected that the strategic buyer/acquirer may bring in new management/technology/investment for
the growth of these companies and may use innovative methods for their development.

CHALLENGES OF DISINVESTMENTS:
 Loss of regular income: Sale of profit-making and dividend paying PSUs would result in the loss of regular
income to the Government
 “Asset Striping”: There would be chances of “Asset Striping” by the strategic partner.
 Strategic and National Security Concerns: Strategic Disinvestment of Oil PSUs is seen by some experts as a
threat to National Security since Oil is a strategic natural resource and possible ownership in the foreign hand
is not consistent with our strategic goals.
 Social security: Disinvestment affects labour forces' social security.
 Crony-capitalism: It also raises concerns about cronyism.
 Unworthy deals: The depressed state of the markets and the paucity of reasonable buyers would land in a
bad deal.
 End-use of funds: Using funds from disinvestment to bridge the fiscal deficit is an unhealthy and a short-term
practice.
 Private monopolies: Complete Privatisation may result in public monopolies becoming private monopolies,
which would then exploit their position to increase costs of various services and earn higher profits.

PROMPT CORRECTIVE ACTION (PCA)

In News: With effect from January 1, 2022, the RBI has published updated guidelines for commercial banks that
would be put under the Prompt Corrective Action (PCA) framework.
Significance of PCA Framework
 The objective of the PCA Framework is to enable Supervisory intervention at appropriate time and
require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to
restore its financial health.
 The PCA Framework is also intended to act as a tool for effective market discipline.
 Check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
 Help alert the regulator as well as investors and depositors if a bank is heading for trouble.
 Entails curbs on high-risk lending, setting aside more money on provisions and restrictions on
management salary thus curbing further haemorrhaging of bank balance sheets.
Recent changes introduced to the PCA Framework
 Changes in Parameters: Capital, Asset Quality and Leverage are 3 parameters which will be the key areas
for monitoring in the revised framework and there are three risk thresholds, from 1 to 3, in the increasing
order of severity.
 Spectrum of applicability: PCA Framework would apply to all banks operating in India including foreign
banks operating through branches or subsidiaries based on breach of risk thresholds of identified
indicators.
o However, payments banks and small finance banks (SFBs) have been removed from the list of
lenders where prompt corrective action can be initiated.
 A bank will be placed under PCA Framework based on the Audited Annual Financial Results and the
ongoing Supervisory Assessment made by RBI.
Benefits of PCA
 PCA helps RBI in restoring the financial health of a bank by monitoring key performance indicators of
banks and taking corrective measures on the same.
 It may also stop banks from entering new lines of businesses, thereby strengthening the financial core
of the institution.
The Revised Scale-Based Regulatory (SBR) Framework for NBFC Regulation
In news: The Reserve Bank of India (RBI) has announced a new scale-based regulatory framework for non-
banking financial enterprises (NBFCs).

They will be subjected to a Scale-Depending Regulatory (SBR) Framework with Four Layers based on their size,
activity, and perceived riskiness under the redesigned regulatory framework (which will take effect on October 1,
2022).
 The base layer. It includes NBFCs-ND with assets under 1000 crores, as well as NBFCs engaged in
operations such as peer-to-peer lending, account aggregation, and non-operative financial holding
companies, as well as NBFCs that do not use public funding and have no client interface.
 Middle Layer: All deposit-taking NBFCs; NBFCs-ND with assets of Rs 1000 crore or more; NBFCs in
activities such as Standalone Primary Dealers, Infrastructure Debt Funds, CICs, Housing Finance
Companies, and Infrastructure Finance Companies.
 Top Layer: Top ten NBFCs in terms of asset size and NBFCs selected by RBI as warranting stronger
regulatory framework; and Top Layer: Ideally to stay vacant, but RBI can populate it if the potential
systemic risk posed by NBFCs in the upper layer increases significantly.
  Extant NPA categorization for all types of NBFCs will be 90 days by March 2026 under the new SBR
framework; Other Changes according to this framework:
o IPO funding ceiling of Rs 1 crore per borrower;
o and at least one Director with experience in a bank/NBFC will be required.
 Changes in NBFC Middle- and Upper-Layer Capital Guidelines; Revised Governance Guidelines (e.g.,
Chief Compliance Officer) and Prudential Guidelines on Credit Concentration/Sensitive Sector Exposure.

FINTECH SECTOR
Introduction
 Fintech is a broad term that refers to technology-based enterprises that compete with, facilitate, and/or work
with financial institutions. Paytm, MobiKwik, and Google Pay are among examples.
 Its driver in India: Increased usage of cellphones, internet access, and online shopping; younger population;
technological advancements such as Bigdata, AI, and others; Increased Financial Inclusion.
Significance of Fintech sector
 Digital payments are on the rise.
 Peer to Peer (P2P) financing, crowd funding, and other new techniques have improved lending and
investment.
 Provide funds to SMEs for the exchange of invoices.
 Credit creation has improved because to account aggregator services.

Recommendations of Subhash Chandra committee to leverage potential of FINTECH:

 Supervision Technology Development: Supervision technology is the use of technology by financial
regulators to improve their regulatory and supervisory functions.
 Customer Protection Legal Framework: With the expansion of fintech and digital services, a legislative
framework for consumer protection should be established.
 Regulation Technology (RegTech) Development: Regtech is a new sector in the financial technology business
that uses information technology to improve regulatory operations.
 Credit and insurance companies are using remote sensing and drone technology.
 Creating a marketplace model of debt financing can meet the credit demands of MSMEs, families, and
people.

Digital Payment Ecosystem

 In news: The digital payments have found strong ground, especially in India, increasingly relegating all other
modes of payments to the background.
 The definition of digital payment is guided by Payment and Settlement Act, 2007.

CHALLENGES IN DIGITAL PAYMENTS:

 Expensive and time consuming: The costs associated with online payment through RTGS and NEFT systems
have also created a hindrance and consumes more time.
 Structural challenges: India is far from creating a robust digital payment ecosystem. There are several
challenges that are hindering the growth of digital payments, biggest among them is cyber-security.
 Digital inequality: In India it is also a challenge for deeper penetration of digital payments.
 Fraud and Security: The security breaches and risks for data security is the biggest concern among the
consumers and can be considered as a key challenge for the adoption of digital payments.
 Awareness and Adoption: India is a cash dominant society. Even though there is a rapid increase in digital
payment modes, there is still a lack of awareness among people concerning security, data privacy, etc.
 Merchant Support: Adopting mobile wallets is putting many merchants into a dilemma. Many merchants are
still resisting to upgrade to EMV standards and contactless payments.
 Compliance: Mobile wallets need to be compliant with all legal requirements of government standards. The
mobile wallet industry should take needed efforts in the best interest of customers as well as for themselves.
 Compatibility: Mobile wallets need to be compatible with all the mobile models and their operating systems.
 Rise of UPI: Developed by NPCI can be considered as the biggest competitor for mobile wallets. Though UPI
has its own share of problems, in the long run, it can be definitely considered as a major challenge for mobile
wallets.
o Data released by the NPCI, the total number of transactions conducted on the BHIM-UPI, known
more simply as the UPI, crossed the 2 billion transactions count in a month in October 2020.

BENEFITS OF DIGITAL PAYMENT:

 NITI Aayog predictions: According to NITI AYOG, the digital payments market In India is all set to grow to $1
trillion by 2023 led by growth in mobile payments, which are slated to rise from $10 billion in 2017-18 to $190
billion by 2023.
 Digital Payments offer unique opportunities: The Global trends indicate heightened customer expectations
for value-added services, increased competition due to the emergence of FinTechs, new technologies, and an
ever-changing regulatory landscape.
 Convenience and Speed: The most basic reason why one should go digital is the sheer ease it brings. Digitally,
you can pay for anything down to the exact paisa vis-à-vis shuffling for exact change.
 Security: Additional Factor of Authentication (AFA) and real-time transaction alerts were the first few steps.
This was enhanced further with Aadhaar-based authentication and robust fraud mitigation measures.
 Consumer Safety and Protection: Along with proactive measures, there are redressal mechanisms that
safeguard consumers in case of breaches.
 Financial Gains: To popularize digital payments, the government and payment instrument issuers are
incentivizing customers through cash back schemes and discounts.
 No Financial Leakages: Initiatives like the DBT and PDS improve point-of-sale traceability and help customers
receive the benefits and subsidies earmarked for them. A transparent electronic trail helps track expenses
and subsidy transfers to the last mile.
 Emerging global trends: They are expected to impact the Indian Digital Payments ecosystem and provide
impetus to the growth of Digital Payments.

WAY FORWARD:
 Increase digital literacy in India: So that digital transactions can be increased as well as the coefficient of
safety factor rises. Increase in digital literacy can definitely decrease the presently occurring banking frauds.
 Cyber infrastructure and security: Strengthen the cyber infrastructure and boost cyber security in India to
reduce hacking and banking theft incidents.
 Boost Mobile infrastructure in the country: Most of the digital payments are now handled by mobile devices,
therefore the operating systems and android versions should be made compatible to increase the confidence
in digital payments.
 Reduce the digital divide: Among the masses by incentivizing people in urban and more importantly in the
rural areas.
 Ease settlement process: Ease the complexities and enable end-of-day settlement process for the merchants.
 Reduce the transaction charges: Over the digital payments and discourage cash transactions by charging cash
handling costs.
 Integrated system of digital payments: Emphasise an integrated system of digital payments to reduce
existing challenges and support quality outcomes. For instance, by ensuring more stringent laws etc.
 Monitor progress: The different components of Digital Payments have to be comprehensively studied with
respect to global best practices.

CONCLUSION:
 RBI’s Vision 2021 is a step in the right direction as it looks to create a robust digital payment ecosystem by
moving towards a cash-lite economy. While India has a robust start-up ecosystem capable of addressing
several digital payment challenges, the Government should help accelerate the process through better
policies and framework.
Digital bank units (DBU)
 In News: Union Budget 2022-23 announced the setting up of 75 digital banking units in 75 districts to
commemorate the 75 years of India's independence (Azadi ka Amrit Mahotsav) with an objective to ensure
benefits of digital banking reach every nook and corner of the country.
Need for DBU
NITI Aayog has released a Discussion Paper titled “Digital Banks:A Proposal for Licensing & Regulatory Regime
for India, according to this:
 India has made rapid strides towards enabling financial inclusion catalyzed by PMJDY and India stack.
o However, credit penetration remains a public policy challenge, especially for the nation’s 63
million odd MSMEs that contribute approx.
 with the help of unprecedented level of technology-led digitization and digital disruption heralded by
Jan Dan-Aadhar-Mobile (JAM) trinity, biometric Aadhar systematic., financial inclusion has become a
viable reality for the citizens of India.
o This has been furthered by the Unified Payments Interface (UPI) which has witnessed
extraordinary adoption.
 In parallel, India has also taken steps towards operationalizing its own version of “Open banking”
through the Account Aggregator (“AA”) regulatory framework enacted by the RBI.
What is a DBU
 A digital banking unit is a specialised fixed point business unit or hub housing certain minimum digital
infrastructure for delivering digital banking products and services as well as servicing existing financial
products and services digitally in self-service mode at any time.
Who will set up these DBUs?
Commercial banks (other than regional rural banks, payment banks and local area banks) with past digital
banking experience are permitted to open DBUs in tier 1 to tier 6 centres, unless otherwise specifically restricted,
without having the need to take permission from the RBI in each case.
services that will be provided by these units
 The services include savings bank accounts under various schemes, current accounts, fixed deposits and
recurring deposit accounts, digital kit for customers
o mobile banking, Internet banking, debit cards, credit cards, and mass transit system cards, digital
kit for merchants, UPI QR code, BHIM Aadhaar and point of sale (PoS).
 Other services include making applications for and onboarding of customers for identified retail, MSME
or schematic loans.
o This may also include end-to-end digital processing of such loans, starting from online application
to disbursal and identified government sponsored schemes that are covered under the national
portal.
Conclusion
 The current credit gap and the business and policy constraints reveal a need for leveraging technology
effectively to cater to the needs of this segment and bring them further within the formal financial fold.

National Strategy for Financial Education (NSFE) - (2020-2025)

 In news: The RBI has released a national strategy for financial education to be implemented in the next five
years (2020-2025).
 It is mainly for creating a financially aware and empowered India. The strategic objective is improving usage
of digital financial services in a safe and secure manner; as well as bringing awareness about rights, duties
and avenues for grievance redressal.

THE ORGANIZATION FOR ECONOMIC CO-OPERATION & DEVELOPMENT (OECD) DEFINES:

 Financial Literacy: It is defined as a combination of financial awareness, knowledge, skills, attitude and
behaviour necessary to make sound financial
decisions and ultimately achieve individual
financial well-being.
 Financial Education: It is defined as the process by
which financial consumers/investors improve
 their understanding of financial products, concepts and risks and through information, instruction and/or
objective advice.

NEED OF NSFE:
 To inculcate financial literacy, Awareness generation: Concepts among the various sections of the population
through financial education to make it an important life skill.
 For behavioural change: Encourage active savings behaviour.
 Inculcating financial discipline: Create credit discipline and encourage availing credit from formal financial
institutions as per requirement.
 Manage risk: At various life stages through relevant and suitable insurance cover. Plan for old age and
retirement through coverage of suitable pension products.
 Imparting political rights: Knowledge about rights, duties and avenues for grievance redressal.
 Research and development: Improve research and evaluation methods to assess progress in financial
education.

‘5 C’ APPROACH OF NSFE:
 Content including Curriculum in schools, colleges and training establishments,
 Capacity development among the intermediaries involved in providing financial services,
 Leveraging on the positive effect of Community led model for financial literacy through appropriate
 Communication Strategy, and lastly,
 Enhancing Collaboration among various stakeholders.

CONCLUSION:
 The latest available World Bank’s Findex 2017 Report has brought out that the proportion of adults with a
formal account in the country has risen from 35% in 2011, to 80% in 2017. However, the country still needs
to tread a long path to achieve a respectable financial literacy rate which is crucial for inclusive growth.

Revised Priority Sector Lending (PSL) Guidelines

 In news: RBI released revised Priority Sector Lending (PSL) guidelines. The guidelines align with emerging
national priorities and also bring sharper focus on inclusive development.
 The concept of ‘Priority sector lending’ focuses on the idea of directing the lending of the banks towards a
few specified sectors and activities in the economy.
 The revised priority sector lending guidelines to augment funding to segments including start-ups and
agriculture.

PRIORITY SECTOR LENDING:

 Funds for specific sectors: The RBI mandates banks to lend a certain portion of their funds to specified sectors,
like agriculture, MSMEs, export credit, education, housing, social infrastructure, renewable energy among
others.
 Adjusted Net Bank Credit (ANBC): All scheduled commercial banks and foreign banks (with a sizable presence
in India) are mandated to set aside 40% of their ANBC for lending to these sectors.
 Other banks: Regional rural banks, co-operative banks and small finance banks have to allocate 75% of ANBC
to PSL.

REVISED PSL GUIDELINES:

 Bank finance: To start-ups up to Rs. 50 crores.
 Loans to farmers: For installation of solar power plants for solarisation of grid connected agriculture pumps
and loans for setting up Compressed BioGas plants.
 Higher credit limit: For Farmers Producers Organisations (FPOs) undertaking farming with assured marketing
of their produce at a predetermined price. The credit limits for renewable energy, health infrastructure,
including the projects under ‘Ayushman Bharat’, have been doubled.
 Addressing the problem of regional disparities: It seeks to address the issues concerning regional disparities
in the flow of priority sector credit at district level.
 Ranking districts: on the basis of per capita credit flow to the priority sector.
 Framework for districts: Building an incentive framework for districts with comparatively low flow of credit
and a dis-incentive framework for districts with comparatively high flow of priority sector credit.
 Identified districts: Higher weightage has been assigned to priority sector credit in ‘identified districts’ where
priority sector credit flow is comparatively low.

CONCLUSION:
 Revised PSL guidelines will enable better credit penetration to credit deficient areas; increase the lending to
small and marginal farmers and weaker sections; boost credit to renewable energy, and health infrastructure.

Development Bank for Infrastructure Funding

 In news: The Central government has proposed to set up a new Development Finance Institution (DFI)
essentially to fill the gap in long-term finance for infrastructure sectors.
 DFIs are set up for providing long-term finance for such segments of the economy where the risks involved
are beyond the acceptable limits of commercial banks and other ordinary financial institutions.
 Unlike banks, DFIs do not accept deposits from people. They source funds from the market, government, as
well as multilateral institutions, and are often supported through government guarantees.

KEY POINTERS:
 Proposed DFI: It will be used to finance both social and economic infrastructure projects identified under the
National Infrastructure Pipeline (NIP). NIP will enable a forward outlook on infrastructure projects which will
create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making
growth more inclusive.
 Role of Government in DFI: The DFI can either be promoted by the government or it should be given a private
sector character with the government restricting its holding to 49%.
o SLR eligibility: The securities from the DFI could be made SLR eligible. This will encourage banks to
subscribe to the securities issued by DFI and fulfil their SLR obligations.
o RBI Requirements: The RBI requires banks to set aside 18% of their NTDL towards SLR.
o Government trust on private sector: DFI with a private sector character will require the government to
believe and trust the private sector.
 Asset/Liability Management Mismatch: In India, most lenders borrow funds with maturity under 5 years. The
reason is primarily the absence of a deep bond market to borrow from. As a result, they lend to a project with
a maturity of, say 20 years, with funds of 2-year maturity. This leads to a mismatch in the maturities of assets
and liabilities for the lender.
 Issues in Infrastructure Funding: Funding Gap i.e., banks are unable to provide long-term finance to
infrastructure projects. Infrastructure financing is currently dominated by bank lending, with outstanding
credit to the infrastructure sector touching 15% until FY16 due to rising NPA in the banking sector driven by
declining asset quality in the infrastructure sector.

DFI IN INDIA:
 Institutional framework for development banking: Soon after independence, the institutional framework for
development banking began- IFCI (1948), IDBI (1964), IIBI (1972), NABARD and EXIM Bank (1982), SIDBI
(1990), etc.
 Recent past: In the past few years, DFIs such as ICICI, IDBI and IDFC have transformed into universal banks as
they did not have the advantage of low-cost funding for long term projects.
 Present situation: Currently, DFIs are sector-specific, such as Rural Electrification Corp. Ltd (REC) for the
power sector, NABARD for the agriculture sector, and Indian Railway Finance Corp. to fund rail infrastructure
among others.

CONCLUSION:
 If India has to grow 8-10% continuously, credit growth for infrastructure must be 12-14%. India needs wide-
ranging institutional and regulatory reforms, and not just a DFI, to bolster the corporate bond market, the
size of which stands at only about 15-16% of GDP. Nevertheless, the DFI proposal could be one of the
important steps and way forward in that direction.

New Umbrella Entity (NUEs) for Payment System

 In news: The private companies have shown interest in setting up New Umbrella Entities (NUEs) for payment
systems - an idea floated by the RBI. The aim is to create an alternate mechanism to the existing National
Payments Corporation of India (NPCI).
 New Umbrella Entity or entities will carry out various payment services, similar to the ones being provided by
the NPCI right now.

NEED FOR NEW UMBRELLA ENTITY (NUES):

 Enhance the competition: At present, the NPCI is the only entity handling the payment system. So, it is not
for sure that the transaction costs are the lowest, or they cannot be reduced further. Similarly, the
competition will also provide a variety of product offerings in the payment system.
 Manage and operate new payment systems: They will set up, manage and operate new payment systems.
New payment systems include wallet transactions, Aadhaar-based payments, and remittance services, UPI
transactions, ATMs, white-label PoS, etc.
 To reduce the monopoly of NPCI: Private players in the payments space have expressed few concerns with
the NPCI. Further, the NPCI is the only entity managing all retail payments systems in India. So, the NUEs will
enhance the competition and improve the service delivery in the retail digital payment ecosystem.

FUNCTIONS OF NEW UMBRELLA ENTITIES (NUEs):

 Develop: They will develop new payment standards, methods, and technologies.
 Risk management: They will operate in clearing and settlement systems. Furthermore, they will also identify
and manage relevant risks. This includes risks related to settlement, liquidity, credit, and operation.
 Preserve the integrity: New Umbrella Entities will also preserve the integrity of the retail payment system.
 Monitoring role: These entities will monitor the system both nationally and internationally to prevent shocks,
frauds, and challenges that affect the system in general.

RBI FRAMEWORK RELATED TO THE NUEs:

 Capital requirements: The pan-India NUEs will focus on retail payment systems with a minimum paid-up
capital of Rs 500 crore. However, the RBI will not permit any single promoter or group to hold more than 40%
investment in the NUE. Also, the NUE should maintain a minimum net worth of Rs. 300 crores at all times.
 Ownership of NUE: The promoter or the promoter group of the NUE should be ‘owned and controlled by
residents’ with 3 years of experience in the payment’s ecosystem.
 Governance of NUE: The entity has to follow corporate governance norms set by the RBI. The RBI will retain
the right to approve the appointment of directors and nominate a member on the entities’ board.
 Foreign Investment: As long as the NUE’s comply with the other guidelines the Foreign Investment is allowed.

NEED FOR THE NEW REGULATOR:

 Number of digital transactions in the country: The retail transfers in the country expanded enormously. For
example, in 2020-21 alone Rs.165 lakh crores of money transferred in 27 billion transactions. This requires
a regulator to oversee the transactions and ensure proper service delivery.
 RBI lack of capacity: RBI will need a huge upfront cost to create a regulatory body for these NUEs. So the RBI
thinks it can be left to NPCI or any new regulator.
 Better functioning of NUEs: The new regulator/NPCI can handle the customer queries, granting licenses,
monitoring the functions of the NUE in a better way.

CHALLENGES:
 NPCI monopoly on regulating NUEs: Many of the NUEs are also the shareholders of the NPCI. So, if the
regulatory control is vested with them, then there will be a conflict of interest between developing the NUE
and controlling NUE.
 Promote inefficiency: NPCI is performing very well in promoting the digital leap of India. Asking it to take over
the regulatory function will also reduce its capacity and hamper India’s digital progress.
 Creating a new regulator: Creating a new regulator with enough capacity, manpower and regulatory
capability from the top-down is a great challenge. Delay in creating the regulator or hurrying it to work faster
will pave way for the NUEs to exploit the loopholes.
 Need for a capable body: By leaving the power of regulation to NPCI or a new body will distance the RBI from
the digital payment ecosystem. As the digital payment ecosystem is considered as the future of the economy,
thus it is important that it is regulated directly by a capable body like RBI.
 Data privacy and data theft: The new regulator/NPCI will have to strengthen the data security infrastructure
right from the beginning as digital payments are already increasing in the country.
 Ambiguity in the function of the regulator: There is no clarity on RBI’s relationship with the regulator post
the formation. For example, will the RBI have regulatory control over the regulator? If the regulator is
independent, then it may not function as efficiently as the RBI.

WAY FORWARD:
 Create a new body: Or at least restructure the NPCI. The RBI can set up a new regulator for NUEs, or it can
restructure the NPCI board to avoid conflict of interest.
 Need for RBI to take the regulatory responsibility of NUEs: The RBI can use the existing capacity to generate
enough infrastructure to regulate these NUEs.
 Cost saving: The cost of setting up the infrastructure for the regulator will be the least for a regulator like RBI
than the new regulator. As there is enough manpower, capital, technological capability available. So, the RBI
has to set up a separate branch/division to regulate these New Umbrella Entities.
 Multiple regulator: India so far has created too many regulatory bodies in the financial space such as RBI,
SEBI, PFRDA, IRDAI, etc. So, the government has to perform the review and consolidation of these regulatory
bodies. This will ensure consistent and predictable signals to the market.
 Building privacy by design: The government has to pass the Data Protection Law. This will make NUE store
data within India and provide users the right to privacy in the digital space. Further, the government has to
strengthen the RBI’s digital capability.

CONCLUSION:
 New Umbrella Entities are transforming India’s retail payment system from cash to cashless economy and
further digitization, their operations are going to increase. So, regulating them is a necessary step to infuse
checks and balances in the retail digital payment space. But the RBI has to take responsibility for that, instead
of transferring power to others.

INSOLVENCY AND BANKRUPTCY CODE

In the News: the parliament passed Insolvency and Bankruptcy Code (Amendment) Bill 2021 to Pre-Packaged
Insolvency Resolution Process (PPIRP) for corporate MSMEs.

INSOLVENCY AND BANKRUPTCY CODE, 2016:

 The Insolvency and Bankruptcy Code, 2016 sets out a time-bound insolvency resolution process for
defaulting corporate debtors.
 It introduces a creditor-in-possession model whereby a committee of creditors (CoC) is constituted to take
decisions regarding the operations of the corporate debtor, including evaluating prospective resolution plans
for resolving the corporate debtor's account.

SALIENT FEATURES OF IBC:

 Applicable to: It applies to both individuals and companies.
 Deadline: Earlier it provided for a 180-270 days period to resolve insolvency but now the deadline of 330 days
has been set for completion of the corporate insolvency resolution process (CIRP), including litigation and
other judicial processes.
 Immunity provision: It provides immunity to the debtors from claims of resolution by creditors during this
period of resolution.
 Common platform: It provides for a common platform of debtors and creditors of all classes to resolve
insolvency.
 Preference and priority: The Code gives the highest priority to those who have brought interim finance to
meet the costs of resolution or liquidation, followed by dues to workers for the past two years and dues to
secured creditors in equal priority.
 Resolution or liquidation proceeds: Employees other than workmen, and unsecured creditors and
operational creditors are further down the line in the priority of receiving resolution or liquidation proceeds.

Pre-packaged insolvency resolution?

 A pre-packaged insolvency resolution mechanism is a procedure in which the distressed corporate
debtor (CDs) and lender agree on a resolution agreement before filing for bankruptcy with the National
Company Law Tribunal (NCLT).
 It is based on the debtor-in-possession paradigm, and it provides legal backing to a plan negotiated by
banks, promoters, and the buyer.
 It also safeguards against fraudulent activities/mismanagement by permitting the Committee of
Creditors (CoC) to apply for a change in the company's management and shift control to the resolution
professional with 66 percent of the vote.
 In the absence of unrelated financial creditors, the CoC is made up of financial creditors to the Corporate
Debtor (CD) or operational creditors.

Cross Border Insolvency

 Another area where the IBC comes into play is when an insolvent debtor has assets and/or creditors in
more than one country.
 They are ad hoc in nature and subject to delays, as they are governed by IBC Sections 234 and 235.
o Section 234 empowers the Central Government to enter into bilateral agreements with other
countries to resolve cross-border insolvency situations, and
o Section 235 empowers the Adjudicating Authority to issue a letter of request to a court or
competent authority to deal with a request for evidence or action in connection with insolvency
proceedings under the IBC in countries where Section 234 has been agreed upon.
 The lack of a uniform cross-border insolvency framework creates complications and presents a slew of
difficulties, including:
o The extent to which an insolvency administrator has access to assets held in a foreign nation.
o Priority of payments, i.e., whether local creditors should be able to access local assets before money
are sent to the foreign administration,
o Recognition of local creditors' claims under a foreign administration
o Local securities recognition and enforcement, a taxation system for local assets where a foreign
administrator is appointed.

5 YEARS OF IBC: HITS AND MISSES

 HITS
o Higher Recovery rate of 45% in comparison to recovery rate of 26% in the earlier regime.
o Addresses the Chakravyuha challenge (Exit related issues) of Indian Economy:
o 1991 LPG Reforms has enabled easier entry of private sector but made the exit difficult.
o Old Inefficient firms continue to operate with highly efficient firms leading to misallocation of
factors of production
o IBC has enabled faster exit of old inefficient firms.
 Misses
 o Recovery rates: Exclusion of large recovery cases such as Bhushan Steel, Essar Steel etc. would
lead to recovery rate of around 35-36%
o Delay in admission of Applications and Approval of Resolution plans
o Infrastructural issues: Less number of NCLTs; Delay in appointments; Higher vacancies etc.

PAYMENT BANK
In the News: A number of payment banks, including Paytm Payments Bank and Airtel Payments Bank, have been
designated as Scheduled Banks by the RBI.
Payment Bank
 It is a bank incorporated under the Companies Act of 2013 and regulated under the Banking Regulation
Act of 1949, as recommended by the Nachiket Mor committee in 2013.
 The payments bank must have a minimum paid-up equity capital of 100 crores and a 15% capital adequacy
ratio.
 For the first five years, the payments bank's promoters should retain at least 40% of the bank's paid-up
share capital.
 It accepts demand deposits of up to Rs 1 lakh, as well as remittances, mobile
payments/transfers/purchases, and other banking services.
 They keep a Cash Reserve Ratio (CRR) with the RBI and use the Statutory Liquid Ratio to invest in
qualifying government securities and treasury bills (SLR).
 For temporary liquidity management, they can use the interbank uncollateralized call money market,
collateralized repo, and CBLO markets.
Significance of Scheduled Banks status
 Scheduled banks are those included in the Reserve Bank of India Act, 1934's Second Schedule.
o Scheduled Commercial Banks and Scheduled Co-operative Banks are included in this category.
 Scheduled Bank status enables banks to pursue new business prospects, participate in RFPs issued by the
government and other big enterprises, primary auctions, fixed-rate and variable-rate repurchase
agreements, and reverse repurchase agreements.
 They will also be eligible to cooperate in government-run financial inclusion programmes and participate
in the Marginal Standing Facility.
 They are eligible for a bank-rate refinancing facility from the RBI, as well as membership in a clearing
house and access to currency storage.

DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION (DICGC) (AMENDMENT) ACT, 2021
 In News: the DICGC (Amendment) Bill, 2021 was passed by both Houses of Parliament and stands to amend
the DICGC Act, 1961.

DICGC
 It is a wholly-owned subsidiary of the RBI that provides an insurance cover on bank deposits.
 It was created under the DICGC Act, 1961. The Deputy Governor of RBI is its ex-officio Chairman.
 All commercial banks including the branches of foreign banks functioning in India, Local Area Banks, Co-
operative Banks and Regional Rural Banks are covered by deposit insurance scheme.
 It insures all bank deposits, such as saving, fixed, current, recurring, etc. except the following types of
deposits:
o Deposits of foreign Governments
o Deposits of Central/State Governments
o Inter-bank deposits
o Deposits of the State Land Development Banks with the State co-operative banks
o Any amount due on account of and deposit received outside India.
Under the Act, insured banks are required to pay a premium to the Corporation on their deposits.
 The rate of premium for a bank is notified by the Corporation with the prior approval of RBI.
 The Act limits the rate of premium (per annum) for a bank at 0.15% of its total outstanding deposits.
 The Act provides that the Corporation may charge a penal interest for delay in repayment.
Key Features of DICGC (Amendment) Act, 2021
 Provisions for penal interest in case of delay to ensure timely repayment from banks to DICGC.
 Removal of earlier ceiling of 15 paise (0.15%) on premium and DICGC to notify the ceiling on premium
with prior RBI approval.
 Empower DICGC’s Board to defer due repayments from insured banks after insurance pay out on its own
terms.
 The amendment will allow customers of failed or stressed banks, placed under moratorium, to get their
deposits (up to INR 5 lakh) back within 90 days of start of moratorium.

INDIA’S EXTERNAL SECTOR

Introduction
Export, import, foreign investment, external debt, current account, capital account, balance of payment, and
other economic operations that take place in foreign currency fall within the external sector.
Importance of Export for Indian economy
 India's goal of reaching a $5 trillion economy by 2024 is inextricably connected to a focus on exports.
 Prior to the LPG reforms, inward-oriented and protectionist policies had a negative impact on the
economy, resulting in lower exports, lower foreign investment, inferior industry competitiveness, and a
lower GDP growth rate overall.

Observations of economic survey 2021-2022: Trends in External sector

 India's total exports (including goods and services) in 2019-20 were US$ 526.6 billion, down from US$
538.1 billion in 2018-19.
 India's share of global exports has risen from 0.6 percent in 1991 to 1.7 percent in 2018, but it still pales
in comparison to China's 13 percent and the United States' 9%.
 In 2019, India was rated 18th among the world's top exporting countries.
 India's exports account for around 18% of the country's GDP.
 Due to its rapid expansion, India's services sector has been a primary driver of exports, with the services
trade surplus funding about half of the country's merchandise trade deficit.
 External trade recovered strongly in 2021-22 after the pandemic-induced slump of the previous year,
with strong capital flows into India, leading to a rapid accumulation of foreign exchange reserves.
 During 2021-22 (April-December), merchandise exports recorded growth of 49.7 per cent to US$ 301.4
billion, exceeding the pre-pandemic levels.
 Crude petroleum imports more than doubled to US$ 73.3 billion in April-November, 2021 compared to
last year.

Export led growth model for India

 An export-led growth strategy is one where a country seeks economic development by opening itself up
to international trade. The opposite of an export-led growth strategy is import substitution, where
countries strive to become self-sufficient by developing their own industries.
Need for India
 An export-led strategy would assist us in attracting foreign investment, integrating into global value
chains (GVCs), increasing employment creation, and therefore maintaining a virtuous economic cycle.
 By integrating into the global economy, countries like Japan, China, and Vietnam have been able to
maintain faster economic growth.

DIFFICULTIES IN PROMOTING EXPORTS

 Low Market Penetration in High-Income Countries: India's exports shifted disproportionately from
traditional rich-country markets to new destinations, such as Africa.
 Specialization vs. Diversification: Indian exports are characterised by a high degree of diversification and
a low level of specialisation.
 Rising Protectionist Policies in importing countries.
  Factors such as poor infrastructure, complicated land and labour markets have made it difficult for Indian
businesses to compete in global markets.
 Regional Disparities as 70% of India’s export are dominated by five states - Maharashtra, Gujarat,
Karnataka, Tamil Nadu, and Telangana.
 Apart from these factors, Higher Logistics Cost, Poor Innovation, Dominance of Dwarf Firms in MSME
Sector and lack of Lack of Market Intelligence hindering the growth of export in India.

Road ahead
 Improve Trade Competitiveness through improving infrastructure, Reorient SEZs and diversifying the
products basket.
o NITI Aayog, in partnership with the Institute of Competitiveness, has recently released the
second edition of Export Preparedness Index (EPI) 2021.
o The Government had launched the Remission of Duties and Taxes on Export Product (RoDTEP)
scheme on 1st Jan 2021 to replace the Merchandise Exports from India (MEIS) scheme.
o the exporters are provided with reimbursement of taxes/ duties/ levies imposed at the central,
state and local level.
 Protect the domestic Market from the import cheap foreign goods.
 Policy Stability: In the post-Covid world, international corporations will want to diversify their supply
chains away from China in order to avoid supply chain disruptions.
 Increase access to official finance: In India, only around 4% of small businesses have access to formal
financing.
o Exim Bank plans to raise around $3 billion in 2022-23 (FY23) via overseas bonds to support fresh
lending and refinance a portion of the old debt.
o IndiaXports Initiative to increase MSME exports by 50% in 2022 by using an Info Portal as a
knowledge base for exports by Indian MSMEs on export potential, potential markets etc.
o The government has approved the extension of Interest Equalization Scheme for Pre and Post
Shipment Rupee Export Credit.
 Exporters get a subsidy on interest ranging between 3 per cent and 5 per cent.
 Global value chains (GVCs) integration: large anchor corporations in key products are invited to establish
operations in India.

FTAs and Progress of India

 Experts say the government's reassessment of FTAs is a positive step that would assure India's inclusion
into the global economy and provide Aatma-Nirbhar Bharat a boost.
NEED FOR FTAs
 Integration with global value chain: Countries such as Japan, South Korea, Singapore etc. have been able
to sustain higher economic growth by integrating with the global economy.
 Shift from consumption-led to investment and export driven model.
 Boost "Make in India" and "Assemble in India": By incorporating "Assemble in India for the World" into
"Make in India," India may increase its export market share to 3.5 percent by 2025 and 6% by 2030.
 Domestic industries would be forced to innovate and adapt as a result of the FTAs.
 FTAs aid in the lowering of tariffs with a specific trading partner in a controlled way, with tariff
reductions spaced out over time.
Issues with FTA
 Imports and exports have grown as a result of FTAs. Imports, on the other hand, far outnumber exports.
 In India, the use of free trade agreements (FTAs) by exporters is extremely low (between 5 and 25
percent).
 FTAs with nations like Japan have resulted in an inverted tariff system, which has harmed domestic
industry.
 Apart from the rising trade imbalance, the quality of trade has decreased since FTAs were signed.
Road ahead
 Existing free trade agreements should be renegotiated to ensure that India's interests and concerns are
effectively handled.
  Improve access to manufacturing factors to boost trade competitiveness.
 Adopting recommendations of the BABA KALYANI committee: SEZs should be called 3 E's, which stands
for Employment and Economic Enclaves. The focus should not just be on increasing exports, but also on
increasing employment and the pace of GDP growth.

Forex Reserves
 In news: RBI data showed that the country's foreign exchange reserves rose by $835 million to touch a record
high of $612.73 billion in the month of July 2021.
 Forex is an important component of the Balance of Payment and an essential element in the analysis of an
economy’s external position.

FACTS AND DATA:

 RBI Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign
exchange reserves.
 Majority of reserve: As much as 64% of the foreign currency reserves is held in securities like Treasury bills
of foreign countries, mainly the USA. 28 per cent is deposited in foreign central banks.
 Gold reserves: India also held 653.01 tonnes of gold as of March 2020, with 360.71 tonnes being held
overseas in safe custody with the Bank of England and the Bank for International Settlements.

IMPORTANCE AND PURPOSE OF FOREIGN EXCHANGE RESERVES:

 Goldman Sachs report: According to a report by Goldman Sachs, stronger foreign currency reserves will allow
developing market central banks to “buffer their currencies against sharp declines by supplying dollars to the
market” at times of volatility.
 Comfort for RBI: The government is in a comfortable position if there are rising forex reserves and the RBI in
managing India’s external and internal financial issues at a time of major contraction in economic growth.
 Fulfilling external obligations: It assists the government in meeting its foreign exchange needs and external
debt obligations.
 Appreciation in Rupee: The rising foreign exchange reserves has helped the rupee to strengthen against the
dollar.
 Crisis Management: Rising Forex Reserve serves as a cushion in the event of a Balance of Payment crisis on
the economic front. It is enough to cover the import bill of the country for a year. Know more about the
Balance of Payment on the linked page.
 Confidence in the Market: Forex Reserves will provide a level of confidence to markets and investors that a
country can meet its external obligations
 Keeps fixed rate: To keep the value of their currencies at a fixed rate. Countries with a floating exchange rate
system use forex reserves to keep the value of their currency lower than the US Dollar.
 Maintains liquidity: To maintain liquidity in case of an economic crisis.
 Keeps the market steady: The central bank (RBI) supplies foreign currency to keep markets steady.

FOREX RESERVES RISING DESPITE THE SLOWDOWN IN THE ECONOMY:

 Rise in investment: In foreign portfolio investors in Indian stocks and foreign direct investments (FDIS).
 Fall in crude oil prices: It has brought down the oil import bill saving the precious foreign exchange.
Foreign remittances: Overseas remittances and foreign travels have fallen steeply - down by 61%.

POVERTY

Introduction
 Poverty is a multidimensional phenomenon in which a person or community lacks the financial resources
and essentials for a minimum standard of living.
 The UNHRC has defined poverty as “A human condition characterized by the sustained or chronic deprivation
of the resources, capabilities, choices, security, and power necessary for the enjoyment of an adequate
standard of living and other civil, cultural, economic, political and social rights”.

Types of Poverty
 Absolute Poverty: This approach defines the minimum level of income required to sustain life. The concept
of absolute poverty in India is based on ‘nutritional criteria’ expressed in terms of ‘consumption expenditure’.
This consumption expenditure level is known as the ‘Poverty Line’.
 Relative Poverty: when an individual has more than enough income to sustain life but very low as compared
to the rest of the community then the individual would be viewed as being in poverty.
o On this basis, we have various economic categories in society: (a) Higher Income Groups, (b) Middle
Income Groups and (c) Lower Income Groups.
Estimation of Poverty in India

Planning  Planning Commission Expert Group (1962), constituted by the Planning Commission
Commission 1962 formulated the separate poverty lines for rural and urban areas (Rs.20 and Rs.25 per
capita per year respectively).
 By 1979, it was decided that poverty should be measured precisely based on
Y. K. Alagh starvation.
Committee  Committee was constituted which gave its recommendation as the people
(1979) consuming less than 2,100 calories in the urban areas or less than 2,400 calories in
the rural areas are poor.
D.T. Lakdawala committee made the following suggestions:
 Consumption expenditure should be calculated based on calorie consumption as
Lakdawala earlier;
Committee  State specific poverty lines should be constructed and these should be updated
(1993) using the CPI-IW in urban areas and Consumer Price Index of Agricultural Labour
(CPI-AL) in rural areas; and
 The current estimations of poverty are based upon the recommendations of this
committee.
 This committee recommended to shift away from the calorie-based model and
Suresh Tendulkar made the poverty line somewhat broad based by considering monthly spending on
Committee education, health, electricity and transport.
(2005)  It supported nutritional intake rather than caloric intake. The committee also drew
a line based on cost of living.
 The Tendulkar panel stipulated a benchmark daily per capita expenditure of Rs. 27
and Rs. 33 in rural and urban areas, respectively.
 As per the Tendulkar estimation, the percentage of people living below the poverty
line in India is 21.9%.
 The committee raised the cost of living per day to Rs. 32 and Rs. 47 for rural and
C. Rangarajan urban areas, respectively.
Committee  The report said that was much higher in 2011-2012 at 29.5% of the population and
(2012-14) in absolute terms close to 40 crores poor, which means that three out of 10 people
in India were poor.
The task force suggested setting up of committee to identify people “Below
Arvind Poverty Line (BPL)" It also suggested participation of states. The paper talks of
Panagariya Task considering four options for tracking the poor:
Force (2015)  First, continue with the Tendulkar poverty line.
 Second, switch to the Rangarajan or other higher rural and urban poverty lines.
 Third, bottom 30% of the population tracking over time
  Fourth, tracking the bottom 30% on specific components, such as housing,
sanitation, electricity, nutritional intake, etc.
 NITI Aayog favoured the Tendulkar line (21.9%)
 SECC data as suggested by Saxena and Hashim committee will be used for
entitlements.
 Dr. N.C. Saxena Committee was set up by the Ministry of Rural Development to
NITI Aayog Task advise it on the suitable methodology for BPL Census and not for estimation of
Force poverty.
 The Planning Commission constituted an Expert Group under the Chairmanship of
Professor S. R. Hashim to recommend the detailed methodology for identification of
families living Below Poverty Line in urban areas.

Challenges in Estimating Poverty

 Components of Poverty Line Basket: Determining components of PLB is one of the challenges of poverty line
estimation because of the price differentials (of constituents of basket) which vary from state to state and
period to period.
 Variations across states: Some states such as Odisha and West Bengal supported the Tendulkar Poverty Line
while others such as Delhi, Jharkhand, Mizoram etc.
 Low threshold: The current official measures of poverty are based on the Tendulkar poverty line, fixed at
daily expenditure of ₹27.2 in rural areas and ₹33.3 in urban areas is criticised by many for being too low.
 Demographic and Economic Dynamics: Further, consumption patterns, nutritional needs and prices of
components keep on changing as per dynamics of macro economy and demography.
 Most of the governments have mothballed the reports of committees and panels: because this issue is not
only politically sensitive but also has deeper fiscal ramifications.
 Problem of determining threshold: If the poverty threshold is high, it may leave out many needed people;
while if it is low, then it would be bad for fiscal health of the government.

SOLUTION FOR EFFECTIVE MEASUREMENT OF POVERTY

 Redefining Poverty lines: Poverty lines have to be recalibrated depending on changes in income,
consumption patterns and prices.
 Viable Poverty line: It makes sense to set the poverty line at a level that allows households to get two square
meals a day and other basic necessities of life.
 Hybrid of Absolute and Relative Measurement of Poverty: The hybrid approach which would measure
poverty from the perspective of a common global standard of living and relative poverty within countries.
 Political Economic Equilibrium: The focus of government spending should be on the provision of public goods
rather than subsidies.

Poverty concept by Amartya Sen

 Dr. Amartya Sen provided a useful alternative to understand poverty. Amartya Sen because of the Nobel
Prize for economics.
 His capability approach to understanding poverty goes beyond income and stresses the whole range of
means available to achieve human capabilities such as literacy, longevity and access to income.
 Sen made his mark by pointing out that people often die of hunger not because there is a shortage of food
but because there is a shortage of "entitlements".

Why poverty numbers are important?

 Identification of beneficiary: Poverty numbers matter because central welfare schemes like Antyodaya Anna
and Rashtriya Swasthya Bima Yojana use the definition of poverty given by the NITI Aayog or the erstwhile
Planning Commission.
 Financial allocations: The Centre allocates funds for these schemes to states based on the numbers of their
poor.
 Targeted delivery of services: Errors of exclusion can deprive eligible households of benefits.
 Helps in forming public opinion: Knowing the numbers and making them public makes it possible to get public
opinion to support massive and urgent cash transfers.
 Helps evaluating success of policies: Recording the data helps to evaluate all policies on the basis of whether
they meet the needs of the majority. It will help transparently evaluate only when the numbers of the poor
are known and established.
 Helps addressing the concerns of real majority: If government data were to honestly account for the exact
numbers of the poor, it may be more realistic to expect the public debate to be conducted on the concerns
of the real majority.
 To gauge the rising inequality: Indians must have the right to question whether there is a connection and if
the massive rise in riches is not coincidental, but at the back of the misery of millions of the poor.

CAUSES of Poverty
 Colonial exploitation: India under the colonial hegemony was
forced to de-industrialize resulting in increased raw material
production and a decrease in the export of value-added goods like
traditional handicrafts and textiles.
 Population Explosion: During the past 45 years, it has risen at a
rate of 2.2% per year, which means, on average, about 17 million
people are added to the country’s population each year.
 Low Productivity in Agriculture: It is attributed to fragmented and
subdivided landholdings, lack of capital, illiteracy about new
technologies in farming, the use of traditional methods of
cultivation, wastage during storage, etc.
 Poor Skills: Just 5.4% of the Indian workforce have formal skilling, pushing major population for low skills jobs
like construction laborers and Informal jobs
 Health related: with 67% of health expenditure out of pocket, It pushed the families into debt and finally into
poverty – NITI Aayog
 Unemployment: Unemployment is another factor causing poverty in India. The ever-increasing population
has led to a higher amount of job-seekers. However, there is not enough expansion in opportunities to match
this demand for jobs.
 Rising Inequality: The top 10% of the Indian population holds 77% of the total national wealth. This directly
hampers level playing field, leading to poverty trap for the Poor.
 Lack of investment: The investment provides more job opportunities. For this, the Indian economy must be
favourable for foreign investment.
 Failure of Social contract: where some poor and unprivileged people fail to receive the government for
reasons like lack of proper documents, complex procedures, middle man problem.
 Social Factors: Apart from economics and commerce, there are also social factors hindering the eradication
of poverty in India. Some of the hindrances in this regard are the laws of inheritance, caste system, certain
traditions, etc.
 Underutilized Resources: There is underemployment and disguised unemployment in the country,
particularly in the farming sector.
 Climatic Factors: Most of India's poor belong to the states of Bihar, UP, MP, Chhattisgarh, Odisha, Jharkhand,
etc. Natural calamities such as frequent floods, disasters, earthquakes and cyclones cause heavy damage to
agriculture in these states.
 Lack of infrastructure: There are several villages in India that still don’t have access to basic commodities like
electricity, thus resulting in poor standards of living. They don’t even have proper roads or railways.
 Financial Inclusion: leading to problems like poor service delivery because of DBT reforms, Poor savings, No
bank finance and no insurance facilities.

Consequences of Poverty
 Economic consequences:
 o Decreased demand: Leading to lower Economic growth
o Demographic ‘Bomb’: India having rich demographic dividend could turn that into demographic liability
with prevailing poverty
o Fiscal deficit: because of increased subsidies, increased expenditure on food security etc.
o Increased Unemployment: because of poor skill set, lack of funds for business, lower productivity due to
improper food intake etc.
 Political and Governance related:
o Protests and Riots: Poor people are easy target participants for ill motivated protests
o Decreased Political participation: with poor bargaining power and motivation to participate in national
affairs
o Manipulation of Social cleavages: where poor people are targeted the most to arose communal
disharmony
o Service delivery: impacted as Poverty brings many other impacts like no access to technology, poor
awareness levels etc
 Social Consequences:
o Illiteracy leading to poor employment levels
o Malnutrition, Wasting, Stunting and High Mortality rate
o Homelessness and Child Labour
o Feminization of Poverty like single mother, separated women
o Social Tensions like Drug abuse, mob lynching, robbery increases with increase in poverty

MULTIFACETED EFFECTS OF POVERTY

 Effects of poverty on health: health problems such as including infant mortality, earlier adulthood mortality
and mental illness, and they are also more likely to receive inadequate medical care.
 Effects on society as a whole: Poverty is a major cause of social tensions and threatens to divide a nation
because of the issue of inequalities, in particular income inequality.
 Effects of poverty on children: Poor infrastructures, unemployment, lack of basic services and income reflect
on their lack of education, malnutrition, violence at home and outside.
 Effect of poverty on Education: Poor children typically go
to badly maintained schools with inadequate facilities
where they receive poor coaching.
 Effects of poverty on terrorism: most of the time
terrorists do come from poorer countries with high
unemployment, and that terrorist organizations often
provide much higher salaries than any other job, if any
other job is available at all.
 Effect of poverty on Economy: Mainly, the number of
people existing in poverty influences employment rates
heavily. Without an education, people are unlikely to find
a lucrative or rather a decent paying job. FLOWCHART: VICIOUS CYCLE OF POVERTY

Female face of poverty: “FEMINIZATION OF POVERTY”

 Poverty affects greater number of women than men. Feminization of poverty is the phenomenon in which
total of poor women outnumbers the total population of poor men.
 Women are segregated, have very limited access to education (for political, religious or social reasons) and
are sometimes forbidden to work or restricted to tedious ones.
 The feminization of poverty may be caused by changes in Family composition, Family organization,
Inequality in the access to public services or in social protection.
 Unpaid work done by women across the globe amounts to a staggering $10 trillion a year, which is 43 times
the annual turnover of the world’s biggest company Apple, according to an Oxfam study.
 Inequality has ‘female face’ in India, women’s unpaid work worth 3.1% of GDP.
 Women spend 312 minutes per day in urban areas and 291 minutes per day in rural areas on such unpaid
care work, it added.
o In comparison, men spend only 29 minutes in urban and 32 minutes in rural areas on unpaid care
work.
 Although India has many laws that deal with violence against women, but their implementation remains a
challenge, including due to a deeply patriarchal society.

Role of self-Help groups (SHG) in poverty alleviation

 With financial inclusion credit facility to poor is increased. It also saves them from moneylenders.
 Opportunities for self-employment through setting of micro-enterprise.
 Skill development program undertaken by SHGs improves employability of members involved.
 As a result of increased jobs there is rise in income which enhances access to food, health services and
overall rise in living standards.
 With more women participation and their enhanced status address issues such as nutrition poverty and low
literacy rate
 It is also observed that the percentage of BPL population is less in the states where there is large number of
SHG.

Financial inclusion and poverty alleviation

 Reduced dependence on informal sources like moneylenders in times of need. Rates charged are high making
the poor enter into vicious cycle of indebtness.
 Empowering women who, with a credit line, could undertake labor activities unthinkable without economic
aid; increase consumption and investment, and thus grow revenues; and increase spending on other social
aspects, such as preventive health.
 Promotes habit of savings which eventually helps in capital investment.
 Financial inclusion boosts confidence of poor as it brings them the feeling of being part of mainstream. The
risk-taking ability also increases. This overall promotes entrepreneurship.

Impact OF poverty ON Human development

 Poor cannot live life or get employed as per their choice as must work even in life
threatening conditions to sustain their family e.g., death of miners in Talcher coal mine,
who were working because of no alternative.
 Poverty reduces the time to gain knowledge and thus impacts the awareness and
decision making like voting on rational basis.
 It reduces access to education, healthcare facilities etc.
 Lack of nutrition and healthcare results in high mortality among poor.
Poverty Alleviation Programmes in India
 Integrated Rural Development Programme (IRDP) 1978: To raise the families of identified target groups living
below the poverty line through the development of sustainable opportunities for self-employment in the rural
sector.
 National Family Benefit Scheme (NFBS) 1995: To provide a sum of Rs.20,000 to the beneficiary who will be
the next head of the family after the death of its primary breadwinner.
 MGNREGA 2006: The Act provides 100 days assured employment every year to every rural household. One-
third of the proposed jobs would be reserved for women.
 National Food Security Mission 2007: To increase production of rice, wheat, pulses and coarse cereals
through area expansion and productivity enhancement in a sustainable manner in the identified districts of
the country.
 National Rural Livelihood Mission 2011: It evolves out the need to diversify the needs of the rural poor and
provide them jobs with regular income on a monthly basis. Self Help groups are formed at the village level to
help the needy.
 Pradhan Mantri Jan Dhan Yojana 2013: It aimed at direct benefit transfer of subsidy, pension, insurance etc.
and attained the target of opening 1.5 crore bank accounts. The scheme particularly targets the unbanked
poor.
 Pradhan Mantri Garib Kalyan Yojana (PMGKY) 2016: The scheme provides an opportunity to declare
unaccounted wealth and black money in a confidential manner and avoid prosecution after paying a fine of
50% on the undisclosed income.
 National Nutrition Mission (NNM), Poshan Abhiyan 2018: To reduce the level of under-nutrition and also
enhance the nutritional status of children in the country.
 Pradhan Mantri Shram Yogi Maan-Dhan (PM-SYM) 2019: It is a central government scheme that is
introduced for old age protection and social security of Unorganised Workers (UW).
 Prime Minister Street Vendor’s Atma Nirbhar Nidhi – PM SVanidhi 2020: It aims to provide micro-credit
facilities to street vendors affected due to COVID-19 pandemic.
COVID-19 and Poverty: SOCIAL AND ECONOMIC DIMENSIONS
 According to World Bank, the COVID-19 pandemic is estimated to push an additional 8.8 crore to 11.5 crore
people into extreme poverty this year, with the total rising to as many as 15 crores by 2021.
o The pandemic and global recession may cause over 1.4% of the world’s population to fall into
extreme poverty.
 Extreme poverty, defined as living on less than $1.90 a day, is likely to affect between 9.1% and 9.4% of the
world’s population in 2020, according to the biennial Poverty and Shared Prosperity Report.

CASE STUDY: STEPS TAKEN BY VARIOUS STATE GOVERNMENTS

 Kerala: Everyone in need, whether the BPL or not, will get free rice. There will be home delivery of mid-day
meals and the ASHA workers would ensure that food reached its 26,000 children registered under ICDS.
 Haryana: All BPL families received their monthly ration for April free of cost. All government school children
and those enrolled in anganwadis were to be given dry rations.
 Chhattisgarh: Dry ration instead of hot-cooked meals were to be provided to children aged between three
and six years and who were registered with anganwadi centres.
 Bihar: Provision of Direct Cash Transfers, depositing funds to the bank accounts of ration card holders. It also
decided to give 5 kg rice and 1 kg pulses for three months as lockdown relief.

WAY FORWARD
 Increasing Resilience: We need to find ways to increase resilience across our food systems by identifying new
marketing channels like e-commerce which will provide more avenues to the farmers to sell their product in
case of low demand in the local market.
 Employment: need of job creation to provide employment opportunities to laborers and migrants who have
lost jobs due to pandemic.
 Investment: Increase investment in Greenfield Infrastructure to boost economy which will also lead to
employment generation.
 Social Security: The government may want to consider transferring the DBT amount at least for the next six
months, and in addition to other benefits like increased PDS entitlements, subsidy on cylinders, etc
 Financial Inclusion: Banking products and financial services must be made available to poor populations on
priority basis.
 Atma Nirbhar Bharat: The government enhanced its social safety programs including direct benefit transfers
such as:
o Cash transfers under PM Kisan scheme,
o More liberal financing under MGNREGA like advance disbursement,
o Direct cash grants to construction workers and release of free and subsidized food grains under Pradhan
Mantri Garib Kalyan Yojana to about 800 million people to ensure food for all.
Social Sector
 Social and economic factors, such as income, education, employment, community safety, and social support
can significantly affect how well and how long we live. These factors affect our ability to make healthy choices,
afford medical care and housing, manage stress, and more.

WHY FOCUS ON SOCIAL SECTOR?

 No country has progressed without investing in the social sector.
 India is committed to achieving the SDGs by 2030, and social sector development is important in reaching
them.
 Progress in this sector has intrinsic (for its own sake) and instrumental (for higher growth) value.
 It is needed even to build a $5 trillion economy faster.

INDIA’S SOCIAL SECTOR EXPENDITURE

 Education: as a percentage of GDP has been stagnant around 2.8-3 per cent during 2014-15 to 2019-20.
 Health: expenditure as a percentage of GDP increased from 1.2 per cent to 1.5 per cent. This is lower than
the required 2-3 percent of GDP.
 The 15th Finance Commission also seems to have mentioned that health expenditure should be increased to
2.1 per cent of GDP.
 Both Centre and states should have a “five-year vision on the social sector”.

KEY ISSUES IN THE SOCIAL SECTOR

 The problem of undernutrition: The NFHS-5 report shows that malnutrition level has reduced marginally in a
few states and has worsened in some other states between 2015-16 and 2019-20. We can’t have a society
with 35% of our children suffering from malnutrition.
 Quality education: The pandemic has enhanced inequalities in education and has revealed the widening
digital gap.
 Social safety nets: It is known that migrant workers were the most affected during the pandemic and that
they do not have any safety nets.
 Programs for vulnerable section need to be continued: The government has done well in providing cooking
gas through Ujjwala Yojana and electricity through Saubhagya Yojana.
Social Mobility
 Typically, inequalities are measured in income terms. However, this measure has been found inadequate.
 In a country with a society with perfect relative mobility, a child born in a low-income family would have as
much chance to earn a high income as a child born to parents
who earn a high income.
 As the report states, “many situations exist where, despite high
levels of absolute income mobility, relative social mobility
remains low”.
 The report states: “The notion of relative social mobility is more
closely related to the social and economic status of an
individual relative to their parents”.

Reasons FOR NON-EFFECTIVITY OF POVERTY ALLEVIATION PROGRAMMES

 The resources allocated to anti-poverty programmes are inadequate and there is a tacit understanding that
targets will be curtailed according to fund availability. For instance, MGNREGA does not provide the
guaranteed 100 days of work in many states.
 There is no method to ensure that programmes reach everybody they are meant for.
 Lack of awareness of these schemes amongst the masses given their illiteracy and ignorance.
 It may possibly be better to implement these programmes through NGOs and Civil Society Organisations
after a strict screening process.
 Need to bring in an independent ‘social audit’ of these schemes not for fixing accountability but for plugging
leakages, improving delivery.
 Absence of any monitoring mechanism for the efficacy of such schemes or to know the end result.
 There is no systematic attempt to identify people who are in poverty, determine their needs, address them
and enable them to move above the poverty line.

SOLUTIONS FOR EFFICIENT EXECUTION OF POVERTY ALLEVIATION PROGRAMMES

 Improving human development outcomes for the poor by improving their quality of life and income earning
opportunities.
 Creating more good clusters of employments as more and more of India’s poor are concentrated in the
poorest states.
 Future efforts will need to address job creation in more productive and labour-intensive sectors, which has
until now been lukewarm and has yielded few salaried jobs that offer stability and security.
 Capitalizing on growing connectivity between rural and urban areas, and between the agriculture, industry
and services sectors is also a viable solution in this regard.

Strategies for poverty reduction in rural areas

 Promote Agricultural Growth: It’s not just about agricultural growth, which has long been considered the key
driver of poverty reduction.
 Accelerating rural poverty reduction: In fact, rural India is not predominantly agricultural and shares many
of the economic conditions of smaller urban areas.
 Capitalizing connectivity between rural and urban areas: Capitalizing on the growing connectivity between
rural and urban areas, and between the agriculture, industry and services sectors, has been effective in the
past.
 Creating more and better jobs: Future efforts will need to address job creation in more productive sectors,
which has until now been lukewarm and has yielded few salaried jobs that offer stability and security.
 Focusing on women and Scheduled Tribes: The most worrying trends are the low participation of women in
the labour market and the slow progress among scheduled tribes.
 Improving human development outcomes: better health, sanitation and education will not only help raise
the productivity of millions, they will also empower the people to meet their aspirations.
INCOME INEQUALITY IN INDIA
 India’s richest 1 per cent hold more than four-times the wealth held by 953 million people who make up for
the bottom 70 per cent of the country’s population. The total wealth of all Indian billionaires is more than its
full-year budget.
 It further said women and girls put in 3.26 billion hours of unpaid care work each and every day — a
contribution to the Indian economy of at least Rs 19 lakh crore a year, which is 20 times the entire education
budget of India in 2019 (Rs 93,000 crore).
The Global Multidimensional Poverty Index (MPI) 2021
 The Global Multidimensional Poverty Index (MPI) is an international measure of multidimensional poverty
covering 107 developing countries.
 Of these people, 1.3 billion people (22%) are identified by the global MPI as multidimensionally poor as per
the Global Multidimensional Poverty Index 2020.
 According to Global MPI 2021, India is 62nd among 107 countries with an MPI score of 0.123 and 27.91%
headcount ratio, based on the NFHS 4 (2015/16) data.

HOW IS MPI BETTER THAN OTHER MODELS?

 Multidimensional approach: MPI takes advantage of the availability of multipurpose household surveys
which allows data on different dimensions to be drawn from the same survey.
 Better Comparison: MPI can show the composition of multidimensional poverty across different regions,
ethnic groups or any other population sub-group, with useful implications for policy.
 Complement to income-based poverty measures: Income poverty data come from different surveys, and
these surveys often do not have information on health, nutrition etc.
LIMITATIONS OF MPI
 Less sensitive: To be considered multidimensionally poor, households must be deprived in at least six
standard of living indicators or in three standard of living indicators and one health or education indicator.
 Unable to capture inequality: While the MPI goes well beyond a headcount to include the intensity of poverty
experienced, it does not measure inequality among the poor.
 Unable to capture Intra-household inequalities: Intra- household inequalities may be severe, but these could
not be reflected precisely because there is no individual-level information for all the indicators.
 Unavailability of data: There are limits to the cross-country comparability of the MPI.
GLOBAL MULTIDIMENSIONAL POVERTY INDEX AND THE SDG
 It shows the interlinked deprivations of people in the same household across 10 indicators that relate to SDGs
1 (No Poverty), 2 (Zero Hunger), 3 (Good Health and Well-Being), 4 (Quality education), 6 (Clean water and
sanitation), 7 (Affordable and Clean Energy) and 11 (Sustainable cities and communities).
 MPI and Immunization: There is a negative, moderate, and statistically significant correlation between global
MPI value and coverage of diphtheria, tetanus and pertussis (DTP3) vaccine.
 MPI and Education: Sub-Saharan African countries have the highest percentages of people who are
multidimensionally poor and deprived in years of schooling.
 MPI and rural-urban divide: for instance, in South Asia 29.2% of overall population is multidimensionally poor
compared with 37.6% in rural areas
 MPI and climate change and the environment: Poor and disadvantaged people carry a double burden: they
are vulnerable to environmental degradation and must cope with immediate environmental threats from
indoor air pollution (SDG 3.9), lack of clean water (SDG 6.1) and unimproved sanitation (SDG 6.2).
MPI and work and Employment: There is a strong correlation between MPI value and child labour. Agricultural
employment plays an important role in raising overall employment and reducing poverty in many developing
countries.

EMPLOYMENT, UNEMPLOYMENT AND SKILL DEVELOPMENT

PREVIOUS YEAR QUESTIONS:

1. Account for the failure of manufacturing sector in achieving the goal of labor-intensive exports 2017
rather than capital-intensive exports. Suggest measures for more labour-intensive rather than
capital-intensive exports.

2. “Success of ‘Make in India’ programme depends on the success of ‘Skill India’ programme and 2015
radical labour reforms.” Discuss with logical arguments.

3. While we found India’s demographic dividend, we ignore the dropping rates of employability. What 2014
are we missing while doing so? Where will the jobs that India desperately needs come from?
Explain.

EMPLOYMENT
 Employment is one of the key economic variables and consequently has a direct impact on economic growth
and indirect effect on overall well-being of the populace.

Present scenario of employment in India

The National Statistical Office (NSO) has recently published Periodic Labour Force Survey (PLFS) report. The report
captures the employment related data for the period April-June 2021 quarter in the Urban Areas.
 According to the latest report, unemployment rate in Urban India had increased to 12.6% in April-June
2021 period.
 Labour Force Participation Rates (LFPR)
o Men: Decreased to 73.1% in the April-June 2021 quarter, compared to 73.5% in the January-
March 2021
 o Women: Decreased to 20%
o Overall: Decreased to 47% in comparison to 47.5% in January-March 2021 Quarter.
Unemployment rate in Urban Areas
o Men: Increased to 12% in April-June quarter as compared to 8.6% in Jan-March 2021 quarter.
Women: Increased to 14% in the April-June 2021 quarter as compared to 11.8% in the January-
March 2021 quarter.
o Overall: Increased to 12.6%

NEED OF EMPLOYMENT:
 Maintaining Social Fabric: Unless high quality jobs are given to the youths there would be high chances of
disturbing the social stability which could also turn communal.
 Decent standard of living: By providing gainful employment help attain overall standard of living and thereby
these indicators can be improved.
 Radicalization: Unemployment emerged as a reason for radicalization of youths particularly among the
minority communities.
 Sustainable development and inclusive Growth: To maintain the momentum of healthy economic trajectory
and ensure inclusive growth by creating a large number of jobs in the formal sector of the economy.
 Internal security: Non equitable growth and slow job creation in the economy is one of the reasons for left-
wing extremism in India.
 Demographic Unrest: Without education, vocational training and gainful employment India's demographic
dividend will turn into demographic unrest.
 Poverty and inequality: to end multidimensional poverty and inequality, job creation will be the prime mover,
without a job it will not be possible to move out of this situation.
JOBLESS GROWTH IN INDIA:
 Jobless growth means the economy experiences growth, i.e., increasing GDP but at the same time either
employment generation is constant with growth or its in decreasing order, that process is called jobless
growth. This term was coined by economist Nick Perna in the early 1990s.
 The NSSO’s estimates for the year 2017-18 show that India’s joblessness was 6.1 per cent of the labour force,
which is amongst the highest since 1972-73.

REASONS FOR JOBLESS GROWTH IN INDIA:

 There is a conventional pattern of a movement of surplus labour from the traditional agriculture or informal
sectors to the modern sector (industrial or formal sectors) of the economy.
 Manufacturing sector which is to be a backbone of any economy has largely remained as a “missing-middle”
for India in terms of the employment generation.
 The decision to go in for demonetisation and faulty implementation of GST in recent times has had a serious
impact on growth in India and employment generation.
 The services sector in India remains the most dynamic one and growth is very high, but that growth is not
matched by commensurate growth in employment.

CONSEQUENCES OF JOBLESS GROWTH IN INDIA:

 There will be a major toll on the economic growth of India in the long term, if the consumption pattern of
the economy is not maintained.
 Jobless growth will lead to the situation where there will be increase in Casualization of Workers.
 There is constant fear in the social fabric of India, that social unrest like the Jat Reservation Aandolan in
Haryana, Patidar Unrest in Gujarat and Maratha Reservation Campaign in Maharashtra will rise from low
employment in different caste-based groups.
 If jobless growth continues in the economy, then India is losing out its high employment generating sector
to the countries like Bangladesh, Indonesia, Philippines etc. which are fast becoming the hubs of production.
 Dampening of the Economic activity in the future due to low aggregate demand which is a direct
consequence of unemployment and jobless growth.
 The increase in growth of India is mainly led by the services sector, whose employment elasticity is very low.
 With the World moving towards Artificial Intelligence and Automation, there is a threat to the services sector
and its job as well, if they fail to adopt new advanced skills.

POLICY MEASURE RECOMMENDED BY THE IMF TO TACKLE JOBLESS GROWTH

 In the short term: focus should be on the composition of expenditures and

rationalizing the GST scheme in India.

 Over the medium term: focus should be on the domestic revenue mobilization like
increasing personal income tax collections by ending exemptions.
Fiscal policy o Reducing the minimum threshold for taxpayers and by raising contributions by top
suggestions: earners.

o Decreasing expenditures on subsidies.

o Enhancing fiscal transparency and thus reducing uncertainty.

 According to the short-term reform suggested by the IMF like: Resolution of balance
sheet issues of banking sector including non-banking companies. the corporate sector,
and the NBFCs including housing finance companies.
Financial sector:

CONCLUSION:
 The process of globalisation through liberalisation and privatisation policies has produced positive, as well
as, negative results both for India and other countries.
 Overall, from the start of New Economic policy and now with Demographic dividend and deep information
technology penetration India has found its rhythm in the global competitive market.

CHALLENGES FOR CREATING EMPLOYMENT OPPORTUNITIES:

 Entrepreneurship potential: High aspiration for Stable job and lack the skill for entrepreneurship among the
young population.
 Structural challenges: Where manufacturing is capital Intensive and the services sector needs skilled labour,
this is conflicting with the fact that more than 90% of India's labour force has no formal training.
 The Trade-off: Capital intensive industry grew at the reducing of labour-intensive industry.
 Hegemonic trade practices: by big industries in terms of machinery technologies does not allow small
companies to expand their business.
 Lack of Credible Data: Because of more than 80% of the labour force in the unorganized sector, no proper
data on employment opportunities in new avenues like Ola drivers, amazon delivery personnel etc.
 Outside competition: The New Economic policy of 1991 and further liberalisation of Indian economy lead to
stiff competition from international companies such as the USA.
o Capital intensive industry from countries like the USA.
o For labour intensive industry from boundaries like Bangladesh.
 Poor skill attainment: skill and technical education needed for the job in the industrial sector is poor in
general india youth.
 Volatile Global Market: Cyclic boom and bust cycle in developed countries affect the labour force of
developing countries like india. Covid-19 aggravated this volatility component further.
 India A Middle-income country: Indian domestic market is big but is not viable for the manufacturing industry
due to lower power purchasing capacity.
 Employee – Employer linkage: This linkage is missing, leading to mismatch in demand and supply of labour
in various parts of India.
 Labour legislations: Indian labour law incentivizing firms to be unorganized and small and fragmented.
WAY FORWARD:
 Liberalisation and Neutralizing impact of it: Countervailing and anti-dumping duties on those goods which
are detrimental to local manufacturing industries.
 WTO have multiple mechanisms: which stops harmful impact of unethical trade practices that need to be
utilises in greater manner.
 MSME Sector: It has huge potential to absorb unemployment in India.
 Low Capital availability and high interest rate: It is the big impediment in the way employment generation
under the Indian economy.
 Skill development: Government schemes like Pradhan Mantri Kaushal Vikas Yojana will help India to upgrade
its youth skill pool as per the demand of the contemporary manufacturing sector.
 Entrepreneurship: Development will create more jobs in the economy and will also help the economy to grow
more.
 Reforms in Economy: Robust labour reforms (four codes: On Wages, Industrial Relations, Social Security,
Occupational Safety), flexible ease of doing business procedures, credit facilities, single window clearance and
speedy approval of projects will create more job opportunities.

CONCLUSION:
 The government must acknowledge that the situation on the jobs front is serious. India is now in a position
where its rising numbers of young people and declining fertility have the potential to reap a “demographic
dividend”. The lack of reasonably-paying jobs risks turning that into a spectre.

Unemployment
 Unemployment takes place when people have no jobs when they are willing and seeking for work.
 The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage
by dividing the number of unemployed individuals by all individuals currently in the labor force.

TRENDS OF EMPLOYMENT: Observation of economic survey 2021-2022

 The COVID-19 pandemic and the restrictions on the movement of individuals and economic activities to
curb its spread significantly impacted livelihoods across the globe.
 Before the outbreak of COVID-19, the urban labour market had shown signs of improvement in terms of
labour force participation rate (LFPR).
 With the revival of economy in the subsequent quarters of 2020-21, labour market indicators showed a
swift recovery.
 The net addition in EPFO subscriptions is an indicator of the extent of formalisation of the job market,
and the coverage of social security benefits to the organized/ semi-organized sector workforce.
An analysis of the latest EPFO data suggests significant acceleration in formalisation of the job market.
o driven by both new formal jobs and formalisation of existing jobs, during 2021, with 13.95 lakh
net addition to EPF subscribers in November 2021.
 The demand for work under Mahatma Gandhi National Rural Employment Guarantee Scheme
(MGNREGS) is an indicator of rural labour markets. An analysis of the latest data on demand for work
under MGNREGS suggests the following trends in the rural labour market:
o MGNREGS employment peaked during the nation-wide lockdown in 2020
o the demand for MGNREGS work has stabilized after the second COVID wave;
o aggregate MGNREGS employment is still higher than pre-pandemic level.

CAUSES OF UNEMPLOYMENT:
 Regressive labour legislations: Stringent employment protection legislation has pushed employers -towards
more capital-intensive modes of production, than warranted by existing costs of labour relative to capital.
 Over reliance on agriculture: Agriculture is underdeveloped in India. It provides seasonal employment. Large
part of the population is dependent on agriculture. But agriculture being seasonal provides work for a few
months.
 Infrastructural bottlenecks: Inadequate growth of infrastructure and low investments in the manufacturing
sector, hence restricting employment potential of secondary sector.
 Outdated curriculum: The syllabus taught in schools and colleges, being not as per the current requirements
of the industries. This is the main cause of structural unemployment.
 Prevalence of informal economy: huge workforce associated with the informal sector due to lack of required
education/ skills, which is not captured in any employment data.
 Poor Governance: Inadequate state support, legal complexities and low infrastructural, financial and market
linkages to small/ cottage industries or small businesses, making such enterprises unviable with cost and
compliance overruns.
 Higher taxation: The govt imposes taxes on income, Wealth, Excise, custom etc. at a very high rate. Therefore
manufactures employ minimum employers and even the citizens cannot start private businesses due to heavy
taxes.
 Social issues: Regressive social norms that deter women from taking/continuing employment. Ethnicity, race,
age etc. in the workplace are other factors.
 Labour Underutilisation: Mismatch between labour supply and demand extends far beyond the 188 million
unemployed.
 Issue of getting decent work: Having a paid job was not a guarantee of decent working conditions or of an
adequate income.
 Future risks: The rise in trade restrictions and protectionism, which could have a significant impact on
employment, is seen as a potentially worrying trend.
 Workers are moving off Indian farms: There has been a dramatic reduction in prime working-age (age group
of 20 to 59 years) Indians engaged in agriculture, with their share falling to 23.3% in 2018-19 from 40% in
2004-05.
 Low participation of women in the workforce: This is because of reasons like:
o Mechanisation of agriculture has had a huge adverse impact on female labour force participation in
the agriculture.
o India’s manufacturing sector is not labour-intensive which has made it difficult to compensate women
who got displaced from agricultural jobs.
o India's FLFPR (24.5% in 2018-19) has also been declining and is well below the global average of
45%.
o Women’s role as primary caregivers, cultural norms and deep roots of patriarchy.
 Decline in manufacturing jobs: Automation and multi-skilling has reduced the need for human resources.
 Shrinking public sector: Government jobs, which were 19.5 million in 1996-97, were about 17 million in 2016.
There has been a decline of 89 per cent in the direct recruitment in central government ministries.
 Rise in voluntary unemployment: Voluntary unemployment refers to a situation where people choose not to
work below a certain income level after ‘investing’ in education.

WAY FORWARD:
 Quality Education: The education must be on the par with the current demands of the economy. Future
generations must be able to analyse the demands of the work environment.
 Improve data collection on employment: Periodic data collection and dissemination. Increase the use of
administrative data viz. EPFO, ESIC and the NPS to track regularly the state of employment while adjusting for
the formalization of the workforce.
 Interlinking of databases: In Union budget 2022, it has been announced that portals such as Udyam, e-Shram,
National Career Service (NCS) and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) will be
interlinked to act as live, organic databases, providing G2C, B2C and B2B services.
o the government has come up with an online employment exchange platform to cater to senior
citizens seeking job opportunities (SACRED PORTAL).
 Development of the rural areas: it will help mitigate the migration of the rural people to the urban areas thus
decreasing the pressure on the urban area jobs.
 More Public investment: In sectors like health, education, police and judiciary can create many government
jobs.
 o Prime Minister’s Street Vendor’s Aatma Nirbhar Nidhi (PM SVANidhi) scheme: As part of scheme,
the central government provided an initial working capital of up to Rs 10,000 to street vendors.
 Working conditions and social security: Enact a comprehensive occupational health and safety legislation,
enhance Occupational Safety and Health (OSH) in the informal sector through capacity building and targeted
programmes.
o Pradhan Mantri Garib Kalyan Yojana (PMGKY): Under scheme, central government contributed both
12% employer’s share and 12% employee’s share under Employees Provident Fund (EPF).
o The unemployment benefit under the Atal Beemit Vyakti Kalyan Yojana (launched in July 2018) was
enhanced from 25% to 50% of the average earning for insured workers who have lost employment
due to COVID-19.
 Wages: Make compliance with the national floor level minimum wage mandatory. Enforce the payment of
wages through cheque or Aadhaar-enabled payments for all.
 Transformation of rural economy: Economic returns from States initiatives in transforming the rural economy
from traditional agriculture to more value-added activities.
 Increasing public-private investment: To raise the rate of investment from about 29 percent in 2017-18 to
about 36 percent of GDP by 2022-23, a slew of measures will be required to boost both private and public
investment.
 Increasing the tax collection: States could also undertake greater mobilization of their own taxes such as
property tax, and take specific steps to improve administration of GST to increase tax collections.
 Prudent fiscal and monetary policies: Sustained high growth requires macroeconomic stability, which is being
achieved through a combination of prudent fiscal and monetary policies.
 Alternative source for the credit: Enable alternative (to banks) sources of credit for India’s long-term
investment needs. The bond market needs deepening through liberalization of regulations and continued
fiscal consolidation.
 Enhance skills and apprenticeships: The Labour Market Information System (LMIS) is important for
identifying skill shortages, training needs and employment created.
o Programme Launched to upskill Street Vendors: The objective of this programme is to provide
relevant skills to the street food vendors which will lead towards better services to consumers, more
opportunities to vendors for revenue generation
 Labour law reforms: Complete the codification of labour laws at the earliest. Simplify and modify labour laws
applicable to the formal sector to introduce an optimum combination of flexibility and security. Improve data
collection on employment.
 Innovation and tech: An empowered body is needed to steer holistically the management of science in the
country. Its scope will include science education and scientific research as well as coordinating and guiding
various science initiatives.
o Main Bhi Digital 3.0 Campaign launched: It aims to Street vendors who have already received loans
under the PM SVANidhi Scheme will be digitally onboarded.
o Lending Institutions (LIs) have been required to issue a long-lasting QR code and UPI ID at the moment
of disbursement, as well as train recipients on how to perform digital transactions.
 Govt procurement: In all government procurements, international competitive bidding for both products and
services should be resorted to only when Indian manufacturers are unable to supply products/services of
comparable international quality.
 Creating domestic manufacturing capabilities: The government can play a crucial role in creating domestic
manufacturing capabilities by leveraging proposed public procurement and projects. Mega public projects
such as Sagarmala, Bharatmala, industrial corridors, and the Pradhan Mantri Awas Yojana (PMAY) can
stimulate domestic manufacturing activities provided the projects are suitably structured and demand is
aggregated strategically.
 MSME: Setting up of mega parks and manufacturing clusters in labour intensive sectors with common
facilities to reduce costs and improve quality. It is also recommended that state governments should set up
plug and play parks to ensure international productivity standards.
 Agriculture:
o Further decentralization and autonomy are essential to the success of this programme. Subject matter
specialists at KVKs should orient their research to the block action plans developed by ATMA.
 o Public Private Partnership in KVKs: The guiding principles of ATMA provide for the promotion of PPP in
extension delivery. With each KVK in possession of approximately 50 acres of land, KVKs should incubate
private sector initiatives in extension delivery.
o Market led extension: Give priority to extension services that disseminate information to farmers
regarding (i) crop selection (ii) demand for and supply of crop produce, (iii) expected price of commodity
and (iv) availability of infrastructure facilities for storage, transport and marketing of produce.
 Skill development: Introduce vocational training courses on road construction in Industrial Training Institutes
(ITIs).

Informal Employment
 The informal sector workers in India face the risk of violations of their human and labour rights, the dignity
of livelihood, unsafe and unregulated working conditions and lower wages, among several other
vulnerabilities.

IMPORTANCE OF INFORMAL EMPLOYMENT

 Increased share in overall employment: In 2017-18 the share of informal sector employment increased by
3.6%. While on the other hand the share of formal employment increased by only 0.9%.
 Linkages: Informal sector in india is becoming increasingly interlinked with the formal sector, fulfilling the
supply chain gaps and providing essential services in the economy.
 Employment generation: Currently, 95% of employment in India is generated by agriculture, businesses in
the informal economy, and MSMEs.
o The Informal Economy in India helps to employ more than 90% of workforce and contributes about
50% of the Gross National Product (GNP).
 Rural development: Share of the informal sector in rural areas (like agriculture and non-farm economy
including low end services) is significantly large with 75% of it playing an important role in rural development.

FACILITATING FACTORS FOR THE GROWTH OF THE INFORMAL ECONOMY:

 Encouragement from the regulation: Most of the state and central labour laws were applicable to larger
enterprises. This indirectly forced formal enterprises to become more technology-intensive rather than
labour intensive.
 Education and skill gap: From the supply side, the majority of the workforce does not possess the requisite
education and skills required to enter the formal workforce. For instance, as recently as 2017-18, only 2.4%
of the workforce has formally acquired any vocational education or training.
 “Missing Middle Syndrome”: Encouraging small firms to remain small creates a market dominated by tiny
firms and large firms. With the share of medium sized firms being very small, this led to the situation of
‘missing middle’ in the economy.
 Economic inequality as one factor: The long-term consequences of this problem are economic inequality and
persistent unemployment thus encouraging a scenario of jobless economic growth.
 Post-Independence policies: After independence, India adopted a state-led industrialization model which
could not absorb large labour force in the country.
 Poor incentive’s structure: For the small enterprises encouraged them remain small in turn stalling the
possible growth of formal workforce in those firms.

ISSUES FACED BY INFORMAL WORKERS AND IMPACT OF COVID-19:

 Poverty: The Hand to Mouth nature of informal employment creates a scenario where any loss of income
directly affects the consumption levels of individual and family members.
 Increase in Indebtedness: Absence of income for the individual, combined with little or health coverage could
result in a high incidence of indebtedness among these workers.
 Unemployment: According to some estimates, more than 80 percent of workers in the informal sector lost
employment in India. Even where work is still available, there is likely continued loss of wages because
working hours have decreased drastically.
 Migration crisis: There is a direct corollary of increased unemployment rate and the migrant crisis in the
economy.
 Food markets: In India informal food markets play an essential role in ensuring food security. Their closure
has led to increased food insecurity in India.
 Impact on Women: Women are more exposed to informality and are often in more vulnerable situations than
their male counterparts.

WAY FORWARD:
 Productive economic units: In supporting the recovery of productive economic units, there is an opportunity
to step up their productivity, resource utilization and networking ability.
 Short term economic reform: Strengthening various efforts made by the government to increase
formalization in the form of GST, Demonetization, EPF reforms, Skill India initiatives.
 Mitigation of formal economy: There is an urgent need to provide measures to mitigate the contraction of
the formal economy, especially micro and small enterprises, which are critical to prevent further
“informalization”.
 Providing Employment security: The positive impact which is created by MGNREGA over the years, especially
during the COVID-19 pandemic has reignited the idea of establishment of an urban equivalent of MGNREGA.
 Edge of informality: Policy makers have to pay special attention to those enterprises hovering on the edge of
informality, as they could easily shift the informal economy in order to survive.
 Linkages with formal enterprises: Employers’ and workers’ organizations can play a critical role in delivering
or advocating for support services, such as access technologies, finance and business development services,
and fostering linkages with formal enterprises as an incentive for formalization.
o The Ministry of Labour & Employment has developed eSHRAM portal for creating a National
Database of Unorganized Workers (NDUW) for optimum realization of their employability and
extend the benefits of the social security schemes to them.
 Health System: By Strengthening health systems we can ensure access and financial protection for all by
closing gaps in health coverage and ensuring equity in the use of services.
 Social protection coverage: Adequate social protection coverage for workers in all forms of employment and
adapted to their circumstances.

Urban Poor and Employment Guarantee for The Urban Poor

In News: the Rajasthan government announced the start of the Indira Gandhi Shahri Rozgar Guarantee Yojana.
 This is essentially an employment guarantee scheme on the lines of the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) albeit for the urban areas.
 with each passing year, more and more Indian state governments are looking favourably towards an
urban version of MGNREGA.
o These include Kerala (Ayyankali Urban Employment Guarantee Scheme),
o Odisha (Unnati or Urban Wage Employment Initiative),
o Himachal Pradesh (Mukhya Mantri Shahri Ajeevika Guarantee Yojna or MMSAGY),
o Madhya Pradesh (Mukhyamantri Yuva Swabhiman Yojana) and
o Jharkhand (Mukhyamantri Shramik Yojana).
Need for such schemes
 the need for a scheme providing a guarantee is due to the growing distress among the urban poor, which
has remained largely unaddressed for a long time — Covid just made it worse.
 High unemployment: Most unemployment data — be it from the Centre for Monitoring Indian Economy
or the government’s own Periodic Labour Force Survey — shows that the unemployment rates are
typically higher in urban areas.
 The urban poor are worst affected by India’s persistently high inflation.
 Indian towns and cities continue to be plagued by the prevalence of low-wage, poor quality, informal
work. PLFS data show that despite a rise in the prevalence of regular-salaried work, just over 50 per cent
of the urban workforce remains either self-employed or in casual wage work.
SKILL DEVELOPMENT

PRESENT STATUS: SKILL DEVELOPMENT

 PLFS (2017-18): only 1.8% of the population reported receiving formal vocational/technical training.
 Another 5.6% reported receiving informal vocational training such as hereditary, self-learning, and on the job
training at various formal or informal channels.
 Few sectors domination: There is general prevalence of the bulk of the trainees were in the fields of
electronics, IT/ ITeS sector, apparels, and in engineering sector.

NEED FOR SKILL DEVELOPMENT:

 Demographic Dividend: To utilize this demographic dividend effectively, skill development has to take
primacy in the overall process. India is expected to have the largest workforce in the world by 2025.
 Knowledge-based economy: Aspiration of India is to become a knowledge-based economy, then the
development of highly skilled human capital is the key to raise the innovation quotient of the workforce.
 Unemployment rates: High unemployment rates and under-skilled jobs have a direct link, so to solve the
issue of unemployment there is a need to solve the skill development problem also.

INDIA SKILLS REPORT 2020: FINDINGS OF REPORT

 Top 5 skills: Employers have emphasized domain knowledge, adaptability of the environment, learning agility
and positive attitude and interpersonal skills as the top five skills desired.
 Low knowledge of NAPS: The report states that only 60% of students were aware of the National
Apprenticeship Promotion Scheme (NAPS) and suggest that it needs to improve.
 Stagnation in employment: Report states that the employability of India’s youth has remained stagnant for
the past three years, lingering at 46.21% of participants were job-ready.
 Gig workers: It has indicated in the report that the rising share of gig workers in the economy at 13% share in
the overall hiring intent by employment type.
 Female employability: There has been an upward trend at 47% in female employability, while that of male
workforce declined from 47.39% in 2019 to 46% this year.
 Hiring ratio of male and female: The Hiring Intent Survey for 2020 reflects a likely hiring rate of 71:29 for
Male to Female candidates.

ISSUES WITH SKILL DEVELOPMENT IN INDIA:

 Wages differential: There is overall reluctance of the industry in providing a wage differential for skilled
workers, leading to low absorption of skilled manpower.
 Poor Industry interface: as there are too many sector skill councils like industry bodies mandated tenure that
skill development efforts are in accordance with the actual needs of the industry.
 Poor assessment: There is no credible assessment board to uphold the accountability of sector skill councils.
Lack of integration with formal education and lack of focus on outcomes.
 Overlapping of rules and regulation: Initiatives related to skill development are spread across nearly 20
ministries and hence lacks coherency and holistic approach.
 Accreditation process: The Poor accreditation process by the Quality Council of India (QCI) has often
compromised on the factor of quality of accreditation and affiliation process.

POLICY INITIATIVES BY GOVERNMENT:

 National Apprenticeship Promotion Scheme: It consists of Basic Training and On-the-Job Training/Practical
Training at the workplace.
 Skills Acquisition and Knowledge Awareness for Livelihood (SANKALP): It aims for creating convergence
among all skill training activities, improving quality of skill development programmes, creating industry led
and demand driven skill training Capacity.
 Skills Strengthening for Industrial Value Enhancement (STRIVE): scheme will create awareness through
industry clusters, integrating and enhancing delivery quality of ITIs.
 Pradhan Mantri Kaushal Vikas Yojana: It will help to mobilize youth to take up industry relevant skill training.
Targets to train 1 crore youth by 2020.
 Pradhan Mantri Kaushal Kendra: It is for the aspirational Model Training Centres to be opened in every
district.
 Future Skills Prime: NASSCOM offers free online courses on AI through Future Skills Prime Platform.
 Skills Build Reignite: It seeks to provide job seekers and entrepreneurs with access to free online coursework
and mentoring support designed to help them reinvent their careers and businesses.
 Skilled Workers Arrival Database for Employment Support: This is an initiative to conduct a skill mapping
exercise of returning citizens under Vande Bharat Mission.
 World Economic Forum’s Reskilling Revolution: Reskilling Revolution is an initiative by the WEF to provide
one billion people with better education, skills and jobs by 2030. India recently joined this initiative as a
founding member.
 Start-up Village Entrepreneurship Programme (SVEP): SVEP is a sub-scheme of the Deendayal Antyodaya
Yojana-National Rural Livelihood Mission (DAY-NRLM), Ministry of Rural Development and has been
implemented since 2016.
o It addresses three major pillars of rural start-ups namely finances, incubation and skill ecosystems.
o It promotes both individual and group enterprises, majorly in manufacturing, trading and service
sectors.

Start-up Ecosystem in India

PRESENT SITUATION OF START UP ECOSYSTEM IN INDIA:
 The survey noted that start-ups are the platform for entrepreneurs who have the ability to think out of the
box and innovate to conceive products that can create a niche for themselves in a dynamically changing world.
 COVID-19 pandemic and start up: The Indian start-up ecosystem which defied odds during a pandemic-hit
year to create record 12 unicorns, has the potential to be the engine of growth in the medium to long run,
according to the Economic Survey 2020-21.
 Entrepreneurs spirit of India: The survey noted that start-ups are the platform for entrepreneurs who have
the ability to think out of the box and innovate to conceive products that can create a niche for themselves
in a dynamically changing world.
 India is home to 38 unicorns’ start-ups with valuation of over USD 1 billion – as per the Nasscom Tech Start
up Report 2021. The US and China have 243 and 227 unicorns, respectively.
 Fund of Funds for Start-ups: A total corpus of Rs 10,000 crore was established with contributions spread over
the 14th and 15th Finance Commission cycles based on the progress of implementation.
 Start-up and Space sector: As per industry estimates, there are more than 40 start-ups working in India with
funding, teams and structure on space and satellite projects complementing the efforts of the government.

GOVERNMENT INITIATIVES TO PROMOTE START-UP ECOSYSTEM:

 National Start-up Advisory Council: It To advise the Centre on measures needed to build a strong ecosystem
for nurturing innovation and start-ups in the country.
 Start-up India scheme: is an initiative of the Government of India. The campaign was first announced on 15
August 2015. The action plan of this initiative is focussing on three areas: Simplification and Handholding;
Funding Support and Incentives; Industry-Academia Partnership and Incubation.
 ARISE-Atal New India Challenge: This is a national initiative to promote research & innovation and increase
competitiveness of Indian start-ups and Micro, Small and Medium Enterprises (MSMEs).
 Start-up Innovation Challenges: It is an opportunity for any start-up to leverage their networking and fund-
raising efforts.
 National Start-up Awards: This award seeks to recognize and reward outstanding start-ups and ecosystem
enablers.
 Ranking of States on Support to Start-up Ecosystems: It is an evolved evaluation tool aimed to strengthen
the support of States and UTs to holistically build their start-up ecosystems.
 Prarambh: The ‘Prarambh’ Summit aims to provide a platform to the start-ups and young minds from around
the world to come up with new ideas, innovation and invention.
 AIM-iCREST: It is an Incubator Capabilities Enhancement program launched by NITI Aayog for a Robust
Ecosystem focused on creating high performing Start-ups.
 Start Up India Fund: Under the Start-up India program, the Government created the 'Fund of Funds for Start-
ups (FFS) with a corpus of INR 10,000 crore.
 Policy Reforms for Start-ups: These include the requirement of distributable profits for three years for a
company to be eligible to issue shares with differential voting rights.
 Grievance mechanism: Start-up Cells this Cell will work towards redressal of grievances & tax-related issues
of Start-ups with respect to the administration of the Income-tax Act, 1961.
 Seed funding: More than 1300 Start-ups have been supported by seed funding from State Governments.

SOCIO-ECONOMIC IMPACT CREATED BY START-UPS:

 44 per cent recognized start-ups have women directors and number of women working in these start up is
very high.
 45 per cent start-ups are in tier 2 and tier 3 cities, working as the brand ambassadors of the local product.
 Every state is supporting and incubating start-ups as per local possibilities and 80 percent of districts of the
country are now part of the Start-up India mission.
 Youth from all types of background are able to realize their potential in this ecosystem resulting in a mindset
change “from aspiring for a job to being a job creator”.

RANKING OF STATES ON SUPPORT TO START-UP ECOSYSTEMS: DPIIT

 The Results of the 2nd edition of Ranking of States on Support to Start-up Ecosystems 2020 were released
by the Department for Promotion of Industry and Internal Trade (Ministry of Commerce & Industry).

START-UP VILLAGE ENTREPRENEURSHIP PROGRAMME (SVEP), 2016:

 Context: Women SHGs under the SVEP stepped up as
effective frontline responders and reached the last
mile ensuring an immediate relief to the rural
communities and the most vulnerable population
during the ongoing Covid-19 pandemic.
 Aim: Support the rural poor to come out of poverty;
Support the people to set up enterprises and provide
support until the enterprises stabilise; Providing self-
employment opportunities with financial assistance
and training; Create local community cadres for
promotion of enterprises.
 It addresses three major pillars of rural start-ups
namely finances, incubation and skill ecosystems.

START-UP INDIA SEED FUND SCHEME:

 Announcement: The Scheme was announced during
the ‘Prarambh, Start-up India International Summit’
which marked the five-year anniversary of the Start-
up India initiative.
 Aim: To provide financial assistance to start-ups for
proof of concept, prototype development, product
trials, market entry, and commercialization. It will
help in creating a robust start-up ecosystem in Tier 2
and 3 regions, as the smaller towns in India are often not provided with appropriate funding.
 Launch: By the Department for Promotion of Industry and Internal Trade (DPIIT) with an outlay of Rs. 945
Crore.
 Features:
o Entrepreneurs support: It will support an estimated 3,600 entrepreneurs through 300 incubators in the
next 4 years.
 o Supervisory mechanism: An Experts Advisory Committee (EAC), constituted by DPIIT, will be responsible
for the overall execution and monitoring of the Scheme.
o Grants: It will be upto Rs. 5 crores will be provided to the eligible incubators selected by the committee.
o Investments: It will be provided upto Rs. 50 lakhs will be provided to the start-ups for market entry,
commercialization, or scaling up through convertible debentures or debt-linked instruments.

APPRENTICESHIP IN INDIA
Apprenticeship has been recognized as an effective way of skilling young people and reap demographic dividend
in India.
Need for apprenticeship
 Only 13% of the workforce has gotten training (11 percent has received informal training, and 2% has
received formal training).
o This is far lower than the 68 percent in the United Kingdom, 75 percent in Germany, and 96
percent in South Korea.
 Employability is lower: Only 46% of individuals who graduate from higher education institutions are
employed.
o Apprenticeships can help these individuals become more employable.
 Dropouts' needs should be addressed: Due to socioeconomic constraints, more than 17% of pupils drop
out of secondary school. Apprenticeships provide for a smooth transition from education to employment.
 Benefits for the Economy:
o Profit from the demographic dividend, as the working-age population (20-59 years) is expected
to rise from 51 percent in 2011 to 59 percent in 2041.
o Apprentices have the opportunity to earn money while studying, and they receive both
theoretical and practical instruction.
o Reduces the load on the government in terms of skilling and training.
o Allow structural transformation to occur: Reduce hidden employment in agriculture while
increasing absorption in manufacturing and services.
o Address the issue of the Indian economy's jobless growth.
Present Status
 In India, there are just approximately 3 lakh apprentices out of a workforce of roughly 500 million people.
 This figure of less than 0.01 percent of the workforce compares unfavourably to Germany and Australia,
both of which have over 3.7 percent of their workforces enrolled in apprenticeship programmes.
The reasons behind India's weak apprenticeship system
 Concerns regarding the workplace program's quality include an outdated curriculum and a lack of
emphasis on the theoretical component.
 Apprentice stipend is insufficient: Apprentice stipends are needed to be paid at a very low rate.
o National Apprenticeship Promotion Scheme (NAPS): provide financial support to establishments
undertaking the apprenticeship training.
o the scope of NATS has further been expanded to include students from Humanities, Science and
Commerce besides students from engineering stream.
 Limited advancement into permanent employment: Apprenticeships often do not lead to permanent
employment, hence there is little demand for them among young people.
 Insufficient enterprise participation in the system: In India, just about 24,000 businesses have taken up
apprenticeship.
o The low number of participating businesses is attributed to employers' high regulatory
compliance burden.
 Apprentice training has a low standing, which hinders school dropouts from pursuing apprenticeships.

INCLUSIVE GROWTH & ISSUES ARISING FROM IT

PREVIOUS YEAR QUESTIONS

 1. Explain intra-generational and inter-generational issues of equity from the perspective of inclusive 2020
growth and sustainable development.

2. What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth 2017
process? Analyze and suggest measures for inclusive growth.

3. Comment on the challenges for inclusive growth which include careless and useless manpower in 2016
the Indian context. Suggest measures to be taken for facing these challenges.

4. Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional 2016
finance fold. Do you agree with this for financial inclusion of the poorer section of the Indian
society? Give arguments to justify your opinion.

5. Capitalism has guided the world economy to unprecedented prosperity. However, it often 2014
encourages short-sightedness and contributes to wide disparities between the rich and the poor.
In this light, would it be correct to believe and adopt capitalism driving inclusive growth in India?
Discuss.
Meaning and Introduction to inclusive growth
 Inclusive growth is economic growth that creates opportunity for all segments of the population and
distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across
society - OECD
 11th Five Year Plan (2007-12) laid special emphasis on Inclusive Growth for the first time. It was later carried
forward by the 12th Five Year Plan.
 Twelfth Five Year Plan focuses on Growth – Growth which is: Faster, Inclusive and Sustainable.
Elements of Inclusive Growth:
• Employment Generation: Generation of stable employment is a sign of political, economic and social
progress.
• Poverty Alleviation: To be inclusive of all sections of society, the most vulnerable, poverty-stricken individuals
have to be brought above the poverty line.
• Skill Development: Skill development enables an individual to increase his or her choices in life such as
educational scope or career development.
• Agriculture and Industrial Development: Around 50-55% of people in India have agriculture-related
employment but its contribution to the Indian GDP is only 16.5% which leads to widespread poverty.
• Good Governance: measured by the eight factors of Participation, Rule of Law, Transparency,
Responsiveness, Consensus Oriented, Equity and Inclusiveness, Effectiveness and Efficiency, and
Accountability.
• Access to Essential Services: such as basic health, education, defense services, sanitation etc.
• Economic Growth: the target of becoming a $ 5 trillion economy by 2024-25 can allow India to reduce
inequality, increase social expenditure and provide employment to all.
• Social Development: It means the empowerment of all marginalised sections of the population like
SC/ST/OBC/Minorities, women and transgenders.
• Financial Inclusion: Financial inclusion is necessary for inclusive growth as it leads to the culture of saving,
which initiates a virtuous cycle of economic development.
Need of inclusive growth in India
 Rampant Poverty: Despite lifting a record 271 million people out of poverty between 2005-06 and 2015-16
(Multidimensional Poverty Index 2018, 27.3% Indians (373 million) face multidimensional poverty.
 Unemployment: Periodic Labour Force Survey of NSSO puts India’s total unemployment at 6.1% (7.8% for
urban and 5.3% for rural). The COVID-19 Pandemic has adversely impacted the above numbers.
 Regional Disparity:
 The per-capita GSDP of Western and Southern states having more than 50% of the national average while
the Empowered Action Group (EAG) States (erstwhile BIMARU) having less than 50% of the national
average.
  Human Development Index of Kerala, Goa and Delhi being over 0.8 (comparable to OECD nations) while
EAG states being below 0.6 (comparable to African LDCs). The All-India average stands at 0.72.
• Agricultural Backwardness: More than 50% of the workforce in India is occupied in agriculture but the
contribution of agricultural and related sectors in GDP is only around 14%. Agriculture sector is marred by
poor investment, research, labour productivity, high income vulnerability and regional disparity,
• Poor Nutrition levels: India ranks 94th out 107 in Global Hunger Index with chronic under-nutrition, stunting
and wasting.
• Broad based population: The need for an inclusive society in India is paramount due to its vast population
which accounts for about 18% of the world's population having lots of diversity within the nation.
• Growth has been uneven across sectors and locations: For instance, agriculture has been lagging behind and
in countries such as India and China, some regions have advanced faster than others. Policies are also
relatively ignored in the agriculture sector.
• Informalisation: Due to trade competitiveness, FDI and new technologies have demanded skilled labour. In
some cases, labour laws also often discriminate against formal employment and encourage ‘casualization’ of
labour.
• Inclusiveness as Poverty Reduction: So that adequate flow of benefits to the poor and the most marginalised.
• Inclusiveness as Group Equality: The poor are certainly one target group, but inclusiveness must also embrace
the concern of other groups such as the SCs, STs, OBCs, Minorities, women, the differently abled and other
marginalised groups.
• Inclusiveness as Regional Balance: This aspect of inclusiveness relates to whether all States, and indeed all
regions, are seen to benefit from the growth process.
o Recently, the Union Minister of States (Independent Charge), Ministry of Development of North East
Region (M-DoNER) informed that the North East Venture Fund (NEVF) is gaining popularity among
Entrepreneurs.
• Inclusiveness as Reducing Inequality: There is a need to keep inequality into tolerable limits.

Challenges in achieving inclusive growth

• Poor industrial base: As compared to China and Asian ‘Tiger economies’, Indian manufacturing lies far behind.
Despite rapid growth, the manufacturing sector is still short of the 25% of GDP, a target set up under the
National Manufacturing Policy.
• Poor resource base in states: States in the Northern plains are devoid of a strong mineral resources base
which hampers their industrial growth.
• Social divisions based on caste, class, religion, language, ethnicity, etc hampers the social capital necessary
for inclusive growth and promotes parochial loyalties.
• Corruption: India ranks an abysmal 86th out of 140 countries on Corruption Perception Index by Transparency
International.
• Red Tape and Unfriendly Business Environment: Despite massive gains, India is still 63rd in World Bank’s
Ease of Doing Business ranking. It is lagging significantly in sectors such as Enforcement of Contracts.
• Women indicators: Poor Labour Force Participation Rate (LFPR) among women (under 25% as per NSSO)
along with poor nutritional indicators (e.g. at least 50% women are anaemic) combined with numerous
restrictions due to patriarchal society is cause of the underperformance of the economy.
• Curtailed social welfare expenditure: India’s total spending on sectors such as Health (target 2.5% of GDP)
and Education (target 6% of GDP) is far from achieved. This is due to the impact of neo-liberal policies and
budget constraints.
• Agricultural backwardness: Poor land & water productivity, vagaries of monsoon and markets along with
poor infrastructure base and processing ecosystem means that there is a structural imbalance between the
labour force employed and the GDP contribution by Agriculture.
• Environmental destruction and Disasters: have disproportionate impact on the already marginalised sections
such as Tribals, Slum dwellers, Farmers etc. This is compounded by alienation of land from these sections for
mega projects.

Way forward
• Ensure last-mile-delivery of Welfare Schemes such as PM Awas Yojana, PM KISAN, PM Jan Arogya Yojana.
• Earnest implementation of National Education Policy directives such as vocational training, vernacular
learning, accessible school complex etc.
• Boost social welfare expenditure by tapping into resources of Disinvestment proceeds and encouraging Civil
Society and Corporate sector involvement.
• Leverage Technology to ensure E-Learning, E-Governance and Tele-Medicine reaches the remote corners of
the country.
• Systemic reforms in a consensual democratic manner in sectors of Labour laws, Agriculture and Land
acquisition.
• Encourage innovation and research by creating a conducive environment for start-up ecosystems and word-
class research facilities to promote disruptive solutions.
• NITI Aayog's Strategy for New India @75: inclusive growth
o To have a rapid growth, which reaches 9-10% by 2022-23, which is inclusive, clean, sustained and
formalized.
o To Leverage technology for inclusive, sustainable and participatory development by 2022-23.
o To have an inclusive development in the cities to ensure that urban poor and slum dwellers including
recent migrants can avail city services.
o To make schools more inclusive by addressing the barriers related to the physical environment (e.g.
accessible toilets), admission procedures as well as curriculum design.
o To make higher education more inclusive for the most vulnerable groups.
o To provide quality ambulatory services for an inclusive package of diagnostic, curative, rehabilitative
and palliative care, close to the people.
• World Economic Forum’s three suggestions to boost social inclusion as well as economic growth:
o Countries should increase public and private investment in their citizens’ capabilities, which is the
most important way they can durably lift their rate of productivity growth.
o Governments, together with employers’ and workers’ organizations, should upgrade national rules
and institutions relating to work.
o Countries should increase public and private investment in labour-intensive economic sectors that
generate wider benefits for society.
o These include sustainable water, energy, digital, and transport infrastructure, care sectors, the rural
economy, and education and training.
Conclusion
 Inclusive and Sustainable Growth is inevitable for a diverse and large country such as ours to ensure the goal
of ‘Atma Nirbhar Bharat'. Inclusive growth will help in the empowerment of vulnerable and marginalized
populations, improve livelihoods, and augment skill-building for women.

ENVIRONMENT VS DEVELOPMENT DEBATE: backlog for Inclusive development

ENVIRONMENT AND DEVELOPMENT LINKAGE:

• Industrialisation and Urbanisation are considered sine qua non
for economic development and egalitarian growth.
• At the same time, they also led to negative outcomes such as:
Pollution, Deforestation and Habitat Destruction, Climate
Change, Species Extinction, Health hazards such as Respiratory
disorders and Zoonotic Diseases, Disruption of Traditional
Livelihood, Dead Zones in Oceans, Chronic Water Scarcity.
• The Environmental Kuznets curve states that environmental
degradation peaks as the income levels grow and then gradually
settle to a lower value. This is due to growth in financial and
technological capabilities, the capacity to restore environmental quality is enhanced.

DEVELOPMENTAL FACTORS AFFECTING ENVIRONMENTAL SUSTAINABILITY:

• Poor compliance to environmental laws such as EIA rules, Coastal Regulatory Zone guidelines, etc. E.g.,
continued quarrying, mining and deforestation along slopes aggravates risk of landslides and soil erosion
• Poorly planned Subsidies such as those on electricity and water consumption encourages overuse and
rampant wastage harming the environment.
• Negative externalities of development projects are not factored into product costs as access to natural
resources is often open and no individual bears full cost of the degradation.
• Population explosion both a cause and consequence of poverty and underdevelopment, creates immense
pressure on limited resources.
• Weak authorities and institutional setup.

REASONS FOR MAINSTREAMING OF ENVIRONMENT-DEVELOPMENT DEBATE:

• Transformation of elite environmental concern to real issues affecting people’s daily lives, health and
livelihood that are hard to ignore by a democratic government. E.g., Delhi Air Pollution.
• Rise of organized environmental advocacy by NGOs (Greenpeace) and Movements (Narmada Bachao
Andolan) using new age instruments such as PILs and RTI.
• Judicial Activism by National Green Tribunal and Supreme Court e.g., ensuring buses in Delhi move to CNG.

WAY FORWARD:
• Consensual framing and robust implementation of legal safeguards such as Environmental Impact
Assessment guidelines.
• Smart Regulation that leverages technology and markets such as Perform Achieve and Trade scheme of
Bureau of Energy Efficiency.
• Institutional strengthening of the Ministry of Environment, Forest & Climate Change, National Green
Tribunal, National Board for Wildlife, etc.
• Internalisation of Negative Externalities using fiscal instruments such as Carbon Tax.
• Natural Capital Accounting and Green GDP must be introduced to factor in the environmental costs of
developmental processes.
• Green Economy and Sustainable Growth must be actively pursued to balance environmental and
developmental commitments.
• Need for coordinated global response to the threats of climate change, deforestation, etc.
• Greater Investments in developing green solutions to current environmental problems. E.g. affordable
technologies for carbon sequestration.
• Focus on emerging areas of Renewable Energy, Circular Economy, Electric Vehicles etc is necessary.

CONCLUSION:
 While rightfully pursuing our goals of economic development, it would be prudent to remember that ‘Ecology
is permanent Economy’.

Current Developments PERTAINING TO INCLUSIVE GROWTH:

NATIONAL MISSION FOR FINANCIAL INCLUSION
 In the News: SEVEN YEARS OF PRADHAN MANTRI JAN
DHAN YOJANA
 PM Jan Dhan Yojana - The National Mission for Financial
Inclusion completed 6 years in August 2020.
• PMJDY was launched as The National Mission for Financial
Inclusion on 15th August 2014.
• RBI defines financial inclusion as the process of ensuring
access to financial services and timely and adequate credit
where needed by vulnerable groups such as weaker
sections and low-income groups at an affordable cost.

ACHIEVEMENTS UNDER PMJDY:

PMJDY • 40.35 crore accounts were opened as of 19th August 2020.
Accounts • Rural Accounts: 63.6% and Women PMJDY accounts: 55.2%
• 17.9 crore accounts were opened in the first year itself.
 Operative • Out of 40.35 crore, over 34.81 crore (86.3%) are operative.
PMJDY • As per RBI, an account is considered inoperative if there are no transactions for a period
accounts of two years.
Deposits in • Total balance stood at Rs 1.31 Lakh Crore (August 2020).
PMJDY • Deposits have increased 5.7 times from 2015 while accounts have gone up by 2.3 times.
accounts • Average deposit stood at Rs 3239 which is 2.5 times increase from 2015 (indication of
healthy banking and saving practices by poor).

Impact of PMJDY on the Financial System

• Prevent Leakage: DBTs have empowered and provided financial security to the vulnerable sections of society
via PMJDY accounts as well as ensured every rupee reaches its intended beneficiary and preventing systemic
leakage.
• Financial inclusion: PMJDY has been the foundation stone for people-centric economic initiatives. Whether
it is DBTs, COVID-19 financial assistance, PM-KISAN, increased wages under MGNREGA, which PMJDY has
nearly completed.
• Formalization of the financial system: Jan dhan provides an avenue to the poor for bringing their savings into
the formal financial system, an avenue to remit money to their families in villages besides taking them out of
the clutches of the usurious money lenders.

Challenges associated with the PMJDY

• Financial and technological illiteracy: Rural people lack the financial literacy, awareness, information, and
skills needed to make educated savings, borrowing, investment, and expenditure decisions.
• In the hinterlands and steep parts of the Northeast, Jammu and Kashmir, there is a lack of physical and
digital connectivity.
• Problems with technology: Banks are affected by issues ranging from inadequate connection, network
outages, power shortages, and bandwidth issues to managing infrastructure maintenance expenses.
• Managing the Business Correspondents (BC) Ecosystem: Because of the following factors, it is a difficult and
time-consuming process for banks.
o Delay in BC paying villages subsidies and payments under MNERGA, DBT, pensions, and other
programmes.
o The Bank's unwillingness to scrutinise BC's operations.
o There are no efficient grievance redressal processes in place.

Steps needed to Overcome these Challenges:

• Financial empowerment: Moving from financial inclusion to financial empowerment through credit is
necessary in the future.
o The PMJDY should be renamed PM Jan Dhan Vridhi, with universal bank credit available to the
poorest members of society.
• Developing Digital Infrastructure: This would necessitate a shift away from cash transactions and toward
digital transactions, as well as the development of credit models employing artificial intelligence approaches
to encourage the use of digital payments, such as the RuPay debit card, among PMJDY account users.
• Providing on time Information: Improving PMJDY account holders' access to micro-credit and micro-
investment opportunities, such as flexi-recurring deposits.
• Create an inclusive database: It is necessary to create a data base that captures the income and transaction
history of Jan Dhan account users so that credit distribution models may be developed.

CONCLUSION:
The National Mission for Financial Inclusion thus represents an important facet of the Government’s inclusive and
sustainable growth agenda.
UNIVERSAL BASIC INCOME (UBI)
 In News: In the context of the economic crisis due to COVID-19, experts suggested the idea of Universal Basic
Income. The Welsh Government in the UK also announced a draft plan to provide Universal Basic Income to
all its citizens.
 A Universal basic income is a regular, periodic cash payment delivered unconditionally to all citizens on an
individual basis, without requirement of work or willingness to work.

HISTORY OF UNIVERSAL BASIC INCOME IN INDIA:

• The Economic Survey 2016-17 suggested monetizing the existing schemes with universal targeting by
providing a transfer of Rs 7,620 to all citizens.
• SEWA with support from UNICEF has been running cash transfer pilots in rural India.
• The Sikkim government has decided to implement the Universal Basic Income Scheme in India by 2022.
• In the general elections, the Indian National Congress promised a Rs. 72,000 annual payouts to the bottom
20% families in India under the NYAY Scheme.
NEED FOR A UNIVERSAL BASIC INCOME:
• Safety net against technological disruptions likely from the advent of Artificial Intelligence and associated
technologies.
• Relief from disasters due to Climate Change
• Poverty alleviation would be substantially boosted due to elimination of leakages and direct agency to the
poor and would enable fulfillment of Sustainable Development Goals.
• Social Justice due to last mile delivery to hitherto untouched sections of society.

MAJOR ISSUES INVOLVED:

• Financial Model: whether the scheme is to be financed by recycling existing schemes, increasing tax rates or
other monetising endeavour.
• Federal challenge is also involved on the issue of whether the Centre should bear a full burden or share it
with the states.
• Beneficiaries: whether it should be extended to all citizens or targeted sections.
 Moral challenge of providing the same quantum of support to the rich as the poor.
 NITI Aayog CEO has proposed limiting it to the bottom 20% of BPL population.
 The Ministry of Women and Child Development has proposed including all women heads of family.
• Amount of transfer:
 NITI Aayog CEO suggested a quantum of Rs 1000 per month
 Economic Survey 2016-17 suggested a sum of Rs 7,620 per month.

MERITS OF UNIVERSAL BASIC INCOME:

• Better targeting as exclusion errors would be reduced if universal in nature.
• Less leakages due to direct bank transfers and hence improved efficacy.
• Maladies of existing schemes would be eliminated. For instance, Nature of Fertiliser subsidy incentivises
unscientific and heavy use of Urea.
• Administrative costs of several schemes would be eliminated due to direct bank transfers. E.g. Grain storage
costs due to PDS schemes.
• Freedom to the poor to choose the best way to bring welfare to their families rather than a prescriptive
approach of government subsidies.
• Social benefits due to improved economic conditions. For instance, 42% drop in crime in Namibia and the
8.5% reduction in hospitalizations in Dauphin, Manitoba
• Economic Growth due to rise in consumer demands from the erstwhile poor sections.

DEMERITS OF UNIVERSAL BASIC INCOME:

• Moral hazard of paying people for doing nothing and may disincentivise going to work.
• Fiscal burden of a viable payouts would be tremendous which may lead to heavy debt and inflationary
pressures.
• Raghuram Rajan, former RBI governor has predicted a potential Rs 7 Lakh crore burden on the public
exchequer for a living wage sized Basic Income Support to the poor.
• Difficult to roll back if unsuccessful due to political pressures.
• Withdrawal of existing schemes (necessary to create fiscal space for the scheme) is untenable and may have
drastic social impacts. For e.g., withdrawal of Mid-Day meal scheme may reduce attendance in schools.
• No means of ensuring productive use of the amount provided.
• Scalability of Pilot Projects is questionable due to differences of time, place and socio-economic realities.
• Financial Inclusion is needed at near universal scale with a robust ecosystem comprising a poor friendly
banking system, digital payment infrastructure and financial literacy.
• Delivery of services is not guaranteed merely by transferring income to geographical and infrastructural
challenges.
• Diversion of resources from productive sectors such as infrastructure is likely due to the heavy financial
burden of the scheme.

ALTERNATIVES TO UNIVERSAL BASIC INCOME:

• Qualified Basic Income: restricted to a section of society
• Universal Basic Services: a buffet of essential services promised to every citizen
• Smart subsidies: targeted only to deserving with minimal inclusion and exclusion errors.
• Create good jobs in emerging sectors such as green economy, Artificial Intelligence and sustainable industries.
CONCLUSION:
Universal Basic Income promises a strong safety net to ensure dignified life for everyone, particularly those
affected by economic uncertainties and technological disruption. Global deliberation and localised pilot projects
are necessary to gauge its viability and efficacy.
UPSC Mains syllabus for Agriculture and related topics

 Major Crops - Cropping Patterns in various parts of the country, - Different Types of Irrigation and
Irrigation Systems; Storage, Transport and Marketing of Agricultural Produce and Issues and Related
Constraints; E-technology in the aid of farmers.
 Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices; Public Distribution
System - Objectives, Functioning, Limitations, Revamping; Issues of Buffer Stocks and Food Security;
Technology Missions; Economics of Animal-Rearing.
 Food Processing and Related Industries in India- Scope’ and Significance, Location,
Upstream and Downstream Requirements, Supply Chain Management.
 Land Reforms in India.

AGRICULTURE SECTOR IN INDIA: CRITICAL PERSPECTIVE

INTRODUCTION
 About 52% of the total cropland in the country is unirrigated and relies primarily on rainfall for farming.
 Over 60% farmers cultivate crops without irrigation.
 Crop burning contributed nearly 40% of the near-surface PM2.5 in Delhi in 2016 — a year that saw one of
Delhi’s severest pollution episodes.
 According to the agricultural census, 73.2% of rural women are engaged in farming activities but only 12.8%
own landholdings.
 An RBI study in 2019 said that 28% of agricultural credit is still provided by the moneylenders, traders and
relatives. When it comes to small farmers, nearly 60% have no access to bank loans.
  UN-SDG 1: End poverty in all forms
 UN-SDG 2: Eliminate global hunger, protect indigenous seed and crop varieties, doubling agriculture
productivity and small farmer incomes by 2030.
 Indian Constitution:
1. Agriculture is a state subject. Entry 14 of the state list mentions the item relating to agriculture:
“agriculture, including agricultural education and research, protection against pests and prevention of
plant disease”.
2. Entry 33 in the concurrent list limits the power of states in agriculture and empowers the centre by
stating that both the state and the union government can legislate regarding production, trade, supply
and distribution of a range of foodstuffs and agricultural raw materials.

BASIC FUNDAMENTALS: AGRICULTURE & ALLIED SECTOR

 Share in GVA: in the year 2020-21 18.8 %.

 Growth Rate: 3.9 per cent in 2021-22.
Sector  Share in Total Employment: less than 49%
Overview  The agriculture sector’s contribution to GDP has decreased from 54% in 1950-51 to less
than 17% in 2016-17.
 Net Sown Area – 43%
Land Use  Pastures & Groves – 4%
Pattern  Cultivable Waste – 4%
 Fallow Land – 9.6%
Food Grain  Wheat and Rice accounted for around 78% of the food grains production
Production
 Canal Irrigation (Public): 30%
Present Status  Wells and Tube wells (Private): 60%
of  Tanks: 5%
Irrigation  53-55% Of Area Under Cultivation is Rainfed
 Rainfed agriculture contributes 40% of the agricultural output.
 50% of Total Rural Workforce & 60% of Livestock in Rainfed Areas
 Total Contribution to Agriculture GDP: About 33%
 Fruits and vegetable account: nearly 90% of total horticulture production 2nd largest
Horticulture producer of fruits and vegetables in the world.
 India is 1st in the production of Banana, Mango, Lime and Lemon, Papaya, and Okra.
Largest Producer & Exporter of Spices.
 Livestock sector contribution to agriculture GDP: 4.11% GDP and 25.6% of total
Agriculture GDP.
Livestock  Largest Livestock Population in World
Sector o 57% Buffaloes
o 13% Cattles (80% of the cattle are indigenous)
 India ranks First in Milk Production: 23 per cent of global milk.
 Milk production: Organized sector: 20% & unorganized sector: 80%

CURRENT STATUS OF INDIAN AGRICULTURE

 While per-capita agricultural output has seen a steady rise, the share of agriculture in the Gross Domestic
Product (GDP) has fallen.
 Agricultural Trade: Major commodities imported to India are pulses, edible oils, fresh fruits, and cashew nuts.
Major commodities exported by India are rice, spices, cotton, meat and its preparations, sugar, etc.
 The workforce engaged in Agricultural sector in India sharply declined from 60% in 2000 to 42% in 2019.
 Agriculture accounts for only a fifth of India’s GDP (around 17%) but provides a livelihood for nearly 50% of
the working population.
SIGNIFICANCE OF AGRICULTURE SECTOR FOR INDIA
 Increase in Per Capita Income: Agricultural sector provides more jobs to unemployed people. It increases the
individuals as well as national income.
 Major Source of Employment: Agriculture sector provides employment to major portion of our labour force.
More about 50% of our labour force is directly involved in agriculture sector.
o In terms of employment, only the fishery sector supports the livelihood of over 28 million people
in India especially the marginalized and vulnerable communities.
 Reduction in Poverty: Agriculture development has significant impact on rural development. If productivity
increases in agriculture, it reduces poverty and stimulates non-farm employment, too.
 Supply of Food: Food is the first in basic necessities of the life. The agriculture sector is the sole provider of
all type of food to the population engaged in various sectors of the economy. Agricultural sector also provides
food to animals.
 Source of Forex Earning: Agriculture sector exports are the main source of foreign exchange (forex) earning
which is used to import capital goods.
o agricultural trade of $ 56 billion fetched as much as $ 18 billion in trade surplus.
o Export earnings from the fisheries sector was ₹ 46,662.85 crore during 2019-20.
 Supply of Raw Material Agricultural sector provides not only food but also provides cotton, sugarcane,
tobacco, rice, oil-seed, meat and milk to various agro-based, small scale and large-scale industries as a raw
material.
 Development of Industrial Sector: There is inter-dependence and inter-relationship between agricultural and
industrial sector, both are helpful to develop each other.
 Improvement in Living Standard: There is an increase in the income of the farmers due to development of
agricultural sector. Growth of agricultural sector will cause to improve the standard of living of the population.
 Extension in Market Size: There is more output in agricultural sector due to farm mechanization. It enlarges
the size of market. If there is more production, then surplus production can be export to the other countries
of the world.
 Capital Formation: Role of agricultural sector in capital formation cannot ignore. It increases the incomes of
the people that lead to more saving and more investment. Here, more investment leads to rapid capital
formation.
 Economic Development: Economic development, progress and prosperity cannot achieve without
agricultural sector.
 Employment: It provides employment opportunities to a lot of people. It produces exportable items, which
increases the foreign exchange resources.
 Self-Reliance Policy: Agriculture sector is helpful to achieve the self-sufficiency. Our country will not only
become self-sufficient in food but supply of raw materials for industries will also expand our industrial sector.
 Controlling Inflation: Inflation refers to the increase in general price level. It may be due to increase in
demand and shortage in supply. Agricultural sector is very helpful to control the inflation.
 Reduction in Regional Disparities: Development of agriculture sector will increase the living standard of the
rural population. This leads to reduce the urban and rural differences in the country.
 Demand for Industrial Goods: As the agriculture productivity increases, the income of farmers goes up. With
the rise in income, the demand for both agricultural goods (tractor, fertilizer, pesticides, tube- wells etc.) and
industrial goods (television, mobile,) will increase in rural areas.

ISSUES IN AGRICULTURE SECTOR IN INDIA

 Uneconomical, Fragmented land holdings: The small and marginal land holdings (2 ha) account for 72% of
landholdings (Eco. Survey 2019-20) which is a major limitation to reap the benefits of economies of scale.
 Lack of access to formal credit: small farmers still find it difficult to access formal sources of credit and turn
to exploitative moneylenders. Most of the rural lending is indirect rather than direct.
 Falling yields: due to inadequate inputs like quality seeds, irrigation, fertilizers & poor soil health.
 The declining area under cultivation: diversion of agricultural land for non-agricultural uses e.g.,
industrialization & urbanization.
 High inputs Cost: deregulation of fertilizer prices, reduction in farm subsidies, high-cost of quality seeds, rising
labor costs, etc
 Low Farm Revenues: due to low production along with low prices received in the market for output
 Excessive reliance on Monsoons: Out of a net sown area of 141 million hectares, 60% of land under cultivation
is rainfed. Vagaries of monsoon in the form of drought, storm, flood, etc. cause a significant loss of output.
 Climate change: climate change is leading to unpredictable weather which has caused degradation in soil
fertility, pests, and disease risks to crops.
 Overcrowded agriculture sector: Excessive dependence on agriculture, with consistently falling contribution
of the agricultural sector to total GDP i.e., mere 17% in 2016. This, coupled with a lack of gainful nonfarm
employment has led to disguised unemployment in the agricultural sector.
 Faulty implementation of government policies/schemes: for e.g., Oppressive APMC Acts, MSP-related
policies, Stock limits under ECA, liberalized Agri-import policy (leading to declining in domestic prices &
farmers’ incomes), ineffective Insurance & credit-related schemes
 Inadequate Public investment & private investment: fiscal conservatism has adversely affected public
investment in irrigation, drainage, and flood control. The unavailability of the agriculture sector has
dampened private investment.
 Inefficient MSP structure: Only 6% farmers get the benefit of MSP and remaining 94% are dependent on the
markets.
 Large number of farmers want to quit- The survey of 5,000 farm households across 18 states says that 76%
farmers would prefer to do some work other than farming.
 Lack of enabling infrastructure along the value chain: including cold storage, warehouses, and agro-
processing—has not developed in corresponding speed with rising agricultural production leading to food
wastage, poor price discovery for farmer, distress sale of product etc
 Low investment in Research & Development: Less than 1% of the Agricultural GDP in India is spent on
research.
 Rural Distress & Farmer Suicides: According to National Crime Records Bureau (NCRB) report (2015), over
8000 farmers and 4500 agricultural labourers have committed suicide.
 Agricultural NPA’s: According to Reserve Bank of India data, NPAs in agricultural sector rose over 23% from
Rs 48,800 crore in 2016 to Rs 60,200 crore in 2017.
 Moral Hazard of Farm Loan Waiver - Expectations of loan waiver prompt farmers to default on loans.
Moreover, it has a domino effect such that farmers from different states demand loan waivers.
 Using Loan Amount for Non-farming Purposes: Farmers take loans through channels like Kisan Credit Card
and using it for other non-farm activity including private consumption.
 Unscientific farming practices: E.g., Farming without following agroeconomic conditions of an area, no soil
tests etc.
 Instability: Agriculture in India is largely depending on monsoon. As a result, production of food-grains
fluctuates year after year. A year of abundant output of cereals is often followed by a year of acute shortage.
 Conditions of Agricultural Labourers: The conditions of most agricultural labourers in India are far from
satisfactory. There is also the problem of surplus labour or disguised unemployment. This pushes the wage
rates below the subsistence levels.

PRICE FLUCTUATIONS IN AGRICULTURAL PRODUCTS

 Price fluctuation is a multidimensional problem attributed to various factors which, when combined,
culminating in dangerous consequences for the most vulnerable.
 Although high prices can technically be good news for farmers, price fluctuation is extremely dangerous, as
farmers and other agents in the food chain risk losing their investments if prices fall.

REASONS FOR FREQUENT PRICE FLUCTUATIONS

 Weather: Good weather can lead to an unexpectedly large increase in supply which can lead to glut on the
market and falling prices. Further drought and flood can also be a possible factors.
 Seasonality: Prices of products from the previous season frequent see fluctuations due to their seasonal
harvest.
 Cobweb: The time lag in agricultural production causes a cyclical distortion in prices and therefore the current
price offered in the market determines the future supply in the agricultural market.
 Cascading effect: Multiple taxes and other intermediary costs lead to a distorting effect on prices.
 External factors: Volatility in international markets affecting the supply and demand of commodities
 Infrastructure: Lack of supply chain linkages and infrastructure shortages can push up prices.
 Government Procurement: RBI found that there is a clear impact on inflation due to MSP. It also states that
the impact gets stronger as the government assures procurement.
 Perishability of products
 Change in quantum of storage facilities
 Fluctuation in production due to variation in rainfall: low monsoon leads to low crop yield so demand and
supply equilibrium get disturbed.
 Blockage in the movement of commodities like strikes by transporters and blockage of road and rail
transport.

WAY FORWARD
 Regional approach: Create regional or district-wise buffer stocks of farm produce so that they can be released
to moderate prices
 Infrastructure development: To extend the shelf life of perishable commodities and good roads and transport
facilities
 Fix Price ranging: If the price falls below this range, the government should compensate farmers for lost
income.
o Price stabilization Fund launched to help regulate the price volatility of Agri-horticultural
commodities through the provision of a strategic buffer, discourage hoarding and speculation.
 Technology: Especially in weather systems and open data assimilation for more informed decisions at all
levels.
 Rationalisation of schemes: Preventing populism and market distortion, price deficiency and support
schemes must reflect the objective realities.
 Prevent Hoarding: At commercial and individual levels, hoardings must be prevented as they influence prices
artificially.
 Crop diversification: Alternative crops give protection from complete crop failure and provide cheap food
alternatives.
 Effective and efficient transportation: Dedicated freight corridors and Kisan rail scheme can reduce delivery
time and thus, full fill on time demand.

CONSEQUENCES OF AGRARIAN CRISIS

 Low levels of farmers’ income: 1/5th of rural households with self-employment in agriculture as a principal
occupation have an income below the poverty line led to poor living standard (NSSO, 2011-12).
 Unsustainable livelihoods: NSSO 70th round indicates a farm household needs to have at least 1 hectare of
land to cover their consumption expenditure. But over 65% of households have less than one hectare of land.
 Rising indebtedness: Nearly 52% of agricultural households are under debt, esp. concentrated among small
and marginal farmers (landholding < 2 ha).
 Increasing Farmers’ suicides: According to NCRB data, over 12,000 suicides have been reported in the
agriculture sector every year since 2013. Indebtedness-induced economic distress was the key cause.
 Rural-urban migration: In the last 10 years (2001-2011) India witnessed one of the largest migrations from
rural to urban India due to the failure of agriculture and the dearth of employment in the agriculture sector.
 Exit from the Agriculture sector: According to a study conducted by the Centre for Study of Developing
Societies (CSDS), Delhi, 76% of farmers want to give up farming because of better income opportunities in
other sectors.
 Rural unrest: Farmer protests & Rising demand for loan waivers.
 Poor Demand: With around 60% of the population engaged into farming, poor sectoral performance will lead
to poor demand, hence impacting overall economy.
 Rising Inequalities: There is a disparity of about 3 times between a farmer and non-farmer’s income
 Human Capital: and demographic dividend potential may go waste as poor farmer conditions will impact
health and education of family members as well
 Lower Participation: of Farmers in entrepreneurship, national level discussions etc.
 Food Insecurity: If farmers loose interest in farming, it endangers whole nation with food insecurity
 Social unrest: Protests by Famers have increased because of the deteriorating agricultural conditions.

FRAGMENTED LAND HOLDINGS

REASONS FOR FRAGMENTATION OF LAND HOLDING:

 Small scale of production: It inhibits the ability of farmers to reap economies of scale in agricultural
operations and invest in mechanisation. It further leads to decline in productivity and thus declining land
capability.
 Low Prices: Further the small and marginal farmers have low bargaining power, since they have very little
marketable surplus and are price takers in the market.
 Low income: As per NSSO Survey (2012-13) the median agricultural incomes were about Rs. 19,250 or about
Rs 1600 per month in 2012-13.
 Indebtedness: As per Economic Survey-2016-17, there is an inverse relationship between indebtedness and
the size of land holding. In Bihar and West Bengal, more than 80% of agricultural households with marginal
landholdings are indebted.
 Inclusion Issue: The existence of a large number of small and marginal farmers means it is challenging for the
government’s extension arms to reach them with new technology and farm support schemes.
 Failure of land reforms: objective of equitable land distribution after independence failed.
 Rising Population: increasing population leading to land fragmentation because of rising number of
dependences on same land.
Overall fragmented and uneconomical land holdings makes farmers prone to all sort of agricultural risks including
Production risks, Climatic risks, Price risks, Credit risks, Market risks, and Policy risks.

NEGATIVE IMPACTS SMALL LANDHOLDINGS:

 Harm productivity: cause difficulties to grow certain crops, and prevent farmers from changing to high profit
crops.
o for example, fruit crops, require larger plot areas, so if the farmers only poses small and
fragmented plots they may be forced to grow only less profitable crops.
o the variety of crops a farmer can produce is severely limited due to the small piece of land.
o A small piece of land usually produces just about enough for the farmer and his family. To sell the
excess, if any, the farmer has to invest in appropriate infrastructure.
 Fragmented land holdings can increase transport costs.
 Management, supervision and securing of scattered plots can also be more difficult, time consuming, and
costly.
 Land wastage: Land fragmentation involves a complicated boundary network among parcels (hedges, stone
walls, ditches, etc.) which cause land wastage.
 Very little marketable surplus: The small and marginal land holdings — less than two hectares — account
for 72% of land holdings and the small and marginal farmers have low bargaining power, since they have very
little marketable surplus and are price takers in a market.
 fragmentation makes it difficult to do mechanisation of land: Thus, use of modern technologies in agriculture
restricted and it limits the productivity.
 litigation due to fragmentation, which is a fairly common form of a property dispute. About 25% of all cases
decided by the Supreme Court are centered around land disputes. Again, 66% of all civil cases in India are
related to land disputes.

SOLUTIONS:
 land is a State subject: States can take specific legal reforms to ease land acquisition process by consulting
every stakeholder.
 Furnish details about usage of acquired land: People have the right to know about usage of land
acquired by government by way of compensation. For e.g.- in Britain, the government has pledged to
provide details of ownership, location and intended use for all properties.
 Comprehensive inventory of land resources and usage patterns: It should be made with information on the
location of each property, its dimensions, legal title, current & planned use etc. to enable effective
identification of land usage pattern.
 Early Finalisation of National Land Reforms Policy 2013. It suggests for:
o National land use plan: based on information from tehsils, districts, regions and states.
o Land rights for vulnerable sections such as SC/STs, women etc.
o Dispute resolution: by establishing an authority at the sub district level and a tribunal at state
level for land related dispute resolution.
o Modernisation of Land Records: Establishing a National Authority for Computerisation of Land
Records and State Authorities for Computerisation of Land Records.
 Monitoring and evaluation: Establish Land Rights Commission (LRC) at State level to review the progress
made by state governments on the realisation of land rights.
 Scale-up the farms: There are various ways such as land pooling, land leasing and contract farming etc. All
this should be done within proper legal mechanism.
 Land Pooling is also known as land readjustment or land reconstitution. It is a land acquisition strategy where
ownership rights of privately held land parcels are transferred to an appointed agency, with these land parcels
being pooled as a result.
 Use of surplus land: It should be utilised to meet the growing demands for services such as water and waste
disposal, housing and transportation projects etc. and land intended for future use should be rented out,
through a transparent bidding process, till such time it is needed.
 Model Land Leasing Law: NITI Aayog has formulated a Model Agricultural Land Leasing Act, 2016 to both
recognize the rights of the tenant and safeguard interest of landowners.

DOUBLING FARMER’S INCOME

 The Ashok Dalwai Committee on Doubling Farmers’ Income submitted its draft report. The Union
Government had constituted the inter-ministerial committee, in 2016, to prepare a blueprint for doubling
farmers’ income by 2022.

DALWAI COMMITTEE AND ITS RECOMMENDATIONS

 Target income levels: While aiming to double farmers’ income, the target must be to raise the ratio of farm
income to the total income of the farmers from 60% in 2015-16 to about 70% in 2022-23
 Broadening the definition: Liberalizing definition of Farmer for inclusiveness. Farmers to include cultivators,
lessee sharecroppers, etc.
 An online and annually authenticated database: may be developed to identify and define a farmer, to render
him/her eligible to avail agriculture-related support-system.
 Prioritize Sub sectors for investment: Need for diversification into high-growth and high-value sub-sectors
such as horticulture (under crop sector), animal husbandry, dairying, and fisheries. Ensuring adequate
investment for priority sub-sectors.
 Private investment: in new-age infrastructures such as Agri–logistics, pack-houses, greenhouses, and micro-
irrigation.
 Public investment: In irrigation, R&D, rural roads & transport, rural energy, etc and to “crowd in” private
investment.

NITI AAYOG INDIA@75: RECOMMENDATIONS ON DOUBLING FARMERS INCOME:

 Stable export policy: In consultation with all stakeholders, the Government of India should come up with
a coherent and stable agricultural export policy, ideally with a five to ten-year time horizon.
 Price realization: The government should consider replacing the Commission on Agricultural Costs & Prices
(CACP) by an agriculture tribunal in line with the provisions of Article 323 B of the Constitution.
 NITI Aayog should set up a group to examine the following:
o Replacing the MSP by a minimum reserve price (MRP), which could be the starting point for auctions at
mandis.
o Examine options for including private traders operating in markets to complement the MSP regime
through a system of incentives and commission payments.
 Agriculture advisory service: An effective and technology driven Agriculture Advisory Service may be
considered on the lines of those of the United States Department of Agriculture (USDA) and the European
Union (EU).
 Futures trade: Futures trade should be encouraged. Removal of entry barriers to increase market depth
should be considered.
 Crop insurance: PMFBY needs to be modified to -
o Promote weather-based insurance.
o Increase non-loanee farmers’ insurance coverage.
o Allow for mixed cropping and increase the number of crops notified.
 Encourage states to adopt the Model Contract Farming Act, 2018: The contract will specify the price and
quality at which the farmers’ produce will be purchased. This protects the farmer in cases where prices fall
below the MSP.
 Encourage states to adopt the Model Agriculture Land Leasing Act, 2016: The Model Act aims to improve
land access to small and marginal farmers through land leasing, whilst also providing for a mechanism for
tenants to avail of institutional credit.
 Digitize land records: Complete digitization of land records is a must for effective implementation of land
leasing. Geo-tagging, along with location agnostic online registration of land records to generate updated land
records, must be carried out.
o Digital India Land Record Modernisation Programme: launched for For modernization of land
records system in the country.
 Promote Farmer Producer Organizations (FPOs): There are now 741 FPOs in the country, managed under the
aegis of Small Farmers Agribusiness Consortium (SFAC). They have demonstrated that aggregating farmers
can help achieve economies of scale.
 Focus on precision agriculture: Support research on energy friendly irrigation pumps, micro irrigation, climate
smart technologies, IoT, AI and use of technology in animal husbandry to monitor animal behaviour, health
and production to prepare for future challenges.
 Raise research spending: Research spending, currently at 0.3 per cent, needs to be increased to at least 1 per
cent of agricultural GDP.
 Create a knowledge hub to disseminate best practices: It is essential that new technology be adopted at the
farm level. The performance of Krishi Vigyan Kendras (KVKs) should be regularly reviewed by external
agencies and well performing KVKs must be strengthened to disseminate best practices at the field level.
 Develop models of integrated farming: The ICAR and State Agriculture Universities (SAUs) should focus on
providing recommendations across the farming value chain, covering production, post- production,
processing and other value- addition activities.

RECENT INITIATIVES FOR DOUBLING FARMERS’ INCOME:

 Prime Minister’s 7 Point Action Plan:
1. Enhanced focus on irrigation with large-scale investments, with the aim of ‘per drop, more crop’.
2. Availability of Quality Seeds and Nutrients.
3. Large-scale investments in Warehousing, cold chains, and storage facilities.
4. Value- addition through food processing.
5. Risk Management through the introduction of crop insurance schemes.
6. Setting up a national farm market and;
7. Promoting ancillary activities like poultry, fisheries, etc.
  Pradhan Mantri Fasal Bima Yojana: To provide insurance at the lowest premium rate to farmers
with added benefits
 Pradhan Mantri Krishi Sinchayee Yojana (PMKSY): Boost to micro-irrigation under ‘Per Drop More Crop’
 Long Term Irrigation Fund: Augmented by 100 percent to Rs 40,000 Crore
 Soil Health Cards: Scheme launched to reduce fertilizers usage and expenses
 Credit facility for farming and agriculture: raised to Rs.10 lakh crore.
 National Agriculture Market (e-Nam): to ensure expanded market access and better price realization for
Farmers.
 Fertilizer sector reform (Urea): 100% of Neem Coating of indigenous and imported urea achieved.
Diversion of highly subsidized urea towards non-agricultural purposes reduced to negligible.
 Stabilization of prices of Pulses: For the first time, a buffer stock of up to 20 lakh MT of pulses is being
created to manage the price volatility of pulses
 Agro-Meteorological Services for Farmers: About 21 million farmers are currently receiving AAS
in vernacular languages through SMS and other modes.
 Paramparagat Krishi Vikas Yojana: Promoting organic farming and establishing an Organic value chain for
the North Eastern States.
 National Gokul Mission: aiming at improving the genetic stock and breeds of indigenous cattle population
and at Milk Production and Dairy development.
 SAMPADA scheme: to provide effective and seamless backward and forward integration for the processed
food industry, better prices to farmers, huge rural employment opportunities, reduced wastage, and
increased export competitiveness in processed food.

Success of India in achieving the Doubling farmers income:

According the Situation assessment survey by NSO, monthly agricultural household income of the country has
been increased from Rs 8059 to Rs 10218. But still:
 India is far from doubling the income of farmers” and in some states — “between 2015-16 and 2018-19
i.e. in four years” — like Jharkhand, it has come down from Rs 7068 to Rs 4895; in Madhya Pradesh, from
Rs 9740 to Rs 8339; in Nagaland, from Rs 11428 to Rs 9877; in Odisha, down from Rs 5274 to Rs 5112.
o It is due to insufficient fund utilization and funds by agriculture departments and lackadaisical
implementation of the Pradhan Mantri Fasal Bima Yojana (PMFBY) by certain states.

FARMER'S SUICIDE
 As per the Central Government despite a multi-pronged approach to improving income and social security of
farmers, over 12,000 suicides have been reported in the agricultural sector every year since 2019. Farmer
suicides account for approximately 10% of all suicides in India.

WHY ARE FARMER SUICIDES MORE CONCENTRATED IN A PARTICULAR AREA?

 In 2017, the most number of farm suicides were reportedly in Maharashtra (34.7 per cent), followed by
Karnataka (20.3 per cent), Madhya Pradesh (9 per cent), Telangana (8 per cent) and Andhra Pradesh (7.7 per
cent).
 There are certain pockets in countries like Vidarbha region, Marathwada, Northern Karnataka etc. which are
more prone to farmer suicides. Most of these regions come in drought prone areas.
 The primary region is the continuous shift from agro-ecological cropping pattern. Traditionally,
coarse cereals like maize, millets, legumes like pulses, which are drought resistant were cultivated. But,
due to flawed support price policies, they have shifted to cash crops like sugarcane, cotton, and
input intensive crops like wheat and rice.
 Thus, they fall in debt to meet the higher input costs, and harvest is subjected to vagaries of nature.

REASONS OF SUICIDE:
 Geographical:
o Less than normal monsoon for two years in a row compounded by rain fed nature and less diversification
of agriculture.
 o Stagnating crop yields due to decreasing productivity of soil as a result of irrational use of fertilizers and
climate change.
 Institutional:
o Poor agro-ecological planning i.e. wrong set of crops being promoted in different regions e.g. sugarcane
in water-scarce.
o In Marathwada, low levels of procurement of crops results in distress sale of crops and hence input costs
not being realized.
o Low penetration of crop insurance schemes and delay in insurance claims.
o Falling prices of agricultural commodities.
 Technological:
o Failure of GM cotton in Punjab as a result of whitefly attacks.
o Low levels of R&D results in poor quality of seeds being used to produce crops.
o Failure of technological experiments like introduction of BT Cotton which was good for irrigated regions
failed in rain fed regions.

WAYS TO REDUCE FARMER'S SUICIDE:

 Promotion of dry land farming practices, water conservation and rainwater harvesting.
 Motivating farmers for right crop choice selection
 Main-streaming livestock in the agricultural mix
 Using technology to devise resistant strains of crops
 Counselling and mental health management by clinical experts
 Along with subsidies, increased farm profits, the focus should also be on resilience building and problem
solving skills of farming families.
 Agri universities can play a powerful role in dissipating the culture of shame associated with mental illness
and depression as it is the fear of stigma that acts as a barrier to seek appropriate treatment.
 Insuring crop Failures: PM Fasal Bima Yojana launched to provide financial support through insurance.
 Credit mobilization: Kisan Credit card scheme launched for easy credit availability.
 Ensuring adequate pricing of crop: e-National Agricultural Market aims to link APMCs and to provide
competitive price to farmers for their crops.
 Rescheduling loans: The Reserve Bank of India has allowed State and district level banks to take a lenient
view on rescheduling of loans if crop loss is 33% or more.
 Social security: The government has launched the Pradhan Mantri Kisan Maan DhanYojana (PM-KMY) in
2019 with a view to providing social security to Small and Marginal Farmers in their old age when they have
no means of livelihood and minimal or no savings to take care of their expenses.
o As the scheme benefits around 12 crore small and marginal farmer families, so in the long run it would
not only provide assured supplemental income to the most vulnerable farmer families.

HORTICULTURAL SECTOR
 The horticultural sector covers six categories, namely pomology (fruits), olericulture (vegetables), floriculture
(flowers), plantation crops, spices, aromatics, and herbal medicines.

PRESENT STATUS OF HORTICULTURE

 India is the second-largest producer of fruits and vegetables globally; the Second largest producer and
exporter of Spices.
 Occupying only about 14 percent of agricultural land, horticulture contributes more than 33 percent to
the agricultural GVA.

IMPORTANCE OF HORTICULTURE
 High-value crops due to higher demand from consumers and from greater awareness of nutritional
benefits.
  Higher returns per unit of land as compared to cereal crops and hence beneficial for small and marginal
farmers.- Replacing 1 hectare of staple crops with horticultural crops increases annual income by Rs
80,000
 Ensures Nutritional security by overcoming vitamin and micronutrient deficiencies
 Being labour-intensive generates more employment opportunities.
 Boosts secondary agriculture by developing cottage-based Industries.
 Gender equity: Vegetables, fruits and cut flowers are often grown and marketed by women, but women
often have less access to markets, land, inputs and education.
 Horticulture crops are a source of variability in farm produce and diets.
 Horticultural produce serves as raw material for various industries, such as processing, pharmaceutical,
perfumery and cosmetics, chemical, confectionery, oils and paints, etc.
 The horticultural industry offers a variety of jobs, both directly and indirectly.

CHALLENGES IN HORTICULTURE
 Longer sowing to harvest cycle for some of the fruits such as Apple, Guava, etc.
 High cost of inputs that burdens the farmers
 Large-scale prevalence of old and senile orchards impacts productivity. The majority of the orchards also
have low planting density.
 Availability of quality seed and planting material impacts the quality of produce.
 Poor tree canopy management.
 Rainfed cultivation, with the majority of the horticultural cultivation having no access to irrigation.
 Initial cost constraints in the adoption of improved technologies.
 Facilities for post-harvest management have not kept pace with production growth. The unorganized
supply chain is not suitably integrated for managing perishable produce.
 Lack of appropriately trained extension services for horticulture.

STRATEGY TO BOOST HORTICULTURAL PRODUCTION

 Increasing the output through higher productivity
 Hybrid technology for high productivity and quality- Hybrids of tomato, chili, cucumber, and muskmelon
 Quality planting material and seed production creation, modernization, and accreditation of nurseries.
o Thus, CSIR FLORICULTURE MISSION is launched.
o Department of Agricultural Research & Education (DARE) developed 35 special trait varieties
including biofortified and stress tolerant varieties of field and horticulture crops during 2021-22.
 High-density planting system- higher yield and net economic returns per unit area, more efficient use of
inputs.
 Increasing the output through area expansion such as Integrated Farming system approach, Urban & Peri-
Urban Horticulture.
 Resource use efficiency or savings in the cost of production through micro-irrigation, fertigation, adoption of
mechanization to reduce labor costs.
 Increase in cropping intensity by enhancing Irrigation, Crop Rotation, Mixed Cropping, etc. Diversification
towards high-value crops within horticulture such as floriculture, cashew, Cocoa, mushrooms, spice, and
medicinal plant cultivation.
 Improvement in the market access and marketing system.
o KISAN RATH Mobile App launched to searching transport vehicles for Primary and Secondary
transportation for movement of Agriculture & Horticulture produce.
 Creation of near-farm occupations in post-harvest handling facilities.

ROLE OF NATIONAL HORTICULTURE MISSION (NHM) IN BOOSTING PRODUCTION, PRODUCTIVITY AND INCOME IN
HORTICULTURE FARMS
 Scheme was launched under 10th five year plan in 2005-06.
 It provides holistic growth of the horticulture sector through an area based regionally differentiated
strategies due to which more than 9 crore metric tons of fruits on 63 lakh hectare land were produced during
2015-16.
 Horticulture farms are much smaller and horticulture crops have high return on investment which allows
marginal farmers to increase their income using small lands.
 Farmers can plant multiple crops on their land which provide multiple earning resources.
 Regions experiencing low rainfall and prone to drought are getting benefit from the option of horticulture
which requires less water and is less susceptible to crop failure.
 Horticulture crops have short turnaround time than food crops which helps in efficient land utilization,
increased production and productivity, and also increases income of farmers.

After the launch of the NHM, significant progress has been made in area expansion under horticulture crops,
resulting in higher production and increase in income. Over the last decade, the area under horticulture grew at
an average rate of 2.7% per annum and annual production increases at an average rate of 7.0% per annum.

GOVERNMENT INITIATIVES
 Integrated Development of Horticulture (MIDH): High-density plantations, protected cultivation, micro-
irrigation, quality planting material, rejuvenation of senile orchards, and post-harvest management and
marketing.

CONCLUSION:
 Horticulture is gathering steam across the country, even as the Centre aims to double farmer incomes by
2022. But still challenges like inadequate cold storage infrastructure, limited availability of market, limited
support from government and high price fluctuation are needed to be catered to achieve the aim of doubling
farmers’ income by 2022.

PRECISION FARMING
 Precision farming (also called Satellite Farming) refers to the application of a precise and proper quantity of
inputs like water, fertilizer, pesticides, etc. at the correct time to the crop for increasing its productivity and
maximizing its yields, by creating use of digital farming technologies.
 It desires implementation through ICTs, Wireless detector Networks, robotics, drones, Variable Rate
Technology, Geospatial strategies, and automatic positioning systems.

BENEFITS OF PRECISION FARMING

 Decrease use of fertilizer: Exactness farming management practices will considerably cut back the
number of fertilizer and chemical application prices whereas boosting yields.
o For example, exploitation GPS to guide their machines to confirm there’s no seed or chemical
overlap.
 Reduces input price: It reduces input prices by 18-20% and enhances yield between 30% (rice and wheat)
and 100% (sugarcane, fruits, and vegetables).
 Farm management code: like Agrivi makes all activities on the farm easier and improves farm
productivity.
 GPS soil sampling: Testing a field’s soil reveals the market nutrients, pH level, and a spread of other
knowledge that is very important for creating aware and profitable selections.
 Saves labor prices: by exploitation technology to assist maximize the advantages of crop cultivation, crop
protection, and irrigation by exploitation of automatic sensors.
 Monitor Soil & Plant Parameters: Growers will verify peak conditions for plant growth by placing sensors
throughout the fields.
 Correct quantity at correct time: Applying the correct quantity of chemicals within the right place and at the
correct time edges crops, soils, and groundwater, and so the complete crop cycle.
 Reduces pollution: It reduces pollution through lowest use of chemicals and ends up in a reduction in the
development of pesticide resistance.
 Resource Efficiency: It provides opportunities for higher resource management and afterward reduces
wastage of resources.
o For instance, remote sensing technology is utilized in observation and managing land, water, and
different resources.
 Increase agriculture productivity: through automatic applications of nutrients and input it will help in
better crop yield.
 Changing the socio-economic status of farmers: High crop yield with low input coast would help farmers to
sell their crops at profitable price.

Due to such large edges of exactness farming and its utility in meeting the target of doubling farm income (DFI),
the govt has initiated comes like PMKSY (per drop additional crop), “SENSAGRI: detector primarily based on good
AGRIculture” and use of drones, mobile apps, etc.

RAINFED AGRICULTURE
 In India, about 60-65% of total net sown area comes under rainfed lands. Rainfed crops account for 48% area
under food crops and 68% under non-food crops.
 In India, dryland farming is largely confined to regions having annual rainfall less than 75 cm.
 These regions grow hardy and drought-resistant crops such as ragi, bajra, moong, gram, and guar (fodder
crops) and practice various measures of soil moisture conservation and rainwater harvesting.

DATA AND FACTS:

 India has 1/3rd of its geographical area under humid conditions, while 2/3rd is sub-humid or arid conditions.
Thus, dryland agriculture occupies larger land than wet agriculture.
 It supports 40% of the population and occupies about 60-65% of the land.
 Even though rainfed agriculture contributes to 60% of the value of agriculture GDP of India, there is a clear-
cut bias towards irrigated areas when it comes to public investment in agriculture in the country.

ISSUES WITH RAINFED AGRICULTURE:

 Rising Temperatures: The broad pattern of rising temperatures post-1970s is common to both seasons –
Kharif and rabbi.
 Declining Rainfall: Between the 1970s and the last decade, Kharif rainfall has declined on average by
26 millimetres and rabbi rainfall by 33 millimetres.
 Rise in the number of days with extreme temperatures: There has been a rise in the number of days with
extremely high temperatures, and a corresponding decline in the number of days with low temperatures.
 The rise in rainfall extremities: The proportion of dry days (rainfall less than 0.1 mm per day), as well as wet
days (rainfall greater than 80 mm per day), has increased steadily over time.
o Thus, the imprint of climate change is clearly manifest in the increasing frequency of extreme
weather outcomes.

IMPACT:
 Impact of Weather on Agricultural Productivity:
o Only high-temperature shocks matter: The impact of temperature and rainfall is highly non-linear and
felt almost only when temperature increases and rainfall shortfalls are extreme.
o Extreme shocks have a much greater effect on unirrigated areas (and hence rain-fed crops such as
pulses) as compared to irrigated areas (and hence crops such as cereals) almost twice as high in the former
compared with the latter.
 Impact on Crops:
o Finding relating to effects of extreme temperature and rainfall shocks on the yields of individual crops.
o Crops grown in rainfed areas, pulses in both Kharif and rabi are vulnerable to weather shocks
o While the cereals, both rice and wheat, both grown in irrigated areas → are relatively more immune.
 Impact on Farm Revenue:
 o Extreme temperature shocks reduce farmer incomes by 4.3% and 4.1% during Kharif and rabi
respectively.
o Extreme rainfall shocks reduce incomes by 13.7% and 5.5% during Kharif and rabi respectively.

WAY FORWARD:
 Expansion of area under irrigation: India needs to spread irrigation and do so against a backdrop of rising
water scarcity and depleting groundwater resources (depletion is most alarming in North India)
 Adoption of efficient Irrigation technologies: Technologies of drip irrigation, sprinklers, and the “more crop
for every drop” campaign holds the key to future Indian agriculture.
 Replacing untargeted subsidies: For e.g. power subsidy needs to be replaced by direct benefit transfers so
that power use can be fully costed and water conservation furthered.
 Embracing agricultural science & technology: Agricultural research will be vital in increasing yields and
resilience against climate change threatens to bring: extreme heat & precipitation, pests & crop disease.
 Agriculture Policy Reforms - In thinking about agricultural policy reforms in India, it is vital to make a clear
distinction between two agricultures in India:
1. The well-irrigated, heavy input & price-and-procurement-supported cereals grown in North India:
o Policy Challenge: to change the form of the very generous support from prices and subsidies to
less damaging support in the form of direct benefit transfers.
2. Non-cereals in central, western, and southern India:
o Policy Challenge: to address problems including inadequate irrigation, continued rain
dependence, ineffective procurement, and insufficient investments in research and technology.
o Cooperative federalism - agriculture is a state subject, thus, the cooperative federalism “technology”
of the GST Council that brings together the Centre and States could be promisingly deployed to
further agricultural reforms and durably raise farmers’ incomes.

AGRICULTURE FINANCES AND ASSOCIATED ISSUES

 Recently, the report of the internal working group to review the agricultural credit was released by the RBI.
To enable small farmers to diversify their crops or improve their income they need to have access to credit at
reasonable rates of interest.
 In the last 10 years, agriculture credit increased by 500% but has not reached even 20% of the 12.56 crore
small and marginal farmers.

MECHANISMS OF AGRICULTURE CREDIT IN INDIA:

 Priority Sector Lending: 18% of the total net bank credit should go to agricultural advances
 Interest Subvention Scheme (ISS)
 Kisan Credit Card (KCC) Scheme
 Self Help Group - Bank Linkage Programme (SHG-BLP)
 The Joint Liability Groups (JLG) Scheme was initiated by NABARD in 2006 to enhance credit flow to
sharecroppers/tenant farmers who do not have land rights.

CAUSES FOR LESS CREDIT AVAILABILITY:

 Larger farmers accrue loans: Some farmers are over-represented in terms of access to credit. Due to this
small farmers don't get adequate credit.
 Costs are huge: Banks prefer to lend to those areas where the value of lending is lower, like those on the
brink of urban areas, or to those farmers who are more credit-worthy.
 Stress on public sector banks: Most of the agricultural credit is given by public sector banks, with 12 out of
23 of the private sector banks that data is out there having not met the 18% lending target for the agricultural
sector in 2017.
 Agriculture and credit risk: The problem with priority sector loans is the lack of understanding of the sub-
sectoral target groups, especially agriculture and therefore the small and medium sector, as also weaker
sections.
 Poor Recovery: Recovery rate is poor in Agriculture PSL sector
 Skewed agency shares in institutional credit: Dependency on scheduled commercial banks in agricultural &
allied credit is still large (~78-80% of the credit).
 Limited capacity of cooperatives and RRBs: Though co-operative institutions (~15%) and Regional Rural
Banks (~5%) play a significant role in extending agricultural credit, their share is highly skewed geographically.
 Regional Disparity in Agricultural Credit: States falling under central, eastern and north eastern regions are
getting very low agri-credit as % of their agri-GDP.
 Poor deployment of agricultural credit to allied sectors (~6-7%) despite a share of 38-42% in agricultural
output indicates neglect of allied sectors by the banks.
 Diversion of agriculture loans for non-agriculture purposes: Diversion accentuates the problem of debt
overhang, fuels high level of indebtedness and deteriorates credit culture in long run.
 Institutional vis-à -vis Non-Institutional Agricultural Credit: According to National All India Rural Financial
Inclusion Survey (NAFIS 2015), share of non-institutional credit still persists at around 28%.
 Fluctuating Gross Capital Formation (GCF) in agriculture and allied sectors relative to GVA due to wide
fluctuations in private investment in agriculture and allied sectors.

WAY FORWARD
 Provide direct income support on their land: to empower small and marginal farmers.
 Regulate the agri-credit system: to facilitate higher crop loans to Farmer Producer Organisations (FPOs) of
small farmers.
 Use of technology solutions: to develop institutional credit delivery leading to more financial inclusion of
agricultural households.
 Reform land leasing framework by adopting policies like the Model Land Leasing Act proposed by NITI Aayog,
which intends to make all lease agreements formal and enhance access to formal credit
 Set a national-level agency to build agreement among States and the Centre concerning agriculture credit
reforms, to fill the gap and reach out to the farmers.
 Establish a federal institution in agriculture on the lines of GST Council to enable consultation with states
during formulation & implementation of reforms.
 Utilizing Farmer Producer Organisations (FPOs): NABARD should promote women-oriented FPOs by
identifying successful women SHGs. Government should expand the scope of its credit guarantee programme
through Small Farmers’ Agri-business Consortium (SFAC).
 Database for Indian Agriculture sector: Develop a centralized database capturing details related to crops
cultivated, cropping pattern, output, health of soil, natural calamity, etc. Besides, farmer-wise details like
identity, land records, loan availed, subsidy given, insurance and details of crop cultivated etc. should also be
captured.
 Higher access to concessional institutional credit to farmers.
 Promoting Private sector: Crowding in of Private corporate investments by offering an appropriate policy
framework.
 Adoping recommendations of Mahesh Kumar Jain 2019 Review Agricultural Credit
o Committee has suggested the central government to set up a credit guarantee fund for the
agriculture.
 Agriculture Infrastructure Fund established to inject formal credit into farm and farm-
processing based activities.
o To set up a federal institution with representation from both central and state governments similar
to the GST council to consult States and build consensus among them over reforms related to
agriculture.
o Enhancement in the sub-target for small and marginal farmers from the existing 8 percent of
Adjusted Net Bank Credit to 10 per cent with a roadmap of two years.
 Accordingly, PSL Norms was revised in 2021 to give more credit to farmers and FPOs.
o Replacing the interest subvention scheme with direct benefit transfer to targeted beneficiaries, with
an overall limit of ₹3 lakh per individual farmer.
o It stressed to create a centralised database of the Indian agriculture sector which will help in
planning policy formulation.
CROP INSURANCE
 The area under the flagship crop insurance scheme fell 17% in the two years upto kharif season 2018. At a
time when rural incomes are sliding, this is the only existing safety net for farmers who seem to have lost
interest in the scheme.

NEED FOR CROP INSURANCE

 In our country nature has always been dicey. Crop insurance provides protection to farmers against
losses caused by crop failure and thereby ensures stability in farm income.
 It also reduces, to some extent, government expenditure incurred on relief measures extended to meet
the havoc caused by natural calamities such as droughts and floods, locusts, plant diseases.
 It also strengthens the position of co-operatives and other institutions that finance, agriculture to the
extent it enables the farmer members to repay their loans in years of crop failure.
 By protecting the economic interest of the farmers against possible risk or loss, it accelerates adoption
of new agricultural practices.
 It may act as anti-inflationary measure, by locking up part of the resources in rural areas.

PROBLEMS FROM FARMER’S SIDE

 The insurers are mostly private firms who don't have an area office. This makes it difficult for the farmers to
succeed in buying them, and mostly it's through the banks from which they took their loans.
 Most insured farmers haven't any knowledge about whom to report their losses to. They do not have any
details about the policy , which crop was insured, or the quantity of coverage (sum insured).
 The helplines of the private insurers’ don't work most of the time, and once they do; the customer
executives seldom follow the local language of the farmers.
 There have also been reports of cases where a personal bank sold mortgage insurance to a Telangana farmer
who was made to believe it had been crop insurance.
 Most insurers expect farmers to intimate them within 48 hours of crop damage. But actually, 48 hours of a
calamity are critical for farmers and such an outreach to the insurer isn't feasible or possible.

SOLUTIONS FOR CROP INSURANCE

 Because the method is manual, the likelihood of dispute is high and farmers are often unhappy about the
selection of plots to estimate yields. Moving far away from yield-based insurance to a weather-based product
could offer an answer .
 dwell on extensive use of technology, like satellite imagery and drones to estimate losses, which PMFBY has
been slow to implement.
 Data on a number of parameters just like the groundwater situation, soil moisture, irrigation, weather and
remote sensing are often wont to estimate yields.
 Crop Cutting Experiments (CCE) which is employed to assess yields should only be used as a confirmation
measure, in order that the massive burden of crop loss estimations is minimised. New technologies are often
adopted for this purpose.
POLICY INTERVENTION PMFBY 2.0
The goal of PMFBY is to help agriculture produce more sustainably
 The new Crop Insurance Scheme is in line with the One Nation – One Scheme theme.
 The PMFBY will replace the existing two schemes National Agricultural Insurance Scheme as well as the
Modified NAIS.
Objectives of PMFY
 To provide insurance coverage and financial support to the farmers in the event of failure of any of the
notified crop as a result of natural calamities, pests & diseases.
 To stabilise the income of farmers to ensure their continuance in farming.
 To encourage farmers to adopt innovative and modern agricultural practices.
 To ensure flow of credit to the agriculture sector.
PMFBY to PMFBY 2.0:
 Completely Voluntary: It has been decided to make enrolment 100% voluntary for all farmers from 2020
Kharif.
 Limit to Central Subsidy: The Cabinet has decided to cap the Centre’s premium subsidy under these schemes
for premium rates up to 30% for unirrigated areas/crops and 25% for irrigated areas/crops.
 More Flexibility to States: The government has given the flexibility to states/UTs to implement PMFBY and
given them the option to select any number of additional risk covers/features like prevented sowing, localised
calamity, mid-season adversity, and post-harvest losses.
 Penalising the Pendency: In the revamped PMFBY, a provision has been incorporated wherein if states don’t
release their share before March 31 for the Kharif season and September 30 for rabi, they would not be
allowed to participate in the scheme in subsequent seasons.
 Investing in ICE Activities: Insurance companies have to now spend 0.5% of the total premium collected on
information, education and communication (IEC) activities.

PERFORMANCE OF THE SCHEME:

 The Scheme covers over 5.5 crore farmer applications on average per year.
 Aadhar seeding - linking Aadhaar through Internet banking portals - has helped in speedy claim settlement
directly into the farmer accounts.
 One notable example is mid-season adversity claims of nearly Rs. 30 crore in Rajasthan during Rabi 2019-
20 Locust attack.

NEED FOR SOCIAL SECURITY SCHEMES FOR FARMERS

 Agriculture as a prime sector of the economy: Farmers are vulnerable to agricultural risks and thus need
an assured income system.
 Poverty reduction: Cash transfer programs became a crucial tool of social protection and poverty
reduction. It can reduce hunger and rural poverty. They can help households to beat credit constraints
and manage risk.
 Small farm nature of Indian Agriculture: Small and marginal farmers with less than two hectares of land
account for 86.2% of all farmers in India but own only 47.3% of the crop area.
 Rising Agrarian Crisis: In recent years, indebtedness, crop failures, non-remunerative prices and poor
returns have led to agrarian distress in many parts of the country.
 Lack of formal credit: Commercialisation of agriculture leads to an increase in credit needs, but most
small and marginal farmers cannot avail credit from formal institutions due to the massive defaulting
caused by repeated crop failure.
 Rural development: It can function as a crucial complement to a broader rural development agenda,
including a pro-poor growth strategy that specializes in agriculture.
 Limited efficacy of crop insurance schemes in India: Currently, only about 35 % of farmers are covered
under crop insurance schemes. Crop insurance has failed to provide much-needed relief to farmers from
destitution.
 Better use of resources: This can increase productive investment, increase access to markets and stimulate
local economies. Income support often wants to make a repayment or a minimum of activating a checking
account which may then receive a loan.

AGRICULTURAL EDUCATION
Agricultural education focuses on but is not limited to, a study in horticulture, forestry, conservation, natural
resources, agricultural products and processing, production of food and fiber, aquaculture and other agricultural
products, mechanics, sales, and service, economics, marketing, and leadership development.

CURRENT STATUS IN INDIA:

 Formal agricultural education in India is mostly confined to higher educational institutions.
 Currently, there are three central agricultural universities, around 65 State Agricultural Universities (SAUs)
and 4 Deemed-to be-Universities (DUs) in India which focus on imparting formal education in the field of
agriculture.

NEED OF AGRICULTURAL EDUCATION:

• Agricultural Productivity: Effective agricultural education (both for farmers and also for researchers) leads to
better economic and technical decisions in agricultural processes, which is further reflected in an increase in
agricultural productivity (World Bank).
• Value Chain of Agriculture: the whole value chain of agriculture i.e. from farm input to plug linkages, suffers
from various bottlenecks which may rather be addressed by agricultural education.
• Employment: Agricultural education is required to soak up the emerging labor pool, especially with the
emerging areas of biotechnology, GM food, precision agriculture, etc. which require detailed knowledge.
• Labour value: The market price of the individual in an agricultural field in India is less than many developing
countries and agricultural education adds to an individual’s productivity and thus increases the market price
of his labor.
• Adoption of New technologies: Educated and trained workforce easily adopted new farming technology.
• Increase mechanization: Most of the farmers lacking technical educational skills to operate machines.
Educated farmers will adopt readily to new equipment.

SIGNIFICANCE/IMPORTANCE OF AGRICULTURAL EDUCATION IN INDIA:

 Self-reliance of a village/rural economy: Streamlining the flow of knowledge about agriculture, its modern
farming techniques, and marketing, to farmers will improve the profitability of agriculture and promote agro-
entrepreneurship in the country.
 Skill Development: Agricultural sector in India suffers with lack of formal skills; boost to agricultural education
will help in bridging the gap.
 Poverty Alleviation: Remunerative agriculture will lead to self-sufficient rural economy and reduction in
poverty
 Employment: Enlarged scope of agricultural sector will thus result in better job Creations, rise of generation
of agri-preneurs.
 Emerging food processing industry: Technical and skills-based intervention in food processing technologies,
storage infrastructure, marketing, etc. is needed. This can be facilitated through agricultural education.
 Promoting Sustainable agricultural practices: Technical education in the field of rainwater harvesting, micro-
irrigation, organic farming, climate-resilient agriculture, zero budget farming, accurate use of chemical
fertilizers, etc. will enable farmers to minimize environmental damage, ensure food security in the future and
adapt and mitigate for climate change.
 Boosting agricultural exports in changing globalized scenario: Development of analytical and professional
skills and knowledge in areas such as Intellectual property rights (IPRs), WTO’s Sanitary and Phytosanitary
Measures (SPS), techno-legal specialties, etc. is a necessity in today’s time.
 Increased access to information: A robust agricultural education system can strengthen Farmers-
Researchers linkages through the cooperation of the universities in streamlining the flow of knowledge and
expertise from campus to agriculture fields.
 Better Use of Technology: India lags behind in use of latest technology in agriculture, with improved
education, farmers will be well equipped to use technology in sectors such as Food Processing, better
Marketing, also it will result in increase of harvest and yields.

CHALLENGES FACED BY AGRICULTURAL EDUCATION:

 Finance: Agriculture may be a state subject and therefore the statutory responsibility for it rests with the
state governments which lack funds.
 Faculty: State Agricultural Universities (SAUs) face non-replacement of retired faculty and high inbreeding of
college (nearly 51% of college members have their degrees from an equivalent university during which they
are teaching), which hampers the standard of education and research programs.
 Lack of Networking and quality: it's been noticed that the majority of the schools are lacking in association
and integration with different national and international universities for tutorial activities.
 Not a primary option: Negative attitude towards agricultural education thanks to low returns and limited
career opportunities make agricultural education not a preferred choice amongst students.
 Deteriorating Standards of Universities: Due to lack of needed focus by centre and state the standards of
agricultural universities are rather deteriorating. Since agriculture is a state subject, central bodies such as
the Indian Council of Agricultural Research (ICAR) can play only a facilitating role.
 Funding: When compared globally to countries such as Israel, the funding support in India lags behind
 Poor Infrastructure: Poorly equipped laboratories and testing facilities hamper overall growth of agricultural
education
 Outdated Curriculum: In rapidly developing arena of science and technology, curriculum needs to be updated
frequently
 High Number of Vacancies: Most of the agricultural universities are facing shortage of competent facilities
 Marginal Farmers: Most of the farmers belong to vulnerable sections with abject poverty, thus they cannot
afford higher education facilities
 Issues in Attracting Talent Pool: Problems such as non-remunerative agriculture, little guarantee of
placement and meagre future prospects make agriculture a less preferred career option.

WAY FORWARD:
 Public-Private Partnership (PPP): Government should harness the PPP model with agricultural universities
especially in agribusiness, biotechnology, nanotechnology, and lots of frontier areas, where public sector
institutions are weak and not responding to the changing demand.
 Revisit Curriculum: Ashok Dalwai Committee on Doubling the Farmer Income, highlighted that there's a need
to revisit the present agriculture education curriculum to orient it to market agriculture as sustainable
practice and profit-generating enterprise.
 Global Standard practices: Agricultural education is required to be harmonized with existing and emerging
issues associated with WTO, ethics of IPR, standard trade practices.
 Regional Specific Education: the standards for brand spanking new universities should be agro-ecoregion
instead of one discipline, as agriculture-related issues are multidisciplinary.
 Regulatory agency i.e. ICAR doesn't have statutory powers or the mandate to manage agricultural education.
Thus, it's important to make a central statutory authority for higher agricultural education regulation to form
the agriculture sector science and technology (S&T) based.
 Vocational Agricultural Education: Universities are concentrating mainly on formal education while there is
also a requirement for Vocational and non-formal education, especially regarding knowledge and
technological empowerment for the workforce in rural areas.

GOVERNMENT INITIATIVES FOR AGRICULTURE EDUCATION:

 National Agriculture Higher Education Project: The project has been launched in collaboration with the
World Bank and ICAR with the objective of providing more relevant and higher quality education to
Agricultural University students.
 Pandit Deendayal Upadhyay Unnat Krishi Shiksha Scheme: It was launched in 2016 under which 100 new
centers were opened up for agricultural education.
 Attracting and Retaining Youth in Agriculture (ARYA): aims to attract and empower the Youth in Rural
areas to take up various Agriculture, allied, and service sector enterprises
 Dedicated Agriculture Education Portal: It was developed as a single window platform for providing vital
education information, e-learning resources etc. from Agricultural Universities across the country in an
easy and fast way.
 Student READY (Rural Entrepreneurship Awareness Development Yojana) programme: It provides job
based and entrepreneurial training to students and consists of — Experiential learning (Business Mode);
 Hands on training (Skill Development Mode); Rural Awareness Work Experience (RAWE); In Plant
Training/ Industrial attachment; and students projects.

CONCLUSION:
 To achieve the dream of doubling farmer’s income and $5 trillion economies, the government needs to
promote agricultural education on a large scale.

R&D IN AGRICULTURE
Indian Council of Agricultural Research (1929) is the apex body of agricultural research, education and extension
under the ministry of agriculture. ICAR operates through 690+ Krishi Vigyan Kendra which provide last Mile
connectivity to farmers and help them adopt the latest cropping technologies.

CHALLENGES IN AGRO R&D

 ICAR scientists’ salary structures and promotion rules are time-bound and seniority based. So highly
intelligent scientists opt for private companies / foreign countries.
 Presently agriculture research funding is less than 1% of GDP.
 Government scientists mainly focus on improving quantitative yields. If they also focused on aroma, taste,
appearance, calorie, nutrient, antioxidants etc. from wealthy health-conscious urban/foreign consumers’
point of view, then premium varieties can be created to help farmer earn more money.
 Indian agriculture research has become ‘cereal centric’. We need to focus on pulses, oilseeds, horticulture
and animal husbandry as well.

PAST ECONOMIC SURVEY & NITI AAYOG’ s REPORTS OBSERVED

 There is proliferation of self-financed private Agri colleges without sufficient faculties, proper labs or
infrastructure.
 Instead of creating more institutions, we should focus on quality of research and infrastructure in existing
bodies.
 ICAR should have UGC like powers to regulate these private Agro Colleges.
 At least two agricultural universities should be given large grants so they can achieve global status.
ECONOMIC SURVEY 2021-2022 AND R&D IN AGRICULTURE
Agricultural research and education has a key role in the development of an environmentally sustainable global
food system, ensuring food and nutritional security and increasing farm income by cost minimization and yield
maximization. Thus, government came with:
 National Agricultural Research System of India has produced significant results in terms of
mechanisation of agriculture and development of climate resilient technologies and high yielding varieties
(HYVs) of seeds, etc. For example, the Indian Council of Agricultural Research (ICAR) during 2020 and
2021 notified/released a total of 731 new varieties/ hybrids of field crops and 98 of horticultural crops.
 To ensure nutritional security through the natural food system and facing the climate change, the
Department of Agricultural Research & Education (DARE) has developed 35 special trait varieties
including biofortified and stress tolerant varieties of field and horticulture crops during 2021-22.
 ICAR has also designed and developed an Agri-voltaic system of 105 kW for crop production and
electricity generation from a single land use system with an average photovoltaic (PV) generation of
1,29,266 kWh annual power output and a total revenue of about ₹ 6 lakh.
 Agri-voltaic system also reduces Green House Gas (GHG) emission (598 tons of CO2 savings/year/ha).

AGRICULTURE EXTENSION
 Extension service is an informal education process to offer advice, information and training, usually meant
for farmers, villagers and women to change their outlook towards their agricultural / economic / health
problems.
 According to NSSO survey, ~60% of Indian farmers do not get much agricultural technical assistance from
government institutes. So they rely on progressive farmers, media, and private sellers of seeds, fertilizers, and
pesticides- who may not give them unbiased advisory because of their own vested commercial interests.

OBJECTIVES OF AGRICULTURE EXTENSION SERVICES:

 To transmit the latest technical knowledge to farmers.
 To provide feedback from farmers to extension officers /scientists on problems and constraints in agriculture.
 To enhance professional competence of extension functionaries.
 To strengthen linkage amongst farmers, extension officers and researchers.
 To motivate farmers for overall development.

DELIVERY CHANNELS FOR AGRI-EXTENSION SERVICES AND THEIR CHALLENGES:

AGRI-EXTENSION CHANNEL CHALLENGES

Individual counselling via personal
meeting, toll-free Helpline & Letters
Group counselling via seminar,
workshop, group discussion, field visit.
Kurukshetra and other govt magazines /
periodicals.
Mass Media via Kisan TV (2014) and
Public Radio broadcast.
E-Technology via E- Krishi (Webportal);
mKisan (SMS/USSD), Kisan Suvidha App
Geographical reach, manpower availability. Barely 1 extension
worker available per 800-1000 farmers.
Farmers fear loss of workday, lack of motivation to spend time /
travel.
Illiteracy and poverty along with limited reach of magazines I rural
pockets.
Marginal farmers may not have instruments to watch them.
Customized / tailor made advisory / information difficult to deliver.
Mass reach possible because more mobiles and jio 4G effect. Tailor-
made advisory can be given.

NATIONAL MISSION ON AGRICULTURE EXTENSION:

 The aim of the Mission is to restructure & strengthen agricultural extension to enable delivery of appropriate
technology and improved agronomic practices to the farmers.
 The ICAR is also associated in agriculture extension activities through Krishi Vigyan Kendras (KVKs) and the
Institute Village Linkage Programme (IVLP) all over the country.
 FPOs, NGOs and the corporate sector National Mission on Agricultural Extension & Technology (NMAET),
launched during the 12th plan period, consists of 4 Sub Missions:
1. Sub Mission on Agricultural Extension (SMAE): Adoption of quality seeds is the most cost-effective
means for increasing agricultural production and productivity. Agri Clinics, Agri business centres, Kisan
Call Centres will be used for providing extension services.
2. Sub-Mission on Seed and Planting Material (SMSP): The Sub-Mission will cover the entire gamut of seed
chain from nucleus seed to supply to farmers for sowing. SMSP also envisages strengthening of Protection
of Plant Varieties and Farmers’ Rights Authority (PPV&FRA).
3. Sub Mission on Agricultural Mechanization (SMAM): There is a strong co-relation between farm power
availability and agricultural productivity. Therefore, Sub-Mission on Agricultural Mechanization focuses
on farm mechanization.
4. Sub Mission on Plant Protection and Plant Quarantine (SMPP): The mission envisages increase in
agricultural production by keeping the crop disease free using scientific and environment friendly
techniques through promotion of Integrated Pest Management.

CONCLUSION:
Agricultural extension plays a key role in boosting agricultural productivity, enhancing food security, improving
rural livelihoods and changing farming practices positively. However, hardly 40% of Agricultural Households are
getting access to it. So, we need to enhance the access to extension services on war- footing.

FARM MECHANIZATION
 Farm mechanization refers to the development and use of machines that can take the place of human
and animal power in agricultural processes with the end objective to enhance the overall productivity and
production with the lowest cost of production.
 Overall farm mechanization in India has been lower at 40-45 percent compared to other countries such
as the USA (95 percent), Brazil (75 percent), and China (57 percent).
  Regional Profile: Farm mechanisation in India stands at about 40- 45% with states such as UP, Haryana
and Punjab having very high mechanisation levels but north eastern states having negligible
mechanisation.

NEED FOR FARM MECHANIZATION:

 Input savings: Studies have shown a direct relationship between farm mechanization and farm yield. Farm
mechanization is said to provide a number of input savings; seeds (15-20%), fertilizers (15-20%).
 Increase inefficiency: It can help reduce time by approximately 15-20 percent, thus increasing the efficiency
of farm labor and reducing drudgery and workloads
 Social benefits: It decreases the workload of women due to improved efficiency of labor. It helps in
encouraging the youth to join farming and attract more people to work and live in rural areas.
 Improvement in the cropping intensity and making agricultural land become commercially more viable.
 Dealing with the increasing cost of labor: The cost of deploying labor for agriculture operations are on
increasing substantially.
 Increase in farm income: Effective use of agriculture machinery helps to increase productivity & production
of output, undertake timely farm operations and enable the farmers to quickly rotate crops on the same land.
 Sustainable agriculture: Farm mechanization provides optimal utilization of land and water resources that
can influence the environmental footprint of agriculture leading to sustainable outcomes.
 Dealing with the increasing cost of labor: rural workers to urban areas increases the cost of farm labour. The
cost of deploying labour for agriculture operation is increasing substantially.
o Farm mechanization is the way to reduce labour cost and can reduce the cost of farming by 20 per
cent.

CHALLENGES WITH FARM MECHANIZATION IN INDIA:

 Economies of scale and operations: India has a very small average landholding size (2.66 acres as per
Agriculture Census, 2015-16) and that too is scattered over different places in small parcels. This is making
individual ownership of agriculture machinery economically unviable.
 Low-income level of farmers: about 86% of farmers in India are small and marginal and earn on an average
Rs. 6,426 per month as per the 2016 NSSO report.
 Credit procedure: The procedure to avail agriculture term loans for various activities helping farm
mechanization is very cumbersome. Also, the rate of interest is higher for such loans in comparison to crop
loans.
 Low awareness: Farm mechanization is viewed as the only usage of tractors; power tiller combines harvesters
and threshers. Farmers are not aware of other machines suitable for small landholdings and methods of using
them.
 Variability in farm power: Power availability varies highly from one state to the other as according to the
agro-climatic regions. Lack of access to power results in the slow uptake of farm mechanization and
hence non-intensification of farm productivity, particularly among small and marginal farmers.
 Subsidy limitations: Farm mechanization requires substantial investment. Central Govt. and various State
Govts. have been providing subsidy for Individual/ Group of farmers/ Cooperative to invest.
 Dependent population: The level of farm mechanization behaves inversely with population engaged in the
agriculture. 70 percent of India’s rural households still depend primarily on agriculture for their livelihood.

STEPS TO PROMOTE FARM MECHANIZATION:

 consolidate the land holdings: small farmers will continue to be the mainstay of Indian agriculture; it is
necessary to consolidate the land holdings to reap the benefits of agricultural mechanization.
 Small farm types of machinery/implements need to be promoted keeping in view the versatility of various
crops, cropping patterns, and agriculture operations.
 The ‘Make in India’ initiative can be used to support the manufacture of inputs and farm implements
currently being imported for reducing the overall capital cost.
 Need to innovate custom hiring service or a rental model by institutionalization for high-cost farm
machinery such as combine harvester, sugarcane harvester, paddy trans-planter, etc to reduce the cost of
operation.
o “FARMS-app” developed by Ministry of Agriculture, connects farmers with Custom Hiring Service
Centres (CHSc) situated in their locality to take machines on rental basis for agriculture practices.
 Ease of financing such as KCC, procedures to avail term loan may be simplified with minimum documentation
along with the capacity building of banks.
 Adopting recommendations of Ashok Dalwai committee:
o CHSc at different levels, should be supported to broaden their technologies to include modern
systems like drones, sensor-based applications.
Conclusion
The government is targeting to double the farm mechanization per hectare in the next 10 years, as it will help
maximize the productivity and profitability of the farm sector. It will also create demand for the manufacturing
sector, thus contributing to the overall economy.

SEED INDUSTRY
 India is the fifth largest seed market across the globe.
 It is expected to grow at more than 15% during 2017–2022, and can reach a value of more than US$ 7 Billion
by 2022.
 Direct contribution of quality seed to the total production can be raised up to 45% with efficient management
of other inputs.
 The Seeds Bill 2019 is under Parliament’s consideration.

ISSUES OF SEED SECTOR IN INDIA:

 The research investment by private companies remained at a meagre 3-4% of revenue
Seed against the international norm of 10-12%, due to complex and weak IPR regime and
Companies various licensing term for the companies.
 Moreover, existing technology provider in GM Crop seed, continue to enjoy close to
monopoly status.
 Regulatory failure in preventing the rampant illegal sale and planting of seeds based on
Government an unapproved GM crop had been reported in Maharashtra (Recent incidence of Akola
District) and Telangana.
 Seed replacement rate continues to remain below the desired level of 20 % for most
crops.
Farmers:  Unscientific use of farm-grown seed lead to lower return from agricultural output.
 Availability of less areas for seeds to achieve optimum Seed Multiplication Rate add
hardship to farmers.

WAY FORWARD:
 Focus on GM technology: National policy on GM crops to define the exact areas where GM is required by the
country and where the government will encourage public and private investment in GM technology.
 Quick resolution: to the conflicts between the different IPR laws that are affecting this industry and clearly
defining how the government wants to encourage research investment with assured IP protection in this
important sector.
 Incentives: to private sectors in the form of bankable schemes should be provided for production of low value
high volume seeds.
 Enhance Seed-Research Capacity: Encouraging private sector participation in seed production and
distribution by removing the price control order of seed and other restrictions discouraging private
investment in the seed sector. At the same time, a robust third party quality certification system for seeds
should be encouraged.
 Regulatory mechanism: Strengthening the regulatory mechanism for the seed and biotech industry to make
it transparent, science-based, predictable and fair.
 Integrated Approach: Efforts should be made toward improvement of Seed Replacement Rate, distribution
of quality seeds appropriate to agro-climatic zone along with a determined effort to address general and
region specific constraints.
 Uniform national procedure for seed licensing: To tackle the problem of heterogeneity in seed licensing
procedures across states, the central government should develop model guidelines for seed licensing and
support states in implementing these.

DRAFT SEED BILL 2019:

 Seed Replacement Rates (SRR): A new Seeds Bill is necessary to enhance SRR in Indian agriculture,
specify standards for the registration of seed varieties and enforce registration from seed producers to seed
retailers.
 Formation of Seed Committee: The Bill authorizes the Central government to reconstitute a Central Seed
Committee that will be responsible for the effective implementation of its provisions.
 Registration of Seed varieties: All varieties of seeds for sale have to be registered and are required to meet
certain prescribed minimum standards.
 Revised Licensing Norms: There is a differentiation between the seed producer, seed processor and seed
dealer for the purpose of licensing.
 Truthfully labelled seeds: Currently, a large percentage of seed is sold under a self-certification programme
called Truthfully Labelled (TL) seeds. The certification process has been kept voluntary.
 Price Control: The Bill empowers the government to fix prices of selected varieties in case of ‘emergent’
situations such as seed shortage, abnormal increase in price, monopolistic pricing, profiteering, etc. which are
open to subjective interpretation.

ZERO BUDGET NATURAL FARMING (ZBNF)

 Natural farming is a system where the laws of nature are applied to agricultural practices. This method works
along with the natural biodiversity of each farmed area, encouraging the complexity of living organisms, both
plants, and animals that shape each particular ecosystem to thrive along with food plants.
 Subhash Palekar, who has coined the term ZBNF is training farmers in different states regarding the
techniques of ZBNF. But experts claim that yield is less in ZBNF.

FEATURES OF ZBNF:
 The premise of ZBNF is that soil has all the nutrients plants need. To make these nutrients available to plants,
we need the intermediation of microorganisms. For this, “four pillars of ZBNF” have been suggested:
1. Bijamrit is the microbial coating of seeds with formulations of cow urine and cow dung
2. Jivamrit is the enhancement of soil microbes using an inoculum of cow dung, cow urine, and jaggery
3. Mulching is the covering of soil with crops or crop residues which creates humus and encourages the
growth of friendly microorganisms
4. Waaphasa is the building up of soil humus to increase soil aeration
 According to ZBNF principles, plants get 98% of their supply of nutrients from the air, water, and sunlight.
And the remaining 2% can be fulfilled by good quality soil with plenty of friendly microorganisms.
 The system requires cow dung and cow urine obtained from Indian breed cow only. Desi cow is apparently
the purest as far as the microbial content of cow dung, and urine goes.
 In ZBNF, multi-cropping is encouraged over single crop method.

SIMILARITIES BETWEEN ORGANIC FARMING AND ZBNF:

 Organic and natural farming both systems discourage farmers from using any chemical fertilizers, pesticides
on plants and in all agricultural practices.
 Both farming methods encourage farmers to use local breeds of seeds, and native varieties of vegetables,
grains, pulses and other crops.
 Both farming methods promote non-chemical and homemade pest control methods.

DIFFERENCES BETWEEN ORGANIC FARMING AND ZBNF:

 ORGANIC FARMING ZBNF

 Organic fertilizers and manures like compost, 
vermi-composting, cow dung manure, etc. are
used and added to farmlands from external
sources.
In natural farming decomposition of organic
matter by microbes and earthworms is
encouraged right on the soil surface itself, which
gradually adds nutrition in the soil, over the
period.

 Organic farming requires basic agro practices like  In natural farming there is no ploughing, no tilting
ploughing, tilling, mixing of manures, weeding, of soil and no fertilizers, and no weeding is done
etc. to be performed. just the way it would be in natural ecosystems.

 Organic farming is still expensive due to the  Natural agriculture is an extremely low-cost
requirement of bulk manures, and it has an farming method, completely molding with local
ecological impact on surrounding environments; biodiversity.

CONCLUSION:
 SDG along with New India Vision 2022 requires doubling farmers’ income, while Sustainable Development
Goal No. 2 requires nations to adopt agriculture practices that improve land and soil quality & protect the
genetic diversity of flora- fauna.

VALUE CHAIN AND RURAL INFRASTRUCTURE

CONSTRAINTS:
 Public and private investments (PPP) in agriculture have remained low since the early 90s. Bottlenecks in
implementation and a high degree of uncertainty have further reduced investor appetite for agricultural
investments.
 Inability to acquire land for setting up of market yards, resulting from the restrictions on land leasing and
land acquisition, is another major constraint.
 Marketing infrastructure suffers because of a lack of finances, manpower and proper facilities. Sub-market
yards largely function as a location for government procurement and do not provide opportunities for open
auction. Further, they are irregular in their operations and handle less than five per cent of the volume
handled in principal yards.
 Poor maintenance of rural roads is a major constraint as well. Linkages with local and feeder roads remain
sub-optimal.
 In the electricity sector, separate feeders for supply of power to agriculture and domestic electrification have
not been carried out in many states.
 Lack of agriculture best practices hinders India’s food exports. Interventions at the farm or producer level are
needed to ensure that products meet export standards. However, factors such as the lack of a traceability
mechanism from the farm to the consumer, fragmented holdings and restrictions on direct procurement of
products from farmers in some states makes it virtually impossible to ensure that products meet export
quality standards.

WAY FORWARD:
 Infrastructure status for agriculture value chains: Warehousing, pack-houses, ripening chambers, and cold
storages, including those set up at the village level, should be accorded full-fledged infrastructure status to
enable them to avail of the fiscal benefits that come with infrastructure status.
 Village level procurement centres: To benefit small and marginal farmers, government collection centres and
warehousing facilities should be set up at the village/block level.
 Link production to processing: Village level collection centres for fruits and vegetables should be linked to
larger processing units. Actively engage the private sector in developing processing centres near rural periodic
markets (RPMs).
 Food processing: A greater focus should be placed on the food processing industry for enhancing value
addition in vegetable and fruit crops.
 Rural markets: Develop private market yards. Agro-processors and food processors that wish to establish
backward integration to secure their raw material should partner with the government in organizing sourcing
through the RPMs.
 Upgrade wholesale markets: Upgrade wholesale markets with facilities for temporary storage, pack- house
operations and cold storage facilities.
 Warehouse upgradation: Pledge financing at warehouses, through negotiable warehouse receipts (NWR),
needs to be adopted and popularized as an alternative means of financing.
 Convergence in government initiatives: Coordination is needed between the initiatives of the Ministry
of Agriculture, Food Processing, and Commerce to develop effective procurement linkages, processing
facilities, retail chains and export activity.
 Strengthen railway freight operations: Railway freight operations should be strengthened through
temperature-controlled containers and loading and unloading facilities to reduce post-harvest losses and
connect land-locked states to export markets.
 Maintenance of rural roads through women SHGs: The maintenance of roads by women SHGs has been
experimented with by some states (Uttarakhand for example) and has been found to be very promising. This
model could be replicated by other states.
 Incentivize feeder separation: All distribution companies (DISCOMs) need to be incentivized for rural feeder
separation. Agriculture connections and electricity supply feeders should be separated from domestic rural
electricity supply.
 Incentivize private investment in farm implements: Private entrepreneurs should be incentivized to establish
small farm implement mechanization hubs for every 1000 ha and big machinery hubs for every 5000 ha of
cultivated area.
 Develop export-oriented clusters: The Agricultural and Processed Food Export Development Authority
(APEDA) has been championing the development of export-oriented clusters with common infrastructure
facilities. These clusters should contain a functional, end-to-end cold chain system along with processing
facilities.
 Augment cargo handling facilities at airports: APEDA has suggested augmenting the capacity of the
Ahmedabad Air Cargo Complex and Mumbai Airport to handle agricultural cargo.
 Regulatory frameworks to combat rejections in export markets: Regulatory frameworks regarding use of
pesticides, growth hormones, and antibiotics for marine produce need to be developed and implemented
effectively to curb the rejection rate in the export market.
 Ensure traceability mechanism: Promotion of farmer producer organizations (FPOs), export-based clusters
and contract farming will go a long way towards ensuring traceability of farm produce, a key export
requirement.

INTEGRATED FARMING SYSTEM (IFS)

 IFS is a combined approach aimed at efficient sustainable
resource management for increased productivity in the cropping
system. The IFS approach has multiple objectives of sustainability,
food security, farmer’s security and poverty reduction by involving
livestock, vermicomposting, organic farming etc.
 Indian farm sector needs to address the twin challenges of
productivity and sustainability along with augmentation of
farmer’s income.
 For this, IFS emerges as one of the most viable options, as it
ensures:
o Productivity: IFS provides an opportunity to increase
economic yield per unit area by virtue of intensification of
crop and allied enterprises especially for small and marginal
farmers.
 o Profitability: It has the capability to make the sector profitable by reducing the use of chemical fertilizer
and recycling nutrients.
o Sustainability: In IFS, subsystem of one by-product works as an input for the other subsystem, making it
environmentally sustainable. Moreover, IFS components are known to control the weed and regarded as
an important element of integrated pest management and thus minimize the use of weed killers as well
as pesticides and thereby protect the environment.
o Recycling: Effective recycling of products, by-products and waste material in IFS is the cornerstone behind
the sustainability of farming system under resource poor condition in rural areas.
o Income round the year: Due to interaction of enterprises with crops, eggs, meat and milk, IFS provides
flow of money round the year amongst the farming community.
o Best utilization of small landholdings: Indian farmers in many regions such as in north-eastern part,
practice subsistence agriculture. They also have a rich traditional base in water harvesting, soil
management etc. which could be efficiently utilized under IFS.
o Meeting fodder crisis: By-product and waste material of crop are effectively utilized as fodder for
livestock (Ruminants) and products like grain, maize are used as feed for monogastric animals (pigs and
poultry).
o Employment generation: Combining crop with livestock enterprises would increase the labour
requirement significantly and would help in reducing the problems of underemployment and
unemployment to a great extent. IFS provides enough scope to employ family labour round the year.

IFS provides multiple benefits that are sustainable and can pave the way for climate-smart agriculture. India needs
to adopt a “well designed” IFS to realise the vision of doubling farmers’ income by 2022 and having sustainable
agricultural practices.

COVID-19 AND ITS IMPACT ON AGRICULTURE

 The start of the coronavirus pandemic has coincided with the peak harvesting season. As the markets are
locked down, there is a threat to the crop in over 100 lakh hectares in the country.
 Agriculture contributes about 17% to Indian GDP. Agriculture, with its allied sectors, is the largest source of
livelihoods in India. 70% of rural households still depend primarily on agriculture for their livelihood.

IMPACT OF COVID ON INDIA AGRICULTURE:

 Peak harvest with no procurement: This is the peak of Rabi season in India and crops like wheat, gram, lentil,
mustard, etc. (including paddy in irrigated tracts) were at a harvestable stage or almost reaching maturity.
 Labour unavailability due to reverse migration: The non-availability of labour has hurt operations in many
parts. Consequently, the shortage of migrant labour has resulted in a sharp increase in daily wages for
harvesting crops.
 Fall in price: Agricultural prices have collapsed due to lack of market access including the stoppage of
transportation and closure of borders.
 Scarcity of public goods: Making the food grains, fruits and vegetables and other essential items available to
consumers, both in rural and urban areas, is the most critical challenge.
 Restrictions on Sale: There were self-imposed restrictions on the inter and intra-State movements of
farmers/labourers, as well as harvesting and related farm machines.
 Disruptions in supply-chain: The absence of transport facilities clubbed with vigilant blocking roads has a
limiting effect on the movement of migratory harvest labour and agri-machinery.
 Lockdown induced debt and Cash Flow Constraints: The most important issue that farmers have to surmount
is the problem of repaying their crop loans, gold loans and other informal debts.

INDIAN RESPONSE TO COVID: AGRICULTURE

 Reforms in e-NAM: The new features of National Agriculture Market platform were introduced as a
welcoming move to decongest mandis.
 Technological support: Kisan Sabha App to connect farmers to supply chain and freight transportation
management system was recently launched to
support farmers during the lockdown.
 Kisan Rath app was also launched to facilitate
farmers & traders in searching for transport vehicles
for movement of Agriculture & Horticulture produce.
 Boost to Contract farming: Various states have
promoted innovative model allowing investors and
farmers to enter into an agreement for contract
farming in view of the continuing uncertainties due to
the pandemic.
 Allocations for direct transfers: Increasing the
allocations for DBT to farmers through PM KISAN and
including everyone who is actively undertaken during the lockdown.

FUTURE SCOPE OF REFORMS:

 Reforming APMC: With these reforms, the government has also set in motion plans to dismantle the decades-
old monopolies of state-run APMCs, that were often blamed for unfair trading, and had become a barrier for
farmers to get a fair price on their produce.
 Designating warehouses as markets: The warehouse receipt system can be scaled up. The private sector
should be encouraged to open mandis with modern infrastructure, capping commissions.
 Logistics transformation: To sustain the demand for agricultural commodities, investments in key logistics
must be enhanced. Moreover, e-commerce and delivery companies and start-ups need to be encouraged
with suitable policies and incentives.
 Institutionalizing farm labour: To obviate the immediate concerns of the scarcity of farm labour, policies must
facilitate easy availability of machinery through state entities, Farmer Producer Organizations (FPOs) or
Custom Hiring Centres (CHCs) with suitable incentives.
 Expanding institutional lending: As the Kharif (rainy/wet) season is fast approaching, institutional lending of
crop loans should be expanded and facilitated for smooth (and sufficient) flow of credit to borrowing farmers.

PANDEMIC AND FUTURE OF AGRICULTURE IN INDIA:

 Farming as a Viable Livelihood: Agriculture is dying, not as in the production of food but as a desirable
profession. One bad yield, whether due to errant rains, pests, etc. and most farmers have no buffer available.
 Rainbow revolution holds the key: In order to cross the declining productivity barrier, there is a need to
herald a rainbow revolution by making a shift from the wheat-rice cycle to other cereals and pulses.
 Per drop more crop: cultivable land per person is declining because of the fragmentation of farms due to
the rising population. In this backdrop, it is time to make a shift to micro-irrigation so that the efficient and
judicious use of scarce water resources can be made.
 R&D is the future: One of the major barriers to boosting farm productivity is the lack of new technologies and
major breakthroughs post the green revolution. There has also not been any major contribution from the
private sector towards Research and Development.

AGRICULTURE: DEVELOPMENTS IN RECENT TIMES

1. ANIMAL HUSBANDRY INFRASTRUCTURE DEVELOPMENT FUND SET-UP

 In pursuance of the recently announced Atma Nirbhar Bharat Abhiyan stimulus package, Cabinet approved
setting up of Animal Husbandry Infrastructure Development Fund (AHIDF) amounting to Rs. 15000 crores.

OBJECTIVE:
 For incentivizing investment by the cooperative sector for the development of dairy infrastructure.
 The MSMEs and private companies are also being promoted and incentivized for their participation in
processing and value addition infrastructure in the animal husbandry sector.
BENEFITS:
 There is huge potential waiting to be unlocked through private sector investment in the animal husbandry
sector.
 The AHIDF with the interest subvention scheme for private investors will ensure the availability of capital to
meet the upfront investment required for these projects and also help enhance overall returns/payback for
investors.
 Such investments in processing and value addition infrastructure by eligible beneficiaries would also promote
exports.
 Since almost 50-60% of the final value of dairy output in India flows back to farmers, the growth in this
sector can have a significant direct impact on farmer’s income.
 The size of the dairy market and farmers’ realization from milk sales is closely linked with the development of
organized off-take by cooperative and private dairies. Thus, investment of Rs. 15,000 crores through AHIDF
would not only leverage several times more private investment but would also motivate farmers to invest
more in inputs thereby driving higher productivity leading to an increase in farmers’ income.
The measures approved today through AHIDF would also help in direct and indirect livelihood creation for
about 35 lakh persons.

CROPPING PATTERN

PREVIOUS YEAR QUESTIONS:

1. What are the major factors responsible for making rice-wheat system a success? In spite of this 2020
success how has this system become bane in India?

2. How has the emphasis on certain crops brought about changes in cropping patterns in recent past? 2018
Elaborate the emphasis on millets production and consumption.

3. What are the major reasons for declining rice and wheat yield in the cropping system? How crop 2017
diversification is helpful to stabilize the yield of the crop in the system?

4. What is allelopathy? Discuss its role in major cropping systems of irrigated agriculture. 2016

Introduction
 Cropping pattern is dynamic concept refers to the proportion of area under different crops at any given point
of time in a unit area.
 Determinants of Cropping pattern: In India, the cropping pattern is determined by rainfall, temperature,
climate, technology and soil type.
o The cropping patterns determine the level of agricultural production. The cropping patterns are
affected by changes in agrarian policy, availability of agricultural inputs, improvement in technology.
 Cropping Systems: broader term than cropping pattern and includes the total of all crops and the practices
used to grow those crops on a field or farm.

Traits of ideal cropping pattern:

 The crop should not accentuate certain diseases as a result of a fixed continuous rotation.
 The crop should not exhaust on some specific plant nutrients from a particular depth of the soil.
 The crop should be fertility building and soil improving.
 The crop should obtain a good return to the cultivator and should provide the cultivator employment and
income all year round.
 The crop should make certain the optimum utilization of his resources, particularly inputs like irrigation
water, chemical fertilizers, insecticides, pesticides, equipment’s, power and family labour.
Significance of Cropping System
 Control and improve soil fertility: Growing diverse crops such as nitrogen-fixing leguminous crops enhances
the soil’s nitrogen content.
 Minimize the spread of diseases: It promotes biodiversity by implementing a habitat for a variety of insects
and soil organisms. Many may act as a predator for several organisms, hence limiting the outbreaks of
diseases.
 Hinder pest and insect growth: It decreases the homogeneity of farms. This heterogeneity enhances the
restrictions against the biological dispersal of insects in the field.
 Restriction to weed growth: It decreases the possibility of weed growth which will help in crop growth.
 Enhanced food and financial security: By decreasing the uncertainty of crop failure & diversifying the income
opportunities for the farmers, a scientifically designed cropping system increases food and financial security.
 Diminish risk for crop failure: Various crops have a different response to the climate and varying degrees of
sensitivity to disease attack. Due to such heterogeneity, the chance of total crop failure is reduced.

Types of Cropping Systems

1. Mono-Cropping: growing of only 1 crop on a specific land year after year. For example, sugarcane is grown
year after year due to the adequate availability of water in western Maharashtra.
2. Multiple Cropping: growing 2 or more crops. It comprises mixed-cropping, inter-cropping, and sequence
cropping.
o Mixed Cropping: Two or more crops planted in the same field within a given year without a specific row
order.
o Inter-cropping: It includes planting two or more crops concurrently with a specific row arrangement.
o Crop Rotation: Crops are replaced in the field from year to year according to a planned order rather than
the same crop being grown in the same field again and again.
o Primitive Subsistence Farming: This type of farming is a ‘slash and burn’ agriculture, it is practiced on
small patches of land with the help of primitive tools and family/community labour. It depends upon
monsoon, natural fertility of the soil and suitability of other environmental conditions to the crops grown.
o Intensive Subsistence Farming: practiced in areas of high population pressure on land. In this type, high
doses of biochemical inputs and irrigation are used to obtain higher production.
o Commercial farming: In this type of farming, higher doses of modern inputs, e.g. high yielding variety
(HYV) seeds, chemical fertilizers, insecticides and pesticides are used to obtain higher productivity.

CROPPING SEASONS AND cropping patterns in various parts of the country

 Rabi crops are sown in winter from October to December and harvested in summer from
April to June. e.g., wheat, barley, peas, gram, and mustard.
 Location: North and northwestern parts such as Punjab, Haryana, Himachal Pradesh,
Jammu and Kashmir, Uttarakhand, and Uttar Pradesh are important for the production of
Rabi crops wheat and other rabbi crops.
 Availability of precipitation during winter months due to the western temperate cyclones
helps in the success of these crops.
 However, the success of the green revolution in Punjab, Haryana, western Uttar Pradesh,
and parts of Rajasthan has also been an important factor in the growth of the above-
mentioned rabbi crops.
 Kharif crops are grown with the onset of monsoon in different parts of the country and
these are harvested in September-October. E.g., paddy, maize, jawar, bajra, tur (arhar),
moong, urad, cotton, jute, groundnut, and soybean.
 Location: Assam, West Bengal, coastal regions of Orissa, Andhra Pradesh, Tamil Nadu,
Kharif crops Kerala, and Maharashtra, particularly the (Konkan coast) along with Uttar Pradesh and
Bihar.
  Recently, paddy has also become an important crop of Punjab and Haryana. In states like
Assam, West Bengal, and Orissa, three crops of paddy are grown in a year. These are Aus,
Aman, and Boro.
 In between the rabbi and the Kharif seasons, there is a short season during the summer
Zaid season months known as the Zaid season.
 Some of the crops produced during ‘Zaid’ are watermelon, muskmelon, cucumber
vegetables, and fodder crops. Sugarcane takes almost a year to grow.

Factors Affecting the Cropping Pattern

 Historical Factors: Plantations introduced by British, land tenure system, type of ownership
o Land tenure system prevailing in the country also influences the cropping pattern. In a system of crop
sharing, it is the landlord who finalizes the cropping pattern guided by profit maximising principle.
 Geographical Factors: Type of physiography (soil, climate, rainfall), Type of topography, Type of Agro-climatic
region
 Agronomic factors: Availability of required inputs (fertilizer, pesticides, credit, tractors, etc.), Plant/seed of
high genetic quality, Management techniques and quality managers, Abundance of labor, Farm Size,
Insurance against Risk
 Economic/market as a factor:
o The flow of market signals and communication and information systems, for example, regarding prices in
the market, supply-demand, etc.
o Venture capital and entrepreneurship.
o Transparency of input and output prices.
o Information on export standards, market demand, and relative profitability.
o Efficient marketing systems
 Government Policy:
o Green Revolution – skewed cropping pattern in Northern India towards wheat and rice from coarse
cereals and pulses.
o Non-distortionary policy to avoid discrimination among crops. (e.g. MSP Policy)
o Efficient research and extension programs, without any bias for major crops or against high-value crops.
o Ease of availability of agricultural credit
o Off-farm employment opportunities.
o Marketing systems including quality standards.
o Involvement of the private sector e.g. corporate farming.
o The legislative policies of the government also affect the cropping pattern. Food Crops Acts, Land Use
Acts, intensive schemes for paddy, cotton, and oilseeds, subsidies affect the cropping pattern.
 Infrastructure Factors:
o Irrigation availability led to cultivation of rice in arid areas of Punjab and Haryana. Lack of irrigation in
Bundelkhand region led to cultivation of coarse cereals more.
o Availability of Storage, Transport, Extension Services, post-harvest handling, food processing
infrastructure, etc.
 Social factors: customs, traditions, social environment etc.
o Food habits also play a role – East and South India prefers rice as staple food while it is wheat in North
India.

Problems with current cropping pattern

 The dominance of rice and wheat: there is an existing imbalance in the cropping pattern of the food grains
because a large proportion of the area under food grains is occupied by rice and wheat (Green revolution)
 A gradual shift from non-food grains to food grains: Prices of food grains have been rising quite fast and the
farmers have started growing food crops in the similar way they grow commercial crops like cotton, oilseed
crops sugarcane, etc
 Minimum Support Prices: Cultivation of food grains has become highly remunerative and productive under
the influence of new technology and reasonably high Minimum Support Prices for wheat and rice.
 Cereal anxiety led the Centre to offer MSPs for the major cereals, which distorted cropping patterns into the
“cerealization” of agriculture, as it is called.
 Change in the consumption pattern: because of the increase in the income of the people and coarse cereals
being the inferior goods
 Cultivation of water-intensive crops:- despite low groundwater levels. E.g. sugarcane cultivation in western
Maharashtra and drought prone Marathwada.
 Use of excess quantities of fertilizers without considering the existing soil quality. E.g. Green Revolution Belt
 Indiscriminate use of pesticides and insecticides resulting in water pollution and reduction in soil fertility.
 Fragmented approach: Focus is on providing inputs without checking their indiscriminate uses.
 Coarse grains are on the decline. Coarse grains include Jwar, Bajra, Maize, Millets, Barley, and others.
o The proportion of these crops to total cereal cropland has decreased dramatically, from 48% in 1950-
51 to around 29% in 2001.
 Behavioural constraints: The challenge lies, is in bringing about behavioral change. There are farmers in who
have been producing rice for three decades, how do we convince them to make this switch.

CHANGES OCCURRED IN THE CROPPING PATTERN IN RECENT TIMES

 There has been a shift towards rice-wheat cropping pattern since the 'Green Revolution' of the 1960s.
 Paddy, cotton, soybean, and sugarcane cover more than half of total sown area taking over the area
traditionally devoted to millets, oilseeds and pulses which were more suited to the local climatic and soil
conditions.
 The gain in the wheat production has come at the cost of millets and sorghum as wheat has been considered
superior over them.
 As India is one of the largest consumer and importer of pulses and oilseeds, the government has tried to
increase their acreage and productivity. Higher MSPs has been announced for these crops recently.
 With lifestyle diseases running rampant, millets have returned as a viable option to live healthy life. Various
States have been distributing millets such as bajra, jowar and ragi through the PDS.
 Farmers are more intensively moving towards cultivation of cash/commercial crops such as oilseeds, fruits,
vegetables, spices, etc. from the traditional non-cash/non-commercial crops such as cereals and pulses.
 Farmers have changed their crop patterns in order to reap the benefits of economic expansion as well.
 Climate change has affected the Indian monsoon due to which cropping patterns are also changing.
 Population explosion and urbanisation has led to land conversion, boosting intensive farming and has
brought changes in cropping patterns.

Crop patterns in India are changing without consideration for local agro-climatic conditions. This has put a burden
on environment, incurring huge long-term losses. Soil fertility has declined while groundwater has receded.
Chemical pollution and changing food habits impacting human health are the direct manifestations of this change
in crop patterns.

REASONS FOR DECLININ G RICE AND WHEAT YIE LD IN THE CROPPING SYSTEM
Rice-wheat cropping system is labour, water, capital and energy-intensive, and becomes less profitable
as availability of these resources diminishes. The problem is further exacerbated by dynamics of climate change.
The relevant factors for decline in yield are discussed below:
 Decline in Soil fertility: Due to continuous irrigation and use of excessive flood irrigation, soil in rice-wheat
cropping system has become saline. It has resulted into decrease in crop yield.
 Climate change: According to studies, climate change has a negative effect on major crops such as wheat,
rice and maize. Increase in annual temperature range has also affected the crop yield of rice and wheat.
 Increased input cost: High rate of infestation with weeds and pests along with contamination of ground
water have resulted into high cost of input for cultivation of rice and wheat.
 Change in water availability: Due to excessive use of ground water and consequent depletion of ground
water resources, water availability has declined. This has resulted in decline in crop yield.
Therefore, it is imperative to focus on alternate crops. Crop diversification refers to a shift from the regional
dominance of one crop to production of a number of crops. Crop diversification helps in:
 Maintaining soil fertility: Only those crops are grown in a particular region which are suitable to
particular agro climate zone and it helps in maintaining soil fertility because excessive use of nutrients,
irrigation is not required.
 To arrest depletion of ground water: It will help in diversifying cropping patterns from water guzzling crops
such as paddy to pulses, oilseeds, maize with the aim of tackling the problem of depleting water table.
 Diversification can also provide habitat for beneficial insects (such as Rhizobium) and at the same time
reduce colonization by pest.

The government of India has launched crop diversification scheme in the original green revolution areas of
Punjab, Haryana and Western Uttar Pradesh. Under Crop Diversification Programme assistance is provided to
states for conducting cluster demonstrations on alternate crops, promotion of water saving technologies,
distribution of farm machinery, and awareness through training.

C ROP D IVERSIFICATION AND E CONOMIC SURVEY 2021-2022

 Crop diversification can be used as a tool to promote sustainable agriculture, reduction in import
dependence and higher incomes for the farmers.
 Ashok Dalwai committee suggested that:
o shifting some area from staple cereals to high value produce can lead to a sizable increase in the
returns for farmers.
o this would also bring in water use efficiency and sustainability of soil health.
 Crops Diversification Programme (CDP) is being implemented in the original green revolution states viz.
Punjab, Haryana and Western UP as a sub scheme of Rashtriya Krishi Vikas Yojana (RKVY) since 2013-14
o It aims to shift area under paddy cultivation towards less water requiring crops such as oilseeds,
pulses, coarse cereals, nutri cereals, cotton, etc.
o The CDP also focuses on shifting of areas under tobacco farming to alternative crops/ cropping
system in tobacco growing States.
 Crop diversification in India has been targeted through price policy also. Incentive structure provided
under MSP regime leading to variation in return over cost across crops has bearing on crop diversification
as well.

Benefits of Crop Diversification

 Economic Stability: Crop diversity can better withstand price fluctuations in diverse farm goods and may
help to ensure agricultural product economic stability.
 Natural Disaster Mitigation: Unpredictable rainfall, drought, hail, and the occurrence of bug and pest
illness are all sudden severe meteorological conditions. Crop diversification by mixed cropping may be
beneficial in this case.
 Boosting Income from a Small Landholding: Cropping patterns must be varied with high-value crops such
as maize, pulses, and other high-value crops.
o The Haryana government recently announced the 'Mera Pani Meri Virasat' initiative, which aims
to diversify crop production away from water-intensive rice.
o Farmers who plant alternative crops other than rice during the upcoming kharif season will
receive a 7,000-per-acre incentive under the initiative.
 Balance Food Demand: Including crops such as pulses, oilseeds, horticulture, and vegetable crops in the
food basket can increase socioeconomic position by adding quality to the food basket, as well as
improving soil health for food safety.
 Reduces the chance of complete crop failure: Various crops will adapt to climatic situations in different
ways, lowering the probability of total crop failure.
o While the cold may have a detrimental impact on one crop, it may have a positive impact on
another.
  Manage price risk: Diversification can help farmers manage price risk by assuming that not all goods
would experience low market prices at the same time, increasing their profitability.
 Increases natural biodiversity and productivity: It can also boost natural biodiversity, making the
agroecosystem more resilient to these pressures.
o It is improving plant production, quality, health, and nutritional value, as well as increasing
disease resistance in crops.
 Farmers may be able to get access to national and international markets with new goods, food, and
medicinal plants.
 Crop diversification aids in the protection of natural resources, such as the introduction of legumes into
the rice-wheat cropping system, which may fix atmospheric nitrogen to help maintain soil fertility.

Conclusion
There is a strong need to shift towards Integrated Farming Systems combining several enterprises like cropping
system, dairying, piggery, poultry, fishery, apiculture, etc. in a harmonious way. It would also give a strong boost
in achieving the much-cherished vision of doubling the farmer's income in the next 5 years.

AGRICULTURAL CREDIT AND INDEBTNESS IN INDIA

Agriculture is a dominant sector of our economy and credit plays an important role in increasing agriculture
production. Availability and access to adequate, timely and low-cost credit from institutional sources is of great
importance especially to small and marginal farmers

The Government of India has initiated several policy measures to improve the accessibility of farmers to the
institutional sources of credit.
 The emphasis of these policies has been on progressive institutionalization for providing timely and
adequate credit support to all farmers with particular focus on small and marginal farmers and weaker
sections of society to enable them to adopt modern technology and improved agricultural practices for
increasing agricultural production and productivity.
INSTITIUTIONAL ARRANGEMENTS
 Agricultural credit is disbursed through multi-agency network consisting of Commercial Banks (CBs),
Regional Rural Banks (RRBs) and Cooperatives.
Policy measures
 Interest subvention to farmers: Government of India announced an interest subvention scheme in 2006-
07 to enable banks to provide short term credit to agriculture (crop loan) upto Rs.3 lakh at 7% interest to
farmers.
 Extension of interest subvention scheme to post harvest loans: In order to discourage distress sale by
farmers and to encourage them to store their produce in warehousing against warehouse receipts
 Collateral free loans: The limit of collateral free farm loan has been increased from Rs.50,000 to
Rs.1,00,000.
 The Government introduced the Kisan Credit Card (KCC) Scheme, for issue of KCC to farmers for uniform
adoption by the banks, so that farmers may use them to readily purchase agriculture inputs such as seeds,
fertilizers, pesticides etc.
 Agriculture Market Infrastructure Fund (AMIF) – NABARD: For development and upgradation of rural
agriculture markets. It was announced in 2018 Budget for developing and upgrading agricultural
marketing infra in the 22,000 Gramin Agricultural Markets (GrAMs) and 585 APMCs.

SITUATION OF INDEBTNESS OF FARM HOUSEHOLDS

 The farm debt per household has increased 57.7% in 2018 compared with data from 2013, according to
a survey conducted by the National Statistical Office (NSO).
  Over 50% of agricultural households in the country were in debt with an average outstanding loan per
household at Rs 74,121 in 2018 compared with Rs 47,000 in 2013.
 The survey further points out that only 69.6% of the outstanding loans were taken from institutional
sources like banks, cooperative societies and government agencies, while 20.5% of loans were from
professional money lenders.
 The survey said the average monthly income per agricultural household during the agricultural year
2018-19 was at Rs 10,218 – a 59% increase compared with Rs 6,426 in 2012-13.
Causes of high ineptness:
 Using Credit for Domestic Purposes: Other household expenses account for a considerable amount of
non-institutional debt.
o According to the NSO survey of the total loan, only 57.5% was taken for agricultural.
 Inadequate access to low-cost financing is at the root of rural misery. A considerable section of the rural
population has been excluded from institutional finance due to a lack of marketable collateral, credit
demand for consumption purposes, and informational restrictions.
 The ability of rural poor households to provide assets as collateral is a major determinant of their access
to institutional lending.
 Loan waiver policies disturb credit discipline since agricultural loan waivers are just a temporary remedy
and can become a moral hazard in the future.
 Factor of Social Identities: The interaction of social identities makes credit more difficult to get. In rural
regions, Scheduled Caste and Scheduled Tribe households own one-third of the assets owned by upper-
caste households.
Measures to improve the situation
 Agricultural Loans with Gold as Collateral: Agricultural loans using gold as collateral are currently not
identified individually in banks' core banking solution (CBS) platforms.
 Restricting Farm Loan Waivers: The Government of India and state governments should conduct a
comprehensive review of agricultural policies and their implementation, as well as assess the
effectiveness of current subsidy policies for agri inputs and credit, in order to improve agriculture's overall
viability in the long run.
 Credit Guarantee Plan for Agriculture: In India, banks do not have access to a guarantee scheme to offset
the risk of borrowers defaulting.
o The Government introduced the Kisan Credit Card (KCC) Scheme, for issue of KCC to farmers for
uniform adoption by the banks, so that farmers may use them to readily purchase agriculture
inputs such as seeds, fertilizers, pesticides etc.
o PM Kisan Yojana is providing credit support to farmers with 6000 rupees per year given in regular
3 instalments.
 Increasing Credit to Allied Activities: The government should set distinct working capital and term loan
objectives for allied activities.
o PM SAMPADA yojana to promote food processing industry is a welcome step and it provides
credit to associated allied sectors as well.
 Land Consolidation: State governments should support and execute land consolidation awareness
campaigns so that farmers may benefit from economies of scale and have an incentive to invest for the
long term.
 A loose definition of agri-credit has led to the leakage of loans at subsidised rates to large agri-firms.
o For example, in 2017, 53 per cent of the agriculture credit that NABARD provided to Maharashtra
was allocated to Mumbai metro city and suburbs, where there are no agriculturists, only agri-
business.
 the flow of agricultural credit has not been uniformed across states. Institutional development across
states is a priority area for equitable flow of subsidised credit.
 state governments should work in close coordination with the banking system for the promotion of
more Joint Liability Groups (JLGs) as per NABARD guidelines to ensure that formal credit reaches
financially-excluded farmers.

Observation of Budget 2022-23

  The budget speech as well as the Economic Survey 2021-22 recommended that priority should be given
to crop diversification and allied sectors including horticulture, organic farming, dairying and fishing to
increase farmers income.
o But to enable small farmers to shift from wheat and paddy or improve their income through
allied sectors, they must have access to institutional credit at reasonable rates of interest.
Conclusion
Improvements in agri-credit system can revive agriculture. Institutional development across states should be a
priority area for equitable flow of subsidised credit

IRRIGATION SYSTEM

PREVIOUS YEAR QUESTIONS:

1. Suggest measures to improve water storage and irrigation system to make its judicious use under 2020
depleting scenario.
2. Elaborate on the impact of the National Watershed Project in increasing agricultural production from 2019
water-stressed areas.
3. How was India benefited from the contributions of Sir M. Visvesvaraya and Dr. M. S. Swaminathan in 2019
the fields of water engineering and agricultural science respectively?
4. What is water-use efficiency? Describe the role of micro-irrigation in increasing the water-use 2016
efficiency.
5. What is allelopathy? Discuss its role in major cropping systems of irrigated agriculture. 2016

Introduction
 Irrigation is the artificial supply of water to crops for agricultural production. There can be several artificial
ways for providing water such as canals, wells, tube-wells, tanks, etc. which transport water from different
sources such as rivers, ponds, or underground water to targeted fields.
 “Water” is the State subject (as per Seventh Schedule of the constitution).

CURRENT SITUATION OF WATER:

 NITI Aayog’s Composite Water Management Index (2019) shows 75% of Indian
National households don’t have access to drinking water on their premises.
Estimates:  The Central Water Commission’s reassessment of water availability using space
inputs (2019) shows India utilises only 18% of its annual precipitation. This means
699 billion cubic meters (BCM) is utilised, out of the total 3880 BCM received.
 UN’s report on Sustainable Development Goal-6 (SDG-6) on “Clean water and
sanitation for all by 2030” states that India achieved only 56.6 per cent of the target
by 2019.
International  The Water Management Quality Index has placed India at the 120th position
Estimates: amongst 122 countries.
  India identifies as a water-stressed country. As the per capita water availability
declined from 5,178 cubic meters (m3)/year in 1951 to 1,544 m3 in 2011. It is
expected that it will reach 1,140 cubic meters by 2050.

Importance AND Need for Irrigation

 Rainfall pattern: India’s rainfall pattern suffers from both - spatial and temporal variations - as well as is
known for its uncertainty, irregularity, unreliability, and erratic nature.
 The demand for food: As the population increases, In the next 50 years, the demand for food will increase
two times as compared to the present, and in turn demand for irrigation increases.
 Crop yield: Judicious Irrigation increases crop yield, protects from famine, and also helps in cultivating
superior crops with the water supply as per need of the crops.
 for the proper development of plant root: Through the irrigation, it is possible to supply the required amount
of hydrogen & oxygen to the plant root.
 Soil fertility: Soil moisture is maintained due to effective irrigation and hence soil fertility is increased.
 Requirement of high-yielding seeds: New and high-yielding seeds need additional water and that can be met
through irrigation.
 Climate change: Increase in the number of floods and famines due to climate change there is a need for the
proper irrigation system for food security.
 Increase cropping Intensity: The rainfed areas are mostly single cropped with scanty rainfall, prone to
frequent droughts, soil erosion, and characterized by fragile pasture lands.
 Bringing more land under cultivation is possible through irrigation: Presently 76% of agricultural land in the
country remains unused for half of the productive period due to lack of access to meet the crop water
requirement.
 Food Security: 19.44 million hectares was current fallow land while cultivable waste land comprises another
13.83 million hectares. Provision of irrigation facilities can make some portion of this land cultivable.
 Insufficient rain may also cause drought & famines. Irrigation can play a protective role during the period of
drought & famines.
 The productivity of irrigated land is more than the un-irrigated land.
 Agriculture is often greatly hampered due to irregular, insufficient or uncertain rain. Proper irrigation systems
can secure uninterrupted agriculture.

Micro-irrigation SYSTEM
irrigation, is the artificial application of water to land. Some land requires irrigation before it is possible to use it
for any agricultural production. In other places, irrigation is primarily a means to supplement rainfall and serves
to increase production.
 India accommodates more than 17% of the world population and only 4% of freshwater resources, out
of which around 80% is used in agriculture alone. This calls for efficient irrigation technologies to increase
water productivity.
 Micro-irrigation (MI) techniques such as drip irrigation, sprinkler, rain-gun, porous pipe system, etc.
where water is supplied directly to the crops are considered as innovative water-saving technology. micro
irrigation (or Localized irrigation) is a type of decentralized irrigation system.

Need for Micro irrigation:

 As the agriculture sector consumes 80% of the freshwater in India, micro-irrigation is often promoted
by central and state governments as a way to tackle the growing water crisis.
 This is because drip and sprinkler irrigation deliver water to farms in far lesser quantities than
conventional gravity flow irrigation.
 Micro irrigation leads to better results, but small and marginal farmers often find it unaffordable.
o Of the total 151.33 lakh hectares under kharif crop, only 25.72 lakh hectares is covered by micro
irrigation.
Steps taken
  Micro Irrigation Fund with a corpus of Rs.5000 crore was operationalized in NABARD.
 The objective of the fund is to facilitate State Govts. efforts in mobilizing additional resources for
expanding coverage under micro irrigation and incentivizing its adoption.
 Under MIF, the State Governments are provided loans at 3% below the cost of funds; the 3% being
compensated by the Govt. of India as interest subvention.
 With only 17 per cent of the agricultural land in Maharashtra under micro irrigation, the state
government has decided to increase subsidies to promote micro irrigation schemes.

ADVANTAGES/BENEFITS OF MICRO-IRRIGATION
 Water use efficiency/and Irrigation Water Productivity: It helps in the reduction of water waste due to
runoff, evaporation, etc. It further helps soil management and prevents waterlogging.
 Energy efficiency: It can effectively save power due to less water use and thereby a reduction in energy
requirements for pumping groundwater.
 Fertigation technique: Precise mixing of fertilizers and water, control of best dosage, and direct dosing of
fertilizers to the root region resulting in the increase in fertilizer consumption by the crops.
 Increase in crop productivity: It enhances the crop yield (quantity and quality). Rising population and water
scarcity demand increased productivity in the long term. An improvement in productivity would also support
doubling farmers’ income.
 Cost-saving: It will diminish the overall cost of irrigation in the long run due to a decrease in labor for
irrigation, land-levelling, weeding, and fertilizer application.
 Inter-cropping: An improved water scenario helps in addition to new crops or promotes inter-cropping.
 Infrastructure development: The infrastructure of Micro-irrigation systems can be built in months, unlike
other systems where it takes years to develop infrastructure such as dams, canals, etc.
 Higher yields: The yields are higher than traditional flood irrigation. Productivity gain due to use of micro-
irrigation is estimated to be in the range of 20 to 90% for different crops. Yields of crops increase up to 45%
in wheat, 20% in gram and 40% in soybean.
 Less water loss: There is also less loss of water due to reduction in loss of water in conveyance and also
reduction in loss of water through evaporation, run off, and by deep percolation.
 Lower consumption of fertilizers: An efficient drip irrigation system reduces consumption of fertiliser through
fertigation.
 Weed and disease reduction: It helps in inhibiting growth of weeds as it keeps limited wet areas. Under this
condition the incidence of disease is also reduced.
 Precision farming: Emerging computerised GPS-based precision irrigation technologies for self-propelled
sprinklers and micro-irrigation systems will enable growers to apply water and agrochemicals more precisely
and site specifically to match soil and plant status and needs as provided by wireless sensor networks.
 Irrigation contributes to the economic growth and poverty reduction: income and employment are closely
related to output and irrigation increases production, substantial increase in income is achieved in the
countryside.

C HALLENGES TO THE IRRIGATION SYSTEM IN I NDIA

 Underutilisation of Potential: The problem of underutilisation of the irrigation potential has been a serious
problem confronting us since the First Plan itself. More than 10 per cent of the total irrigation potential
remains un-utilised.
 Huge primary cost: The cost of the initial setup is too high which is not possible for over 85% of Indian farmers
who are small and marginal.
 Energy crisis: Power outages, voltage variations, and unscheduled gaps exist across rural and urban India.
 Policy concerns:
o Delays in subsidy payment largely because of approving the installation of devices when funds for subsidy
aren’t yet available.
o GST rate on drip irrigation systems exists at 12%.
o Extensive private investment is missing.
 Technical Support: There is a lack of assistance for maintenance (for example, rodent attack on piping, pore-
clogging) and service
 Knowledge gap: The transfer of technology from Lab to Land is poor.
 Efficiency Gap: There is a gap between Irrigation Potential created (IPC) and Irrigation potential Utilized (IPU).
 Declining landholdings and farm income: The data on India’s operational landholdings shows that the
average size of landholdings have halved since the 1960s. The meagre farm income from declining
landholdings challenges the sustainability of expensive micro-irrigation on Indian farms.
 Maintenance: Micro-irrigation systems normally have greater maintenance requirements. Soil particles,
algae, or mineral precipitates can clog the emission devices.
 Water availability: Though the average water availability in India remains more or less fixed according to the
natural hydraulic cycle, per capita availability is reducing progressively owing to the increasing population.
 Lack of Coordination between Irrigation and Agricultural Development: Changes in the cropping pattern and
practices alter the demand for water both in the volume and the time of its supply. The irrigation authority
takes action to adjust the supply to changes in demand after a considerable time lag.
 Financial Returns from the Irrigation Sector: Financial returns from the existing irrigation facilities have been
very low. For example, a recent study of the Chambal irrigation project revealed that the revenue from
irrigation fell short of even the working expenses, by 73 per cent.
 Problem of Drainage: Irrigation has also raised the problems relating to drainage, congestion, waterlogging,
mal-distribution and wastage of water, etc. Canals and road construction interfere with natural drainage.
 High Usage of water: The Agriculture Sector uses almost 80% of freshwater resources and the rest is used by
industry and households.
 Skewed Irrigation Distribution: Only about half of India’s gross cropped area (198 million hectares) is
irrigated. Groundwater contributes about 64 per cent, canals 23 per cent, tanks 2 per cent and other sources
11 per cent to irrigation.
 Inefficient usage of water: Subsidies and incentives have led to over-exploitation of water especially in the
north-west region. This helped the region to leverage maximum benefits of the green revolution at subsidized
water and power tariffs. But today the region is amongst the three highest water risk hotspots of the world
along with north-eastern China and the southwestern USA (California).
 Two Crops use maximum water: As per a NABARD-ICRIER study on Water Productivity Mapping; rice and
sugarcane alone consume almost 60 % of India’s irrigation water.
o Punjab performs well inland productivity of rice but takes the last spot in terms of irrigation water
productivity. This shows inefficient usage.
o Similarly, irrigation water productivity of sugarcane in Karnataka and Maharashtra is only 1/3rd of Bihar
and U.P.
In that context, many studies have suggested the promotion of cost-effective alternatives, relaxation of farm size
limitation in providing micro-irrigation subsidies, and creation of a single state-level agency or a special purpose
vehicle (SPV) for speedy implementation of the micro-irrigation program.

POLICY RECOMMENDATIONS:
 Large public and private investment for expanding the irrigation system to accelerate agricultural growth
and to meet the needs of food security;
 More efficiency in managing the irrigation system;
 Speedy exploitation of irrigation potential from major and medium sources;
 Completion of on-going projects, improvement in the utilisation of irrigation potential and expansion of rural
electrification in the eastern region and replacement of high-cost diesel pump sets;
 Ensuring a conjunctive use of surface and ground water;
 The original Gadgil formula, which earmarked 10 per cent of the total resource to the State Plans for major
and medium irrigation and power projects should be revived;
 A major part of saving of fertiliser subsidy be given to States as grant for irrigation expansion; Suitable
incentives be extended for advancing hi-tech irrigation systems like the microprocessor-based drip irrigation
technology that has proven ability to save 25 per cent chemical fertilisers, halve the water used and nearly
double the yields;
 Farmers stakes in irrigation work be raised by conferring on them some degree of. co-ownership the irrigation
system; and
 A comprehensive watershed management plan need be formulated and effectively implemented.
 Implementing Vaidyanathan Committee’ s Recommendations:
o Committee suggested the norms for fixing water rates, cost escalation on the Operation and
Maintenance (O&M) component of economic water rates.
o It suggested for conversion of volumetric supply of water rates from crop-wise and area-wise water
rates for different agro-climatic zones.
 Adopting Best Practices from local level to national Level:
o Jalyukta Shivar yojana in Maharashtra has played a prominent role in providing farm ponds to every
farmer in her/his agriculture field.
o In Gujarat ‘Bhungroo’ a water management system that injects and stores excess rainfall water
underground. This water is then used for irrigation during summers.
o Mission Kakatiya is a flagship program under the Telangana government aimed at restoring minor
irrigation sources of water like ponds and tanks.
 Participating with civil society: Pani foundation hosts the Satyamev Jayate Water Cup, a competition for
excellence in soil and water conservation.
o The competition created a platform for village communities to work together positively and joyfully
to solve the problem of drought and ensure improvement in crops.
 International Cooperation: Netafim, an Israel based company, has shown the potential of a family drip
irrigation system at Ramthal, Karnataka.

GOVERNMENT INITIATIVES:
 Jal Shakti Ministry: created to provide access to safe drinking water by reorganizing the earlier ministries
 National Mission on Micro Irrigation: The Centrally sponsored National Mission on Micro Irrigation (NMMI)
was launched in June 2010 in addition to the earlier Micro Irrigation Scheme launched in January 2006.
 Micro Irrigation Fund: The Government has created a dedicated Micro Irrigation Fund with NABARD. This
fund aims to facilitate the States in order to mobilize the resources for expanding coverage of Micro Irrigation
in the country.
 Rainfed Area Development Programme (RADP): an initiative which aims to increase agricultural productivity
of rainfed areas in a sustainable manner by adopting appropriate farming system-based approaches.
 Pradhan Mantri Krishi Sinchayee Yojana: the scheme aims to provide end-to-end solutions in the irrigation
supply chain (water sources, distribution network and, farm-level applications).
o Under PMKSY-PDMC, as on 14.12.2021, total area of 59.37 lakh ha has been covered under micro
irrigation in the country from 2015-16
 KALESHWARAM LIFT IRRIGATION PROJECT: The Kaleshwaram Lift Irrigation Scheme of Telangana is a multi-
purpose irrigation project on the Godavari River in Kaleshwaram, Bhupalpally, Telangana.
o The project starts at the confluence point of Pranahita River and Godavari River. It is the world’s
largest Irrigation and Drinking Water System.
o The project will enable farmers in Telangana to reap multiple crops with a year-round supply of
water wherein earlier they were dependent on rains resulting in frequent crop failures.
o Apart from irrigation, a main component of the project is the supply of drinking water to several
towns and villages and also to twin cities of Hyderabad and Secunderabad.
 NEERANCHAL NATIONAL WATERSHED PROJECT: Through the watershed plus approach, support improved
equity, livelihoods, and incomes through forwarding linkages, on a platform of inclusiveness and local
participation.
 National Mission for Sustainable Agriculture: According to economic survey 2021-22, Key targets for FY 2021-
2025 include covering 20 lakh hectare of area under organic farming, 87 lakh hectare under precision
irrigation.

Conclusion:
 The World Bank's report on “India’s Water Economy: Bracing for a Turbulent Future” (2006), stated that
dams in India can store only about 30 days of rainfall, compared with 900 days in major rivers basins in arid
areas of developed countries.
 There is a need to work upon some fundamental factors, such as common interest and collective efforts of
water users, effective leadership of office bearers, capacity building of farmers and irrigation officials, the
political will of the party in power, proper monitoring, and evaluation, catalysing the role of the change
agents, etc.

Ground water Depletion in India

 Groundwater is one of the most important water sources in India accounting for 63% of all irrigation water
and over 80% of rural and urban domestic water supplies.
 As per the economic survey 2021-22: The share of net irrigated area accounts for about 49 per cent of the
total net sown area in the country.
o Out of the net irrigated area, about 40 per cent is irrigated through canal systems and 60 per cent
through groundwater.

Implications of groundwater depletion

 Groundwater depletion is more prominent in north India while satellite-based observations showed an
increase in groundwater storage in Peninsular India.
 Groundwater depletion caused by unsustainable groundwater pumping can have large implications for food
and water security in the region.
 Environmental concerns: More dependence on nonrenewable groundwater to meet food and water supply
causes sustainability, environmental, and ecological challenges.
o groundwater depletion contributes to sea-level rise, a decrease of groundwater discharge to
streams, land subsidence.
 Groundwater depletion can be further worsened by the substantial increase in the concurrent hot and dry
monsoon extremes are projected in India.

R EASONS FOR G ROUND WATER D EPLETION IN I NDIA :

 The Green Revolution enabled the cropping of water-intensive crops like rice in water deficit regions such
as Haryana and Punjab. It was ecologically less suitable for rice cultivation due to predominantly light
soils. This led to unsustainable groundwater use for irrigation and in turn groundwater scarcity.
 Increased demand for water for domestic, industrial, and agricultural needs together with limited surface
water led to the over-exploitation of groundwater resources.
 Frequent pumping of water from the ground without waiting for its replenishment leads to quick
depletion.
 Subsidies on electricity and high Minimum Support Price (MSP) for water intensive crops.
 Inadequate regulation of groundwater laws encourages the exhaustion of groundwater resources
without any penalty.
 Post-harvest burning of crops, deforestation, unscientific methods of agriculture, chemical effluents
from industries. It also led to pollution of groundwater making it unusable.
 Frequent pumping of water from the ground without waiting for its replenishment leads to quick
depletion.
 Subsidies on electricity and high MSP for water intensive crops is also leading reasons for depletion.
 Inadequate regulation of groundwater laws encourages the exhaustion of groundwater resources
without any penalty.

M EASURES REQUIRED TO CONTROL GROUND WATER DEPLETION AND CONTA MINATION :

 Reduced power subsidies can help to control water depletion.
 Water logging, salinity, agricultural poisons, and industrial effluents are all problems that must be thoroughly
investigated.
 To avoid overexploitation, water must be treated as a shared resource rather than private property.
 Need for Scientific evaluation: Before developing any policy, research and scientific evaluations should be
conducted.
 Proper Policy measures: Access to groundwater should be restricted in places designated as "critical" and
"dark zones," where the water table is overused or very low.
 Bottom-up strategy by encouraging the local people to take an active role in groundwater management.
 Traditional water conservation measures should be supported in order to reduce the depletion of water
supplies.
 Improving decentralised water management in India by teaching important hydrogeological skills to NGOs
and rural practitioners.
 pricing policies for agricultural inputs like water and electricity should be sustainable.
o The “Paani Bachao Paise Kamao” initiative of the Punjab government along with the World Bank and J-
PAL can be a good initiative in this regard.

IRRIGATION AND WATER PRODUCTIVITY:

 Need to shift in Policy: The Economic Survey has proposed policy changes which include increasing Irrigation
Water Productivity (IWP) by adopting improved methods of irrigation and irrigation technologies,
o increasing sustainability through organic and natural farming,
o economizing the use of fertilizers and pesticides,
o improving infrastructure and access to markets and adopting appropriate technology for smallholder
farm.
 focus should shift from 'land productivity' to 'irrigation water productivity'. Devising policies to incentivise
farmers to improve water use and thrust should be on micro-irrigation that can improve water use efficiency.
 reasonable and due access to irrigation water to the marginal and small farmers is important as it will lead
to the economical use of water and make farming partially sustainable.

Sustainable Agriculture demands Optimum Water Management

 The declining availability and accessibility of water necessitates strengthening the water management
measures. In this regard, the focus should be drawn on Sustainable Agriculture.
 On March 22 (World Water Day), Prime Minister launched the ‘Catch the rain Campaign’ under Jal Shakti
Abhiyan.
 Campaigns are desired as water demand is going to rise in future – 843 billion cubic metres (BCM) by 2025
and 1180 BCM by 2050.

IRRIGATION: Current Developments

PRADHAN MANTRI KRISHI SINCHAYEE YOJANA (PMKSY)

 Launched in 2015, PMKSY has been formulated amalgamating ongoing schemes viz. Accelerated Irrigation
Benefit Programme (AIBP); Integrated Watershed Management Programme (IWMP); and On-Farm Water
Management (OFWM) component of National Mission on Sustainable Agriculture (NMSA).

OBJECTIVES: ‘MORE CROP PER DROP’:

 Achieve convergence of investments in irrigation at the field level (preparation of district level and, if
required, sub district level water use plans).
 Enhance the physical access of water on the farm and expand cultivable area under assured irrigation (Har
Khet ko pani).
 Integration of water source, distribution and its efficient use, to make best use of water through appropriate
technologies and practices.
 Improve on-farm water use efficiency to reduce wastage and increase availability both in duration and
extent,
 Enhance the adoption of precision- irrigation and other water saving technologies (More crop per drop).
 Enhance recharge of aquifers and introduce sustainable water conservation practices.
 To promote extension activities relating to water harvesting, water management, and crop alignment for
farmers and grass root level field functionaries
 To attract greater private investments in irrigation.

SALIENT FEATURES:
 It is a Centrally Sponsored Schemes.
 Water budgeting is done for all sectors namely, household, agriculture and industries.
 Long Term Irrigation Fund (LTIF) has been instituted under PMKSY in NABARD for funding and fast tracking
the implementation of incomplete major and medium irrigation projects.
 A dedicated Micro Irrigation Fund (MIF) with NABARD under PMKSY has been set up to provide states
financial assistance on concessional rate of interest.
 National Steering Committee (NSC) under PM with Union Ministers of all concerned Ministries supervises
and monitors the scheme.
 National Executive Committee (NEC) under the Chairmanship of the Vice Chairman, NITI Aayog oversees the
implementation of the scheme.

STORAGE, TRANSPORT & MARKETING OF AGRICULTURAL PRODUCE

STORAGE AND WAREHOUSING OF AGRICULTURE PRODUCE

 Storage is an important marketing function, which involves holding and preserving goods from the time they
are produced until they are needed for consumption.
 It is the phase of the post-harvest system during which the products are kept in such a way as to guarantee
food security other than during periods of agricultural production.
 Food and Agriculture Organisation of the UN (FAO) estimates food loss and waste in India at around 40%
while the state-owned Food Corporation of India (FCI) pegs it at 15%.
 A study by National Academy of Agricultural Sciences (NAAS) said storage is the major cause of post-harvest
losses for all kinds of food in India, fruits and vegetables, where India faces a critical deficiency of cold storage
capacity—this belies the enormous potential of its processed food industry.

FACTS AND DATA FROM ECO SURVEY:

 The total storage capacity available with FCI and state agencies for storage of food grains as on 31.12.2020
was 819.19 LMT, comprising covered godowns of 669.10 LMT and Covered and Plinth (CAP) facilities of
150.09 LMT.
 Out of the total available storage capacity of 819.19 LMT, FCI has a capacity of 407.76 LMT while state
agencies have a capacity of 411.43 LMT. The stock of rice and wheat in the Central Pool as on 01.01.2021
was 529.59 LMT.

NEED FOR STORAGE AND WAREHOUSING

 Hunger and malnutrition: India is one of the largest producers of food in the world. But India is still facing the
problem of hunger and malnutrition. The agricultural sector's contribution to GDP is very less and Indian
farmers are still suffering from inadequate prices and a low standard of living.
 Increase in quantity: Due to advancements in technology, inputs improvement like high yield seeds, irrigation
facilities, etc., there has been an increase in quantity. Improper handling and storage of these commodities
result in high losses before reaching the consumers.
 Food security: Storage ensures food security and round-the-year quality food supply of a country.
 Wastage: According to a report by the Ministry of Consumer Affairs, nearly 60000 tons of food grains godowns
have got damaged and become useless for human consumption between 2013-2019
 Farmer’s income: Farmers’ income is affected due to waste of foodgrains because of an improper storage
system.
o According to FAO, produce worth $14 billion is damaged annually which indirectly affects the farmer’s
income.
 A wasteful government supply chain: The contrasting scenarios of record agricultural production and
grinding poverty illustrate what is described as the “paradox of plenty” in the agriculture sector. India wastes
around food worth approximately $14 billion each year.
 FCI has a poor track record of storing and distributing food grains: According to official data released by the
Ministry of Consumer Affairs, almost 62,000 tonnes of food grain was damaged in FCI warehouses between
2011 and 2017.
o In 2016-2017 alone, more than 8,600 tonnes of food grain were lost. Pests can be to blame, as are
poor quality storage facilities that suffer water leaks.
 It is estimated that around 30 million tonnes of food grains are stored across India using this open method.
Such open storage is vulnerable to fungus and moisture, which not only deteriorates the quality but can
harbour deadly disease, according to the World Health Organisation.
o About 1.8 million tonnes of grain spoils during open storage.
 damage occurs in the wait for transportation: Authorities reported 1.5 tonnes of grain had been disposed
of, having spoiled during transportation to the warehouse.
 Leakages and black markets: subsidised grain intended for the poor is actually diverted for sale on the open
market – has in past years caused the loss of an estimated 25.9 million tonnes of rice and wheat alone.
 bureaucratic barriers: Distribution is governed by ration cards, yet the complexities involved in applying for
ration cards has turned away many intended beneficiaries, who are either illiterate or vagabonds with no
fixed address.
 Hoarding: There is no guarantee of good quality food grains reaching that the intended beneficiaries. Dealers
regularly resort to unfair trade practices to inflate profits, selling fresh stock on the black market, and
swapping low-quality grains to send to the poor.
IMPORTANCE OF STORAGE:
 Ensure continuous flow of goods in the market.
 Prevent deterioration of perishable and semi-perishable products.
 Provide employment and income through price advantages.
 Enables states to meet a catastrophe or emergency situation very effectively.
 Helps in the stabilization of prices by adjusting demand and supply.
 Storage is necessary for some period for the performance of other marketing functions.
 Helps to cope with the seasonal demand of goods like woollen garments.

WHERE AGRICULTURAL PRODUCE IS STORED?

 Around 70% of the total foodgrains production is retained and consumed at the farm level.
 The balance amount is supplied to the central pool and delivered at the nominated warehouse or at the local
mandi earmarked for procurement.
 As of 2019, India has a total Agri warehousing capacity of around 91 million metric tonnes (MMT) with the
majority of the capacity being owned by state agencies.
 State agencies own around 40% of the capacity and the balance distributed among private entrepreneurs,
cooperative societies, farmers, etc.

ROLE OF WAREHOUSING
Warehouses are scientific storage structures especially constructed for the protection of the quantity and quality
of stored products.
 Scientific storage: The product is protected against quantitative and qualitative losses by the use of such
methods of preservation as are necessary.
 Financing: Warehouses meet the financial needs of the person who stores the product. Nationalized banks
advance credit on the security of the warehouse receipt issued for the stored products to the extent of 75 to
80% of their value.
 Price Stabilization: Warehouses help in the price stabilization of agricultural commodities by checking the
tendency to make post-harvest sales among the farmers.
 Market Intelligence: Warehouses also offer the facility of market information to persons who hold their
products in them.

FOOD CORPORATION OF INDIA (FCI):

The FCI was established under the Food Corporations Act of 1964, to fulfill following objectives:
1. Effective price support operations for safeguarding the interests of the farmers.
2. Distribution of food grains throughout the country for Public Distribution System; and
3. Maintaining a satisfactory level of operational buffer stocks of food grains to ensure National Food Security.

ISSUES RELATED TO FCI’S PROCUREMENT AND STORAGE:

 Open-ended Procurement: FCI buys as many grains as the farmers can sell. It not only stretches the already
overburdened godowns but also collapses the food grains market.
 Excess stock: One of the key challenges for FCI has been to carry buffer stocks way above buffer stocking
norms. The underlying reasons for this includes export bans, open-ended procurement, and no pro-active
liquidation policy.
 Imbalances in storage facilities: According to the CAG report, out of the total storage space, 64% was located
in the large procurement states like Punjab, Haryana, Andhra Pradesh, Uttar Pradesh, and Chhattisgarh.
o A mounting stockpile of foodgrains on account of bumper wheat and rice production coupled with
assured procurement at guaranteed MSP has increased storage costs over the years.
 Inadequate storage facility: the existing storage facility is poorly maintained causing grain damages due to
pest attacks.
 Non-adherence to First in First out principle (FIFO): the CAG report revealed that a total of 126 LMT of food
grains about crop years 2008-09 to 2011-11 was lying in the central pool even in March 2012.
 Refusing procurement at centres: lower staff posted at procurement centres sometimes refuse to procure
on non-bonafide technical reasons, such as moisture content in the produce. This causes great hardships to
the farmers.
 Construction of godowns: FCI could not achieve the targets for construction of godowns in 2020-21 required
to store the adequate procured food grains.
 Transit losses: transit losses are still very high (Rs 281 crore during April-October 2020).
 The poor condition of storage facilities: Food grains are getting rotten at storage facility and have negligle
pest control mechanism.
 Not using scientific storage methods: Moder methods like automaton, silos and automatic pest control
mechanism are not being employed.
 Regional imbalances in storage capacity: All the states are not having same capacity of storage. Northern
states are equipped with 70% of total FCI godowns.
 High subsidies: While the distribution price of foodgrains under the National Food Security Act (NFSA), 2013
has remained the same at Rs 2-3/kg, the assured minimum support price (MSP) at which FCI procures wheat
and rice from farmers for distribution has skyrocketed.
o Over the last five years, the economic cost of wheat has increased from Rs 21 per kg in 2016-17 to Rs
30 per kg in 2021-22.
o Similarly, the cost of rice has risen from Rs 31 per kg to Rs 43 per kg in the corresponding period.
 Loss to subsidies: Of the total debt of more than Rs 4.09 lakh crore as of 31 January on FCI’s books, loans
from the NSSF accounted for nearly 80 per cent of the total loans. The remaining amount was accounted for
by unsecured short-term loans and non-convertible bonds among others.
o But according to the roadmap presented in Budget 2021, the FCI’s total borrowings from NSSF will
come down to Rs 1.18 lakh crore as of 1 April 2021 and to Rs 63,712 crore as of 1 April 2022 before
falling to zero in the 2023-24 fiscal.
 Shanta Kumar committee on FCI reform pointed out following issues:
o Lack of Proactive Liquidation Policy: The current system of liquidation of excess stocks through
the Open Market Sale Scheme (Domestic) or through export markets is extremely ad-hoc and slow.
 o Insufficient sale price: FCI doesn’t get a good price most of the time, as predetermined price (reserve
price) is often less than the acquisition cost/economic cost of grains for FCI and it ends up making a
loss in the sale.

STEPS WERE TAKEN TO IMPROVE STORAGE FACILITIES

 Decentralized Procurement Scheme: to procure and store at the state level to avoid transit losses.
 Negotiable Warehouse Receipt system: Under this system, farmers can deposit their produce to the
registered warehouses, and get a certain amount as advance from banks against their produce valued at MSP.
 The essential commodities act: ECA has been amended to relax stocking limits and thus encourage private
and foreign investments in storage.
 Agriculture Infrastructure Fund: setup for investment in viable projects for post-harvest management
Infrastructure.
 Storage and cold chain facilities: created under Pradhan Mantri Kisan Sampada Yojana (PMKSY)
 'Village Storage Scheme' announced in Budget 2020: It will be run by women's SHG's. The aim of the scheme
is to provide holding capacity for farmers and through this, women in villages and the rural part of the country
will be able to retain their status as “Dhaanya Lakshmi”
 Implementing recommendations of Shanta Kumar committee:
 Hand over Procurement to state: The FCI should hand over all procurement operations of wheat,
paddy, and rice to states that have gained sufficient experience in this regard and have created a
reasonable infrastructure for procurement
 Outsourcing: FCI should outsource its stocking operations to various agencies such as Central
Warehousing Corporation, State Warehousing Corporation, Private Sector under the Private
Entrepreneur Guarantee (PEG) scheme.
 Agency for innovations in Food Management System: FCI should act as an ‘agency for
innovations in Food Management System’ with a primary focus to create competition in every
segment of the food grain supply chain, from procurement to stocking to movement and finally
distribution.
 Promoting open Market sale: Open Market Sale Scheme (OMSS) refers to selling of foodgrains by
Government agencies at predetermined prices in the open market. So FCI can earn more revenue.
 FCI conducts a weekly auction to conduct this scheme in the open market using the platform of
commodity exchange NCDEX (National Commodity and Derivatives Exchange Limited).

WAY FORWARD:
 Modernization and up-gradation of Bulk Grain Handling Infrastructure.
o In addition to conventional godowns, construction of steel silos has been undertaken in Public
Private Partnership (PPP) mode for modernizing storage infrastructure and improving shelf life of
stored foodgrains.
 The private sector should be encouraged to build storage capacities in which they will store and maintain
foodgrains procured by the Government agencies.
o Private Entrepreneurs Guarantee (PEG) Scheme formulated in 2008 in which storage capacity is
created by private parties.
 Adequate manpower and supervision are required for scientific and safe storage.
o Government is supporting the creation of well-equipped scientific storage facilities to the farmers
in the country through the scheme of “Agricultural Marketing Infrastructure (AMI)”
 Timely and systematic evacuation planning can lead to the utilization of vacant storage space.
 The intervention of state governments in identifying and handing over land for the construction of covered
storage spaces without undue delay in obtaining various clearances will speed up the addition of storage
capacity.
 FCI reforms should be an urgent measure to address the issue of funding and scientific storage.
 Integration of the entire storage business in India would go a long way in ensuring timely decisions are taken
for optimum utilization of the existing facilities.
Increase accreditation of cold storage: In order to promote warehouse based post-harvest loans, in case of
notified perishable commodities, it is necessary to substantively increase accreditation of cold storages in the
country.

2. TRANSPORT OF AGRICULTURAL PRODUCE

Agriculture and transportation are two industries dependent upon one another, and the national well-being is
dependent on both. A reliable and efficient transport system has a remarkable impact on agricultural marketing.

IMPORTANCE OF TRANSPORTATION OF AGRI PRODUCE:

 Transport enables agriculture and emboldens the farmer to invest more and increase production.
 With an efficient transport system and the careful handling of agricultural produce, the farmer can get the
best possible returns.
 An efficient transport and marketing system can still ensure that unit costs remain low and retain the
agriculture value chain at a robust level.
 Keeping transport costs low helps the farmers earn a margin, as well as make it affordable for the consumer.
 On the contrary, if transport costs are high, then not only domestic marketing, but the potential
for agricultural exports will also decrease as compared to countries with more efficient transport.
 Transport creates a market for agricultural produce, enhances interaction among geographical and
economic regions, and opens up new areas to economic focus.
 Poor transportation in rural areas will result in low productivity, low income, and a fall in the standard of
living.

ISSUES AND CONSTRAINTS IN TRANSPORTATION

 Lack of modern road and rail infrastructure.
 Lack of full regional connectivity especially with Northeast India.
 Seasonally blocked routes in Himalayan and North-eastern states.
 Over reliance on road transport instead of rail transport.
 Lack of all-weather and metalled roads in rural and tribal pockets of india.
 Usually transport trucks makes overloading leads to leakage and wastage during transit.

STEPS WERE TAKEN TO IMPROVE TRANSPORTATION

 Kisan rails as the first-ever multi-commodity trains: These trains with refrigerated coaches will help in
bringing perishable agricultural products like vegetables, fruits to the market in a short period of time.
 Krishi Udan scheme to transport agricultural goods by air: This will immensely help improve value realisation
(on agricultural products), especially in the north-east and tribal districts.
 Transport and Marketing Assistance (TMA): It aims to provide assistance for the international component of
freight and marketing of agricultural produce which is likely to mitigate the disadvantage of the higher cost
of transportation of export of specified agriculture products due to trans-shipment.
 Pradhan Mantri Gram Sadak Yojana: It is a nationwide plan in India to provide good all-weather road
connectivity to unconnected villages.
 Kisan Rath mobile application: to facilitate transportation of foodgrains and perishable during the lockdown.
 Relaxation in the nationwide lockdown: The government has granted for activities related to agriculture-
farming and allied activities with a view to addressing problems being faced by the farming community.
 Dedicated freight corridor: dedicated for agro-products.
 Shift from road to rail network: About 1.9% of the perishable fruits and vegetables are transported through
rail, while 97.4% of the produce is transported through roads.

3. MARKETING OF AGRICULTURAL PRODUCE

 Agricultural marketing primarily concerns the buying and selling of agricultural products. It refers to all the
activities, agencies, Agripreneurs, and policies involved in the procurement of farm inputs by the farmers and
the movement of agricultural produce from the farms to the consumers.
FUNCTIONS OF AGRICULTURE MARKETING:
1. Exchange Functions: Buying, Selling, Storage,
2. Physical Functions: Transportation, Processing, Standardization
3. Facilitating Functions: Financing, Risk Bearing, Market Intelligence.

SIGNIFICANCE OF MARKETING OF AGRICULTURE PRODUCE

 Monetizing the Produce: Marketing facilitates and improves the sale of agricultural products.
 Full fill the Demand and Supply equilibrium: The value of these products is factored by the demand and
supply status, which in turn is impacted by the marketed volume and the asking price.
 Promote competitive trade: A well-developed marketing infrastructure and efficient marketing system
promote competitive trade resulting in better price realization for the farmer.
 Reducing the role of intermediaries: An efficient marketing chain progressively decreases the number of
hands agricultural produce changes both for economic and qualitative reasons.
 Acting as a source of market information and price signal: It provides them with relevant demand-linked
information on quantity, desired quality, standards, and specifications of the product.
 Capital formation and investment in technology: Effective agricultural marketing can appropriately
showcase the growth potential in the sector. This will encourage investment and penetration of better
technologies in the sector.
 Value addition in agriculture: Robust marketing systems provide access to agricultural produce to
downstream industries, creating a potential for large-scale value addition.
o For example, the large-scale ‘Makhana’ snack industry has been developing in the recent past
after marketing initiatives were taken by the Bihar Government.
 Dependency of perishable food industry: this industry is crucially dependent on storage, logistics,
transportation, and distribution.
 Food security: increasing storage capacity and ensuring last-mile connectivity will help prevent post-
harvest losses and ensure food security.
 Creates employment opportunities: An investment in creating robust post-harvest storage and
transportation by investing Rs 89,375 crore will also create over 3 million jobs.
 Empowers rural economy: The majority of jobs will be at the village level, thus empowering the local,
rural economy.

How APMC markets went from being a solution to a problem

The APMC Acts mandated that the sale/purchase of agricultural commodities is carried out in a specified market
area, and, producer-sellers or traders pay the requisite market fee, user charges, levies and commissions for the
commission agents (arhatias).
 These charges were levied irrespective of whether the sale took place inside APMC premises or outside
it and the charges varied widely across states and commodities.
From the 1960s, there have been concerted efforts to bring all wholesale markets for agricultural produce in
various states under the Agriculture Produce Market Regulation (APMC) acts.
 All states, except Kerala, Jammu and Kashmir and Manipur, enacted such laws.
 Golden period of APMCS: In the initial years, APMC acts helped remove malpractices and freed the
farmers from the exploitative power of middlemen and mercantile capital.
o The golden period for APMC markets lasted till around 1991.
Emerging issues:
 Failure of APMC to keep pace with agriculture growth: With time, there was a palpable loss in growth in
market facilities and by 2006, it had declined to less than one-fourth of the growth in crop output after
which there was no further growth.
o This increased the woes of Indian farmers as market facilities did not keep pace with the
increase in output and regulation did not allow farmers to sell outside APMC markets.
 Emergence of Middlemen: Due to poor market infrastructure, more produce is sold outside markets than
in APMC mandis.
 o The net result was a system of interlocked transactions that robs farmers of their choice to
decide to whom and where to sell, subjecting them to exploitation by middlemen.
 source of revenue generation: In several states, commission charges were increased without any
improvement in the services. And to avoid any protests from farmers against these high charges, most of
these were required to be paid by buyers like the FCI.
o In Haryana and Punjab, mandi fees and rural development charges for wheat and non-basmati
rice purchased by FCI are four to six times the charges for basmati rice purchased by private
players.
o This not only results in a heavy burden on the Centre but also increases the logistics cost for
domestic produce and reduces trade competitiveness.

CHALLENGES TO AGRICULTURAL MARKETING IN INDIA:

 Licensing Barriers: The compulsory requirement of owning a shop/godowns for getting a license as
commission agents/traders has led to the monopoly of certain licensed traders. Due to this major entry barrier
occurs.
 High Incidence of Market Charges: APMCs are commissioned to collect market fees ranging between 0.5% to
2.0% of the sale value of the product. Further, other charges, such as purchase tax, weighing charges, etc. are
also required to be paid.
 Absence of standardized grading mechanism: of agricultural produce before it is sold. It hinders farmers from
fetching the prices commensurate with the quality of their produce.
 Poor Infrastructure in Agricultural Markets: Cold storage units exist in less than one-tenth of the markets
and grading facilities in less than one-third of the markets.
 The poor economic viability of projects: Agriculture marketing infrastructure projects have a long gestation
period. The seasonality and aggregation of small surpluses of agricultural produce further affect the economic
viability of the projects, which deters investments.
 Lag in demand signals: The absence of efficient real-time informational channels creates a lag in demand
signals. This has resulted in farmers following price trends as indicators to supply.
 Limited information channels and content: The current information dissemination systems, (like local
newspapers and APMC display boards) provide information only on prices of major commodities, are far away
from farmer’s location, and generally not available in local languages.
 Poor awareness about new channels of information: Only a small fraction of farmers use the more accessible
SMS-based advisories or Voice interactive systems.
 Absence of a National Integrated Market: even though a national-level physical market in the form of APMCs
is present, there is no national-level regulation for the same.
 Limited public investment: Public expenditure on the agricultural marketing sub-sector ranges 4-5 % of the
total public expenses on agriculture.

STEPS TAKEN TO IMPROVE MARKETING

 Electronic national agriculture market (e-NAM): The government has created e-NAM to connect all regulated
wholesale produce markets through a pan-India trading portal.
 E-governance portal AGMARKNET: It facilitates generation and transmission of prices, commodity arrival
information from agricultural produce markets, and web-based dissemination to producers, consumers,
traders, and policymakers transparently and quickly.
 Kisan Credit Card scheme: to provide term loans for agricultural needs.
 Formation and Promotion of FPOs: FPOs will be promoted under the “One District One Product” cluster to
promote specialization and better processing, marketing, branding & export by FPOs.
 Market Intelligence and Early Warning System (MIEWS) Portal: To provide advisories to farmers to avoid
cyclical production as well as an early warning in situations of gluts.
 Seamless connectivity: government came with the kisan Rail and Dedicated freight corridors to transport
perishable products across the nation.
 E-NAM and Agriculture Market: E-NAM (National Agriculture Market) is an online trading platform for
agriculture produce aiming to help farmers, traders, and buyers with online trading and getting a better price
by smooth marketing.
o Farmers can now access round-the-clock commodity price information on their e-NAM mobile app,
apart from an advance lot registration facility to reduce waiting time at the mandi.
o Farmers can sell anywhere: The e-NAM platform already enables them to sell their produce directly
or through commission agents.
o Traders can buy all over India: Traders, likewise, can buy from more than one market with the same
licence and quote bids even without being physically present in the particular mandi.
o Reducing time loss: The shopping cart feature in E-NAM is also allowing selection of preferred lots
for bidding, thereby reducing searching time.
o Promoted by states: Many states — including Uttarakhand, Telangana, Andhra Pradesh, Madhya
Pradesh and Chhattisgarh — are incentivising both farmers and traders to undertake transactions
through e-NAM by way of exemptions/rebate of market fees.

WAY FORWARD
 Incrementally bring agriculture commodities out of APMC net beginning with vegetable and fruits,
and working towards cereals, pulses, oilseeds etc later
 Persuade states to provide market infrastructure esp. for private markets, so that they can eventually be
viable enough to compete with Govt. established APMC markets.
 Persuade states to liberalise FDI in retail to allow investment in market infrastructure, and supply chain
strengthening
 Consider the recommendation of the National Commission on Farmers to place agricultural marketing in the
Concurrent List.
 Promotion of cluster-based organisations.
 Encourage Public-Private Partnership.
 Promote Direct selling- farm gate model.
 Use of Artificial Intelligence. It can aid them in a range of decisions on matters pertaining to crop inputs to
those related to markets and prices.
 AgTech startups should be roped in for price discovery mechanism, so that price volatility can be controlled.

The collective result of these issues has been low price realization for farmers, creation of food and nutritional
insecurity and high wastages in the supply chain.

REGULATION OF AGRICULTURAL MARKETING: APMC

 The Ministry of Agriculture and Farmers' Welfare made attempts to overhaul the regulatory system by
proposing the Model APMC Act and Model State/UT Agricultural Produce and Livestock Marketing
(Promotion & Facilitation) Act, 2017.
 APMC is a statutory market committee constituted by a State Government in respect of trade in certain
notified agricultural or horticultural or livestock products, under the APMC Act issued by that state
government.

INTENDED FUNCTIONS OF APMC:

 Ensuring Transparency in pricing system and transactions taking place in market area.
 Providing market-led extension services to farmers.
 Ensuring payment for agricultural produce sold by farmers on the same day.
 Promoting agricultural processing including activities for value addition in agricultural produce.
 Publicizing data on arrivals and rates of agricultural produce brought into the market area for sale.
 Setting up and promoting public-private partnership (PPP) in the management of agricultural markets.

ISSUES WITH APMC:

 Fragmentation of markets: for e.g. Thousands of APMC markets under respective State
Government, with no linkages between them.
  Lack of unrestricted movement: This creates problem of plenty at one market and scarcity at another
market, resulting either in price-depression and loss to producer, or inflation and loss to the consumer.
 Less farmers’ price realisation: The share of farmers in consumer’s price is very low, particularly
in perishables, because of the large number of intermediaries, lack of infrastructure and poor holding
capacity.
 Discourages Direct selling: No direct selling to contract farming sponsors, retailers, food processing units
etc. As a result, farmers are unable to command higher profits.
 Exploitation by intermediaries: Lack of direct selling opportunity also increases exploitation
by commission agents, who cartelise themselves, depress gains of farmers, increase prices of
consumers, restrict entry of new players, etc.
 High Incidence of Market Charges: Multiplicity of market levies, taxes, commissions, and fees at the first
level of trading has a cascading effect on retail prices, thus, causing inflation.
 Non transparency in utilization of levies collected: Levies do not go to state exchequer and, hence, do
not require approval of state legislature. No oversight on its utilization.
 Political interference & corruption: APMC and APMC boards are occupied by politically
influential persons, who are hand in glove with commission agents to wield monopoly power over a
particular market area.
 High Wastages in Supply Chain: Inclusion of fruits and vegetables under the purview of APMCs
has resulted in Post-harvest losses & large wastage.
 Lack of Infrastructure in Agricultural Markets: No major investment in modern infrastructure such as
cold storage, modern warehouses, Electronic weigh-bridges etc.

CRITICISM OF APMC:
 Monopoly of APMC –It deprives farmers from better customers, and consumers from original suppliers.
 Cartelization – It is quite often seen that agents in an APMC get together to form a cartel and deliberately
restraint from higher bidding. Produce is procured at manipulatively discovered price and sold at higher
price.
 Entry Barriers – License fee in these markets is highly prohibitive. In many markets farmers were not
allowed to operate.
o Further, over and above license fee, rent/value for shops is quite high which keeps away
competition. At most places only a group of village/urban elite operates in APMC.
 Conflict of Interest – APMC play dual role of regulator and Market. Consequently, its role as regulator is
undermined by vested interest in lucrative trade.
 High commission, taxes and levies: Farmers have to pay commission, marketing fee, APMC cess which
pushes up costs. Apart from this many states impose Value Added Tax.
 Other Manipulations – Agents have tendency to block a part of payment for unexplained or fictitious
reasons. Farmer is sometimes refused payment slip (which acknowledges sale and payment) which is
essential for him to get loan.
Typical amenities available in or around the APMCs are auction halls, weighbridges, godowns, shops for retailers,
canteens, roads, lights, drinking water, police station, post-office, bore-wells, warehouse, farmers amenity center,
tanks, Water Treatment plant, soil-testing Laboratory, toilet blocks, etc.

MODEL AGRICULTURAL PRODUCE AND LIVESTOCK MARKETING (PROMOTION & FACILITATION) (APLM) ACT,
2017
 The Government of India brought in a new draft model law, Agricultural Produce, and Livestock Marketing
(Promotion and Facilitating) Act (APLM), 2017 to replace the APMC Act, 2003.

OBJECTIVES:
 To create a single Agri-market where with a single license one can trade Agri-produce as well as livestock.
 Better price realization for farmers.
 Doubling farmer’s income by 2022.

MAJOR PROVISIONS OF THE DRAFT MODEL ACT:

 Paying a single fee made it possible for Intra-state trade.
 Perishables like fruits and vegetables can be sold outside existing mandis (wholesale markets).
 To cap market fees and commission charges paid by a farmer after bringing produce to a wholesale market.
 Cap on levy of market fees: 2% (of the sale price) for fruits and vegetables and 1% for food grains.
 Warehouses and cold storages are to act as regulated markets.
 Farmers can directly sell their produce to bulk buyers.

SIGNIFICANCE:
 Barrier-free unified agricultural market: one trader license (interstate trading license) will lead to a barrier-
free unified agricultural market.
 Breaking the monopoly of tradition: by allowing private players to set up wholesale markets thereby 'mandis'.
 Increased competition among buyers will lead to better farm-gate prices.
 The new law will also reduce the wastage of farm produce.
 Promotion of electronic trading (e-Trading).

RECENT GOVERNMENT MEASURES TO IMPROVE AGRICULTURAL MARKETING IN INDIA:

 Launch of e-NAM, a pan India electronic tradition platform to facilitate the participation of buyer and seller
and create nation agriculture market.
o Till Dec 2021, 1000 physical APMC mandis have already been integrated and in the Budget 2021-22,
it was announced that 1000 more mandis will be integrated through e-NAM.
o Logistics services has also been integrated with e-NAM for transporting the agri produce.
 Agricultural Produce and Livestock Marketing (Promotion and Facilitating) Act, 2017
 AGMARKETNET: It is a G2C e-governance portal that caters to the needs of various stakeholders such as
farmers, industry, policymakers, and academic institutions by providing agricultural marketing-related
information from a single window.
 Gramin Agricultural Markets (GrAMs): Efforts are being made to develop and upgrade the existing 22,000
rural haats (Rural Primary Markets) into GrAMs. It will be linked to e-NAM and will remain outside the APMC
Act regulation.
 Scheme for Formation and Promotion of FPOs: The scheme aims to create 10,000 FPOs in a five years period
from 2019-20 to 2023-24 and also provide handholding support to each FPO.
 Full-fledged Ministry of Cooperation established in 2021 with a view to provide greater focus to the
cooperative sector.

CONCLUSION: STORAGE, TRANSPORT & MARKETING

 Reforms in storage, transport & marketing of agricultural produce will go a long way in ensuring remunerative
prices for farmers and reduce agrarian stress.
 With the help of disruptive technologies like AI, big positive changes can be brought across Indian agriculture,
and an increasing number of agri-tech startups in the country are working to develop and implement AI-based
solutions.
 All this can strengthen the rural economy and help India become self-reliant and reach the goal of $5 trillion
economies.

4. AGRICULTURE EXPORTS
 In 2019, India exported USD 38.7 billion of agricultural goods, which is only 7% of Indian agriculture
production. Export of agricultural items contributes about 13% of agriculture GDP.
 Indian agricultural exports grew at 9% compared to China (8%), Brazil (5.4%), and the US (5.1%)
between 2007 and 2016.
 India ranks 13th in the world in agriculture exports.

ECONOMICS SURVEY (2021-22):

 Since economic reforms began in 1991, India has remained a net exporter of agri-products, with agri-exports
touching Rs. 2.52 lakh crores in 2019-20. The major export destinations were the USA, Saudi Arabia, Iran,
Nepal, and Bangladesh among others.
 The top agriculture and related products exported from India were marine products, basmati rice, buffalo
meat, spices, non-basmati rice, cotton raw, oil meals, sugar, castor oil, and tea.
 India’s total agri-export basket accounts for a little over 2.5 percent of world agri-trade.
 Marine products, meat, and rice together constitute ~52% of India’s total Agri exports

SIGNIFICANCE OF AGRICULTURE EXPORTS

 A key driver of Doubling farmers’ Income by 2022: increased export earnings and increased market access.
 Employment generation: potential in agriculture, agro-based industry, food processing sector, etc∙
 India’s export basket includes: high-value commodities like marine, dairy, meat, fruit & vegetables, Ethnic &
Organic Food, sugar, tea, rice, spices, etc.
 Increase in GDP: The agricultural exports as a percentage of India’s agricultural GDP has increased from 9.4
% in 2017-18 to 9.9 % in 2018-19.
 Increase in Foreign exchange: Agricultural export is extremely important as besides earning precious foreign
exchange for the country, the exports help farmers to take advantage of wider international markets and
increase their income.
 Horticultural promotion: India holds 2nd position in production of fruits and vegetables. It exports 8.23 Lakh
MT (LMT) of fruits worth Rs 5,638 crore and 31.92 LMT of vegetables worth Rs 5,679 Crores annually.
 Increasing area coverage and productivity: Exports have also resulted in increased production in the
agriculture sector by increasing area coverage and productivity.
 Development of “Brand India”: in campaign mode to help penetration into new foreign markets and of new
products which automatically translates into higher value realisation.
 Backbone in pandemic: The exports of Agri commodities during March 2020 to June 2020 were showing a
sharp increase of 23.24% in comparison to 2019.
 Increase in organic farming: There was an increase of nearly 50% in organic exports in 2018-19, touching Rs.
5151 crore.

CHALLENGES FACED BY INDIAN AGRICULTURAL EXPORTS

 Trapped at the low end of the global value chain: share of India’s high value and value-added Agri produce
in its Agri export basket is less than 15% compared to 25% in the US and 49% in China.
 Poor Export Competitiveness: Inability to harness export potential of high-value commodities such as
Horticultural, Animal products, etc., due to low productivity, lack of uniformity in quality, high logistics costs,
lack of adequate post-harvest & transport infrastructure, absence of market information, and global market
linkages, stringent global sanitary & Phyto-sanitary standards, Tariff/Non-Tariff barriers, etc.
 The yield levels of the majority of crops in India remains much lower than the world average.
 exporters of agro-commodities are not successful in due to uncertainty in the foreign trading regime.
 The government’s pro-consumer bias in India’s farm policy is unfair. Indian government putting export
restrictions on imported food items to prevent inflationary pressures in the domestic economy. This hurts
Agricultural exports.
o The policy deprives farmers of higher prices in the international market and also adds an element of
income uncertainty.
 Agri-exports not Commensurate with Production: Despite ranking first or within the top bracket as the
producer of many fruits and vegetables, milk, spices, select fresh meats, cereals, etc. the output does not
find its way into export markets.
 Declining Exports: Cereals, which are India’s highest FOREX earner are showing a declining global trend in
consumption and trade.
 Inconsistent & Restrictive government policies: Frequently changing policies in the areas of farm production,
MSP, R&D, export pricing, etc. distort India’s image in international trade as a long term and reliable supplier.
 Other Challenges: global macroeconomic volatility, use of primitive agriculture technology, non-
implementation of land & marketing (APMC) reforms, lack of formal credit or insurance, inadequate training
facilities for farm labor/growers /exporters, bottlenecks in custom clearance, etc.

WAY FORWARD
 India needs to take up the issues of farm subsidies, market denials, and high import duties at all bilateral
(FTAs), regional (e.g. RCEP), and multilateral (WTO) trade forums
 Various Regional Trade Agreements (RTAs) need to be designed and applied appropriately to the overall
advantage of farmers so that they can achieve sustainable productivity gains as they capture and create
larger markets for their outputs
 Market intelligence: To make export promotion activities focused and outcome-oriented, there is a need for
better market intelligence to assess consumer preferences, competition, and variations in market dynamics
at each importing partner nation.
 Development of efficient global and domestic value chains, with participation from private players in form
of investment and technology
 Focus on high-value Agri commodities where India has a comparative advantage – organic foods, Shrimps,
Meat, Basmati Rice, Bananas, Pomegranate, vegetables, Cashew, etc.
 Encouraging exporters and processors to buy directly from farmer-producer organizations (FPOs), by passing
the inefficient APMCs.
 Harmonization with international standards/practices, certification, and testing. Setting up an independent
world-class food testing and inspection infrastructure.
 Development of a robust food processing industry providing for formal employment generation
 Awareness generation & Training on farming methods, latest technology, certification, quality
control, market access, etc.
 Convergence of Government Schemes for a holistic response.

GOVERNMENT INITIATIVES TO BOOST AGRI-EXPORTS

 Safe Food Export Traceability Portal: offers comprehensive linkages to primary producers, suppliers,
establishments, laboratories, and export certification.
 "One Lab One Assessment" portal: simplifies procedures by eliminating multiple assessments by multiple
authorities for testing of food products.
 Monitoring Export Alerts Portal: to improve the efficiency of the system of corrective action on non-
compliance alerts in food exports given by importing regulators.
 Agriculture Export Promotion Plan Scheme of APEDA: Provides assistance to exporters for Infrastructure
Development, Market Promotion, Quality Development, and Transport Assistance.
 National Programme for Organic Production (NPOP): encourages the development of organic farming,
organic processing, and organic exports
 Agri Udaan program: for mentoring Agri start-ups with promising innovative business models to scale up
their operations and connect with investors
 SAMPADA: For the creation of modern infrastructure with efficient supply chain management from farm gate
to a retail outlet (Infrastructure for Mega Food Parks, Integrated Cold Chain, Agro-Processing Clusters,
Creation of Backward/Forward linkages, Food safety & Quality Assurance, Human Capital Development)
 NITI Aayog Initiatives: Farm MSP Models, recommendations on doubling farmers’ income, Model Land
Leasing Act, etc.
 the Government can provide Infrastructure status to agricultural value chains, such as warehousing, pack-
houses.
 APEDA has suggested augmenting cargo handling facilities at airports, ports, etc. This will reduce the waiting
time.
 Other initiatives: Model Contract Farming act, Model APMC Act, digitization of land records, operation
Greens, Market Access Initiative (MAI) Scheme, Market Development Assistance (MDA) Scheme, and
Merchandise Exports from India Scheme (MEIS).
 International negotiation: India’s proactive role in the WTO negotiations on trade facilitation and public
stockholding.

DRAFT AGRICULTURE EXPORT POLICY 2018:

OBJECTIVES:
 Double farmers’ income and increase the share of agricultural exports from the present 30 billion USD to
more than 60 billion USD by 2022.
 To diversify our export basket, destinations and boost high value and value added agricultural exports
including focus on perishables.
 To strive to double India’s share in world agri exports by integrating with global value chain at the earliest

STRATEGIC MEASURES:
 Policy Measures: Stable Trade Policy Regime, limited State interference, no export restriction (MEP, export
duty, export ban, etc) on processed agricultural products and organic products, Reforms in APMC Act by de-
notifying perishables & streamlining of Mandi fee.
 Infrastructure and Logistics Boost: Expenses towards logistics handling in India is about 14% to 15% of the
cost of exports as compared to 8% - 9% in some of the developed economies. Minimizing logistics costs via
efficient pre-harvest & post-harvest handling facilities, storage & distribution, processing facilities, roads &
world-class exit point infrastructure at ports, hinterland connectivity, 24*7 custom clearance for perishables,
etc.
 Whole Government Approach: Ensuring inter-ministerial coordination to address issues of R&D for improved
varieties, value addition, and packaging; Establishment of a good standards regimen; holistic response to SPS
and TBT barriers; Identification of winning sectors, etc.
 Greater involvement of State Governments: through Identification of a nodal State Department / Agency for
promotion of agriculture export, assessment of the State’s potential in key agricultural sectors, development
of product-specific clusters in different agro-climatic zones, greater involvement of industry, etc.

OPERATIONAL MEASURES:
 Focus on Export Clusters: It will ensure aggregation of high-quality products of the same variety with
standard parameters matching export demands.
 Promoting Value-added exports: The policy advocates focus on the promotion of value-added,
indigenous, and tribal products and development of organic export Zones/organic Food park -
 Marketing and promotion of “Produce of India”: Policy suggests that product-specific marketing
campaigns be created such as “Wonderful Pom” and “Bananas of India”. A separate, dedicated fund to
be created for the marketing of organic, ethnic, and GI products
 Establishment of Strong Quality Regimen: with focus on establishing and maintaining a single supply
chain and standards for the domestic and export market, aiming for international recognition of Indian
testing procedures and conformity standards, etc.
 Other measures: reduce import dependence and achieve self-sufficiency, export-centric production,
creation of Agri-start-up fund, testing labs with strong infra in NE region to support the export of organic
produce, etc.

FARMER PRODUCER ORGANIZATIONS (FPO)

 A Producer Organisation (PO) is a legal entity formed by primary producers such as farmers, milk producers,
fishermen, weavers, rural artisans, craftsmen, etc.

BENEFITS OF FPOs TO SMALL AND MARGINAL FARMERS:

 Reduced cost of input procurement: All inputs - seeds, insecticides, pesticides, and fertilizers - will be
purchased in bulk at wholesale prices, and hiring of equipment, including for tilling, sowing, planting, and
harvest, will also be done on a bulk basis, thus lower the per-unit cost of procurement.
 Provide finances at reasonable cost: The FPOs can arrange institutional credit at a cheap rate against
harvested produce, which is otherwise out of reach for small farmers.
 Minimize post-harvest losses: Collectively it is reasonable for small and marginal farmers to invest in storage
facilities or value-addition facilities. Therefore, farmers can minimize losses and avoid distress sales.
o For e.g., Jammu, Oriental FPO has developed cold chain infrastructure and created the brand name
‘Safe N Fresh’.
 Ensure assured return: By helping farmers to enter into contract farming as a group before planting crops
and keeping them informed on price and demand-supply, assured return on investment can be guaranteed.
 Increased profit margin: Direct selling of bulk farm produce in the market will eliminate the role of
intermediaries and reduce the cost of marketing. Therefore, the margin cornered by the middlemen can be
saved and distributed among shareholders.
 Better access to technology: FPOs can also invest in research and developments, provide training to farmers
and help in overcoming information asymmetries which are otherwise practically impossible for small and
marginal farmers.

CHALLENGES AND ISSUES IN BUILDING ROBUST FPO:

 Credit-related issues: Due to the high cost of institutional credit, the sector is largely dependent on
informal sources for funding. Lack of sufficient collateral and high working capital needs hinder the
expansion plans.
 Lack of access to modern technology: Due to their unorganized nature, the micro and small food
enterprises lack access to new technology and innovation.
 Lack of forwarding linkages: It leads to low outreach and non-availability of newer markets.
 Compliance with health and safety standards: The need for such compliance results in rising costs for
small enterprises. On the other hand, low-quality products impact export competitiveness.
 Inadequate infrastructure: A lot of produce from the farm gate is lost due to inadequate cold chain
infrastructure as well as logistics infrastructure, which predominantly rely on traditional modes.
 Ease of Doing Business: Government procedures and rules for establishing new units often lead to delays
in getting clearances.

SCHEMES RELATED TO FOOD PROCESSING INDUSTRIES:

 PM Kisan SAMPADA Yojana: It is a comprehensive package that will result in the creation of modern
infrastructure with efficient supply chain management from farm gate to retail outlet.
o It will not only provide a big boost to the growth of the food processing sector in the country but
also help in providing better returns to farmers and is a big step towards doubling farmer’s
income.
 Operation Greens seeks to stabilize the supply of Tomato, Onion, and Potato (TOP) crops and to ensure
the availability of TOP crops throughout the country round the year without price volatility.
 Mega Food Park Scheme: The primary objective of the Scheme is to provide modern infrastructure
facilities for food processing along the value chain from the farm to the market with a cluster-based
approach based on a hub and spokes model.
 Scheme for the formalization of Micro Food Processing Enterprises: for the unorganized sector on all
india basis.
 Gram Samriddhi Yojna: It aims to bolster the unorganized food processing sector concentrated in rural
areas.
 Draft National Food Processing Policy -2019: It aims to A productivity improvement to develop the food
processing sector and address the critical gaps hampering its growth.
 TRIFOOD Project: Ministry of Tribal Affairs, Ministry of FPI along with TRIFED have initiated the project to
enhance the income of tribals through better utilization of and value addition to the Minor Forest Produce
(MFP) collected by the tribal forest gatherers.

WAY FORWARD:
 Forward and backward linkages: Foster development of backward linkages by evolving conducive regulatory
framework for contract and corporate farming
 Special incentives to special areas: The North Eastern Region, the Hilly States (J&K, HP, and Western UP), the
Islands (A&N, Lakshadweep) areas in the country should be given special consideration as they are naturally
conducive for FPIs. In this direction, Zoram Mega Food Park, Mizoram’s 1st such park was set up by MoFPI.
 Administrative reforms: Remove impediments of multiple departments and laws in seeking approvals by
bringing them under a single window.
 Increase private investment: Ensure uniform implementation of the APMC act to encourage private sector
investment in infrastructure development
 Human resource development: Stimulate industry, academia, and government to put in combined efforts for
the development of specialized institutes and courses for providing training on managerial, safety and
enforcement, technology and production, warehousing, and distribution aspects.
 University development: Encourage State Agricultural Universities to commence courses in food packaging,
processing, biotechnology, information technology in agriculture, and such allied fields.

E-TECHNOLOGY IN THE AID OF FARMERS

PREVIOUS YEAR QUESTIONS

1. How can the ‘Digital India’ programme help farmers to improve farm productivity and income? What steps 2015
has the Government taken in this regard?

2. “In the villages itself no form of credit organization will be suitable except the cooperative society.” – All India 2014
Rural Credit Survey. Discuss this statement in the background of agricultural finance in India. What
constraints and challenges do financial institutions supplying agricultural finance face? How can technology
be used to better reach and serve rural clients?

INTRODUCTION
 E-agriculture is a term to study the use of Information and Communication Technology (ICT) in agricultural development.
It is a way of providing the power of ICT in the agricultural domain.
 The e-Technology can be utilized through three basic pillars, i.e. Agri-extension & Information + Services + Research =
Digitally empowered farmer
 Agriculture rests on three basic pillars: Teaching, Research and Extension.

SIGNIFICANCE OF ADOPTING E-TECHNOLOGY in agriculture

 Remedial measure: In India, where water crisis, desertification, crop pests, diseases and a persistent lack of
infrastructure continue to threaten the agricultural sector, technological advancement is providing a much-needed
lifeline to remedy the problematic situation.
 Development of efficient methods: With significant advancements in
the fields of robotics and sensing technologies, e-technology has led
to the development of more sophisticated, effective and efficient
practices and methods of undertaking agricultural practices.
 Helpful in decision making: Farmer with all relevant information in
their hand, can make a better and informed decision for their
agricultural activities, for grains, communication channels,
distribution, and other needs.
 Effective planning and execution: Technology can perfectly keep
track of crops, predict yields, sowing season, need of the crop and
others. These modern methodologies can enable farmers to have better control of their farming and planning
accordingly.
 Disintermediation and decentralisation: In the technological era, the farmer can adopt innovative technology in order
to gain control of the changing dynamics and leverage market insight without relying on traders.
Uses of e-technology for farmers
Types of technology employed in Agriculture:-
  Drones: Drones can help farmers to optimize the use of inputs (seed, fertilizers, water), to react more
quickly to threats (weeds, pests, fungi), to save time crop scouting (validate treatment/actions taken), to
improve variable-rate prescriptions in real time and estimate yield from a field.
 Satellite Imaging: Geographic Information Systems (GIS) tools and online web resources can help farmers
to conduct crop forecasting and manage their agriculture production by utilizing multispectral imagery
collected by satellites, fix wing aircraft or uUnmanned aerial vehicles (UAV's).
 Artificial intelligence: AI systems are helping to improve the overall harvest quality and accuracy –
known as precision agriculture.
o AI technology helps in detecting disease in plants, pests and poor nutrition of farms. AI sensors
can detect and target weeds and then decide which herbicide to apply within the region.
 IoT smart farming solutions is a system that is built for monitoring the crop field with the help of sensors
(light, humidity, temperature, soil moisture, crop health, etc.) and automating the irrigation system. The
farmers can monitor the field conditions from anywhere.
 Minichromosome technology: It is engineered to respond to the herbicide Roundup, allowing farmers to
spray the chemical on weeds without harming the plants.
o The current application of minichromosome technology is to allow stacking of genes involved
with herbicide tolerance and pest resistance genes.
 Robots: Robots can be used for other horticultural tasks such as pruning, weeding, spraying and
monitoring. Some of the most common robots in agriculture are used for: Harvesting and picking. Weed
control. Autonomous mowing, pruning, seeding, spraying and thinning.
 RFID has already been used for years in animal identification and tracking and in the food chain for
traceability control.
o The development of RFID sensor tags has improved monitoring of the cold chain of perishable
food products, environmental monitoring, irrigation, specialty crops and farm machinery.

N ANOTECHNOLOGY IN A GRICULTURE
The centre has published ‘Guidelines for Evaluation of Nano-based Agri-input and Food Products.'
 Nano-biotechnology has long been a priority for the Indian government, which established a National Nano Mission
in 2007.
 The project looks into how nanotechnology may be used to provide clean drinking water, materials, sensors, and
drug delivery, among other things.
 The Department of Science and Technology (DST) is in charge of carrying out the nano mission.
Use of Nanotechnology in Agriculture
Nanotechnology can take an important part in the productivity through control of nutrients as well as it can also participate
in the monitoring of water quality and pesticides for sustainable development of agriculture.
 Nanofertilizers: Nanofertilizers are nutrients encapsulated/coated with nanomaterial for the control and slow
delivery of one or more nutrients in order to satisfy the imperative nutrient requirements of plants
 Nanopesticides: NPs may have a key role in the control of insect pests and host pathogens. Formulation of
nanoencapsulated pesticides led to reduced the dosage of pesticides and human beings exposure to them, which is
environmentally friendly for crop protection.
 Ecotoxicological Implications: Several NPs (TiO2, ZnO, SiO2, and Fullerenes) are photochemically active. When they
are exposed to light, the excited electrons are generated that then form superoxide radicals in the presence of
oxygen by direct electron transfer. Thus, this ecotoxicity is surprised in the act when organisms are simultaneously
exposed to NPs and UV light.
 Nanobiosensors: Nanoscale biosensors can take part in pathogen detection and diagnosis. Nanotechnology has the
ability to supply bioactive ingredients in foodstuffs to hosts while improving knowledge of food materials at the
nanoscale.

SIGNIFICANCE OF NANOTECHNOLOGY IN AGRICULTURE

 Increase soil fertility: Nanotubes, fullerenes, biosensors, controlled delivery systems, nanofiltration, and
other agri-food applications have proven to be effective in agricultural field resource management.
 Sustainable agriculture: Nano-based agri-inputs and food products in India' will pave the path for
considerable benefits for our objective to double farm income by 2022 and the National Mission on
Sustainable Agriculture.
  Reduce nutrient run-off: When compared to bulk chemical inputs in crops, nano-nutrients can reduce
nutrient run-off into groundwater, lowering pollution levels.
Increased productivity: It aids in increasing plant productivity and improving crop protection in order to satisfy
the demands of feeding a growing population.

A RTIFICIAL I NTELLIGENCE (AI) IN AGRICULTURE

 In 2018, the International Crop Research Institute for Semi-Arid Tropics (ICRISAT) received a Microsoft Artificial
Intelligence (AI) for Earth grant to support the continued development of Artificial Intelligence solutions, focusing on
sustainable agriculture in developing parts across the globe.
 In India, this pilot project is implemented in the state of Andhra Pradesh where farmers have always relied on their
guesswork to decide when to plant and a combination of ancient traditions.
 AI in farming can help in increasing crop yield by providing real-time advisory,
o prediction of crop prices, and
o early detection of pest attacks, precision farming, and others.
o For example- CROPTIX to diagnose crop diseases in the field and alert rural farmers in Kenya and PEAT, a
machine vision for diagnosing pests/soil defects.
Significance
 Providing Logistic support: Kisan Sabha App intends to implement the most efficient and convenient logistics assistance
to the farmers.
 Preventing crop failure and providing insurance: Crop Insurance Mobile App can be used to calculate the Insurance
Premium for notified crops based on area, coverage amount, and loan amount in case of loanee farmer
 Providing quality seed information: Seednet launched for information on Quality Seeds by Union Ministry of Agriculture
and Farmers Welfare.
 Connecting markets: AGMARKNET has increased the efficiency in marketing activities by establishing a nation-wide
information network, which provides information on prices, arrivals, availability, trends, analysis, laws, etc.
 Providing real time information: Kisan Call Centres (KCC) aimed at answering farmers’ queries on a telephone call in
farmers' dialect.
o Kisan Suvidha and Pusa Krishi Mobile App: The application provides information related to market prices, seeds,
pesticides, fertilizers, weather and agricultural machinery, etc. It disseminates information about the latest
technologies developed by the Indian Agricultural Research Institute.’
o Kisan SMS Portal: for dissemination of relevant information, giving topical and seasonal advisories, and providing
services through SMSs in local languages.
o Information Technology Vision 2020: Information relating to the agriculture sector would be available to the
ultimate users–the farmers for optimizing their productivity and income.
 Connecting markets nationwide: National Agriculture Market (e-NAM) connect existing APMCs and other market yards
to create a unified national market for agricultural commodities.
 Provide alternative market: e-Chaupal provides alternative marketing channel, information on weather, agricultural
practices, input sales, etc.
 Adoption of modern technologies: Direct benefit transfer (DBT) Central Agri Portal is a unified central portal for
agricultural schemes across the country
 The portal helps farmers adopt modern farm machineries through government subsidies
 enable seamless interoperability: Unified Farmer Service Platform is a combination of Core Infrastructure, Data,
Applications and Tools that enable seamless interoperability of various public and private IT systems in the agriculture
ecosystem across the country.
 E-procurement of Crops: The Haryana government has launched the Meri Fasal-Mera Byora e-procurement portal. Due
to this portal.
 Lower production costs: Farm mechanisation can result in time savings of 20-30%, a decrease of 20-30% in manual
labour, and a 10- 15% boost in overall farm productivity.
 Improving water efficiency: Modern irrigation systems such as drip and sprinkler irrigation can lower the amount of
water applied to fields by up to 70% when compared to traditional flood or furrow irrigation.
 Reduce farmer effort: The use of GPS technology, drones, robots, and other devices controlled by smartphones can
make farming easier and produce better outcomes. Agriculture will become more profitable, simple, and ecologically
friendly as a result of these modern technologies.
 Improved decision-making by collecting and analysing granular data on their fields and animals, as well as rapid,
precise, and location-specific weather and agronomic data.
 Weather prediction: Drones, remote sensors, and satellites collect data on weather patterns in and around fields 24
hours a day, seven days a week, providing farmers with critical information on temperature, rainfall, soil, humidity, and
other factors.
 Improving productivity: Using satellites, IoT, and drones to collect data on soil health, crop area, and yield can make
agriculture more profitable, easier, and environmentally friendly, as well as reduce insurance costs through better
projections.
 Environmental sustainability: Precision farming technologies increase environmental sustainability by continuously
monitoring natural resources and taking appropriate responses before nutrition depletion or drought occurs.

Case studies:

Microsoft started a pilot with Hyderabad-based International Crop Research Institute for Semi-
Microsoft Arid Tropics (a UN agency) in 2016 to build a sewing solution to help farmers to predict the right
time for sowing crops Microsoft developed a sowing app to conveniently provide sowing
information to farmers.
SAMRAKSHANE is an end-to-end e-governance solution to handle crop insurance under Pradhan
Karnataka Mantri Fasal Bima Yojana (PMFBY) program and the Modified Weather Based Crop Insurance
Scheme (MWBCIS).
Karnataka The Karnataka state government and the National Commodity and Derivatives Exchange (NCDEX)
Government and started Rashtriya e-Market Services to encourage competition in agricultural markets and help
NCDEX Spot farmers receive better prices for their crops
Exchange
Plantix: In 2018, the Karnataka government launched “Plantix”, an Android smartphone app which can
smartly detect pests, plant diseases, and nutrient deficiencies.
With the objective to further the Digital India initiative, and bring technology to farmers, the
Meghdoot: government has launched a mobile application “Meghdoot”. This app will help farmers by providing
forecast relating to temperature, humidity, rainfall, wind speed and direction, and how to take care
of the crops and livestock.
Challenges and constraints in adoption of e-technology in agriculture
 Duplication of efforts: It is recognized that some actions have already been made to provide IT-based services to rural
communities. However, duplication of efforts is observed as most of the services revolve around limited subjects.
 Lack of infrastructure: The lack of information on farm inputs, unorganized credit, and absence of market linkages are
the major hurdles faced by farmers in adopting new technologies.
 Right inputs and advisory: Farmers lack enough knowledge regarding various resources available related to farming and
the right advice on the way to use them.
 Adoption issues: Despite the visible benefits of the new agricultural technologies, farmers either do not adopt them or
it takes a long time for them to begin the adoption process and scaling up. But the truth is that the farmers did not really
believe the new technologies.
 Traditional attitude and behaviour: old-age farmers did not believe the new technologies, they only believe and rely on
their own experience.
 Financial constraints: Rich farmers are adopting the technology and utilizing their services but the small and marginal
farmers are unable to afford the new technologies and they remain left out.
 Insufficiency & Illiteracy: In rural areas, insufficient connectivity, along with lack of basic computer knowledge, high
costs for services and literacy hinder rapid development of electronic-agriculture.
 Electricity: In most rural India, Electricity is not available for long hours. This will decrease the value of the expected
services.
 Connectivity: the connectivity to rural areas still needs to be improved.
 Cellular Bandwidth: the available bandwidth is a major constraint. Since internet-based rural services require large use
of graphics, low bandwidth is one of the major shortcomings.
 Restrictions: government’s map restriction policies often threaten to stifle the optimal utilization of the tools of remote
sensing and geographical information systems.
 Lack of awareness and education: The majority of the farmer community is unaware of the benefits of e-technology.
The present technologies are not user-friendly. The success of e-technology depends on the ease with which the rural
populations can use the content.
 Linguistic diversity: The majority of apps or websites are in English languages which are unable to be read to a poor
farmer.
 Cyber Security: With the increase in the use of the internet there are high chances of cybercrime against the farmers.
NEED OF THE HOUR:
 Digital literacy: Spreading digital literacy, by teaching farmers how to choose and use apps, which are, or soon to be,
available in regional languages.
 Proper monitoring: The government needs to monitor the actual use and impact of interventions on farmer’s lives by
understanding adoption and adaptation processes.
 Revolutionary reforms: The agricultural sector requires top-
down policy and institutional reforms, where progress is real
and constraints holding back greater success can be
understood at every level.
 Outreach and awareness activities: There is a need to tap the
vast network of Panchayats and local government to
undertake awareness and outreach activities to achieve
productivity, nutritional value, and enormous health benefits.
 Informative content: for a diverse agricultural sector and to
help stratified households shift to productive, knowledge-
intensive agriculture, there is a need for generating reliable, up- DIAGRAM: CLIMATE SMART AGRICULTURE
to-date, location-specific message content.

Way Forward
 Develop the concept of smart villages: to develop villages more techno-savvy and environmental sustainable
 Intelligence infrastructure: should be on financially viable and socially satisfactory approaches that are accessible to
the rural poor
 Boost awareness: guarantee capacity building of rural communities in using and maintaining ICT
 communication networks: in order to ensure a more equitable, timely, and collaborative way to markets for
smallholders
 identification and vertical integration of diverse ICT tools that are employed in present-day agricultural practices.
 Research and innovations: require sustained training in how to interact and give knowledge more effectively using the
new digital technologies.
 Needs to be digitized: Academic and research data in agriculture, available in the form of journals and research papers,
need to be digitized to facilitate the cross-flow of information.
 Linkage to institutional mechanism: There should be an institutional mechanism to link rural communities with
universities, research agencies through intermediary organizations.

Conclusion:
 Technology adoption has proved its potential to improve agricultural efficiency by improving farmers’ knowledge, access
to credit, and agriculture output in many ways. Hence, technology adoption can help the farm product to reach from
“local to global” market in an efficient way. If addressing the remaining issues in the technology adoption, will also help
to convert the image of the Indian “Peasant farmer” into an “Entrepreneur farmer”.

ISSUES RELATED TO DIRECT AND INDIRECT FARM SUBSIDIES

Introduction
 A subsidy is a benefit given to an individual or an institution by the government. Hence farm subsidy is a
governmental subsidy paid to farmers to supplement farmer's income and enhance their productivity.
 Subsidies have been advocated for redistributive objectives, especially to ensure a minimum level of food
and nutrition to all sections of society.
 Subsidies are justified in the presence of positive externalities (social benefits above private benefits),
because in these cases consideration of social benefits would require a higher level of consumption than what
would be obtained on the basis of private benefits only.
subsidies: Data and Facts
 In 2021-22, the total expenditure on subsidies is estimated to be Rs
3,69,899 crore, an annual increase of 19% over 2019-20. This is
largely due to a higher allocation to food subsidy.
 Agricultural subsidies and food subsidies constituted above 10% of
the total subsidies in the country. The money spent, more than Rs
1,75,000 crore.
 Similar support from State Governments of Rs. 90,000 crores
towards electricity power subsidies, Rs.17,500 crores towards
irrigation subsidies, Rs.6500 crores towards crop insurance
subsidies totalling Rs.1,14,000 crores.
 As per the announcement in the Union Budget for 2018-19 to keep
that MSPs at the level of 1.5 times of the cost of production, the
Government recently increased the MSPs for all mandated kharif
and rabbi crops for 2020-21 season.

Objectives of Farm Subsidies

 Stimulate agricultural production.
 Compensate for high costs of transport from port or factory to farms that raise costs of inputs.
 Improve soil quality and combat soil degradation (in the case of fertilizer).
 Make inputs affordable to farmers who cannot buy them, owing to poverty, lack of access to credit, and
inability to insure against crop losses.

Need for Farm Subsidies

 Sustainable Development Goal-2: End hunger, achieve food security and improved nutrition, and promote
sustainable agriculture.
 Agriculture based economy: As, about 70 percent of Indian rural households still depend primarily on
agriculture for their livelihood. (As per FAO)
 Constitutional provision: Article 48 of the Indian Constitution, the responsibility of the state to organize
agriculture on modern lines.
 Food and nutritional security: They are a means of incentivizing the farmers to contribute towards food
security. In absence of subsidies, farmers may not grow food crops and instead turn to cash crops.
 Modernization of agriculture: Subsidy given in specific areas to incentivize technology use and modernization
of agriculture. For this reason, subsidies are given for drip irrigation, solar pump sets, Poly-houses, organic
farming among others.
 Curb rural-urban migration: Over 50% of employment comes from Agriculture, and hence an urgent need to
reduce distress migration.
 Inequality: Subsidies are one of the tools for income distribution and to reduce inequalities (Oxfam report
2020- top 10% holds 72% of wealth).
 Social equity: to transfer income to farmers who are poor, live in remote disadvantaged areas, or both
 Non-remunerative nature: Poor income realization to farmers (farmers income is less than 1/3rd income of
non-farmers)
 Supplementary income support: Farm subsidies act as a complementary income to farmers, which can be
invested back in agriculture.
 double the farmers' income: farm subsidies will play a vital role to double the farmers' income by 2022.
Subsidies for inputs like seeds, pesticides, water, electricity makes inputs cheaper to farmers.
 Motivation and incentives: Farm subsidies in a way motivate farmers to continue farming as an occupation.
 Helping hand in pandemic: subsidies will give financial support to farmers in this COVID-19 pandemic.

D IRECT F ARM S UBSIDIES

 Direct farm subsidies are those subsidies that are directly provided to farmers and are generally paid in the
form of a direct cash subsidy. That is in direct subsidies the beneficiary purchases the product at the same
price and the beneficiary is separately compensated for the purchase.
 Examples of direct farm subsidies: PM Kisan Scheme, PAHAL in LPG, Farm Loan Waivers.

CHALLENGES OF DIRECT FARM SUBSIDIES:

 Lack of Financial Inclusion: Lack of Financial inclusion in rural areas, poor accessibility of ATM and banking
service.
 Moral hazard: The chance that farmers can use the money for non-farm unproductive needs.
 Identification of beneficiaries: in most populous countries like India, it is very difficult to identify the
beneficiaries.
 Inflation: More money in the hands of the public may lead to inflation.
 Food Security: Direct farm subsidies may have an impact on the food security of the country.
 Market Access: Main issues like market reforms and innovation in agriculture remained unaddressed.

ADVANTAGES OF DIRECT FARM SUBSIDIES:

 Boosting purchase power: Direct Subsidies help in increasing the purchasing capacity of farmers and to raise
the standard of living of the people. which will lead to fulfilling the dream to double the farmers income.
 Choice to spend: Direct cash transfers government empowering citizens and gives choice to beneficiaries to
purchase as per needs.
 It also helps to prevent the misuse of public funds as money is reached directly to beneficiaries.
 Direct subsidies also curb the inefficient use of resources. Ex: As farmers will purchase fertilizer at full rate
and will purchase what is needed.
 The cash farmers receive can be used as capital in agriculture.
 Reduces government burden freeing transportation and storage costs.
 Transparency: It will also curb the corruption and issue of ghost beneficiary and will bring in transparency.

Indirect Farm Subsidies

 Indirect subsidies are those subsidies in which the cost of the product is set at a lower price than the market
price. Indirect subsidies are provided in terms of tax breaks, insurance, low-interest loans, depreciation
write-offs, rent rebates.
 India spends roughly 2% of GDP on indirect subsidies.
 Examples: Irrigation subsidy, Power subsidy, Fertilizer subsidy, Credit subsidy, MSP(Minimum Support Price),
etc.

ADVANTAGES OF INDIRECT SUBSIDIES:

 These play a key role in promoting technological and infrastructural advancements in the agriculture sector.
Ex: Infrastructural subsidies.
 Subsidies on Seed and Fertilizer ensure farmers get quality inputs which help to increase their productivity.
 Helps to change the behaviour and promote farmers towards sustainable practices like crop diversification.
 Farmers training and use of technology in the farm sector also comes under Indirect subsidies which make
farmers equipped with knowledge.
 Ensures food security in the country.
 Help to contain the migration from the agriculture sector to other sectors and also inspire people to make
agriculture an occupation.

CHALLENGES OF INDIRECT FARM SUBSIDIES:

 Cereal Centric Crop: Subsidies like MSP have led to cereal centric agriculture with distorted cropping patterns.
 Overuse of natural resources: Providing subsidies in power, irrigation, and fertilizer subsidies have led to over
usage of natural resources resulting in desertification. Ex: Punjab's groundwater resources note that
groundwater extraction has increased from 149% in 2013 to 165% in 2018
 Corruption issue: Indirect subsidies are marred with corruption and leakages, due to intermediaries. Ex: PDS
where the presence of ghost beneficiaries, leakages are observed.
 International pressure: Pressure from the international community to reduce subsidies as per WTO subsidies
that distort the market come under the Amber box.
 Political gain: Vote bank politics, the government in power can provide subsidies for meat political mileage.

Indian Subsidies programme

1. INPUT SUBSIDIES:
 Subsidies can be granted through distribution of inputs at prices that are less than the standard market price
for these inputs.

 It includes Distribution of cheap chemical or non-chemical fertilizers among the

Fertilizer Subsidy farmers. It amounts to the difference between price paid to the manufacturer of
fertilizer (domestic or foreign) and price, received from farmers.
 This subsidy ensures: Cheap inputs to farmers, Reasonable returns to manufacturer,
Stability in fertilizer prices, and Availability of fertilizers to farmers.
 Subsidies to the farmers which the government bears on account of providing proper
Irrigation irrigation facilities.
Subsidy  Irrigation subsidy is the difference between operating and maintenance cost of
irrigation infrastructure in the state and irrigation charges recovered from farmers. It
may also be through cheap private irrigation equipment such as pump sets.
 The electricity subsidies imply that the government charges low rates for the electricity
Power supplied to the farmers.
Subsidy  Power is primarily used by the farmers for irrigation purposes. It is the difference
between the cost of generating and distributing electricity to farmers and price
received from farmers.
Seed  High yielding seeds can be provided by the government at low prices. The research and
Subsidies development activities needed to produce such productive seeds are also undertaken
by the government, the expenditure on these is a sort of subsidy granted to the
farmers.
 It is the difference between interest charged from farmers, and actual cost of providing
Credit credit, plus other costs such as write-offs and bad loans.
Subsidy  Availability of credit is a major problem for poor farmers. They are cash strapped and
cannot approach the credit market because they do not have the collateral needed for
loans. To carry out production activities they approach the local money lenders.

2. PRICE SUBSIDY
 It is the difference between the price of food-grains at which FCI procures food-grains from farmers, and the
price at which PCI sells either to traders or to the PDS.
 The market price may be so low that the farmers will have to bear losses instead of making profits. In such a
case the government may promise to buy the crop from the farmers at a price which is higher than the market
price.

3. INFRASTRUCTURAL SUBSIDY
 Private efforts in many areas do not prove to be sufficient to improve agricultural production. Good roads,
storage facilities, power, information about the market, transportation to the ports, etc. are vital for carrying
out production and sale operations.
 These facilities are in the domain of public goods, the costs of which are huge and whose benefits accrue to
all the cultivators in an area.

4. EXPORT SUBSIDIES
 Its purpose is special. When a farmer or exporter sells agricultural products in foreign market, he earns money
for himself, as well as foreign exchange for the country.

POSITIVES implications OF FARM SUBSIDIES

 Farmers respond towards problematic situations: The issue begins at the farm, involves delivery networks,
and can even occur during the processing work that is required to bring the products to future customers.
 Sources of revenues for government: Tariffs on agricultural products are common because they serve as a
way to protect domestic growers.
 Competition between Domestic and international counterparts: There are currently 1.1 billion workers
active in agricultural production around the world. Millions of these laborers are earning wages which place
them at or near the bottom rung of the rural ladder of poverty.
 Opportunities for farmers to restore their croplands: Another critical benefit of agricultural subsidies
involves paying a farmer or commercial producer to rest certain portions of their fields for a season or more
to restore the nutrient profile of the soil.
 Opportunities for country to become self-sufficient agriculturally: The number of people engaged in
agricultural activities over the past century has declined dramatically, with most developed countries seeing
a rate of 2% or less.
 Encourage a stronger food chain supply: The presence of agricultural subsidies allows businesses to stick
around during a tough season instead of deciding to call it quits. The presence of agricultural subsidies in an
economy ensures that farmers and their entire support network can have a steady income available.
 Economic stability in industries: Subsidies help in maintaining sustained flow of inputs like fertilizer,
irrigation, electricity, hybrid seeds at reasonable prices to the small and marginal farmers and at the same
time helps in generating employment in the farm sector.

IMPLICATIONS OF FARM SUBSIDIES: DOMESTIC LEVEL

 Overutilization of fertilizers: in the Green Revolution area (Punjab, Haryana) due to subsidised agriculture
has led to unbalanced NPK Ratio, increased salinity and reduced fertility of the soil.
 Wasteful and unsustainable expenditure: As per Economic Survey-2018, rich farmers are benefitted over
small farmers from the farm subsidies.
 Unsustainable fiscal deficit: Subsidies are paid at the cost of development expenditure.
 Subsidies can sometimes be regressive and suffer from leakage: e.g. electricity subsidies only help electrified
households and also in the case of kerosene, 41 percent of PDS kerosene is lost as leakage and only 46 percent
of the remaining 59 percent is consumed by households that are poor.
 Distort cropping pattern: Subsidies have also skewed the cropping pattern, which has, in the process, taken
a toll on the environment as well.
o Monoculture has resulted in an increase in pest and disease attacks on crops and higher usage of
chemical fertilizers.
 Irrational and non-judicious Use: the unmindful use of resources such as water and power. Input subsidies
including those on urea have resulted in overuse of nitrogenous fertilizers and spoilt soil health.
o Likewise, subsidies on power have resulted in depletion of the groundwater.
 Promotes protectionism: Policies of subsidies may also promote other countries to follow the same pursuit
which may then lead to trade wars and protectionist policies such as America first.
 Encourage inefficiency: Subsidies reduce the incentive to improve, thus encourage inefficiency.
 Limited Beneficiary: Fertiliser subsidy primarily benefits the fertiliser producers and big farmers.
 Affecting Capital Investment: Subsidies are reducing the share of money that goes for capital investment.
Because, offsetting high cost on inputs and helping farmers produce and earn more, initially creates an illusion
of a healthy farm sector.
o But eventually, problems arising from lack of infrastructure and market inefficiency show its own
negative impact.
IMPLICATIONS OF SUBSIDIES: international level
 Developing countries like India and China are not in an affordable position to breach the de minimus levels
of AMS (Aggregate Measures of Support) where developed countries like the USA provides subsidies >50% in
some products like cotton, sugar.
 Subsidies in developed countries also act as barrier entries to the goods of developing countries.
 Subsidies granted to developed countries are way higher than those provided in developing countries like
India.
 Loopholes in Agreement of Agriculture (AoA) signed under WTO as it doesn't talk about equity. For
developing countries, spending on price support measures and input subsidies taken together cannot exceed
10% of the total value of agricultural production and for developed countries, it is only 5% of their value of
agricultural production. This provision is misused by the USA to provide 200% of subsidy to wool compared
to other products.

Subsidies led distortions in India

 Energy-Groundwater nexus: water and electricity for agricultural use are heavily subsidized by state
governments. Most governments have failed to ensure rational and sustainable use of subsidized water and
electricity.
 Subsidized fertilizers: Presently Urea is not covered under the scheme due to political compulsions. As a
result, actual use of NPK is in ratio of around 8:3:1 while recommended use is 4:2:1.
 Ground water pollution: Due to excessive use of fertilizers groundwater is also getting polluted and
chemical bioaccumulation problem is impacting health of people.
 Cultivation of wheat, Rice and sugarcane at cost of pulses, horticulture crops and coarse but nutritious
grains: Main source of protein for Indian masses is pulses. Pulses are water efficient crops with capacity to
rejuvenate soil by process of nitrogen fixing and farmer chooses crop like sugarcane which later proves to be
a gross liability for him.
 Agricultural Finance: Farmers are entitled to pre- harvest loan at 7% interest rate. They are allowed further
3% subvention in case of timely payment. Farmers can also take loan for post-harvest time against Negotiable
Warehouse Receipt.
 Price subsidies can distort markets in ways that ultimately hurt the poor.
 Food inflation: India till couple of years back witnessed spiralling double-digit inflation driven by expensive
food, even when world was reeling under deflation. This distortion is mainly due to increasing input costs to
farmer coupled with persistent increase in MSP declared by government.
 Leakage and Corruption: Price subsidies are often challenging for the state to implement because they offer
large rent-seeking opportunities to black marketers.

M EASURES TO TACKLE F ARM S UBSIDIES C HALLENGES / WAY FORWARD

NATIONAL MEASURES:
 Kelkar committee: recommended the phased elimination of subsidies and converting them to capital
investments.
 Rationalizing subsidies: by stopping those subsidies which are not giving the desired results.
 Exports need for long term policies on export trade to ensure continuity and keep farmers aligned to exports.
 Actively promoting financial inclusion in rural areas.
 Infrastructure: Constructing cold chain facilities, warehouses near the farm gate.
 Holistic development of Agri-sector: by strengthening backwards and forward linkages.
 Temporary nature: Subsidies should come with a sunset clause.
 Remunerative business: Promoting initiatives like contract farming and cooperative farming to make
agriculture remunerative.
 Empowerment: The farm bills are a right move to empower the farmers and reducing the monopoly of APMC
markets should be implemented strictly.
 The government should equally focus on both food and nutritional security.
 Using technology: Building a market intelligence system to put price and demand forecasts which help
farmers in better price realization and also helps farmers in deciding the crop.
 Subsidies could be linked to the size of the farm-holding, rather than offering them to every other farmer.
 Gradually, the government should withdraw subsidies and possibly convert them to capital investments in
the sector.
 NITI AAYOG suggested that:
o Efficient fertilizer usage: Strengthen the SHC (Soil Health Card) scheme and include not merely nine
but all sixteen parameters in the tests.
o Reorient fertilizer subsidy policy: The current lopsided fertilizer subsidy policy needs to bring
secondary and micronutrients on the same nutrient-based subsidy (NBS) platform as phosphorus (P)
and potash (K).
o Subsidies on liquid fertilizers: Targeted subsidy should be provided on liquid fertilizers to encourage
fertigation with micro-irrigation.
o Investment subsidies for micro-irrigation: Rather than power and water subsidies, investment
subsidies for micro-irrigation can be provided through the DBT mode.

Conclusion
 The agriculture sector which provides nearly 40% of employment, contributes only 16-17% of GDP which
shows the problems and issues the farmers are facing. Hence farm subsidies with an intention to improve the
agriculture sector help to achieve the government's aim of doubling the farmer's income by 2022 and also
helps India to achieve double-digit growth by ensuring food security.
 The firm subsidies will also help the farmers to fight vigorously in the time of this Covid-19 pandemic.

FOOD SUBSIDY: NATIONAL FOOD SECURITY ACT (NFSA) 2013

 The basic concept of food security globally is to ensure that all people, at all times, should get access to the
basic food for their active and healthy life and is characterized by availability, access, utilization and stability
of food.
 Aim: To ensure food security at the individual or household level, the Government of India implements
various schemes in partnership with State Governments and Union Territory Administrations.
 Objective: The Act provides for food and nutritional security in the human life cycle approach, by ensuring
access to an adequate quantity of quality food at affordable prices for people to live a life with dignity and for
matters connected therewith or incidental thereto.
 Eligibility:
o Priority Households to be covered under TPDS, according to guidelines by the State government.
o Households covered under existing Antodaya Anna Yojana.

Revising National Food Security Act, 2013: NITI Aayog

 Through a discussion paper in march 2021, NITI Aayog has recommended reducing the rural and urban
coverage under the National Food Security Act (NFSA), 2013, to 60% and 40%, respectively.
 It has also proposed a revision of beneficiaries as per the latest population which is currently being done
through Census 2011.

PRESENT STATUS OF NFSA 2013

 Approximately 2.37 crore households or 9.01 crore persons, as in February 2021 under Antyodaya Anna
Yojana.
 While approximately 70.35 crore persons are under the priority households.

IMPORTANCE OF THE NITI AAYOG’S RECOMMENDATIONS:

 If the rural-urban coverage ratio remains the same (67% of all population), then the total number of people
covered will increase from the existing 81.35 crore to 89.52 crore - an increase of 8.17 crore (based on the
projected 2020 population). This will result in an additional subsidy requirement of Rs. 14,800 crore.
 If the national coverage ratio is revised downward, the Centre can save up to Rs. 47,229 crore.
 This amount of savings can be utilised by the Government in other important areas of concern such as
health and education.

CHALLENGES OF THE MOVE:

 In the times of Covid-19 pandemic, it will be a double burden - Unemployment and Food insecurity - on the
poor section of the society.
 Sustainable Development Goal-2: End hunger, achieve food security and improved nutrition, and promote
sustainable agriculture.
 The move may be opposed by some of the states.
 Decision may also affect children’s nutrition at school and home level.

OTHER RECOMMENDATIONS:
 High Level Committee under Shanta Kumar had recommended reducing the coverage ratio from 67% of the
population to 40%.
 According to it, 67% coverage of the population is on the much higher side, and should be brought down to
around 40%, which will comfortably cover BPL families and some even above that.
 Economic Survey- 2020-21: had recommended a revision of the Central Issue Prices (CIP) of foodgrains
released from the central pool, which have remained unchanged for the past several years.

DIRECT CASH TRANSFER/DIRECT BENEFIT TRANSFER (DBT)

 Introduced in 2013, DBT program aims to transfer subsidies directly to the people through their bank
accounts. It is hoped that crediting subsidies into bank accounts will reduce leakages, delays, etc.
 The idea behind the Direct Cash Transfer is to cut down wastage, duplication and leakages and also to enhance
efficiency.
 The idea is to move to a completely electronic cash transfer system for the entire population.

SCOPE OF DBT
 The DBT program aims that entitlements and benefits are transferred directly to the beneficiaries. The
beneficiaries could include widows, students and pension takers.
 This would be done through biometric-based Aadhaar-linked bank accounts (JAM Trinity). This would reduce
several layers of intermediaries and delays in the system.

ADVANTAGES OF DBT SYSTEM

 Better targeting: The use of Aadhaar or other biometric based systems would dissolve problems like
duplicates or ghosts. Duplicates are when the name of the beneficiary is repeated and Ghosts is when the
name of a non-existent beneficiary is mentioned.
 Real time transfer: It helps in the quick and direct cash transfer to the intended beneficiary.
 The cash transfer happens through a dense Business Correspondent system on the ground with micro ATMs.
 Equitable service: This ensures that the poor get the same level of service that the rich and the middle classes
in the society receive.
 The financial inclusion: offered by the DBT infrastructure can also be used by internal migrants to send their
remittances.
 The Aadhaar-based micro-ATM network: could ensure that remittances take place instantly and at much
lower cost to migrants.
 Fiscal savings: Assuming explicit subsidies being extended by state in current form to remain between 3 to 4
lakh crores, DBT will curb this expenditure by around 15%, which is a conservative estimate of current
leakages. This can save government around 50,000 crore.
 Better nutrition: When there is cash transfer poor will be able to diversify their diet by including more items
like pulses, eggs etc. This will increase their protein intake.

LIMITATIONS OF DBT:
 Still there are many rural & tribal areas, which don’t have banking facilities and road connectivity.
 As of now, about 3%-5% Indians pay income tax. So, determining the income of the rest of the citizens is still
a challenge hence making it difficult to identify the deserving beneficiaries.
 Most of the banks appoints Business Correspondents to enroll beneficiaries in rural areas. There are many
complaints that they are not giving passbooks to the beneficiaries making them unaware of the scheme.
 Direct cash may not be used for intended purpose and can be used in unhealthy ways. For example, the cash
instead of food subsidy may be spent on drinking and smoking as most of the beneficiaries' families’ heads
are men.
 Micro ATMs, which were set up to deliver cash benefits at door step are not present in many areas hence
many beneficiaries have to travel long to withdraw money.
 Most of the beneficiaries’ families’ heads are men. This will be a disadvantage to women as there is no
guarantee that they will get their share of the cash.

WTO AND SUBSIDIES REGIME

 WTO is an international organization established to promote multilateral trade. It is successor to the erstwhile
GATT (General Agreement on Tariffs and Trade).
 It came into force on 1st January 1995 and has played a pivotal role in facilitating international trade.

WTO SUBSIDIES CATEGORISATION:

 Export Subsidies: When a farmer or exporter sells agricultural products in foreign market, he earns money
for himself, as well as foreign exchange for the country. Therefore, agricultural exports are generally
encouraged as long as these do not harm the domestic economy. Subsidies provided to encourage exports
are referred to as export subsidies. Ex- export credit is given to farmers by countries like China.
 Industrial promotion subsidies Ex: New UK farming bill guarantees subsidies for 2020 to promote agri-
industry in the event of Brexit.
 Structural adjustment subsidies :to promote irrigation in agriculture. Ex: Schemes like PM Krishi Sanchai
Yojana
 Regional development subsidies: to enhance well-being and living standards of farmers in all region types,
rural areas, and improve their contribution to national performance and more inclusive, resilient societies.
 Research and development subsidies: They are financial public tools to encourage innovation. They can be
requested by those firms that develop innovative projects.
 Subsidies contingent upon the use of domestic over imported goods: Ex. Countries like the USA where in
order to ensure guaranteed return procurements from farmers which indirectly benefits consumers with
lower prices.

AGREEMENT ON AGRICULTURE (AOA):

 AOA is aimed to remove trade barriers and to promote transparent market access and integration of global
markets.
 This agreement offers flexible and lesser commitment on the part of developing and less developed countries
compared to developed countries in fulfilling the obligation under this agreement.
 This agreement also has a special safeguard mechanism i.e. the option available to countries to impose
additional duties on imported products when there is surge in imports or products are imported at lower
price. The main components of this agreement: Market Access, Domestic Subsidies and Export Subsidies.

MARKET ACCESS:
 This includes provisions related to tariffication, tariff reduction and trade facilitation in agriculture products.
Developed countries have to reduce tariffs by 36% originating from tariffication with minimum rate of
reduction of 15% for each tariff item over a 6 year period.
 Developing countries are required to reduce tariffs by 24% originating from tariffication in the next 10 years.
 Special Safeguard provision allows the imposition of additional duties when there are either import surges
above a particular level or particularly low import prices as compared to 1986-88 levels.

DOMESTIC SUBSIDIES
Domestic support was divided into three kinds of boxes, each representing a different kind of subsidy.
1. Green box subsidies: are those which do not distort trade and shouldn't involve price support. These are
allowed without limits. Ex: PM Kisan for the farmers by the government.
2. Amber box subsidies: are all government measures that are considered to distort trade and production.
Subsidies that are directly related to production quantities. Ex: MSP.
3. Blue box subsidies: are “amber box subsidies with conditions”, designed to reduce distortion. Blue Box
subsidies are direct payment under production under production limiting programmes.

EXPORT SUBSIDIES
 These are direct subsidies given by government or government agencies either in cash or in kind to producers
of agricultural products against export performance and export of non-commercial agricultural products at
lower price and transport subsidies, etc.
 The developed member countries have to reduce subsidised export in value terms by 36% and in terms of
volume by 21% over a period of 6 years below the level of 1986-90. For developing countries, it is 24% and
14% respectively over a period of 10 years.

PEACE CLAUSE UNDER WTO

 Developed countries criticised the developing and LDC’s food security programmes (public stock holding
programmes) as a trade distorting subsidy. Since the negotiation went on among countries a temporary peace
clause was introduced in Bali Package 2013.
 The ‘peace clause’ said that no country would be legally barred from food security programmes even if the
subsidy breached the limits specified in the WTO agreement on agriculture.
 This ‘peace clause’ was expected to be in force for four years until 2017, by the time a permanent solution to
the problem was found.

MINIMUM SUPPORT PRICE (MSP)

PREVIOUS YEAR QUESTIONS:

1. What are the reformative steps taken by the government to make food grain distribution system 2019
more effective?

2. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the 2018
low-income trap?

3. How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the 2017
significance of crop insurance, minimum support price and food processing for small and marginal
farmers?

4. What are the different types of agriculture subsidies given to farmers at the national and state 2013
levels? Critically analyze the agriculture subsidy regime with the reference to the distortions
created by it.

Introduction
 MSP is the minimum price that the government considers remunerative for agricultural production and is
hence deserving of support. In event of fall of prices in notified agricultural commodities, the government
provides price support by procuring the farm produce at MSP
 MSP is considered as one of the most important measures to ensure Food security and alleviate rural
poverty.

When MSP was introduced?

 MSP was introduced in the 1960s to overcome India’s food deficit by incentivising farmers to use input-
intensive high-yield wheat/paddy unless granted a minimum price.
 The Union government set up a committee on August 1, 1964 to advise the Agriculture Ministry to determine
the prices of rice and wheat. The domain of coverage was expanded to coarse cereals.
 Later, the government decided to set up a permanent body, called the Agricultural Prices Commission, in
1965. This was later renamed as the Commission for Agricultural Costs and Prices in 1985.
Current Status of MSP
 Currently, MSP is declared for 23 agricultural commodities
o 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
o 5 pulses (chana, arhar/tur, urad, moong and masur)
o 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and niger seed)
o 4 commercial crops (cotton, sugarcane, copra and raw jute).
 In addition to the above, a MSP for Toria and De-Husked Coconut is also declared on the basis of prices of
Rapeseed and Copra respectively.
 Price Support Scheme and PM-AASHA scheme are prime tools for MSP based procurement.
 Government is not legally bound to pay MSP even if the market rates are below the threshold prices. MSP is
run entirely on executive directions and isn’t guaranteed by law.

Determination of MSP
 Centre fixes MSPs based on recommendation of Commission for Agricultural Costs and Prices (CACP).
 The CACP is an attached office of the Ministry of Agriculture and Farmers Welfare. It is non-statutory in
nature.
 CACP recommendations are not binding and the final decision rests with the Cabinet Committee on
Economic Affairs (CCEA) which headed by Prime Minister.
 In Union Budget 2018-19, the Government of India announced setting the MSP to 1.5 times the production
cost (A2+FL).

Objective of MSP
 Support farmers from distress sales.
 To procure food grains for public distribution.
 Evolve a production pattern which is in line with overall needs of the economy.

Importance and benefits of MSP regime

 Safety Net or insurance is provided to the farmers which saves them from abject poverty and prevents farmer
suicides.
 Higher investments in agriculture and adoption of new technology is possible due to guaranteed price and
assured market.
 Protect from fluctuation in global markets which is common under free trade regime under WTO.
 Food Security is achieved as self-reliance is gained due to stable and surplus production of major crops by
Indian farmers.
 Alleviation of Rural poverty due to higher prices available for farm produce especially in Punjab and
Haryana. This in turn prevents rural to urban distress migration for jobs.
 Ensure remunerative income - NABARD’s All India Rural Financial Inclusion Survey 2016-17 found that the
average monthly income of an agriculture household is less Rs.9,000/- from all sources combined.
 Helps to make informed decision: This helps the farmer to make an informed decision about which crop to
sow for maximum economic benefit within the limitations of his farm size, climate and irrigation facilities.
 Acts as a benchmark for private buyers: MSP sends a price-signal to market that if merchants don’t offer
higher than MSP prices the farmer may not sell them his produce.
 To counter price volatility of agricultural commodities due to the factors like variation in their supply, lack
of market integration and information asymmetry.
 To insulate consumers from high fluctuations in prices of certain essential agricultural items.
 Improve economic access of food to people (through procurement and distribution).
 Crop Diversification: There are slightly higher increases in the MSP for pulses, oilseeds and coarse cereals
which helps in achieving the motive of diversifying crops.
 Forward chain: The MSP leads to higher farm profits which encourage farmers to spend more on inputs,
technology etc.
 Atma-nirbhar Bharat: To boost pulses and oilseeds production and reduce the country's dependence on
imports, the government increased the support price of tur by Rs 300 to Rs 6,300 per quintal for the 2021-22
crop year from Rs 6,000 per quintal last year.

CORRELATION: MSP AND C ROPPING PATTERNS

 Cropping pattern refers to the combination of crops grown by farmers in a specified region. It is also explained
as the proportion of area under various crops at a given time.

EVOLUTION OF CROPPING PATTERN

1. In Pre-Green  Poor food security scenario and reliance on imports.

Revolution  3/4th India was under food crops and there was very little diversification in cropping
Phase: patterns.
 North Indian plains were dominated by food crops especially wheat and rice.
 Cash crops were seen in Assam (Tea), West Bengal (Jute) and Maharashtra (Cotton).
 Due to the introduction of MSP, expansion of irrigation and introduction of high yield
varieties, intensive agriculture expanded.
2. Green  Wheat-Rice predominance was established especially in Punjab, Haryana and Western
Revolution UP, which were originally confined to East and South India.
 Increase in Areas under Wheat and Rice and along with intensification of crop cycles
was seen.
 Self-reliance in food (especially cereals) was achieved.
 Liberalization and Globalisation opened the gates for cheap imports from abroad and
3. Post 1991 also brought opportunities for agricultural exports of products like rice.
Reforms Period  Contract Farming was also introduced.
 Due to developments such as PDS Reforms and National Food Security Act, rice-wheat
pre-dominance was sustained.

IMPACT OF MSP ON CROPPING PATTERN

 Wheat and Rice: heavy MSP backed procurement of Wheat and Rice, especially from Punjab and Haryana has
promoted rice/wheat monoculture despite lack of favourable conditions.
 Millets: Traditionally, the mainstay of Indian agriculture, millets (especially Jowar and Bajra) saw a decline.
Rice and Wheat were preferred even in dryland areas (with irrigation) which were naturally suited for Millets.
 Sugarcane: Heavy FRP (Fair and Remunerative Price) and SAP (State Administered Price) regime is one of the
prime reasons for sugarcane cultivation in UP, Maharashtra and Bihar.
 Pulses and Oilseeds: Inadequate MSP protection and low procurement has led to shrinkage of area of
cultivation in pulses and oilseeds and resorting to imports in times of scarcity.

CONCLUSION
MSP Regime has rightfully brought enormous advantages to India. The MSP reforms suggested in the previous
section are necessary to counteract the unintended consequences of the regime.

Problems and challenges associated with the MSP regime

 Distortion of cropping pattern: There has been an excess focus on the procurement of wheat, rice and
sugarcane at the expense of other crops such as pulses, oilseed and coarse grains.
 Yield per hectare is the lowest among economies with a large agriculture sector. Hence agriculture
productivity needs to improve, for that MSP alone is not enough we need a wide range of interventions.
 Inflation: Subsidizing farmers through higher product prices is an inefficient method because it penalizes the
consumer with higher prices. Also it means large farmers will benefit the most.
 Detrimental to competition: Any interference by the government kills the competition. This affects the
agents who procure the crops at lower prices and sell them at higher prices and earn profits.
 Sugar industry: Arbitrary fixation of cane prices by state governments over and above the MSP fixed by the
centre has been adversely affecting the sugar mills and they are not able to pay the dues of farmers.
 Degradation of agricultural ecosystem: Crops which are not aligned with the agro-climatic region lead to
depletion of water table, soil degradation and deterioration in water quality.
o Rice, despite being unsuitable for growth in Punjab and Haryana (semi-arid regions), is widely grown
there. This has led to deterioration of the groundwater table.
o Stubble burning is also a consequence of Rice monoculture.
o More than 2 crore farmers had benefited from government procurement of 7 agricultural commodities
in 2019-20. Out of these 1.24 crore and 35 lakh farmers were Paddy and Wheat growers.
 Regional imbalance: Procurement infrastructure is virtually non-existent in eastern states and as such,
farmers from these states are not able to reap the monetary benefits of MSP and an assured procurement by
the government.
 Debt obligations: Resource-poor, marginal and small landholders have to sell a substantial proportion of
crops to local private traders and input dealers due to tie-up with credit.
 Market distortion: It distorts the free market as it favours some particular crops over other crops. Not all
farmers have been able to get the benefits of MSP because of lack of awareness. Higher MSP over-incentivise
production leading to supply surge. It does not cover perishables.
 Agriculture Exports remain curbed as MSP prices are higher than international markets.
 Low awareness and accessibility: 81% of the cultivators were aware of MSP fixed by the Government for
different crops and out of them only 10% knew about MSP before the sowing season.
o The Shanta Kumar committee’s report on agriculture estimates that just around 6% of the country’s
farmers benefit from the MSP system.
o More than 95% paddy from Punjab and 70% from Haryana is procured by the central government
while it is less than 3.6% and 1.7% in UP and Bihar.
 Excess storage: This kind of procurement without sufficient storage has resulted in huge piling of stocks in
the warehouses. The stock has now become double the requirements under the schemes of PDS, Buffer stock
etc.
 Delay in Payments: Nearly half of the farmers experience a delay of at least a week (NITI Aayog).
 Challenges in WTO: India’s MSP scheme for many crops has been challenged by many countries in the WTO.
They have been claimed to be highly trade-distorting by its method of calculation.
o If the current process continues, the country will face international criticism for breaching the 10
per cent norm for subsidy on farm production set by the WTO.
 Economically Unsustainable: The economic cost of procured rice and wheat is much higher for the FCI
than the market price of the same.
Way Forward
 Increase the scope of procurement under the MSP regime. It should not be restricted to particular
regions or particular crops. Millets must be brought under the MSP regime to incentivise the farmers to
grow them.
 Overcoming the state-wise differences in awareness levels and lacunae in MSP announcements.
 Meaningful consultation with the State Government on the methodology of computation of MSP as well
as on the implementation mechanism.
 Swift and timely payment should be ensured.
 NITI Aayog is already working on an alternative mechanism. A counterpart of the MSP is the Market
Intervention Scheme (MIS), under which the state government procures perishable commodities like
vegetable items.
 Use of modern warehousing infrastructure is needed like modern storage facilities, weighing bridges etc.
to extend shelf life and prevent rotting of grains.
  MSP should be announced well in advance of the sowing season so as to enable the farmers to plan their
crops.
 There is a need to adopt a more scientific approach to agriculture and allocate higher budget in research
to boost productivity per hectare.
 Farmers must be made to understand the benefits of crop diversification so as to produce more pulses
to ensure nutritional security and prevent supply- side shocks.
 Information and awareness must be increased among farmers via mass media, camps and Krishi Vigyan
Kendras.
 To solve the problem of MSP, Both NITI and Economic Survey recommend Price Deficiency Payment
(PDP).
 RECOMMENDATIONS OF NITI AAYOG:
o Improved facilities at procurement centres, such as drying yards, weighing bridges, toilets, etc.
o More godowns should be set up and maintained properly for better storage and reduction of
wastage.
o The Procurement Centres should be in the village itself to avoid transportation costs.
o The MSP scheme requires a complete overhaul in those States where the impact of the scheme
is ‘nil’.

P RICE D EFICIENCY P AYMENT (PDP) SCHEME BY NITI A AYOG

 The NITI Aayog in its Three-Year Action Agenda suggested a Price Deficiency Payment System.

ABOUT PRICE DEFICIENCY PAYMENT SYSTEM (PDPS):

 Under PDPS, Farmers are compensated for the difference between MSPs (for select crops) and prevailing
market prices via subsidy.
 The subsidy will be paid via Direct Benefit Transfer (DBT) into the farmer’s Aadhar seeded Bank Account.
 To avail the benefit, the farmer would need to register with the nearest APMC and report the total area
sown.
 The extent of the subsidy may be capped by the Centre. NITI Aayog suggests that differences up to 10% may
be compensated.
 As the MSP regime is working well in Rice and Wheat, the PDPS system would apply to crops other than
these.

SIMILAR SCHEMES EMPLOYING PRICE DEFICIENCY PAYMENTS:

1. PM AASHA( Pradhan Mantri Annadata Aay Sanrakshan Abhiyan) by Government of India has PDPS as one
of its sub-schemes for MSP-notified oilseeds.
2. Mukhya Mantri Bhavantar Bhugtan Yojana in Madhya Pradesh for pulses and oilseeds. (Now discontinued)
3. Bhavantar Bharpai in Haryana for TOP crops (Tomato, Onion and Potato) and Cauliflower

BENEFITS OF PDPS:
 Significant cost saving as there is no need for procurement, transport and storage of food grains which carries
overheads.
 Unburden the storage infrastructure which is currently stressed due to accumulated stocks being over 300%
of the strategic and operation reserve norm of 21 million tonnes.
 Ease of payments as the DBT payments can be fast and eliminates intermediaries.
 WTO compliant as the Price Deficiency Schemes are seen as less trade distorting as they allow natural price
discovery.
 Alter cropping patterns to make them responsive to consumer needs and agricultural ecosystems as against
the MSP regime which incentives wheat and rice.
 Regional balance can be ensured as PDPS is by nature neutral to crop and geography.

CONCERNS WITH PDPS:

 Dampening of prices by trader cartels to avail benefit of low purchase price. This imposes heavy cost burden
on Government as they have to cover the difference.
 Mukhyamantri Bhavantar Bhugtan Yojana In Madhya Pradesh had to be discontinued due to above reason.
 Fiscal Burden would be immense as it seeks to cover crops for which government procurement is currently
low. ICRIER estimates the cost of this scheme to be close to Rs 2 Lakh Crore annually.
 DBT Payment issues due to non-linking of bank accounts with Aadhar or financial exclusion (not having a bank
account).

WAY FORWARD:
 Price Difference covered by the Government must be capped (10% recommended by NITI Aayog) to
discourage cartelisation.
 Reasonable due diligence to ensure Aadhar- Bank account linkage.
 Direct Income Support schemes (e.g. PM KISAN) and Price Insurance Scheme must be considered as a non-
trade distorting alternative to PDPS

Fixing MSP price Calculations

N ATIONAL C OMMISSION ON F ARMERS : S WAMINATHAN C OMMITTEE (2004) RECOMMENDATIONS

 Insurance not remuneration – MSP is just insurance and not a remunerative price. M.S. Swaminathan
committee recommends fixing MSP at one-and-a-half times the cost of production (C2).
 The report of the National Commission on Farmers, called for distinguishing between support prices and
procurement prices. This distinction has been totally eroded, thanks to the MSP becoming the de facto
procurement price under the ‘open-ended’ grain procurement system.
 Distribute ceiling-surplus and waste land.
 Prevent diversion of prime agricultural land and forest to the corporate sector for non-agricultural purposes.
 It recommended that MSPs must be at least 50% more than the cost of production.
 Insertion of Agriculture in the concurrent list of the constitution.
 Increasing the investments in agriculture-related infrastructure.
 Establishment of soil testing laboratories for detection of micronutrient deficiency.
 Steps to be taken for forming a single Indian market which promotes grading, branding and packaging.
 Procurement:
o Procurement of Wheat and Rice must be handed over to states with adequate experience and
infrastructure (Punjab, Haryana, Andhra Pradesh and MP)
o FCI will only deal with food grains from surplus states to be moved to deficient states.
o FCI must be proactive in eastern Indian states such as Eastern UP, Bihar, West Bengal and Assam.
 Negotiable Warehouse Receipt Scheme must be started and scaled where farmers can get 80% advance from
banks against their produce valued at MSP to avoid distress sale at times of low prevailing prices.
 MSP Reforms: shift focus on Pulses and Oilseeds and realign trade policy for better synergy.
 Stocking and Movement:
o Outsource stocking operations to agencies such as Central Warehousing Corporation, State Warehousing
corporations and Private Sector.
o Phase out of Cover and Plinth storage and replace with Silo bag technology and conventional storage.
o Containerisation of food grain movement to reduce losses and improve turnaround times at ports and
railway stations.
 Buffer Stocking Operations and Liquidation Policy:
o Automatic Liquidation policy for excess stocks beyond a scientific and transparently determined level.
o Greater flexibility with FCI with business orientation to operate in Open Market Sale Scheme and Export
Markets.
 Revisit coverage under National Food Security Act, which is currently at 67% and considered to be on a
higher side.
 End to End Computerisation of entire food management system.
Ramesh Chandra Committee ON FOOD AND AGRICULTURE POLICY (2013)
 It was constituted to examine the methodological issues in fixing MSP.
 The Commission suggested that for calculating production cost, family labour head should be considered as
skilled worker.
 The interest on working capital should be given for the whole season.
 Post-harvest costs, including cleaning, grading, drying, marketing and transportation should be included.
 The committee recommended that the cost should be raised to 10% account for risk premium and managerial
charges.

Alternatives to MSP
 Price Deficiency Payment: Under this arrangement the difference between the MSP and the selling price can
be compensated through direct transfer to bank accounts.
o Madhya Pradesh have launched price deficit financing schemes - Bhavantar Bhugtan Yojna - in which
the government pays the farmers the difference between modal rate (the average prices in major
mandis) and the minimum support prices (MSPs).
o Haryana government is following Bhavantar Bharapai Yojna for vegetables.
 Scope of PM AASHA’s Price Deficiency Payment Scheme must be expanded.
 Area planning / restrictions: For example, in the UK, all farms above 5 hectares have to get approval for use
of land for growing crops. It can check price crashes due to overproduction by restricting the area under a
particular crop.
 Direct Income Support: PM Kisan is a step in the right direction but the remuneration is meagre.

Conclusion
While recent steps in the Agriculture sector such as PM KISAN and the new agriculture laws are a good step
ahead, MSP reforms are a sine-qua-non for our goal to double farmer’s income.

Fair and Remunerative Prices (FRP) for Sugarcane

 Sugar industry is an important agro-based industry that impacts rural livelihood of about 50 million sugarcane
farmers and around 5 lakh workers directly employed in sugar mills.
 India is the largest consumer and the second-largest producer of sugar in the world and sugar industry is the
second largest agro-based industry
 Average annual production of sugarcane is around 35.5 crore tonnes, which is used to produce around 3 crore
tonnes of sugar.

PRICE DETERMINATION OF SUGARCANE

 Sugarcane prices are determined by:
o Central Government
o State Government
 The Central Government announces Fair and Remunerative Prices (FRP) which are determined on
the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by
the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.
 The State Advised Prices (SAP) are announced by key sugarcane producing states which are generally higher
than FRP.
 Centre notified Sugar Price (Control) Order, 2018 under which the Centre fixes the MSP after taking into
account the FRP of sugarcane and minimum conversion cost of the most efficient mills.

Sugar Industries in India

SUGAR INDUSTRY’S LOCATION IN INDIA:

 Sugar industry is broadly distributed over two major areas of production- Uttar Pradesh, Bihar, Haryana and
Punjab in the north and Maharashtra, Karnataka, Tamil Nadu and Andhra Pradesh in the south.
 South India has a tropical climate which is suitable for higher sucrose content giving higher yield per unit
area as compared to north India.

SIGNIFICANCE OF SUGAR INDUSTRIES:

 Source of employment: The sugar industry is one of the biggest employment generation sectors. It gives
livelihood for approx. 50 million farmers and their families.
 Multiple linkages of production: Sugar is a labour-intensive industry, it promotes the entire value-chain from
sugarcane-growing to sugar and alcohol production.
 By-products: The various by-products of the sugar industry also contribute to the economic growth and
promote a number of allied industries. E.g.: sugar, ethanol, paper, electricity etc.
 Livestock feeding: Molasses from sugar cane is used for livestock feeding since it is highly nutritious and also
for alcohol production.
 Biofuel production: In India, the vast majority of ethanol is produced from sugarcane molasses, a by-product
of sugar
 Biogases production: sugarcane industry is also a good source of Biogas. 30% of cellulose requirement comes
from agricultural residues.

CHALLENGES OF SUGAR INDUSTRY IN INDIA:

 Low Yield Crops: Although India has the largest area under sugarcane cultivation in the world, it has an
extremely low yield per hectare. The low yield is compared to Hawaii, Peru, Rhodesia, and Java.
 Shortage of Raw material: The utilization of one-third of sugarcane production for making gur and Khansari
causes the shortage of raw material for the sugar mills.
 Seasonal sugar industry: The seasonal character of the sugar industry causes the workers to remain ideal for
almost half of the year creating financial issues.
 Small sized industry: Most of the sugar mills in the country are not viable due to their small size and crushing
capacity of 1200 tons per day.
 Ineffective machine and manpower: Majority of sugar mills in Bihar and Uttar Pradesh are over 50 years old
and working with old and outdated machinery. This results in low production and less profit-making the unit.
 Increase pollution: The sugar industry has bagasse and molasses as by-products. There is a problem in
disposing of these under pollution control devices in the industry.
 High production cost: Due to high sugarcane costs, inefficient technology, high taxes, and economic
production, the cost of sugar production in India is one of the highest in the world.
 The dual sugarcane pricing distorts sugarcane and sugar economy and leads to cane price arrears • High SAPs
without any linkage with the output price becomes unviable.
 Problem of By-products: An important problem of sugar industry is the utilization of by-products specially
bagasse and molasses.
 High Prices of Sugar: The inefficiency and uneconomic nature of production in sugar mills, low yield and short
crushing season, the high price of sugarcane and the heavy excise duties levied by the Government.
 Obsolete and old machinery: Majority of the machines which are currently in use in sugar mills across India,
mainly in states like Bihar and Uttar Pradesh, are obsolete and old.
 Small and uneconomic size of mills: Most of the sugar mills in India are of small size with a capacity of 1,000
to 1,500 tonnes per day.
 Uncompetitive in global markets: The Indian sugar is uncompetitive in the global market as there is a fixed
minimum support for the sugarcane with no impact arising from market forces.
 Demand-Supply Mismatch due to emergence of alternative sweeteners replacing sugar, slowdown in the
pace of demand growth while continuous increase in overall production.

M EASURES N EEDED
 Miniaturization of sugar industries: This will help group of small farmers to setup a small-scale sugar
industry themselves near their sugarcane fields.
 Improve cane pricing: The ideal way to manage sugar surplus is to link the sugarcane price to output
price.
  Power generation: Using cogeneration technology is another option through which companies can
generate revenues by selling extra electricity generated as a by-product of sugar production.
 Encourage public to use more jaggery and mechanization of jaggery plants.
 License to farmers to produce alcohol from molasses.
 Encourage all sugar industries to have co-generation plants.
 Need capital infusion: The sector needs infusion of capital also need to Technological upgradation in age
old mills especially in Uttar Pradesh and Bihar to improve efficiency of sugar production.
 Scope of ethanol production: India might be aiming to increase fuel ethanol capacity to be able to divert
as much as 5 million MT in sugar equivalent to ethanol, when needed.
 Revenue sharing: efficient revenue sharing between centre and state or between state and sate will
boost the sugar production in India. Major sugar producing States like Maharashtra and Karnataka have
migrated to the progressive revenue-sharing formula.
 Promotion of export: When domestic production is likely to be in excess of domestic consumption, the
government should encourage exports through policy changes.
 Implementing recommendations of MAHAJAN COMMITTEE RECOMMENDATIONS (1997):
o Licensing Policy: The committee suggested continuing the existing licensing policy with certain
modifications.
o Price Control and Price Distribution System: Complete control of sugar for over two years was
recommended by the committee. The percentage of levy sugar was reduced to 20% which may
continue at the same rate during the next sugar season.
o Pricing of Sugar: Even under the system of complete control of sugar prices as a guarantee of a
minimum price to the growers, the announcement of the statutory minimum price will need to
be continued.
o Sugar Cycle: To reduce the fluctuation extent in sugar production, the sugarcane producers may
be required to get the area intended to be planted with cane registered with the factory prior to
the plantation.
o Buffer Stock: To minimize the fluctuation in sugar price, maintenance of buffer stock on a regular
basis was made necessary.
 Implementing RECOMMENDATIONS OF THE RANGARAJAN COMMITTEE (2012):
o Abolition of the quantitative controls on export and import of sugar, these should be replaced
by appropriate tariffs and also Committee recommended no more outright bans on sugar exports.
o The central government has prescribed a minimum radial distance of 15 km between any two
sugar mills, this criterion often causes virtual monopoly over a large area can give the mills power
over farmers.
o There should be no restrictions on sale of by-products and prices should be market determined.
o The de-regulation of the sugar sector was undertaken to improve the financial health of sugar
mills, enhance cash flows which result in timely payments of cane price to sugarcane farmers.

PUBLIC DISTRIBUTION SYSTEM (PDS)

PREVIOUS YEAR QUESTIONS

1. What are the reformative steps taken by the government to make food grain distribution system more 2019
effective?

2. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income 2018
trap?

3. How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance 2017
of crop insurance, minimum support price and food processing for small and marginal farmers?
 4. “In the villages itself no form of credit organisation will be suitable except the cooperative society.” – All Indian 2014
rural credit survey. Discuss this statement in the background of agriculture finance in India. What constrain
and challenges do financial institutions supplying agricultural finances? How can technology be used to better
reach and serve rural clients?

5. Food security bill is expected to eliminate hunger and malnutrition in India. Critically discuss various 2013
apprehensions in its effective implementation along with the concerns it has generated in WTO.

6. What are the different types of agriculture subsidies given to farmers at the national and state levels? Critically 2013
analyze the agriculture subsidy regime with the reference to the distortions created by it.

INTRODUCTION
The PDS evolved as a system of management of scarcity through distribution of foodgrains at affordable prices.
Over the years, PDS has become an important part of the Government's policy for management of the food
economy in the country.
 PDS is supplemental in nature and is not intended to make available the entire requirement of any of the
commodities distributed under it to a household or a section of the society.

Background of PDS
 PDS was introduced : Before the 1960s, distribution through PDS was generally dependent on imports of food
grains.
 Expansion of PDS in 1960’s : It was expanded in the 1960s as a response to the food shortages of the time;
subsequently, the government set up the Agriculture Prices Commission and the FCI to improve domestic
procurement and storage of food grains for PDS.
 PDS till 1990’s : By the 1970s, PDS had evolved into a universal scheme for the distribution of subsidised food.
Till 1992, PDS was a general entitlement scheme for all consumers without any specific target.
 Revamped Public Distribution System (RPDS) : It was launched in June, 1992 with a view to strengthen and
streamline the PDS as well as to improve its reach in the far-flung, hilly, remote and inaccessible areas where
a substantial section of the underprivileged classes lives.
 Targeted Public Distribution System (TPDS) : In June, 1997, the Government of India launched the TPDS with
a focus on the poor. Under TPDS, beneficiaries were divided into two categories :
1. Households below the poverty line or BPL
2. Households above the poverty line or APL
 Antyodaya Anna Yojana (AAY) : AAY was a step in the direction of making TPDS aim at reducing hunger among
the poorest segments of the BPL population.
 The National Food Security Act (NFSA), 2013 : In September 2013, Parliament enacted NFSA, 2013. The Act
relies largely on the existing TPDS to deliver food grains as legal entitlements to poor households. This marks
a shift by making the right to food a justiciable right.

Objective of PDS
 Implementation of NFSA : To implement the national food security Act, 2013, throughout the country.
 To have a moderating influence of market : On the open market prices of cereals, the distribution of which
constitutes a fairly big share of the total marketable surplus
 To attempt socialisation in the matter of distribution of essential commodities : Providing food grains and
other essential items to vulnerable sections of the society at reasonable (subsidised) prices.
 Correct the current supply and demand imbalances for consumer products : It checks and prevents hoarding
and black marketing in essential commodities.
 Ensure social justice : In the distribution of basic necessities of life.
 Support poverty-relief programmes : Especially rural jobs programmes like Mid-day meals; Food for Work;
etc., as well as educational feeding programmes.
 Meeting demand and supply : Even out fluctuations in the costs and availability of mass-consumption
products.
 Improvement in the Public Service System : Aiming to achieve a closer correspondence between actual and
desired standards of public services.

PDS Operations
 Operated under: PDS is operated under the joint responsibility of the Central and the State/UT Governments.
 FCI role : The Central Government, through Food Corporation of India (FCI), has assumed the responsibility
for procurement, storage, transportation and bulk allocation of food grains to the State Governments.
 The operational responsibility : It includes allocation within State, identification of eligible families, issue of
Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc., rest with the State
Governments.
 Commodities under PDS: Under the PDS, presently the commodities namely wheat, rice, sugar and kerosene
are being allocated to the States/UTs for distribution.
 Exception to commodities of PDS : Some States/UTs also distribute additional items of mass consumption
through the PDS outlets such as pulses, edible oils, iodized salt, spices, etc.

Importance of PDS
 Nutritional security : It helps in ensuring Food and Nutritional Security of the nation.
 Stabilised food prices : It has helped in stabilising food prices and making food available to the poor at
affordable prices.
 Buffer stock : It maintains the buffer stock of food grains in the warehouse so that the flow of food remains
active even during the period of less agricultural food production.
 Managing regional deficits : It has helped in redistribution of grains by supplying food from surplus regions
of the country to deficient regions.
 Increase in food production : The system of minimum support price and procurement has contributed to the
increase in food grain production.
 Identification of the poor and needy : The centre and states use a detailed method to classify qualifying BPL
households
 Ration cards for the poor : A Ration Card is a file provided by the State Government under an order or
authority of the Public Distribution System for the purchase of basic goods from Fair Price Shops to ensure
food availability.

Issue associated with PDS in India

 Identification of beneficiaries: large errors occur in exclusion and inclusion of BPL and Above Poverty Line
(APL) families in beneficiary data.
o The problem of targeting is compounded by the of ghost cards, lack of good quality regular data; no
regular official estimates of the actual income of households.
 Shortfall in storage capacity with FCI against the central pool stock: A performance audit by the C&AG has
revealed a serious shortfall in the governments' storage capacity.
 Rising Subsidy and financial burden : As recent data show, the central government procures about a third of
the quantity of cereals produced domestically, raising concerns regarding the sustainability of such a food
delivery mechanism.
 Concerns regarding the financial feasibility of such a system : The centre bears a large financial burden, the
food subsidy because the cost of procuring and delivering food grains is about six times its sale price.
 Inconsistent quality : The complaints were mainly about the bad quality of wheat. Most of the recipients
were unsatisfied with the quality of wheat and rice.
 Environmental issues : The over-emphasis on attaining self-sufficiency and a surplus in food grains, which are
water-intensive, has been found to be environmentally unsustainable. E.g. Punjab and Haryana.
 Corruption and leakages : Where some store owners exchange the high-quality goods provided from the
government for distribution through the PDS with lesser quality goods from the general stores.
 Dual pricing : Introduced through the TPDS is seen by some as an incentive for stakeholders to divert
commodities into the open market where they can command a higher price.
Revamping PDS
 End to End computerisation: The Justice Wadhwa Committee Report for PDS (2011) recommended
computerisation for two reasons:
o First one to prevent diversion and
o Second one to enable secure identification at ration shops.
 Model states: The Committee has recognised Chhattisgarh as a model state for the first component, and
Gujarat as a model for the second. Karnataka, where electronic PDS (e-PDS) covers transactions with
authorised wholesale dealers and a biometric database of users.
 Universal PDS : Tamil Nadu implements a universal PDS, such that every household is entitled to subsidised
food grains. This way, exclusion errors are reduced.
 Digitalisation : As part of Beneficiary Data Digitisation, States/UTs have been requested to seed the Aadhaar
Number wherever available so as to weed out bogus/duplicate/ineligible beneficiaries.
 Direct Cash Transfers: For checking of leakage and diversions, the Government is also pursuing with
States/UTs to opt for Direct Benefit Transfer (DBT) under which subsidy component will be credited to bank
accounts of beneficiaries to ensure their entitlement making them free to buy food grains from anywhere in
the market.
 Improving storage capacities : As it is understood that storage capacities need to be improved ensuring
proper storage of procured food grains for PDS schemes.
 Vigilance Committee at the State, District, Block and Fair Price Shop (FPS) level: These Committees regularly
supervise the implementation of all the schemes covered under National Food Security Act and inform the
District Grievance Redressal Officer in writing of any violation as well as any misappropriation of funds.
 Allotment of Fair Price shops : Preference is given to Panchayats, Self Help Groups, Co-operatives, in licensing
of Fair Price Shops.

Conclusion
 The Public Distribution System is a critical resource for the food security of the poor, especially the urban
poor and women who manage household food supplies. Increasing the food supply to the poor is a major
challenge for the government. As many people died due to starvation in the past, the Public Distribution
System has played an important role in helping the needy.

PDS and TPDS

Difference between Public
Distribution System and
Targeted Public Distribution
System (TPDS)
PDS relaunched as TPDS
Targeted Public Distribution
System (TPDS) – Operated By
Role of Central Govt in TPDS
Role of State Govt in TPDS
TPDS – Beneficiaries
Both PDS and TPDS have same role, TPDS focuses more on people below
poverty line (BPL)
In June 1997
TPDS is jointly operated by Central Government and State Government
Procurement, Allocation, Transportation of food grains to Food Corporation
of India (FCI)
Allocation, Distribution of Food grains, Identify beneficiaries, issue ration
cards.
Beneficiaries Divided into 2 categories – Households Below Poverty Line and
Households Above Poverty Line.

Ways to increase efficacy of PDS in Covid-19

 To eliminate exclusion errors : For including the excluded in the PDS during this pandemic, experts like
Abhijeet Banerjee, Amartya Sen and Raghuram Rajan have gone on record recommending a temporary ration
card for a period of six months to everyone who is in need with minimal checks.
 Door-step Delivery : During this pandemic, all the respondents complained of overcrowding at the ration
collection points. They also expressed fear of catching the disease due to the complete absence of social
distancing norms. Door-step Delivery is a good alternative to respond to such a situation.
o E.g., Delhi government has initiated this type of temporary e-coupon system.
 To meet inadequate food- supply: Various State governments should consider establishing community
kitchens providing free food as done by the Kerala government to cater to the hungry as an immediate
measure.
o Kerala’s community kitchens have been quite successful in the current situation.
 Addressing the food quality issue: Technology-driven solutions have the potential to resolve immediate
challenges as well as long term challenges.
 Ensuring accountability: One mechanism for checking and making the process of distribution more
accountable was suggested by the Delhi High Court which sought time-bound redressal of complaints
regarding non-supply of rations and transparency in the distribution of food grains.
 Separate cadre for ration inspection: Experts suggest that a separate cadre of government employees be
established for this purpose and stationed at all the FPS.
o They could be called Ration Inspectors and their job would be to ensure impartial and hassle-free
delivery of food grains.
Food Security
 The Food and Agricultural Organization (FAO) states that food security emerges when all people at all times
have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and
food preferences for an active and healthy life. Food security has three important and closely related
components, which are :
o Availability of food,
o Access to food,
o Absorption of food.
 Food security is thus a multi-dimensional concept and extends beyond the production availability, and
demand for food.

ISSUES RELATED TO FOOD SECURITY

 Corruption : It has frequently been criticized for instances of corruption and black marketing, called
collectively as PDS leakages.
 Identification issue : Of the poor by the states is not fool-proof. A large number of poor and needy persons
are left out and a lot of bogus cards are also issued.
 Bogus ration cards : Fair Price Shop owners get bogus Ration cards and sell the food grains in the open
market.
 Replaced food grains : Many times good quality food grains are replaced with poor quality cheap food grains.
 Rural-urban bias : It is evident in the in service delivery in urban areas and rural areas.
 Nutritional security : PDS covers only a few food grains like wheat and rice, it does not fulfil the requirement
of complete nutrition.
 Uneven distribution of food grains production, procurement and distribution : For example : North eastern
states are very far from Punjab and Haryana, from where wheat is procured. To transport food grains from
Punjab to far flung areas in North east will entail cost and time both.
 Skewed production : Government procurement has resulted in skewed production of food grains where only
few crops are promoted, discouraging the age-old diversity of agricultural crops. This often goes against the
local taste and culture.
 Declining food grains production : Due to adverse climate change, declining soil health, land degradation etc.
NEED OF FOOD SECURITY IN INDIA
 Undernourished people : India, currently has the largest number of undernourished people in the world i.e.
around 195 million.
 Chronic undernutrition : Nearly 47 million or 4 out of 10 children in India do not meet their full human
potential because of chronic undernutrition or stunting.
 Agriculture productivity : Agricultural productivity in India is extremely low.
 Cereal yield : According to World Bank figures, cereal yield in India is estimated to be 2,992 kg per hectare as
against 7,318.4 kg per hectare in North America.
 The composition of the food basket : It is increasingly shifting away from cereals to high value agricultural
commodities like fish, eggs, milk and meat. As incomes continue to rise, this trend will continue and the
indirect demand for food from feed will grow rapidly in India.
 According to FAO estimates : In “The State of Food Security and Nutrition in the World, 2018” report (India),
about :
o 14.8% of the population is undernourished in India.
o 51.4% of women in reproductive age between 15 to 49 years are anaemic.
o 38.4% of children aged under five in India are stunted (too short for their age),
o 21% suffer from wasting, meaning their weight is too low for their height.

LIMITATIONS OF NFSA
 High fiscal burden : Subsidy cost above 1.25 lakh crore rupees per year.
 Insufficient capacity : Government will have to keep a large stock of foodgrains but FCI storage capacity
insufficient.
 Food inflation due to stocking : If so many food grains are kept out of the open market (and under FCI
godowns). It would lead to food inflation, and the middle class will suffer.
 Focus to combat malnutrition : Malnutrition has its connections with lack of sanitation and medical facilities
in rural areas. Therefore, NFSA alone is insufficient.
 Section 44 of the act : During natural calamity and wars, Union and state govt. will not be responsible for
non-supply of foods.
 Alternatives : Since, NFSA is also based on PDS which is highly inefficient. Therefore, it is better to introduce
alternatives, like Direct Benefit Transfer (DBT).
 Beneficiary identification : States have still not identified the beneficiaries under NFSA. Hence, its
implementation is getting delayed.

GOVERNMENT MEASURES

 Entitlement Feeding Programmes:

o ICDS (All Children under six, Pregnant and lactating mother)
o MDMS (All Primary School children).
 Food Subsidy Programmes:
o Targeted Public Distribution System: 35 kgs/ month of subsidized food grains.
o Annapurna scheme: 10 kgs. of free food grain for the destitute poor.
o E-marketplace: The government has created an electronic national agriculture
market (e-NAM) to connect all regulated wholesale produce markets through a pan-
India trading portal.
National  Legal entitlement to food: The government passed the food security Act in 2013. It
measure entitles 67% of the Indian population to 5 Kg/month food grains per beneficiary at
highly subsidized rates. State Governments have to identify the households in such a
manner that 75% rural + 50% urban population is covered. States can use data from
socio-economic and caste census (SECC).
 SDG Goal 2: End hunger, achieve food security and improved nutrition and promote
sustainable agriculture.
 Employment Programmes:
 o National Rural Employment Scheme: 100 days of employment at minimum wages.
o National Old Age Pension Scheme: Monthly pension to Below Poverty Line (BPL).
o National Family Benefit Scheme: Compensation in case of death of breadwinner to
BPL families.
 Zero Hunger Challenge: The United Nations Secretary-General launched the Zero Hunger
International Challenge in 2012 during the Rio+20 World Conference on Sustainable Development. The
measure Zero Hunger Challenge was launched to inspire a global movement towards a world free
from hunger within a generation. It calls for:
o Zero stunted children under the age of two
o 100% access to adequate food all year round
o All food systems are sustainable
o 100% increase in smallholder productivity and income
o Zero loss or waste of food.

WAY FORWARD:
 Decentralized Procurements : Wherein the state governments, instead of the Center, would procure and
distribute the locally produced food grains. This would ensure that diversity of food grains is maintained.
 Proper Categorization of beneficiaries : Since a major part of the problem lies in bogus beneficiaries and
ration cards, it is crucial that identification and classification of beneficiaries, APL, BPL, or AAY households, is
foolproof to fulfill the goals of the TPDS scheme.
 Incentivizing the Fair Price Shops (FPSs) : Recently, some state governments, like Delhi, have increased the
incentives for FPSs owners for extended open hours. Further, they have also given permission to sell other
commodities which are not covered under the PDS scheme.
 Adaptation with climate change : There is a need to fight climate change and adoption of climate resilient
crops.
 Technology-based reforms of TPDS implemented by states : It has been found that certain states that had
implemented computerization and other technology-based reforms to TPDS, have succeeded in plugging
leakages of food grains during TPDS.
o The e-PDS project of Chhattisgarh government: Which has real time GPS monitoring from depots to
the FPSs. This is one of the reasons for the good performance of Chhattisgarh in the PDS scheme.
 Universal PDS: Universal PDS helps the state avoid errors in targeting beneficiaries, and Tamil Nadu is one of
the best performing states in the country.
 Food coupons : Beneficiaries are given coupons in lieu of money, which can be used to buy food grains from
any grocery store. Under this system, grains will not be given at a subsidized rate to the PDS stores.

CONCLUSION
 India needs to adopt a policy that brings together diverse issues such as inequality, food diversity, indigenous
rights and environmental justice to ensure sustainable food security.

Buffer Stock
 Definition : Buffer stocks refer to a pool of certain commodities like Rice, Wheat, etc which are maintained
to provide food security and tackle unforeseen emergencies like drought, famine, wars, etc. In India, the
buffer stocks are maintained by the public sector.
 Stocking of Food Grains : It was first introduced in India in 1969 during the 4th Five year plan period.
 FCI setup : The Food Corporation of India was set up in 1964 under the Food Corporation Act 1964 to achieve
the aims of the Food Policy.

THE OBJECTIVE OF MAINTAINING BUFFER STOCKS :

 Better returns for Farmers : The procurement of food grains from the farmers at the MSP helps the farmers
get rid of the distress sale of their products and ensures them reasonable return for their produce.
 Food Security : The buffer stocks of food grains are maintained to achieve the goal of providing every Indian
citizen with sufficient food for their sustenance i.e maintaining food security.
 Price stability : Whenever there is a rise in the prices of food stocks
the buffer stocks are released into the market to bring down the
prices to an acceptable level. This was the government trying to
keep the food inflation at acceptable levels.
 Other social roles : The buffer stocks also help the government
carry out its social welfare programs for the poor and the
underprivileged sections of the population.
 Source of food grains for welfare programs : The food stock
procurement helps the government-run its social welfare schemes like the Targeted Public distribution
system (TPDS) and Other Welfare Schemes (OWS) like mid-day meals scheme for school-going children,
distribution of food grains to people displaced due to natural calamities, etc.

BUFFER NORMS :
 Minimum food grains : which the Central government should maintain at the beginning of each quarter to
ensure enough supply for the public distribution system and other distribution schemes of the government.
 Food Stock : Available in the central governments’ pool is the stock held by : State Government Agencies
(SGAs), States which are taking part in the Decentralised Procurement Scheme, Food Corporation of India
(FCI).
 The stock of food grains : In the Central pool is distributed all around the year depending on the off-take and
procurement trends. Therefore, the season of production and procurement is a major factor to determine
the minimum food grain stocks required in any particular quarter of the year.
 The stocking norms for buffer stock decided by the GoI comprises of :
o Operational Stocks: The stock required to meet the monthly requirements under TDPS and OWS.
o Food Security Stocks: The reserves to meet the procurement shortfall.
 The food grains for issue under OWS and TDPS : They are considered as operational stock, whereas the
surplus is considered as buffer stock and operational stock both.

CHALLENGES :
 High Cost of Logistics and administration : With a majority of the funds allocated for buying the buffer stocks,
it becomes troublesome for the Agricultural ministry and FCI to adjust the budget to make funds available for
the efficient establishment and working of the storage units. Reasons are as follows :
o Dual Wastage : Huge quantities of food stocks get spoiled due to unscientific storage methods and at the
same time a large percentage of the population is dying of hunger in India.
o Warehousing Issues: Lack of sufficient storage space and other storage infrastructure after the
procurement.
o Transportation issues : The cost of transportation of the grains to and from the FCI godowns is huge.
Spilling and spoilage at the time of transportation also increase the losses.
o Diversion and pilferage: The Buffer stocks are sometimes diverted to black markets, liquor manufacturing
units, Ghost beneficiaries. This way instead of the targeted population, others benefit from the buffer
stocks of food grains, starving a great percentage of the population.
 Trade Distortion practice : Many developed countries of the West consider the government procurement of
food grains and maintenance of the buffer stocks as a trade distortion practice. They drag India to the WTO
regarding the same.
 Skewed Cropping pattern : Integration of the buffer stocks with MSP for food grains like rice and wheat leads
to excessive production of these food grains. These are water-intensive crops and need the greater
application of fertilizers for greater productivity.
 Skewed agricultural practices leading to ecological problems : This not only affects the environment but also
affects crop diversity, compromising the nutritional security of India. Farmers belonging to regions not
favourable for the production of rice and wheat will also have an inclination for growing rice and wheat.
 Open-Ended Procurement : In the absence of proper estimation of the overall buffer stock estimation for
running the PDS and emergencies, the open-ended procurement of the food stocks further poses a challenge
to proper storage and outtake of the buffer stocks.
SHANTA KUMAR COMMITTEE AND WAY FORWARD
 Reduce beneficiaries : Reduce the number of beneficiaries under the National Food Security Act from the
current 67 % to 40%.
 Greater participation of the private sector : Allow the Private sector to procure and store food grains.
 Stop bonuses on MSP : Paid by states to farmers, and adopt a direct benefit transfer system so that MSP and
food subsidy amounts can be directly transferred to the accounts of farmers and food security beneficiaries.
 Selective procurement : FCI should involve itself in full-fledged grain procurement only in those states which
are poor in procurement. In the case of those states which are performing well, like Haryana, Punjab, Andhra
Pradesh, Chhattisgarh, Madhya Pradesh, and Odisha, the states should do the procurement.
 Abolishing levy rice : Under the levy rice policy, the government buys a certain percentage of rice (varies from
25 to 75% in states) from the mills compulsorily, which is called levy rice. Mills are allowed to sell only the
remainder in the open market.
 Deregulate the fertilizer sector : And provide cash for fertilizer subsidy of Rs 7,000 per hectare to farmers.
 Outsource of stocking of grains : The committee calls for setting up of negotiable warehouse receipt (NWR)
systems. In the new system, farmers can deposit their produce in these registered warehouses and get 80%
of the advance from the bank against their produce on the basis of MSP.
 Clear and transparent liquidation policy for buffer stock : FCI should be given greater flexibility in doing
business; it should offload surplus stock in the open market or export, as per need.

CONCLUSION
 Amartya Sen observed that, in India poor die not because of lack of food, but because of lack of entitlement
to food. The issues vis-a-vis policies regarding storage of buffer stock are main reasons. Buffer stocks being
an integral part of food security needs reforms to make it both practical and viable for the government as
well as beneficial to consumers and farmers.

ECONOMICS OF ANIMAL REARING

PREVIOUS YEAR QUESTIONS

1. Explain various types of revolutions, took place in Agriculture after Independence in India. How 2017
these revolutions have helped in poverty alleviation and food security in India?

2. Livestock rearing has a big potential for providing non-farm employment and income in rural 2016
areas. Discuss suggesting suitable measures to promote this sector in India.

3. India needs to strengthen measures to promote the pink revolution in food industry for ensuring 2013
better nutrition and health. Critically elucidate the statement.

Introduction
• Animal rearing is defined as animals raised or bred for their use, or for pleasure or for profit, often for food.
• The livestock plays an important role in the economy of farmers. The farmers in India maintain mixed farming
system i.e., a combination of crop and livestock where the output of one enterprise becomes the input of
another enterprise thereby realize the resource efficiency.

Data and Fact about livestock sector

Potential of animal rearing economy in India: 20th Livestock Census

 Contributing 34% of total Agriculture GDP (2019-20), the Livestock Sector in India has been growing at a
Compound Annual Growth Rate (CAGR) of 8.15% from 2014-15 to 2019-20.
 Livestock sector contributes 4.11% of GDP and 25.6% of total Agriculture GDP
 It gives job to about 8.8 % of the population and livelihood to two-third of rural community.
 It also contributed 16% of the income of small farm households as against an average of 14% for all rural
households.
 Animal Husbandry is a state subject and as per the 20th Livestock Census, India has World’s highest livestock
owner- First in the total buffalo population, second in the goat population and third in the sheep population.
o First in the total buffalo population in the world - 109.85 million buffaloes
o Second largest poultry market in the world
o Second in the population of goats - 148.88 million goats
o Second largest producer of fish and also second largest aquaculture nation in the world
o Third in the population of sheep (74.26 million)
 Second largest producer of fish and second largest aquaculture nation in the world.
 Second largest poultry market in the world.
 It also provides employment to about 8.8 % of the population in India. India has vast livestock resources.

Significance/ importance of Animal rearing:

• Alternative Income to farmers: Animals serves as moving banks and assets which provide economic security
to farmers and help them to earn quick money.
• Employment generation: It provides employment to around 8.8% of the Indian population. It also contributes
to India’s GDP. The livestock sector contributes 4.11% to Indian GDP and also 25.6% to agricultural GDP.
• Food and Nutrition: Bovine animals and poultry ensure a constant supply of milk and eggs which helps to get
the required nutrition to farmers and their families.
• Social Security: Animals offer a sense of social security in rural areas, especially landless farmers who own
more livestock are better placed than others.
• Fertilizer: Animal waste such as dung can be used as a fertilizer and reduces the dependence on market-
based fertilizers. It also helps farmers to move towards Zero Budget Natural Farming.
• Resilience to climate change: As livestock is less prone to global warming and climate change, it can be
considered more reliable than rain-fed agriculture.
• Weed control: Livestock are also used as Biological control of brush, plants and weeds.
• Foreign Earning: it is an important source of foreign earnings –In 2020 India stands 4th in beef exports.
Production of wool, leather, etc which have high export potential.
• Biogas production – Dung and animal waste is an excellent substitute for fossil fuels or fuelwood which helps
to reduce dependence on crude oil and reduce the fiscal deficit of India. Ex: In India alone, 300million tons of
dung are used for fuel every year.
• Towards Sustainable agricultural development – In Mixed farming systems by integrating animal rearing
with traditional farming helps to increase productivity in a more sustainable and profitable way.
• Women Empowerment: Livestock rearing at the household level is largely a women-led activity. Livestock
rearing has contributed significantly to the empowerment of women and an increasing role in decision
making.
• Risk mitigation by providing a sense of security and confidence to landless, small, and marginal farmers.
• Combats Malnutrition and hidden hunger in the children, providing opportunities for all in economic
development.

Challenges in the livestock development:

• Yield and productivity challenge: Improving the productivity of farm animals is one of the major challenges.
The average annual milk yield of Indian cattle is 1172 kg which is only about 50 per cent of the global average.
• Outbreak of Diseases: The frequent outbreaks of diseases like Foot and Mouth Diseases, Black Quarter
infection; Influenza, etc. continue to affect Livestock health and lowers productivity.
• Funding issue: The livestock sector received only about 12% of the total public expenditure on agriculture
and allied sectors, which is disproportionately lesser than its contribution to agricultural GDP.
• Lack of Technology: Only about 5% of the farm households in India access information on livestock
technology. These indicate a sub-optimal outreach of the financial and information delivery systems.
• Market access: markets for livestock and its products are underdeveloped and are not formalized acting as a
disincentive to farmers to adopt livestock.
• Presence of informal sector: About half of the meat production comes from the unregistered slaughterhouses
which are leading to poor price realization to farmers.
• Lack of quality checking and standardization of animal products: leading to poor quality exports and
returning of exports by other countries under sanitary and phytosanitary.
• Other major challenges: inadequate availability of credit, poor access to organized markets, limited
availability of quality breeding bulls, deficiency of vaccines, diversion of feed and fodder.
• Inadequate and poor quality of veterinary infrastructure: Testing and treatment facilities for veterinary
diseases was woefully lacking in India
• Shortage of nutritional fodder: According to a parliamentary panel report in 2016, fodder shortage is due to
increasing pressure on land for growing food grains, oilseeds, pulses and inadequate attention being given
to the production of fodder crops.
• Pressure of Adjustment to the emerging market forces like stringent food safety, and quality norms.

M EASURES TO PROMOTE L IVESTOCK SECTOR :

• Sufficient resources: Ensuring feed and fodder security by enhanced fodder seed production; using high yield
fodder varieties; development of fodder banks and drinking water is the need of hour to increase productivity
of livestock rearing in India.
• Marketing: Trade Policies like marketing have to be more effective for promotion of various livestock
products like egg, fish, milk etc. and providing sufficient price to farmers by reducing influence of middlemen.
o National Programme for Dairy Development with aim to enhance quality of milk and milk products
and increase share of organized milk procurement
• Promoting indigenous breeds: Our indigenous breed of cattle shall be promoted, because most foreign breed
cattle are not suitable to our climate and even provide low quality.
o Rashtriya Gokul Mission: launched for development and conservation of indigenous breeds.
undertake a breed improvement programme for indigenous cattle.
o Gopal Ratna awards and Kamdhenu awards for encouraging farmers/breeder societies to rear
Indigenous breeds of Bovines.
• National Cattle and Buffalo Breeding Project: projects aimed to upgrade indigenous breeds.
• Training: Necessary training and subsidies shall be provided to farmers to adopt livestock rearing as an
alternate source of income.
o e-GOPALA application by National Dairy Development Board (NDDB) to helps farmers manage their
livestock.
• Veterinary services should be strengthened and ensure vaccination of animals to prevent the occurrence of
diseases in livestock.
o Union cabinet in 2020 approved initiative to control and subsequently eradicate Foot and Mouth
disease (FMD) and Brucellosis.
o Pashu Sanjivni: An Animal Wellness Programme encompassing provision of Animal
o Health cards (‘Nakul Swasthya Patra’) along with UID identification
• Research and development: Government shall also focus on Research & Development in livestock sector to
increase per livestock productivity to provide more benefits to small & marginal farmers.
o National Artificial Insemination Programme: this programme was launched to suggest methods of
bringing impregnation in female breed which will prevent the spread of diseases.
• Subsidies: For investing in livestock, farmers require initial support in the form of financial support. This can
be provided to individual beneficiaries in the form of loans and subsidies. By keeping the interest rates low,
benefits can be transferred suitably.
• India should strictly follow the sanitary and phytosanitary standards as laid down by Codex Alimentarius
Commission which is formed by FAO and WHO.
• By setting up a consortium with National Bank for Agriculture and rural development (NABARD) and
National Centre of Disease Control (NCDC) to fund the dairy cooperatives.
o Establishment of Dairy Processing and Infrastructural Development Fund to enable the milk
processing capacity in the country.
 o It will to provide loan assistance to Eligible End Borrowers (EEBs) such as the State Dairy Federations,
District Milk Unions, etc. to modernize the milk processing plants and machinery and to create
additional infrastructure for processing more milk
• Promoting cattle health: The Government of India aimed to achieve 100 per cent vaccination for Foot-and-
mouth disease under the National Animal Disease Control Programme by 2025.
• Encouraging Public - Private Partnership (PPP) for sustainable livestock rearing.
• NITI AAYOG has suggested that:
o Breeding indigenous cattle with exotic breeds to enhance productivity.
o Capacity building for farmers and fish breeders with new technology penetration.
o Promoting and developing Bull mother farms with an objective to produce good quality genetically
superior bulls and also to promote cross-breeding.
• Connect market of livestock: E-Pashu Haat Portal: aims to connect breeders and farmers regarding
availability of bovine germplasm. The portal has been launched under the scheme "National Mission on
Bovine Productivity."
• Leverage Private investment: Animal Husbandry Infrastructure Development Fund (AHIDF) is proposed with
15,000 crores to leverage private investment and ensure availability of capital to the farmers.
• Innovating new and alternative uses of livestock: Gobar-Dhan (Galvanizing Organic Bio-Agro Resource
Dhan) will manage and convert cattle dung and solid waste in farms to compost, biogas, and bio-CNG.

C OMPONENTS OF A NIMAL R EARING :

1. FISHERIES- BLUE REVOLUTION:

• It was launched in India during the 7th Five Year Plan (FYP) that went from 1985 to
1990, during which the government sponsored the Fish Farmers Development Agency
(FFDA).
• India is the 4th largest exporter of fish in the world as it contributes 7.7% to the global
fish production.
• India is the 2nd largest producer of fish.
Potential: • Around 28 million people are employed in the fisheries sector in India.
• Fish constituted about 10% of total exports from India and almost 20% of agriculture
exports in 2017-18.
• Contribution to GDP around 1% of GDP in 2017-18. About 5% contribution to
agriculture GDP.
• Significant in providing food and nutritional security in coastal regions. More
than 25% of world dietary protein is provided by the fish.
Important • Meena Kumari Committee: for comprehensive review of deep-sea fishing policy.
committee • Ashok Dalwai Committee: to charting out policy for doubling farmer’s income by 2022.
• Modernize the fisheries sector with new technologies.
Objectives of Blue • Generate employment and promotion of exports.
revolution: • Promotion of Inclusive growth by empowering farmers.
• Increasing food production in a sustainable manner.
• India uses only about 40% of the available ponds, tanks and other water bodies for
freshwater aquaculture and 15% of total potential of brackish water resources.
• Shortage of quality and healthy fish seeds.
• Lack of mapping of zones of fishes and poor fishing vehicles.
Challenges faced • Absence of standardization and branding of fishes.
by the fisheries • Inadequate extension staff and lack of training to fishers and nonavailability of skilled
sector: man force.
• Usage of obsolete technology, depletion of inland natural waters are challenges in
inland fisheries cultivation.
• Usage of unsustainable practices like blast fishing.
 • Lack of strong value chain which makes India poor performing state in exports even
though we are 2nd largest producer.
• Promoting community participation in fishermen by establishing FPO's in the fisheries
sector.
• Development of post-harvest infrastructure by developing cold storage infrastructure,
processing plants, etc.
Measures to • Restoration of natural productivity and conservation of indigenous fishery resources.
boost the Blue • Promotion of integrated farming system- rice cum fish agriculture on the lines of
revolution: Kuttunad below sea level farming.
• Upgradation of fishing vessels and using satellite technology of Gagan and Gemini to
map fishes rich zones.
• Integrated development and management of the fisheries sector for focussed
development and management of the fisheries sector.
• Pradhan Mantri Matsya Sampada Yojana adopts a cluster-based to strengthen
backward and forward linkages.
• “River ranching programme” is introduced as a special activity under Pradhan Mantri
Policy Matsya Sampada Yojana
Interventions • PMMSY scheme to augment and enhance fish production and productivity through
expansion, intensification, diversification and productive utilization of land and water.
• National Policy on Marine Fisheries (2020) to develop an ecologically healthy,
economically viable and socially inclusive fisheries sector for economic prosperity and
well-being of fishers and fish farmers; provide food and nutritional security in
sustainable and responsible manner
• Blue Revolution 2.0: The focus of the Blue Revolution 2.0 is on development and
management of fisheries. This covers inland fisheries, aquaculture, marine fisheries
including deep sea fishing, mariculture and all activities undertaken by the National
Fisheries Development Board.
• The National Fisheries Development Board (NFDB) was established in 2006.
• Establishment of Fisheries and Aquaculture Infrastructure Development Fund
(FIDF) during 2018-19.
• Extension of Kisan Credit Card (KCC) facilities to fishers and fish farmers to help them
in meeting their working capital needs.
• MGNREGA: The government under the MGNREGA has started to develop the farm
ponds, where pisciculture is taking place.
• India’s long coastline has the potential of becoming the strength of the economy
particularly through the exploitation of the Blue Revolution. India can grow to the
Conclusion extent of 10 trillion-dollar economy as against 2.7 trillion dollars today with the help
of the Blue Economy. India needs to develop more scientifically its fishing system and
other related aspects such as freezing, packaging, etc.

2. DAIRY SECTOR- WHITE REVOLUTION:

• India also has the largest bovine population in the world.

• Dairy is the single-largest agricommodity in India. It contributes 5% to the national
economy and employs 80 million dairy farmers directly.
• As per the National Sample Survey Office’s (NSSO) 70th round survey, 23% of
Potential: agricultural households with very small parcels of land (less than 0.01 hectare)
reported livestock as their principal source of income.
• Egalitarian and inclusive, as most of the livestock is concentrated in dryland areas
and with small and marginal farmers, the development of animal husbandry is
considered to be more.
Important • Ashok Dalwai Committee: to charting out policy for doubling farmer’s income by
committee: 2022.
Case Study/Model • Operation Flood promoted the AMUL model.
• To promote cooperative societies to enhance procurement, storage,
transportation of milk.
Objectives of white • Production of a wide variety of milk products and their marketing management.
revolution • Provide superior breeds of cattle, health services, veterinary treatment, and
(Operation flood): artificial insemination facilities.
• To connect milk producers with the consumers of more than 700 cities and towns
and throughout the country, a ‘National Milk Grid’ was formed.
The achievements of • Alternative occupation to rural masses.
operation • Became leading producer in milk.
flood/white • Quality of livestock and promotion of indigenous livestock.
revolution: • Small and Marginal farmers along with landless laborers are benefitted.
• Inadequate market facilities and informal sector, as per economic survey 2018-
19 about 36% of the milk sold is handled by the organized sector and the rest by
the unorganized sector.
Challenges faced by • In most places, cattle are kept under unhygienic conditions.
the dairy sector: • Incidence of diseases such as Foot and Mouth diseases.
• Climate change led to an increase in temperature affecting productivity.
• Poor coverage of livestock insurance.
• Infrastructural deficiencies such as cold chain facilities leading to milk losses.
• Geotagging of animals helps us to keep track of health-related issues of a
Measures towards particular animal.
New white • Strengthening the Dairy Development Extension Program and creating a network
revolution/Operation of strong value chains.
Flood 2.0 • Using technology like Artificial Intelligence and Machine learning to run
simulations on how to increase the productivity of the animals.
• National Livestock Mission focuses on the development of livestock and adequate
Policy availability of quality feed and fodder.
Interventions • Gobar-Dhan (Galvanizing Organic Bio-Agro Resource Dhan) will manage and
convert cattle dung and solid waste in farms to compost, biogas, and bio-CNG.
• Rashtriya Gokul Mission to develop indigenous breeds in a scientific manner.
• Dairy Entrepreneurship Development Scheme under NABARD for generating self-
employment opportunities in the dairy sector, covering activities such as
enhancement of milk production.
• Doubling of milk processing capacity to 108 million MT from the present 53.5
million MT by 2025(budget 2020-21).

Initiatives taken in the Budget 2022-23 for this Sector

o Reducing Alternate Minimum Tax: To provide a level playing field between co-
operative societies and companies, alternate minimum tax has been reduced from
18.5% to 15%.
o Government has also proposed to reduce the surcharge on co-operative societies
to 7% from 12% at present for those having total income of more than Rs. 1 crore
and up to Rs. 10 crore.
o Allocation for the Rashtriya Gokul Mission and National Programme for Dairy
Development has been increased by 20% in 2022-23.
In India Majority of the dairy farmers own only small landholdings (households with
two to five cows). But due to the development of co-operatives under Operation
Role of cooperatives Flood, they were able to improve a lot. This includes:
in Operation Flood: • The small dairy farmers were able to avoid middlemen.
• They also started getting a guaranteed minimum procurement price for milk.
• It enhanced the knowledge and bargaining power of small and marginal farmers.
 • According to the latest data, there are more than 1,90,000 dairy cooperative
Achievement of societies across the country. Approximately 6 million of their members are women
women dairy members.
farmers: • Apart from that, Women dairy farmers also broke the traditional practices of
patriarchal society.
• In keeping with our ethos of ‘Jai Kisan, Jai Vigyan’ the marriage of rural farming
Conclusion with the latest innovations in technology will usher in unprecedented
transformation in our dairy industry. Need of the hour is for us to identify ways in
which we can enhance the return on investment for our farmers.

Conclusion:
• In a country like India where greater than 50% of the population is involved with agriculture and Agri-based
activities, it is the need that the farmers diversify their risks by managing parallelly the livestock which helps
not only in generating extra money but also to ensure nutritional security in the families of farmers.
• Hence government investing in the livestock sector will ensure to bring inclusive development and also
enhances the export potential and ultimately fulfilling the dream of doubling the farmer's income by 2022.

LAND REFORMS

PREVIOUS YEAR QUESTIONS

1. Discuss the role of land reforms in agricultural development. Identify the factors that were 2016
responsible for the success of land reforms in India.

2. Establish the relationship between land reform, agriculture productivity and elimination of 2013
poverty in Indian Economy. Discussion the difficulty in designing and implementation of the
agriculture friendly land reforms in India.

INTRODUCTION
 Commercialization of agriculture in colonial India facilitated the extraction of surplus from the peasantry
(through land revenue demand in cash) and the transfer of this surplus from India to Britain by bringing
agricultural produce to the export market which is otherwise called “Drain of wealth”.
o At the time of independence Ownership of land was highly concentrated, Land was not organized and
thus a number of small fragments existed. Cultivators often had to supplement their farm income by
working as hired laborers like their poorer landless counterparts.

LAND STRUCTURE At the time of independence

 Ownership of land was highly concentrated.
 Landlords used to extract maximum rental from tenants.
 Tenants were left with no money after paying the rents and thus made no effort to develop agriculture.
 They had neither resources nor knowledge.
 Land was not organized and thus number of small fragments existed.
 Often cultivators were shifted from one farm to another by landlords on their whims and fancies.
 Cultivators often had to supplement their farm income by working as hired laborers like their poorer landless
counterparts.

Objectives of Land Reforms

Abolition of  It was to be done so that ownership of land can be clearly identified with
Intermediaries management and operation of land. The owner himself should operate and
manage the land.
  To meet the land needs of the working cultivators.
 To reduce disparity in agricultural incomes in ownership and in the use of
Land ceilings land.
 To increase employment opportunities in the rural sector.
 To reduce land disparities and Generate agricultural employment.
Consolidation of holdings  For more efficient management.
 Effective management of land without spending much on fencing and
barricading.
Encouragement of co-  To overcome the difficulties presented by tiny holdings.
operative joint farming  Larger financial resources could be invested and employment opportunities
increased.
Settlement and  To confirm the rights of occupancy of tenants, secure the possession of their
Regulation of tenancy rented land and also rents on leased land.

PHASES OF LAND REFORMS

 Abolition of Zamindari
 Tenancy laws (security of tenure, decrease in rent, ownership rights to tenants)
 Land-ceiling laws
First phase  Placing the above laws in 9th schedule to make them immune from judicial review
 Land acquisition acts by states such as Rajasthan and Punjab in 1953.
 Bhoodan and Gramdan movements to encourage voluntary giving up of excess land
and redistribution
 Cooperativization
Second phase  Green Revolution (technological reform)
 Right to property [A. 19(1)(f)] was abolished as a fundamental right
 Model (Agricultural) Land Leasing Act, 2016
Third phase  Real Estate Regulatory Authorities Act
 Model Tenancy act 2021

Need for land Reforms

 Restructuring of agrarian relations to achieve an egalitarian structure – abolition of Zamindari system.
 Elimination of exploitation in land relations – tenancy reforms.
 Actualization of the goal of “land to the tiller” – land ceiling.
 Land consolidation and prevention of fragmentation to ensure economic landholdings.
 Improvement of socio-economic conditions of the rural poor by widening their land base – redistribution of
excess land.
 Increasing agricultural production and productivity.
 Facilitating land-based development of rural poor.
 Infusion of a great measure of equality in local institutions – Cooperative farming.
 Giving land right to women and tribals.

Success of Land Reforms in India

 Abolished exploitative land tenure systems prevalent in agrarian society.
 Distributed the surplus land among the landless and the weaker sections of the society.
 Provided security of tenure to the tenants through Land Tenancy laws.
 In some cases, tenants are even given ownership rights.
 Fixed rent in the range of 25-33%.
 The cumulative effect of the abolition of Zamindari, tenancy legislation, and ceiling legislation motivated
the cultivators to invest and improve agricultural practices.
 They made a significant positive impact on poverty removal.
 Lower castes have become more organized and assertive about their rights.
 Brought fundamental changes in the agrarian economy, rural social structure, and rural power structure.
 Moved Indian society towards an egalitarian society.
 Increased democratization of Indian polity and reduction in the influence of the dominant sections of the
society.

FATORS RESPONSIBLE FOR SUCCESS OF LAND REFORMS

 Political mobilization during freedom struggle was also based on agrarian issues. This political awareness
and education facilitated the acceptance of land reforms to advance the development of agriculture.
 Political will of the then government to insert the 9th schedule in the constitution and abolish the right to
property. Across political spectrum there was an acknowledgment and enthusiasm to facilitate these
reforms.
 Kisan Sabhas and Farmers Associations also helped farmers organize themselves and raise their demands.
 The spirit of freedom struggle and attainment of Independence inculcated the feeling to usher in a new era
in India, where prosperity, growth and wealth where to be shared equally.
 Judicial backing and progressive interpretations of constitutional provisions aided in land reforms. Without
abolishing Rights to property as fundamental right and providing for the exception of land reform legislations
through IX schedule it would have been an uphill task to recognize land holdings.
 Land being a state subject, these land reforms were particularly successful in states of Kerala and West
Bengal, which had communist governments for several decades.
 Increasing literacy and awareness regarding land rights and constitutional provisions.
 Advent of various NGOs and cooperatives that helped farmers reap the benefits of such laws.
 Green Revolution: High yield variety (HYV) seeds, inorganic fertilizers and subsidies on diesel and electricity
that increased productivity manifold during Green Revolution.

Reasons for failures

 Rent receivers under absentee landlords under Ryotwari was left out.
 Intermediaries got huge compensation for the abolition.
 Landowner used loopholes of the law and transferred land in the name of relatives and friends.
 A large amount of recovered land remains undistributed and uncultivated as litigation slowed down
implementation.
 Farmers are emotionally attached to ancestral land as land is hereditarily transferred from grandfather to
father to son and then to grandson.
 Farmers with good quality of land feared getting the bad quality of land
 Cumbersome process and implementation officials were slow and corrupt
 The cost of consolidation was realized by the farmers which had an adverse effect on resources
 Small farmers got the bad quality of land and couldn't fight litigation
 Tenancy legislation in India is not uniform and different across states
 Many landowners claimed personal cultivation fearing tenants might take away their lands.

Advantages of land reforms

 Abolition of the exploitative land tenure system which was widely prevalent in Indian Agriculture.
 Surplus land was distributed among the landless and the weaker sections of the society.
 Provided security of tenure to the tenants.
 Tenants were often given ownership rights on the land.
 Rent was fixed in a range of around 25-33% which was less exploitative.
 Violence was very rarely used - e.g. Bhudaan and Gramdan Movement
 As a consequence of the abolition of intermediaries and cultivators being given ownership rights, investments
in agriculture became more common.
 Land reforms made a big dent on poverty.
 Lower castes and classes got greater rights and were able to mobilise themselves.
Drawbacks of land reforms
 Inverse relationship between land size and productivity – smaller the land, better is the productivity.
 Often centralized control of large tracts of land bring about greater investments in agriculture due to
economies of scale.
 Fragmentation of land increases as a result of land ceilings and reforms.
 Evidence suggests that land reforms had a negative effect on poverty.
 Many of the steps taken under land reforms such as land ceilings, tenancy reforms, land consolidation etc.
we’re not implemented properly due to legal loopholes.
 In under-developed countries such as Zimbabwe, land reforms actually increased poverty and led to economic
decline.

Hurdles in Land Reforms

 Socio cultural factors: traditional sentiments attached with land, ignorance hindered consolidation and
redistribution. Caste hierarchies also obstructed the process and community farming failed. So, consolidation
was largely dropped by every state.
 Legal Factors: In case of tenancy laws, the burden of proof lies with the tenant. Loopholes were liberally
exploited by rich farmers. Often land was forcefully evicted and was fraudulently shown as ‘voluntarily
surrendered’.
 Politico Administrative Factors: Bureaucracy was uncommitted and was hand in glove with rich farmers.
 Blend of success- failure dichotomy: The agrarian structure varies greatly across India, and the progress of
land reforms has also been uneven across the states. In West Bengal, redistribution work was carried out
quite successfully, in Haryana and Punjab consolidation work was done quite effectively, in Karnataka land
record Modernization was implemented effectively.

WAY FORWARD
 The Digital India Land Records Modernization programme (DILRMP): was launched by the Government of
India. The target of the programme was to streamline and reduce the scope of land and property disputes,
thereby improving transparency within the maintenance of land records.
 Administrative changes at the state level that streamline the collection and maintenance of land data
 Ensure data is regularly updated and easily accessible on digital platforms like Karnataka’s BHOOMI Project.
 The Ten Point Agenda of the Government of India is a strong beginning in addressing some of these
seemingly intractable problems. These are:
o The agreement of the State governments on the National Land Reform Policy.
o National Legislation for guaranteeing shelter land to the millions of homeless and landless, particularly in
rural areas.
o Stronger Implementation of the Central Acts related to Forest Lands.
o Engendering Land Ownership to ensure strengthening of women’s equality.
o Ensuring the functioning of Land Tribunals.
o Oversight by bodies jointly governed by Government and Civil Society.
 Draft National Land Reforms Policy, should be implemented properly The draft national land reform policy
has five goals:
o Restore land unjustly taken from vulnerable communities such as Dalits (untouchables) and Tribals.
o Protect the land of the Dalits and Tribals including the commons that they depend on going forward
o Liberalize leasing laws.
o Improve land rights of women.
 Appropriate amendment to Forests Right Acts, 2006.
 Model Agriculture Land Leasing Act, 2016, should be implemented by states As land is a State subject, So
Union Circulated Model Agriculture Land Leasing to:
o Protects landowners from illegal occupation by tenant farmers.
o Helps tenant farmer get bank loans using leasing agreement as proof
 Implementing the recommendations of Model Land Lease Act (2016) prepared by NITI Aayog-appointed
expert body headed by T Haque.
LAND REFORMS AND AGRICULTURE PRODUCTIVITY
 Abolition of intermediaries: Zamindari system was abolished. “Land to tillers” programme which recognized
the tillers rights over land encouraged further investment in agriculture.
 Tenancy reforms: They confirmed the occupancy rights of tenants and regulated rent that could be levied.
This too encouraged the farmers to take proactive steps to improve farm produce.
 Reorganization of land holdings: Land ceiling acts were enacted to regulate the amount of land an individual
could hold. It met with limited success since only 2 % of the land was reorganized by it.
 Encouragement of Bhudaan and Sarvodaya moment: They appealed to the people’s consciousness to donate
land for the welfare of people.
 Consolidation of land holding: It was introduced to improve efficiency. It was successful in Punjab, Haryana
but failed in Southern and eastern states.
 Collective joint farming: It aimed to pool the individual land holdings under village communities to reap the
benefits of economies of scale. It was unsuccessful since people didn’t want to alienate their land.
 National Land Records Modernization Program: launched in 2008 aimed at updating and digitalizing land
records. It has brought clarity to the title of land holders and infused transparency.

Land reforms were not only instruments of redistribution but of social transformation . They empowered the
farmer and incentivized them to adopt advanced agricultural techniques. From a ‘ship to mouth’ existence, India
has become one of the leading global producer (as well as exporter) of agricultural commodities.

L AND REFORM AND R URAL P OVERTY R EDUCTION

 Increased agricultural growth and productivity and thus enhanced farmers’ income due to land reforms is
directly related to rural poverty reduction.
 Increased access to land for the poor landless masses by the redistribution of land ensures them an income
guarantee.
 Land reform leads to increased rural agricultural wages that help in ensuring more income to the rural
landless labourers and thus crucial to rural poverty reduction.
 Regulation of rents gives some security to the tenants.
 Abolition of intermediaries strengthens the position of the actual landholders and cultivators that help them
to enhance their social and economic stature.

The pace of implementation of land reform measures has been slow. The objective of social justice has, however,
been achieved to a considerable degree. Land reform has a great role in the rural agrarian economy that is
dominated by land and agriculture. New and innovative land reform measures should be adopted with new
vigour to eradicate rural poverty. Modern land reforms measures such as land record digitisation must be
accomplished at the earliest.

L AND R ECORDS MODERNISATION

 Land records consist of various types of information (property maps, sale deeds) and are maintained across
different departments at the district or village level.
 Almost 66% court cases in the country are related to land disputes costing a whopping Rs.58,000 crore in
litigation, both civil and criminal.
 Land Records digitization can help accelerate India’s GDP by as much as 1.3%. Latest news is coming from
Kerala, which is on verge of completion of land records digitization.
 Some have estimated that nearly two-thirds of all pending cases in Indian courts are related to property
disputes.
 NITI Aayog has said that such property cases take an average of 20 years to settle.
 The result is that millions of Indians cannot use their principal asset as collateral to borrow from the formal
financial system. The poor suffer the most.

ISSUES WITH LAND RECORDS

 Land titles are presumptive: Land records provide
information on who is in possession of the land
rather than who the owner is. Any transfer of land
is recorded by a sale deed which has to be
registered, but this registers a transaction and not
the land title.
 Registration of property is not mandatory for all
transactions: Under Registration Act 1908,
acquisition of land by the government, court
decrees, land orders, ship partitions, and leased
land for less than a year registration is not
mandatory. Several property divisions are not
recorded and possession of land is unknown
causing litigation.
 Poor maintenance of land records: Manual registration and documents with the revenue department are not
easily accessible to the public. Therefore it is difficult to know the landowner during property sale and can
lead to litigation.
 Multiple entities deal with land registration and records: Multiple agencies are responsible for land records
and difficult to ensure the data matches across all agencies.

ADVANTAGES OF LAND RECORD MODERNIZATION

 Ease of doing business – According to NITI Aayog, it takes over 20 years to resolve a land dispute. Land record
modernization helps in reducing litigation.
 Agriculture Credit can be provided to farmers, as a clearly titled land can be used as collateral.
 Gives fillip to manufacturing as lack of clear land records delay or stall land acquisition.
 Helps housing and urbanization in slum areas.
 Transparent and tamper-proof land records help check Benami transactions and associated parallel
economy.
 Reduce the scope for property disputes.
 Make land records more transparent.
 Moving towards conclusive property titles.

Digitization of land records

The National Land Records Modernization Programme (NLRMP) 2008 aimed to modernize the management of
land records, minimize the scope of land/property disputes, enhance transparency in the land records
maintenance system and facilitate moving eventually towards guaranteed conclusive titles to immovable
properties in the country.
 Computerization of existing land records and transfers and registration process
 Digitization of maps and integrating all data types like spatial and textual records
 Survey and resurvey and update settlement records
 Development of core GIS and capacity building
 DLRMP intends to move towards conclusive and state-guaranteed titles from presumptive titles.
 NLRMP is now part of the Narendra Modi regime’s flagship Digital India initiative

NEED FOR LAND DIGITIZATION

 Land digitization will ensure clear land titles, which will make it easier for the poor to borrow from the
formal financial sector. In urban areas, it will lead to transparency in real estate transactions.
 It will ease commercial land acquisition for infrastructure projects instead of the misuse of eminent domain.
 It will resolve the issues of those vulnerable to conflict, evictions, and encroachment on their land.
 It will significantly reduce the scope of fraudulent property deals.
 Free accessibility to the records will reduce the interface between the citizen and the Government
functionaries, thereby reducing rent-seeking and harassment.
CHALLENGES IN DIGITIZATION OF LAND RECORDS IN INDIA
 Need of multiple documents across departments: In India land ownership is established through multiple
documents maintained by different departments, making it cumbersome to access them, thus affecting
digitization. For example, sale deeds are stored in the registration department, maps are stored in the survey
department, and property tax receipts are with the revenue department.
 Poor progress in computerization of land records in some states: While some states like Karnataka and
Odisha have completed 100% computerization of land records, many others are still lagging in the
implementation.
 Land conflicts affect digitization: Hundreds of laws and the lack of clear titles mean that matters related to
land and property make up about two-thirds of all civil cases in Indian courts, further affecting the
modernization of land reforms.
 Issues in land ownership and identification of landowners: It is well known that land records in India are
unclear and do not guarantee ownership. In India, there exists a system of registered sale deeds and not land
titles, which implies that the transaction gets registered, and not the land title.
 Delay in creating cadastral maps: Maps form an important component of land records as they provide data
on property boundaries and details on the exact limits of ownership. However, not all cadastral maps have
been created and even spatial data isn’t verified for all geographies in schemes like DILRMP.
 System of registered sale deeds: allow only the registration of transaction not the title as per the Transfer of
property Act 1882 and Registration Act 1908.
 Data discrepancies: Since the land documentation data is maintained by different government departments,
they are not updated often.
 High cost of Property Registration: People avoid registration to avoid payment for stamp duty.
 Registration Act, 1908: Do not provide for mandatory registration such as transaction of acquisition of land
by government and land on lease for less than a year.
 Lack of awareness: Most of the people are digitally illiterate and they are not aware about digitalization of
land records.
 Lack of human resource: lack of technical and competent human resource to feed correct and foolproof data
 Cyber security: vulnerability to cyber threats, issue of internet connection and networks.

GOVERNMENT EFFORTS TOWARDS DIGITIZATION OF LAND RECORDS

 SVAMITVA scheme : The land digitisation efforts in India received a replacement boost at both the Centre
and state levels after the launch of a survey of villages and mapping with improved technology.
 The Digital India Land Records Modernization programme (DILRMP): was launched by the Government of
India. The target of the programme was to streamline and reduce the scope of land and property disputes,
thereby improving transparency within the maintenance of land records.
 The Rajasthan legislature passed the Rajasthan Urban Land (Certification of Titles) Act in April 2016. This law
ensures that the state government is a guarantor for land titles in Rajasthan, and will provide compensation
in case of issues of defective title.
 Karnataka was the primary state in India to computerize land records under the “Bhoomi Project”.
 Madhya Pradesh, West Bengal and Odisha are the simplest performing Indian states in land record
digitisation, consistent with an annual land records index prepared by Delhi-based think-tank National Council
of Applied Economic Research (NCAER).

WAY FORWARD
 Implementing the recommendations of Model Land Lease Act (2016) prepared by NITI Aayog-appointed
expert body headed by T Haque.
 Liberalising land lease markets, with computerisation of land records and geo-tagging of farms can provide a
high pay-off with enhanced capital formation. Crop insurance could even be linked to the present platform.
 Andhra Pradesh and Kerala’s innovative institutional experiences offer key lessons for policymakers to
liberalise restrictive land leasing laws within the country, while fully protecting the land rights of the owners.
 It is time to hold out long-pending structural reforms within the agriculture sector to achieve the faster rate
of growth and effectively meet the vision of doubling farmers’ income by 2022.

CONCLUSION
 The Indian push to digitize land records and establish conclusive rather than presumptive titles should have
been completed by now. The government has now pushed the year of completion to 2021. Clear land titles
will ease a lot of constraints from making it easier for the poor to borrow from the formal financial sector to
easing commercial land acquisition for infrastructure projects instead of the misuse of eminent domain.
 And, even as computerization continues, some more attention should be paid to the possibilities offered by
new technologies such as blockchain and Artificial Intelligence.

Model Tenancy Act (MTA) 2021

After releasing the draft in 2019, the Union Cabinet has approved the Model Tenancy Act (MTA) in June 2021 to
streamline the process of renting property in India and aid the rent economy in the estate sector.

NEED FOR A TENANCY LAW

 Restrictive Laws: As per Census 2011, more than 1 crore houses were lying vacant in urban areas. The existing
rent control laws are restricting the growth of rental housing and discourage owners from renting out their
vacant houses due to fear of repossession.
 Large scale informalisation in sector: One of the potential measures to unlock the vacant house is to bringing
transparency and accountability in the existing system of renting of premises and to balance the interests of
both the property owner and tenant in a judicious manner.
 Lack of Uniformity: Since it is a state subject, states have enacted their laws and it differs from one state to
another.
 Housing Poverty: 2013 report by a Task Force for Rental Housing held that affordable rental housing
“addresses the issues of the underprivileged and inclusive growth, in an even more direct manner than
affordable ownership housing”. Model Tenancy Act helps bring investment in the sector as the sector provides
better safeguards.
 Violets right to privacy (Art. 21): Some homeowners routinely breach tenants’ right to privacy by visiting the
premises unannounced for sundry repair works.
 Drastic rise in rent : sudden rise in rent squeezed as “captive customers“ violent right to life
 Grabbing property: Tenants try to grab the property on their name. This act will avoid such incidents.
 Housing for All: As per Census 2011, nearly 1.1 crore houses were lying vacant in the country and making
these houses available on rent will complement the vision of ‘Housing for All’ by 2022.

HIGHLIGHTS OF THE MODEL LAW

 Dedicated Institutions: States will set up a grievance redressal mechanism comprising of Rent Authority, Rent
Court and Rent Tribunal to provide fast-track resolution of disputes.
 Time Bound Resolution: Disposal of a complaint/appeal by the Rent Court and the Rent Tribunal will be
mandatory within 60 days.
 No monetary ceiling on rents: At present, in many old properties let out under archaic rent-control Acts, such
ceilings have left landlords stuck with outdated rent amounts. This will be done away with in new model act.
 digital platform: it will be set up in the local vernacular language or the language of the State/Union Territory
for submitting tenancy agreement and other documents. Rent Authority will keep a tab on these agreements.
 Proper Documentation: Verbal agreements will be out of the picture, as the MTA mandates written
agreement for all new tenancies (prospective) which is to be submitted to Rent Authority.
 Clarity on Subletting: Subletting of premises can only be done with the prior consent of the landlord, and no
structural change can be done by the tenant without the written consent of the landlord.
 Guidelines on Security Deposit: The security deposit to be paid by the tenant should not exceed two months’
rent for residential property (six months’ rent in case of non-residential property)
 Provision for eviction: The Rent Court can allow repossession by the landlord if the tenant misuses the
premises, after being served a notice by the landowner. Misuse of the premises, as defined, includes public
nuisance, damage, or its use for “immoral or illegal purposes”.

SIGNIFICANCE OF MODEL TENANCY ACT

 Formalise the shadow market of rental housing
 Protects interests of both tenant and owner
 Faster resolution of disputes
 Unlock vacant properties
 Increase rental yields
 Ease/remove exploitative practices
 Reduce procedural barriers in registration
 Increase transparency and discipline.
 Attracts private investment into the sector.

CHALLENGES
 The Act is not binding on the states as land and urban development remain state subject.
 Like in the case with RERA (Real Estate Regulation and Development Act), the fear is that states may choose
not to follow guidelines, diluting the essence of the Model Act.

CONCLUSION
It is a crucial piece of legislation that promises to ease the burden on civil courts, unlock rental properties stuck
in legal disputes, and stop future tangles by balancing the interests of tenants and landlords.

NITI AAYOG A CTION A GENDA : A GRICULTURAL L AND P OLICY - L EASING A ND R ECORDS

 Land being a purely state subject except as it relates to land acquisition, land leasing requires amending
existing state-level tenancy laws or replacing them by a new law.
 Recently, NITI Aayog has prepared a model Land Leasing Law. Following it, Madhya Pradesh has
introduced a new land leasing law, which has all the important features of the NITI Aayog land leasing
law.
o Uttar Pradesh has taken the amendment route, introducing the key features of the NITI Aayog
model law that was missing from its existing law.
o Rajasthan has had a land leasing law that predates the NITI Aayog model law and goes beyond it.
 Turning to updating ownership records and digitizing them, a central sector scheme known as the
National Land Records Modernization Programme was initiated in 2008. The scheme aims to build a
transparent and integrated system of real-time land records based on land surveys, updating of survey
and settlement records.
 High-resolution satellite imagery and ground truth data collection are to be used. It also envisages
computerization of land records and registration, modernizing of record rooms and setting up of record
management Centres.

M ODEL (A GRICULTURAL ) L AND L EASING A CT , 2016

 Legalise land leasing to promote agricultural efficiency, equity and power reduction. This will also help
in much needed productivity improvement in agriculture as well as occupational mobility of the people
and rapid rural change.
 This is very important step for land reforms through which needs of landlord as well as lease holder have
been taken care.
 Through this act, the landlord can legally lease the land with mutual consent for agriculture and allied
activities. In this act, it has been taken care that in any circumstances the leased holders’ claim on land
will not be valid.
 Lease holder may receive institutional loan, insurance and disaster relief so that he may invest more and
more in agriculture.
  Allow automatic resumption of land after the agreed lease period without requiring any minimum area
of land to be left with the tenant even after termination of tenancy, as laws of some states require.
 Incentivise tenants to make investment in land improvement and also entitle them to get back the
unused value of investment at the time of termination of tenancy.
 In order to resolve the dispute between the landlord and lease holder, the provision of “Special Land
Tribunal” has been made in the Civil Court.

Women and Land Rights

 Land reform policy in the past did not address the question of land rights of women.
 In Uttar Pradesh, the Zamindari Abolition Act banned a female from inheritance of agricultural land. In some
states, women cannot even buy agricultural land.
 In 1992, the revenue ministers’ conference recommended that in matters of distribution of ceiling surplus
land and other public lands, women should be given equal opportunities. The land should be allotted jointly
in the name of husband and wife.
 In practice, however, women are generally ignored as land ownership is given in the name of a male member
of the benefited family. It is thus desirable that law should specifically provide women with equal access to
benefits of land reforms.

LAND RIGHTS OF SCHEDULED TRIBES (ST)

 In all the scheduled areas, land transfer from tribal to non-tribal population was prohibited by law. But due
to various legal loopholes and administrative lapses, alienation of the tribals from their land continued on a
large scale.
 In fact, mortgaging of land to moneylenders due to indebtedness, poverty and acquisition of tribal land for
irrigation, dams and other public purposes were largely responsible for alienation of tribal land.
 Since land is the main source of livelihood for the tribal people and they do not have much upward mobility,
indiscriminate acquisition of tribal land for public purposes should be avoided.

LEGISLATIONS DEALING WITH TRIBAL’S LAND AND THEIR ACQUISITION

 Constitutional provision under Schedule-V: also provide for safeguards against displacement of tribal
population because of land acquisition etc.
 Panchayats (Extension to Scheduled Area) Act, 1996: provides that the Gram Sabha or the Panchayats at the
appropriate level shall be consulted before making the acquisition of land in the Scheduled Areas or
development projects and before resettling or rehabilitating persons affected by such projects in the
Scheduled Areas, the actual planning and implementation of the projects in the Scheduled Areas shall be
coordinated at the State Level.
 ‘Right to fair compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act,
2013: The purpose of the said Act is to ensure, in consultation with institutions of local self-government and
Gram Sabhas established under the Constitution, a humane, participative, informed and transparent process
for land acquisition with the least disturbance to the owners of the land and other affected families and
provide just and fair compensation to the affected families whose land has been acquired or proposed to be
acquired.
 Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006: In section
4(5) states that save as otherwise provided, no member of a forest dwelling Scheduled Tribes or Other
Traditional Forest Dweller shall be evicted or removed from the Forest Land under his occupation till the
recognition and verification procedure is complete.

GREEN REVOLUTION

Introduction
Green Revolution in India refers to the development of HYV seeds during the decade of 1960's which led to the
phenomenal rise in the output of food crops in India, particularly of rice and wheat in order to alleviate hunger
and poverty.

Background of Green Revolution in India

It was brought in the background of stagnated growth in agriculture, high food imports through schemes like PL-
480, draughts and rising population.
 Rising population and Stagnant agricultural growth: Between 1951 and 1966, food grain production
increased at a pace of 2.8 percent per year.
o This was insufficient to meet the burgeoning population's consumption demand, which was
growing at a rate of more than 2% each year.
 Food import: As a result, starting in the mid-1950s, India began to rely on food grain imports to feed its
rising population. o India and the United States signed Public Law (PL) 480 in 1956, allowing India to
receive food aid, largely in the form of wheat.
 Consecutive wars: India was unable to divert its resources into rural investments due to two wars (with
China in 1962 and Pakistan in 1965).
 Successive droughts: Two consecutive droughts, in 1965 and 1966, put the country into an
unprecedented food crisis, with food grain production and yield falling by 19% and 17%, respectively, in
1966.
o Cold war: Imports of food grains were increased to avoid hunger. o Food aid was used to "twist
the arms" of recipient countries to obtain conformity during the Cold War, and India was a victim
of this approach.

Need of Green Revolution

 Short Term: Addressing India’s hunger crisis. GR was launched to take care of crisis during 2nd Five Year
Plan;
 Long Term: Overall agriculture modernization based on rural development, industrial development
(infrastructure, raw material, consumer, etc.);
 Employment: Would in turn help to provide employment to both agricultural and industrial workers;
 Conduct Studies and Biological Tests : To produce stronger plants which could withstand extreme
climates and diseases;
 To globalize the agricultural world: By spreading technology to non-industrialized nations and setting up
many corporations in major agricultural areas.

Components of Green Revolution

 The HYV Seeds: HYV has increased responsiveness to Chemical Fertilizers, their period of maturing is short
which enables the farmer to go for multiple cropping. For example, the new seeds of the Rice and Wheat take
around 100 and 110 days respectively, contrary to this the traditional varieties of wheat and rice take around
130 and 150 days respectively to harvest.
 Irrigation: It is the second most important component of Green Revolution after HYV, and over and under-
irrigation, both are injurious to the crop. As Indian rainfall is unreliable, irregular and seasonal, there is an
urgent need to expand irrigation potential.
 Chemical Fertilizers: The natural fertility of the soil decreases over the period of time and HYV seeds are also
known as hungry varieties, which require a high dose of fertilizers to give high yields.
 Insecticide and Pesticide: The monoculture promoted by the Green Revolution is more vulnerable to insects
and pests, thus use of Pesticide and Germicide becomes compulsory for secured yields.
 Consolidation of Holding : Small and fragmented land holding has been the main problem in the progress of
agriculture in India.
 Land Reforms: Under zamindari system zamindars used to exploit the farmers, thus after independence
reforms were introduced and intermediaries like Zamindari system were abolished, further ceiling laws were
imposed.
 Agriculture Credit: The inputs like Technology, HYV Seeds, Fertilizer, Pesticide etc., were all dependent on the
availability of the credit and hence easy and cheaper credit was provided.
 Rural Electrification: Electric power which is the nucleus of all technological development is imperative for
multiple cropping and intensification of Agriculture.
 Farm Mechanisation: Mechanisation saves human labour and quickens the farm operations; thus, it improves
the farm efficiency and productivity.
 Agriculture Universities: Agriculture universities and other institutes are primarily engaged in agriculture
research and passing on the research finding to the farmers.
Phases of Green Revolution
 Phase I (1966 - 72): Throughout 1966, India requested the shipment of 18,000 tonnes of HYV wheat seeds,
which were distributed in Punjab, Haryana, and western Uttar Pradesh's highly irrigated areas.
 Phase II (1973 - 80): The spread of the green revolution to new areas in eastern UP, Andhra Pradesh,
coastal Karnataka, and Tamil Nadu was aided by the extension of HYV technology from wheat to rice,
which was aided by the growth of tube wells (both private and public).
 Phase III (1981 - 90): The green revolution spread to West Bengal's eastern region, Bihar, Assam, and
Odisha, which were formerly low-growth areas.

Positive impact of Green Revolution

 Increase in Agricultural Production: From 1967 onwards, the Green Revolution brought a Grain Revolution.
On account of this reason, it is said that the Green Revolution in India is largely the Wheat Revolution.
 Affluence of Farmers : Green revolution had greatly impacted the life of farmers. With the increase in farm
production, farmers generated huge revenues and they became wealthy.
 Reduction in import of food-grains : Key benefit of Green Revolution was the increase in the production of
food-grains which fulfilled the needs of the growing population of India. As a result, there was a drastic
reduction in their imports.
 Capitalistic Farming: Big farmers having more than 10 hectares of land have tended to get the maximum
advantage from Green Revolution technology by investing large amounts of money in various inputs like HYV
seeds, fertilizers, machines, etc.
 Ploughing back of profit: The Green Revolution technology helped the agriculturalists in raising their level of
income. Intelligent farmers ploughed back their surplus income for improving agricultural productivity. This
led to further improvement in agriculture.
 Industrial Growth : Green Revolution brought about large scale farm modernisation which created demand
for different types of machines like tractors, harvesters, threshers, combines, diesel engines, electric motors,
pumping sets.
 Rural Employment : Though joblessness increased due to mechanization of farming with the introduction of
Green Revolution technology in India, there was a considerable increase in the demand for labour force due
to multiple cropping and use of fertilizers.
 Change in the Attitude of Farmers: initiation of the Green Revolution has brought fundamental
transformation in their attitude towards agribusiness.
 Rural Employment : There was an appreciable increase in the demand for labour force due to multiple
cropping and use of fertilizers. The Green Revolution created plenty of jobs not only for agricultural workers
but also industrial workers by creating related facilities such as factories and hydroelectric power stations.
 Tremendous Increase in Crop Produce : It resulted in a grain output of 131 million tonnes in the year 1978-
79 and established India as one of the world's biggest agricultural producers.

Negative Impacts of Green Revolution

 Non-Food Grains Left Out : Although all food-grains including wheat, rice, jowar, bajra and maize have gained
from the revolution, other crops such as coarse cereals, pulses and oilseeds were left out of the ambit of the
revolution. Major commercial crops like cotton, jute, tea and sugarcane were also left almost untouched by
the Green Revolution.
 Limited Coverage of HYVP : High Yielding Variety Programme (HYVP) was restricted to only five crops: Wheat,
Rice, Jowar, Bajra and Maize. Therefore, non-food grains were excluded from the ambit of the new strategy.
The HYV seeds in the non-food crops were either not developed so far or they were not good enough for
farmers to risk their adoption.
 Excessive Usage of Chemicals : The Green Revolution resulted in a large-scale use of pesticides and synthetic
nitrogen fertilisers for improved irrigation projects and crop varieties. However, little or no efforts were made
to educate farmers about the high risk associated with the intensive use of pesticides.
 Extinction of Indigenous Varieties of Crops : Due to the green revolution, India lost almost 1 lakh varieties of
indigenous rice. Since the time of the green revolution, there has been reduced cultivation of indigenous
varieties of rice, millets, lentils, etc..
 Retardation of agricultural growth due to inadequate irrigation cover : Shrinking farm size, failure to evolve
new technologies, inadequate use of technology, declining plan outlay, unbalanced use of inputs, and
weaknesses in credit delivery system.
 Impacts on Soil and Crop Production : Repeated crop cycle in order to ensure increased crop production
depleted the soil's nutrients. To meet the needs of new kinds of seeds, farmers increased fertilizer usage. The
pH level of the soil increased due to the usage of these alkaline chemicals.
 Unemployment: Except in Punjab, and to some extent in Haryana, farm mechanization under the Green
Revolution created widespread unemployment among agricultural labourers in the rural areas.
 Water Consumption : The crops introduced during the green revolution were water-intensive crops. Most of
these crops being cereals, required almost 50% of dietary water footprint.
 Regional inequalities: The benefits of the green revolution remained concentrated in the areas where the
new technology was used. Moreover, since the revolution for the number of years remained limited to wheat
production, its benefits were mostly accrued only to wheat-growing areas.
 Interpersonal inequalities between large- and small-scale farmers: The new technologies introduced during
the revolution called for substantial investments which were beyond the means of a majority of small farmers.
Farmers having large farmlands continued to make greater absolute gains in income by reinvesting.
 Societal impacts of the Green Revolution: Loss of landraces that were indigenous to our country, Increased
rates of suicide among farmers, Unable to withstand the increasing expenses for farming and debts small
farmers sold their lands to large commercial farmers, and Unable to withstand the food inflation and
economic crisis the farmers left farming resorting to other occupation.

Case Study: Punjab case

The Indian state of Punjab pioneered the green revolution among the other states transforming India into a food-
surplus country. The state is witnessing serious consequences of intensive farming using chemicals and pesticide.
 Increase in the number of cancer cases : It has been reported in several villages including Jhariwala,
Koharwala, Puckka, Bhimawali, Khara.
 Ecologist Vandana Shiva : She has written extensively about the social, political and economic impacts of
the Green Revolution in Punjab.
 Chemical excess use and monoculture : She has shown how the Green Revolution's reliance on heavy
use of chemical inputs and monocultures has resulted in a precarious situation of water scarcity,
vulnerability to pests, and incidence of violent conflict and social marginalization.
 WHO guidelines : 20% of the sampled wells showed nitrate levels above the safety limit of 50 mg/l,
established by WHO, the study connected it with high use of synthetic nitrogen fertilizers.
 Domino effect of Green Revolution : With increasing poisoning of the soil, the region once hailed as the
home to the Green revolution, now due to excessive use of chemical fertilizer, is being termed the "Other
Bhopal", and even credit-takers of the Revolution have begun to admit they had been wrong, now that
they see wastelands and lives lost to farmer suicides in this “granary of India".

Way Forward
 Research systems: Aimed at creating more environmentally-sustainable agricultural systems, with a greater
emphasis on methods that can increase food production in areas and for groups of farmers with limited access
to external inputs.
 Fair market and prices : The creation of more open access to markets and fair and predictable prices for
produce will be important for increased production.
 Organic ways of farming : It needs to be adopted for sustainable agricultural practices.
 Alternative agriculture techniques : Such as intercropping, Zero Budget Natural Farming (ZBNF) with essential
principles involving the enhancement of nature's processes, and elimination of external inputs, can be
practiced.
 Training and research facilities : Including national universities, with particular emphasis on creating
capabilities for reaching the poor and food insecure, including women who have often been overlooked in
national strategies.
 Close cooperation with the international agricultural research systems : To ensure a clear focus on poverty
alleviation in national research efforts. Emphasis is needed on the further development of methods.
 Biotechnology : Application of new methods within biotechnology, biological pest and weed control that can
give higher and environmentally-sustainable yields with low inputs, and including those which are adapted to
vulnerable and marginal areas of lesser immediate potential.
 Working towards a consensus : Among all the stakeholders involved, to ensure that high priority be given to
food security in national development policies.

Conclusion
 Overall, the Green Revolution was a major achievement for many developing countries, specially India and
gave them an unprecedented level of national food security. It represented the successful adaptation and
transfer of the same scientific revolution in agriculture.
 However, lesser heed was paid to factors other than ensuring food security such as environment, the poor
farmers and their education about the know-how of such chemicals. Hence, removing the bottlenecks in the
green revolution is the need of the hour.

Second Green Revolution for Sustainable Livelihood

India needs a second green revolution along with the next generation of reforms with a view to make
agriculture more climate-resistant and environmentally sustainable.

NEED FOR SECOND GREEN REVOLUTION:

 Growing population: With the growing population and over-exploitation of land resources, the pressure on
food security will continue and rise.
 Dependency on agriculture: About 65% of the population is still living in the villages and over 70% of the rural
people are dependent on agriculture for their livelihood.
 Ecological cost: The Green Revolution has made us self-sufficient in food grains, but the environmental
consequences and ecological costs are offsetting the progress made.
 Depletion and pollution of groundwater: The lakes and ponds are becoming life less due to eutrophication
– a direct consequence of the Green Revolution.
 Stagnant growth: Growth in the agricultural sector has been almost stagnant.
 GM Crops: They are regularly in various controversies related to intellectual property, ecological
consequences, health consequences etc.
 Global warming: It is said to engulf productive coastal lands due to rise in sea levels. This creates an urgent
need to raise agricultural productivity.

WHAT WE WANT FROM SECOND GREEN REVOLUTION:

 Improving agricultural production: While generating gainful self-employment for the small farmers and
weaker sections of the society.
 Scaling up food production: Without disturbing the ecological balance.
 Boosting agricultural development: Women empowerment and environmental protection. (Women are the
major power in agriculture as about 65-70% of the labour in crop production is contributed by women).
 Reclaiming: The degraded and low fertile lands and lands deprived of irrigation.

BRINGING GREEN REVOLUTION IN EASTERN INDIA (BGREI):

 Changed situation: Green Revolution that turned India from ‘begging bowl’ to leading producer of food-
grains.
 Objective: BGREI is about bringing similar benefits to eastern India that largely remained untouched by the
wonder that converted the north-west into a ‘grain bowl’.
 Flagship programme: BGREI is the flagship programme under Rashtriya Krishi Vikas Yojana (RKVY).
 Removing the constraints: It is intended to address the constraints limiting the productivity of “rice based
cropping systems”.
 Date of announcement: The BGREI program was announced in the Union Budget, 2010-11.
 BGREI focus: On bringing the second Green Revolution in eastern region, which has rich water resources.
Assam, Bihar, Chhattisgarh, Jharkhand, Odisha, West Bengal and eastern Uttar Pradesh (Purvanchal) are the
seven states.

OBJECTIVES OF BGREI
 Harness the water potential : For enhancing agriculture production in Eastern India which was hitherto
underutilized.
 Yield maximization of rice and wheat per unit area : By improving agronomy, water harvesting and
conservation; and water utilization.
 Promotion : of recommended agriculture technologies.

ROAD AHEAD
There are four pillars that will enable a shift to green revolution 2.0
 It begins with sustainable agriculture planning. the same region, given its suitability to grow millets, was
provided easy and feasible access to processing facilities, subsidised inputs and enabling machinery for
the transition to millet production, it would motivate farmers in the region to grow millets.
 agriculture policy that integrates sustainable practises (by providing inputs at subsidised rates) that
incentivise the production of the crop best suitable for the region will help in a more climate-friendly, just
transition.
 an enabling environment will need to be created and expanded to cover the smallest farmers: this
includes better market access, and feasible storage and processing facilities.
 The Evergreen Revolution: Under the Evergreen Revolution, it is envisaged that productivity must
increase, but in ways which are environmentally safe, economically viable and socially sustainable.
CONCLUSION
 As a way forward, the policymakers must target the poor more precisely to ensure that they receive greater
benefits from new technologies and those technologies will also need to be more environmentally
sustainable. Also, taking lessons from the past, it must be ensured that such initiatives include all of the
beneficiaries covering all the regions rather than sticking to a limited field.

Evergreen Revolution
The NITI Aayog has drafted the three years action plan for all the sectors including agriculture. The action plan
on agriculture deals with remunerative prices for farmers and raising productivity. Strategy chalked out for
increase in production of pulses, use of wasteland, seed village programme and model contract farming are as
below :
 Increase in production of Pulses : National Food Security Mission (NFSM-Pulses) is being implemented in 638
districts of 29 States in the country. Under this scheme, new initiatives have been taken up during 2016-17
i.e., creation of seed hubs, breeder seed production, mini kit distribution, cluster frontline demonstrations
etc.
 Use of wasteland : PMKSY is principally for development of rainfed portions of net cultivated & culturable
wastelands.
 Seed Village programme: From the year 2014-15, the financial assistance for distribution of
foundation/certified seeds at 50% cost of the seeds for cereal crops and 60% for pulses, oilseeds, fodder and
green manure crops for production of quality seeds is now available for one acre per farmer.
 Certified Seed Production of Pulses, oilseeds, Fodder & Green Manure crops through Seed Village : Under
this component the financial assistance for distribution of foundation seeds at 75% cost of the seeds for
pulses, oilseeds, fodder and green manure crops for production of Certified Seeds is available for the farmers.
 Model Contract Farming Act: This Model Act on Contract Farming would address the constraints in promoting
contract farming in a holistic manner by the States.
 NITI Aayog three-year roadmap (2017-20): It is intended to take farm growth to new heights. The roadmap
for the next three years lists initiatives for the growth of the farm sector and for ensuring that farmers’ income
doubles by 2022.
 The new initiatives include use of :
o Cutting-edge technology To increase farm productivity,
o Promotion of climate-resilient indigenous breeds of cows and buffaloes,
o Launch of a nationwide programme to harvest the advantages of space technology in agriculture and
allied sectors,
o Promotion of deep sea fishing,
o Setting up of seed production and processing units at ‘panchayat’ level,
o Increase of cropping intensity by 1 million hectares per year through the utilization of rice fallow areas
for pulses and oil-seeds, and
o Consolidation of online trading and inter-market transactions, among others.

CONCLUSION
 As Swaminathan has rightly outlined, what India needs now is an “evergreen revolution”. . Stagnation of food
grain production is the biggest concern of recent time and evergreen revolution is the need of the hour.

FOOD PROCESSING INDUSTRY

PREVIOUS YEAR QUESTIONS:

1. What are the challenges and opportunities of food processing sector in the country? How can income of 2020
the farmers be substantially increased by encouraging food processing?

2. Elaborate on the policy taken by the government of India to meet the challenges of the food processing 2019
sector.

3. Examine the role of supermarkets in supply chain management of fruits, vegetables and food items. How 2018
do they eliminate number of intermediaries?

4. What are the reasons for poor acceptance of cost-effective small processing unit? How the food processing 2017
unit will be helpful to uplift the socio-economic status of poor farmers?

5. What are the impediments in marketing and supply chain management in industry in India? Can e- 2015
commerce help in overcoming these bottlenecks?

6. India needs to strengthen measures to promote the pink revolution in food industry for better nutrition 2013
and health. Critically elucidate the statement.

INTRODUCTION
 Food Processing includes the process of value addition to produce products through methods such as
preservation, addition of food additives, drying etc. with a view to preserve food substances in an effective
manner, enhance their shelf life and quality.
 A well-developed food processing sector with higher level of processing helps in the reduction of wastage,
improves value addition, promotes crop diversification, ensures better return to the farmers, promotes
employment as well as increases export earnings which led to doubling farmers’ incomes by 2022 (Ashok
Dalwai Committee was appointed for this purpose).

Types of Food Processing Food

According to the Food and Agricultural Organization’s (FAO) definition processed foods can be of three types:
primary, secondary and tertiary.
 Primary Primary Processing relates to conversion of raw agricultural produce, milk, meat and
fish into a commodity that is fit for human consumption. It involves steps such as
Processing cleaning, grading, sorting, packing etc.

Secondary Processing Secondary Processing means modification of the basic product to a stage just before
the final preparation at the consumer's kitchen, e.g. tomato puree, ground coffee, etc.

Tertiary It is related to high value-added ready-to-eat products like berry products, ice cream,
instant noodles, sauces jams etc.
Processing

India’s position as a major food producer:

 India ranks 1st in the production of – milk, ginger, banana, guava, papaya, mango etc.
 It ranks 2nd in the production of rice, wheat, potato, sugarcane, cashew nut, tea etc. It is among the top 5
countries in the production of coffee, tobacco, spices, seeds etc. With such a huge raw material base, we can
easily become the leading supplier of food items in the world.

Status of Food Processing In India

 The estimated worth of Indian Food Processing Industry is 121 bn dollars. The food processing sector has
been growing at an average rate of over 8 per cent over the past 5 years.
 India is the world's second largest producer of fruits & vegetables after China but hardly 2% of the produce
is processed.
 In spite of a large production base, the level of processing is low (less than 10%). Approximately 2% of fruits
and vegetables, 8% marine, 35% milk, 6% poultry are processed.
 More than 75% of the industry is in unorganized sector.

S IGNIFICANCE OF F OOD P ROCESSING I NDUSTRIES

Food processing industry is one of the sun-rise industries in India which is of enormous significance. it provides
vital linkages between the two pillars of the economy, i.e. agriculture and industry.
 Employment Generation: This sector involves 16% of all the work force in the organized sector and employs
close to 5 crore people directly or indirectly. Though 70% of industry is in the unorganized sector, it
contributes only 15% in terms of value.
 Doubling of farmers’ income: With the rise in demand for Agri-products there will be commensurate rise in
the price paid to the farmer, thereby increasing the income.
 Reduce food wastage: In India, around 25-35% food is wasted due to inadequate handling, storage and
logistical issues. Only 6% of perishable food is processed at the moment.
 Improve the quality and taste of food: thereby bringing more choices in the food basket.
 Value addition: This sector adds value to crops by processing it and marketing it in a standardized way.
 Curbing Food Inflation: Processing increases the shelf life of the food thus keeping supplies in tune with the
demand thereby controlling food-inflation. For e.g. Frozen Safal peas are available throughout the year.
 Crop-diversification: Food processing will require different types of inputs thus creating an incentive for the
farmer to grow and diversify crops.
 Boosts Trade and Earns valuable Foreign exchange: It is an important source of foreign exchange. For e.g.
Indian Basmati rice is in great demand in Middle Eastern countries.
 Curbing Migration: Provides employment in rural areas, hence reduces migration from rural to urban. It also
resolves the issue of urbanization.
 Curbing malnutrition: Combats Malnutrition and hidden hunger in the children, providing opportunities for
all in economic development.
 Demographic dividend: FPI is perhaps best bet to seize opportunity of demographic dividend. It can give us a
genre of progressive rural entrepreneurs. Prosperous countryside will have multiplier positive impact on
socio-economic and political problems. In short, FPI can narrow gap between rural and urban India.
S COPE OF FOOD PROCESS ING
 Resource rich India: India is the world's second largest producer of food next to China, and has the potential
of being the biggest with the food and agricultural sector.
 India's aspiration for food processing: The total food production in India is likely to double in the next ten
years and there is an opportunity for large investments in food and food processing.
 Increasing opportunities for Allied sector: There is great opportunity for Fruits & Vegetables Processing,
Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft
Drinks.
 Growing Urbanisation: According to the Census 2011, the total urban population constitutes 31.16% of the
population – exemplifying increased disposal incomes, changing lifestyles and rising demands for processed
food.
 India as largest producer of grain: India produces nearly 16% of the world’s total food grain production. It is
one of the largest producers of agricultural produce.
 Socio-Economic Factor: The changing consumption patterns, both in tier 1 and tier 2 cities, rising income
levels among the middle-class.
 Agro climatic zones: India has about 26 types of different climatic conditions, 46 varieties of soils are there in
India out of total 60 types of soils worldwide. 127 ‘agro climatic zones’ have been identified in India. Also,
Indian food is known worldwide for its unique taste and aroma.
 The future driver of Indian growth: Food processing corresponds to around 10% of GDP in the agriculture-
manufacturing sector. It has potential for more.
 Food and nutritional security: India has significant proportion of population which is undernutrition (1/3 of
population), stunted and wasted. Horticulture and fruits are much desirable for this problem and wastage
reduction will have decisive impact here.

Upstream and Downstream requirements of food processing industries:

UPSTREAM DOWNSTREAM

 The upstream stage of the production process 
includes searching for and extracting raw
materials.
 The upstream part of the production process
does not do anything with the material itself, 
such as processing the material. This part of the
process simply finds and extracts the raw
material.
The downstream stage in the production
process involves processing the materials
collected during the upstream stage into an
end product.
The downstream stage further comprises the
genuine sale of that product to other
businesses, governments or private
individuals.

 Therefore, any industry that relies on the  Downstream process has direct contact with
extraction of raw materials commonly has an customers through the finished product.
upstream stage in its production process.

 To processing centre/Plant  From processing centre/plant

 Inward movement  Outward movement
 Stakeholder  Stakeholder
 Raw material supplier  Distributors
 Farmer and other supplier of raw material  Wholesalers
 Retailers
 Final customers
UPSTREAM AND DOWNSTREAM REQUIREMENTS:
UPSTREAM REQUIREMENTS
 Accessibility to raw materials.
 Modern extraction techniques.
 Good linkages with farmers.
 Storage facilities for raw materials like
Grains, Meat, Fish.
 Quality testing facilities.
 Transport facilities.
 Work force
DOWNSTREAM REQUIREMENTS
 Latest processing techniques.
 Latest processing machinery.
 Quality testing facilities.
 Organized retail stores for faster distribution.
 Skilled work force and human resources.

Constraints/issues in development of Food Processing Industries in India

 Supply and Demand Side Obstacles: This problem arises because of Small and dispersed marketable surplus
due to fragmented holdings, low farm productivity due to lack of mechanization, high seasonality etc.
 Infrastructure Bottlenecks: More than 30% of the produce from farm gate is lost due to inadequate cold chain
infrastructure.
o The NITI Aayog cited a study that estimated annual post-harvest losses close to Rs 90,000 crore. Lack
of all-weather roads and connectivity make supply erratic.
 Low value-added in processing: There is major fragmentation of food processing capacity, with a large
unorganized segment and widespread use of primitive processing. This results in lower value-addition at the
processing stage, especially from a nutritional point of view.
 Limited ability to control quality and safety: The sheer number of players, especially in the large unorganized
segment, involved in the food value-chain, makes implementation of quality and safety norms difficult.
 Lack of Regulatory Environment: there are numerous laws related to food processing. Different laws come
under the jurisdiction of different ministries and departments which leads to delay in various legislative and
administrative matters.
 Informalization: The food processing industry has a high concentration of unorganised segments,
representing almost 75% across all product categories. Thus, causes the inefficiencies in the existing
production system.
 Low-Value Exports: Despite India being one of the largest producers of agricultural commodities in the world,
agricultural exports as a share of GDP are fairly low in India relative to the rest of the world. The same
proportion is around 4% for Brazil, 7% for Argentina, 9% for Thailand, while for India it is just 2%.
 Low consumer awareness: Consumer awareness is a critical aspect of an improved nutritional situation in the
country. Consumers currently lack awareness of several nutritional and food safety and quality aspects.
 Extensive use of fertilizers, pesticides: This has raised concerns about the quality of food which should be
looked into. Further, protection is needed from unfair and hazardous practices such adulteration.
 Infrastructure related constraints: Absence of efficient food supply chain mechanics effectively integrating
backward and forward linkages in a seamless manner hampers industry’s operation.
o The uneven geographic distribution of cold storage infrastructure also contributes to regional level
disparities.
 High requirement of working capital, low availability of new reliable and better accuracy instruments and
equipment’s, inadequate automation acting as roadblock for Food processing industry.
 High wastage: India’s FPI is currently processes less than 10% of its agri-produce, as against ~65% in USA and
~23% in China.
o As per estimates, India experiences a post-harvest loss of Rs 2 lakh crores annually due to lack of food
processing units and storage facilities.
 Logistical barriers relating to quality and connectivity are also observed to pose supply-side challenges.
 Small size companies: Indian food processing companies are small and can’t compete with global giants which
invest heavily in R & D.
 Lack of good laboratories in India: Food export to US and EU demands high-quality standards. India lacks
good laboratories to check heavy metals and other toxic contaminants in food.
 Lack of skilled workforce. We have only a few graduates in Food Technology.

SOLUTIONS / MEASURE NEEDED FOR THE DEVELOPMENT OF FO OD PROCESSING INDUST RIES

 Hand-Holding Approach: Government should adopt a hand-holding approach by establishing risk sharing
mechanisms, fiscal incentives and partnership models for creation of infrastructure for logistics, storage and
processing.
 Enhance Farmer’s income: Enhance farmer’s income by better utilization and value addition of Agricultural
products.
 Minimize Wastage: Minimize wastage at all stages in the food processing chain by the development of
infrastructure for storage, transportation and processing of agro-food produce.
 Promoting Village-Level Procurement: The NITI Aayog, in the Strategy for New India @75 document,
recommended village-level procurement centres for perishables such as fruits, vegetables and dairy.
 Public investment and connectivity should be increased.
 Human Resource Development: Skilling is required at two levels. First at the farm gate in promoting
agricultural best practices and second, in processing activities. The National Skill Development
Corporation (NSDC) estimated the need to skill 17.8 million persons in the food processing industry by
2022.
 Encourage R&D in food processing for product and process development and improved packaging.
 Second Green Revolution and evergreen revolution should be updated with the diversified technologies.
 Farm pattern diversification which leads to a production of variety of crops other than constant set of
crops which creates lot of job opportunities.
 New technology should be updated in the training institutes and skill development should be given the
top most priority.
 Backward linkages to farmers need to be made more robust. Contract farming can be promoted.
According to the Model Contract Farming Act, 2018, the contract will specify the quantity, quality and
price of produce being supplied. This would shield farmers from price volatility, subject to quality
commitments.
 Streamlining the Regulatory Structure: There is a need to foster development of backward linkages
crucial for securing scale and economic viability by evolving conducive regulatory framework for contract
and corporate farming and encouraging commodity clusters and intensive livestock rearing.
 Customized logistics is another important immediate requirement to make logistics effective. This
reduces the cost, facilitates the maintenance of quality of the produce and fulfils the requirements of
targeted customers.
 Information system for better coordination among different stakeholders from farmers to consumers is
the need of the hour. The internet and mobile communication can also be used to enable information
and financial transfer between the stakeholders.

 Public Private Partnership is another strategic solution. Supply chain like washing, waxing, grading,
sorting, packing, pre-cooling, handling facilities, insurance, finance, transport and processing facilities
would add value to supply chain functioning.

Government’s Initiative to promote food processing sector:

1. Pradhan Mantri Kisan SAMPADA Yojana (PMKSY): The objective of PMKSY is to supplement agriculture,
modernize processing and decrease agri-waste. The following schemes will be implemented under PM Kisan
SAMPADA Yojana:
a. Mega Food Parks;
b. Integrated Cold Chain and Value Addition Infrastructure;
c. Creation/ Expansion of Food Processing/ Preservation Capacities (Unit Scheme);
d. Infrastructure for Agro-processing Clusters;
e. Creation of Backward and Forward Linkages;
f. Food Safety and Quality Assurance Infrastructure;
g. Human Resources and Institutions; Operation Greens.
2. Production Linked Incentive Scheme for Food Processing Industry (PLISFPI): to support creation of global
food manufacturing champions commensurate with India’s natural resource endowment and support Indian
brands of food products in the international markets with an outlay of Rs.10900 crore.
3. Foreign Direct Investment (FDI) policy: FDI up to 100%, under the automatic route is allowed in food
processing industries.
4. Agricultural and Processed Food Products Export Development Authority (APEDA): an apex organization
under the Ministry of Commerce and Industry – focuses on ‘export’ of scheduled products.
5. Food Processing Fund: A special fund in the NABARD worth INR 2,000 crore, designated as the Food
Processing Fund, was set up in the FY 2014-15 for providing affordable credit to food processing units in Mega
& Designated Food Parks.
6. National Institute of Food Technology Entrepreneurship and Management (NIFTEM): It is a higher
education institute in Haryana deemed-to-be-university operating under the Ministry of Food Processing
Industries (MOFPI).
7. National Mission on Food Processing (NMFP): This scheme was announced in the Union Budget 2012-13 to
have a better outreach and to provide more flexibility to suit local needs.
8. Ministry of Food Processing Industries (MOFPI): formed in 1988, The Ministry is nodal agency for FPI and is
concerned with formulation and implementation of the policies & plans for the food processing industries
within the overall national priorities and objectives.
9. Department of Animal Husbandry, Dairying & Fisheries: The Department is responsible for matters relating
to livestock production, preservation, and protection from disease and improvement of stocks and dairy
development. It also looks after all matters pertaining to fishing and fisheries, inland and marine.
10. FSSAI under the Ministry of Health and Family Welfare has issued the Food Safety and Standards (Food
Product Standards and Food Additives) Regulations, 2011 and the Food Safety and Standards (Contaminants,
Toxins and Residues) Regulations, 2011 which prescribe the quality and safety standards respectively for food
products.
11. Prime Minister-Formalization of Micro Food Processing Enterprises (PM-FME) Scheme (under the Atma
Nirbhar Bharat Abhiyan): seek to benefit 2 lakh micro food processing units through credit linked subsidy,
while adopting a One District One Product (ODOP) approach.
12. Existing infrastructure such as the Kisan Rail and Krishi Udaan, as well as the vast networks of SHGs and FPOs
under the DAY-NRLM scheme offer opportunities to bolster food processing efforts, while also promoting
local foods and traditional products such as pickle, papad etc.
13. Farm to factory gate: Procurement at village level: The upgrading of 22,000 rural haats into Gramin
Agriculture Markets (GrAMS), announced in the 2018-19 Budget, was a step in the right direction.

Objectives of National Food Processing Policy 2019

 To reduce wastages, increase value addition, ensure better prices for farmers while ensuring availability of
affordable and quality produce to consumers
 To address the challenges of malnourishment and malnutrition by ensuring availability of nutritionally
balanced foods
 To make food processing more competitive and future ready through creation of adequate infrastructure
facilities along the supply chain, use of modern technology and innovation, promoting traceability, food
safety, encouraging optimum capacity utilization of assets and resources.
 To position India as the most preferred investment destination for the agribusiness and food processing.
 To generate more opportunities for the development of the agribusiness and Food Processing Industry, and
create employment.

Supply Chain Management

 Supply chain management (SCM) is the management of the flow of goods. It includes the movement and
storage of raw materials, inventory and finished goods from point of origin to point of consumption.

SIGNIFICANCE OF SUPPLY CHAIN MANAGEMENT (SCM)

 Cost of Doing Business: SCM lowers the cost of doing business by reducing purchasing and production
expenses. For example, if you own a grocery store and buy tomatoes directly from the farmer, you eliminate
the expense of having a third party buy for you.
 Strategic Plan: supply chain management supports the strategic plan for the business and helps to build the
infrastructure to support future growth, even on a global scale.
 Balance in Business: it helps the business balance the supply of products with market demand.
 Effective Customer Service: it allows for more efficient and effective customer service. Customers receive
their products quickly and as promised.
 Ensure Human Survival: it Helps Sustains Human Life, Improves Human Healthcare, Protects Humans from
Climate Extremes.
 Improve Quality of Life: SCM improves the quality of life by Improves Standard of Living, Foundation for
Economic Growth, Job Creation, Opportunity to Decrease Pollution, Opportunity to Decrease Energy Use.

CHALLENGES TO SUPPLY CHAIN MANAGEMENT

 Fragmented supply chain: The long and fragmented supply chain results in the wastage and price escalations.
This is because of the large share of unorganised players in the supply chain and operating commercial
viability challenges.
 Inadequate cold storage and warehousing facilities: Warehousing is a key requirement in the overall supply
chain it is mostly dominated by unorganised players. 20% of warehousing is organized currently with 70% of
the organised market controlled by the Government.
 Logistics issues: still face challenges related to quality and connectivity. Indian national highways account for
only 2% of the total road network but carry 40% of all cargo. Lack of connectivity to ports leads to cost
escalations and delays in the goods transferred. Lack of last-mile connectivity from rail
transporters.
 Slowdown in production growth: With around 67 percent of landholdings being
marginal, with an average size of 0.4 hectares, more than half of marginal farmers are
likely to not have any excess income to spare beyond subsistence, hindering the
improvements in farm-level productivity.
 Large informalisation: More than 50% of the industries in the food processing sector is
concentrated in the informal sector and are small scale industries. Therefore they
cannot achieve economies of scale and avail the benefits from the formal financial
sector.
 Underdeveloped processed food market: Indian processed food market is still evolving
and still is at its infancy stage.
 Fragmented market: Indian retail sector is still dominated by small traders and Kirana shops. This poses a
serious challenge in building a consumer base.
 Lack of system integration: The supply chain needs to be designed and built as a whole in an integrated
manner. The process of new product development, procurement and order to delivery processes should be
well designed and well supported with the help of IT tools and software.
 Other issues: Apart from the above areas of concern, other issues such as Lack of applied research, Taxation
issues, access to credit, obsolete technologies, etc. persist in the sector.

SUGGESTIONS/MEASURES NEEDS TO BE TAKEN

 Regulate Demand-Supply: Demand and supply uncertainty requires an efficient supply chain strategy to
optimise profitability.
o Profitability can be reached by cost and information coordination. Low costs can be realised by
eliminating non-value-added activities, leading to scale economies and optimising of techniques
and production.
 Public Private Partnership (PPP) is another strategic solution. Supply chain like washing, waxing, grading,
sorting, packing, pre-cooling, handling facilities, insurance, finance, transport and processing facilities would
add value to supply chain functioning.
 National Agricultural Market (e-NAM): It creates a pan India market, facilitates removal of intermediaries,
thereby streamlining the entire supply chain.
 Contract Farming Act: the new contract farming Act further helps in improving the backward and forward
integration of the supply chain.
 Electronic Negotiable Warehouse Receipt (e-NWR): to facilitate easy pledge financing by Banks and other
financial institutions.
 Logistic Improvement: the logistic bottlenecks of the supply chain are being taken care of by leveraging the
existing PM-Gram Sadak Yojana, BHARATMALA and SAGARMALA scheme.
 The supply chains should adopt a combination of the risk-hedging and responsive supply chain. Supply chains
must try to cope with demand and supply chain uncertainty to be responsive to unpredictable demand.
 Ensuring continuous sharing of information is important. The need to keep continuous information flow is
paramount.
 There are initiatives such as India Food Banking Network (IFBN), which is promoting the concept of
collaborative consumption with support from the private sector and civil society organization.

FOOD PROCESSING INDUSTRY: CURRENT DEVELOPMENT

DRAFT BLUE ECONOMIC POLICY FOR INDIA

 IN NEWS: Recently, the Ministry of Earth Sciences (MoES) has rolled out the draft Blue Economic policy,
inviting suggestions and inputs from various stakeholders.
 It is in line with the Government of India’s Vision of New India by 2030. Policy is Implemented by Ministry of
Earth Sciences (MoES).
 SDG 14: seeks to conserve and sustainably use the oceans, seas and marine resources for sustainable
development. Several countries have undertaken initiatives to harness their blue economy.

AIMS AND OBJECTIVE:

 Enhance the contribution of the blue economy to India’s GDP
 Improve the lives of coastal communities
 Preserve marine biodiversity
 Maintain the national security of marine areas and resources

DATA AND FIGURES:

 With a coastline of nearly 7500 kilometers, India has a unique maritime position.
 Nine of its 28 states are coastal, and the nation’s geography includes 1,382 islands.
 There are nearly 199 ports, including 12 major ports that handle approximately 1,400 million tons of cargo
each year.
 India's blue economy supports 95% of the country's business through transportation and contributes an
estimated 4% to its GDP
o The coastal economy sustains over 4 million fisherfolk and coastal communities.

WHAT IS THE BLUE ECONOMY?

 The concept was introduced by Gunter Pauli in his 2010 book- “The Blue Economy: 10 years, 100
innovations, 100 million jobs.
 The Blue Economy encompasses many activities:
o Renewable energy: sustainable marine energy can play a vital role in social and economic development.
o Fisheries: marine fisheries contribute more than US$ 270 billion annually to global GDP. More sustainable
fisheries can generate more revenues.
o Maritime Transport: Over 80% of international goods traded are transported by sea.
 o Tourism: Ocean and coastal tourism can bring jobs and
economic growth.
o Climate change: Oceans are an important carbon sink
(blue carbon) and help mitigate climate change.
o Waste management: better waste management on land
can help oceans recover.

REASONS AND NEED FOR A BLUE ECONOMY POLICY:

 Vast coastline area with a coastline of nearly 7500
kilometers, India has a unique maritime position. Nine of its
28 states are coastal, and the nation’s geography includes
1,382 islands.
 Utilisation of Non-living Resources: Moreover, India’s Exclusive Economic Zone of over 2 million square
kilometres has a bounty of living and non-living resources with significant recoverable resources such as crude
oil and natural gas.
 Livelihood for coastal communities: Also, the coastal economy sustains over 4 million fisherfolk and coastal
communities.

GOVERNMENT INITIATIVE:
 Sagarmala Project: The Sagarmala project is the strategic initiative for port-led development through the
extensive use of IT enabled services for modernization of ports. The Sagarmala project seeks to develop a
string of ports around India’s coast.
 Ocean Services, Modelling, Applications, Resources and Technology (O-SMART): aims at regulated use of
oceans, marine resources for sustainable development. It will generate and regularly update information on
Marine Living Resources and their relationship with the physical environment in the Indian EEZ.
 Integrated coastal zone management: It focuses on conservation of coastal and marine resources, and
improving livelihood opportunities for coastal communities etc.
 The Deep Ocean Mission: with be a mission mode project to support the Blue Economy Initiatives.
o The Government of India's Vision of New India by 2030 enunciated in February 2019 highlighted
the Blue Economy as one of the ten core dimensions of growth.
 National fisheries policy: The vision of the National Fisheries Policy 2020 is to develop an ecologically healthy,
economically viable and socially inclusive fisheries sector.

CONCLUSION:
 With its vast maritime interests, the blue economy occupies a vital potential position in India’s economic
growth. It could well be the next multiplier of GDP and well-being, provided sustainability and socio-economic
welfare are kept centre-stage. Therefore, India's draft blue economy policy is envisaged as a crucial
framework towards unlocking the country's potential for economic growth and welfare.

4. PM FORMALIZATION OF MICRO FOOD PROCESSING ENTERPRISES SCHEME

 IN NEWS: Recently, the Ministry of Food Processing Industries (MoFPI) has launched the PM Formalization of
Micro Food Processing Enterprises (PM FME) scheme as a part of “Atmanirbhar Bharat Abhiyan.”
 The Scheme is expected to generate a total investment of Rs. 35,000 crore and 9 lakh skilled and semi-skilled
employment.

OBJECTIVES OF PM FME SCHEME:

 Capacity Building of Micro Food entrepreneurs: They will be provided with technical knowledge and skill
training is another component. Hand holding support services to be given.
 Technology up-gradation and market access of the existing Micro Food Processing Enterprises by increasing
access to credit to the entrepreneurs.
 Enable microenterprises to avail common services through supporting: FPOs, SHGs, Producers Cooperatives
and Cooperative Societies along their entire value chain.
 Regulatory framework to encompass existing unorganized micro food processing enterprises to bring them
into a formally compliant framework.
 Branding, promotion and marketing to be strengthened in order to support the integration of existing
enterprises with organized supply chains to boost export.

ABOUT PM FME SCHEME:

 It is a centrally sponsored scheme with an outlay of Rs. 10,000 crores. It will run for five years – 2020-21 to
2024-25.
 The central government will provide funds to the state based on the approved Project Implementation Plan
(PIP).
 Financial Support: Existing individual micro food processing units desirous of upgrading their units can avail
credit-linked capital subsidy at 35% of the eligible project cost with a maximum ceiling of Rs.10 lakh per unit.
Also, promote a self-help group at ground level.
 One-District One-Product Approach (ODOP) plan to be implemented to encompass input procurement,
common services availability, and product marketing. (E.g., mango, potato, pickle, millet based products,
fisheries, poultry, etc.)
 The Inter-Ministerial Empowered Committee (IMEC) is established at the national level.

WAY FORWARD:
 Promotion of unorganized sector: The unorganized food processing sector comprising nearly 25 lakh units
contributes to 74% of employment in the food processing sector.
 Bottom-Up approach: Nearly 66% of these units are located in rural areas and about 80% of them are family-
based enterprises supporting livelihood of rural households and minimizing their migration to urban areas.
These units largely fall within the category of micro enterprises.
 Science and technological approach: The unorganised food processing sector faces a number of challenges
which limit their performance and their growth. The challenges include lack of access to modern technology
& equipment, training, access institutional credit, lack of basic awareness on quality control of products; and
lack of branding & marketing skills etc.

CHANGES IN INDUSTRIAL POLICIES AND THEIR EFFECTS ON INDUSTRIAL

GROWTH
PREVIOUS YEAR QUESTIONS

1. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) 2017
in the post-reform period” Give reasons. How far the recent changes in Industrial Policy are capable
of increasing the industrial growth rate?

2. Normally countries shift from agriculture to industry and then later to services, but India shifted 2014
directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis
industry in the country? Can India become a developed country without a strong industrial base?

3. Foreign direct investment in the defence sector is now said to be liberalised. What influence this is 2014
expected to have on Indian defence and economy in the short and long run?

4. Discuss the impact of FDI entry into multi-trade retail sector on supply chain management in 2013
commodity trade pattern of the economy.

5. Though India allowed foreign direct investment (FDI) in what is called multi brand retail through 2013
joint venture route in September 2012, the FDI even after a year, has not picket up. Discuss the
reasons.
 INDUSTRIES IN INDIA: INTRODUCTION
Following independence, India's government highlighted the importance of industrialisation in the country's
long-term economic growth. As a result, in 1956, the Industrial Policy Resolution (IPR) laid out the blueprint for
industrial growth.
 The construction of heavy industries was stressed in the 1956 programme, with the public sector taking
the lead in this field.
o The adoption of a heavy or basic industries strategy was supported on the grounds that it would
alleviate the load on agriculture, allow for expansion in consumer goods industries as well as
minor companies that would aid with job creation and self-sufficiency.
 However, by the end of the 1960s, investment in industries had decreased, resulting in a slower pace of
development.
 The public sector undertakings were discovered to be underperforming in the early 1990s.
 There have been allegations of mismanagement at these businesses, resulting in losses.
 As a result, in 1991, the Indian government resolved to promote the private sector's involvement in
industrial growth, liberalise the licencing system, and enable international businesses to compete in the
home market as well as domestic players to explore foreign areas.
o All of these initiatives were taken with the intention of bolstering the country's industrialisation
process.
 Liberalization, Privatization, and Globalization (LPG) is a type of industrial growth paradigm.
o Following the implementation of this new strategy in 1991, there were periods of rapid growth
followed by periods of stagnation in the industrial development process.
30 YEARS OF LPG REFORMS: PERSISTENT CHALLENGES
CHALLENGES WITH THE LPG REFORMS IN INDIA:
 Agricultural Development: The average growth rate of Indian agriculture is below the targeted growth rate
of 4% and is way below the double-digit growth rate of the service sector.
o Low contribution in export: In spite of being the one of the largest producers of food grains, India's
share in global export of agricultural commodities has remained stagnant at 2% (9th Rank).
o Similarly, the import of cheaper agricultural commodities has adversely affected the income levels of
the farmers. This clearly shows that the farmers in India have not able to get benefitted from LPG
reforms.
 Stagnation in Manufacturing sector: The share of manufacturing sector to India's GDP has remained stagnant
at 16-17% since 1991 reforms.
 Lacking labour intenive manufacturing sector: Instead of focussing on labour intensive industries, the
manufacturing sector has come to be dominated by capital intensive Industries.
 Jobless Growth: The employment elasticity is hardly around 0.1 which means every 1% increase in GDP
growth rate leads to 0.1% increase in employment creation.
 Domination of Informal sector: Apart from low quantity of jobs, concerns have also been raised with respect
to poor quality of jobs. 90% of India's workforce is employed in informal sector which is characterised by low
wages, poor productivity and lack of access to social security benefits.
 Lack of Inclusive Growth: India has failed to prevent concentration of wealth and provide for equitable
distribution of income.
o For instance, as per Credit Suisse, 1% of the wealthiest in India have increased their share in wealth
from 40% in 2010 to 60% in the last five years.
o The richest 10% in India own more than 4 times the wealth than the remaining 90%. Going forward,
richest 10% in India would take away the majority share of $ 5 trillion economy.
 Provision of basic services: The Government has failed to allocate sufficient financial resources for provision
of basic goods and services.
o For instance, India's expenditure of 3% on education is much below the target of 6%. Similarly,
expenditure on health has remained quite lower at 1.5% as against the mandated 3%.
 Balanced Regional Development: The private sector investment tends to get concentrated in the already
well- developed states and regions. This in turn leads to disparity in the development across the states and
within states in India. Some of the states such as Maharashtra, TN, Punjab etc. have made rapid progress.
 o However, the states in the Northeast and Eastern India continue to have lower growth rates. Similarly,
even within the states, there are certain pockets of underdeveloped regions such as Vidarbha
(Maharashtra), Saurashtra (Gujarat), Hyderabad-Kar region (Karnataka) etc.
 Poor Innovation Ecosystem: The R&D Expenditure as % of GDP at 0.7% has remained stagnant in the last 2
decades. Unlike developed economies, the R&D expenditure in India is mainly driven by public sector. The
private sector investment in R&D needs to be substantially enhanced.

CONCLUSION:
 The 1991 reforms helped the economy stave off a crisis and then bloom. It is time to outline a credible new
reform agenda that will not just bring GDP back to pre-crisis levels, but also ensure growth rates higher than
it had when it entered the pandemic.

Medium, Small and Micro Enterprises and Covid-19

 IN NEWS: The Covid-19 pandemic has left its impact on all sectors of the economy including the Medium,
Small and Micro Enterprises (MSMEs) Sectors.
 All anecdotal evidence available, such as the hundreds of thousands of stranded migrant workers across the
country, suggests that MSMEs have been the worst casualty of lockdown.

MSMEs IN INDIA:
 The MSMEs have been redefined on the basis of investment limit and turnover size.
 According to the proposed definition, the categorisation would be:
1. Micro Enterprise: An annual turnover less than Rs 5 crores.
2. Small Enterprise: An annual turnover between Rs 5 crores and Rs 75 crores.
3. Medium Enterprise: An annual turnover less than Rs 250 crores.

CHALLENGES FACED BY MSME IN INDIA:

 Lack of Financing: Most of the MSME funding comes from
informal sources and it explains why the Reserve Bank of
India’s efforts to push more liquidity towards the MSMEs have
had a limited impact.
o Further, banks dither from extending loans to MSMEs
due to the high ratio of bad loans.
 Poor Infrastructure: With poor infrastructure, MSMEs
production capacity is very low while production cost is very
high.
 Access to Modern Technology: the lack of technological know-
how and financial constraints limits the access to modern
technology and consequently the technological adoption remains low.
 Poor access to market: advertisement and sales promotion of MSMEs are comparatively weaker than that of
the MNCs. These makes it difficult for them to compete with large companies.
 Legal hurdles: Getting statutory clearance related to power, environment, labour and major hurdles. Laws
related to all aspects of manufacturing and service are very complex and compliance with these laws are
difficult.
 Lack of skilled workers: the training and development programs in respect of MSMEs development has been.
Thus, there has been a constant crunch of skilled manpower in MSMEs.
 PROBLEM AGGRAVATED DUE TO COVID-19: Like Declining Revenues availability, Unavailability of Cash,
Lack of Labour Availability. Created distress for MSME sector.

WAY FORWARD:
 The government can provide tax relief (GST and corporate tax), give swifter refunds, and provide liquidity to
rural India (may be through PM-Kisan) to boost demand for MSME products.
 Need to implement smartly the package announced under the PM Garib Kalyan Yojana for the poor to help
them fight the battle against Covid-19.
o Working on recommendations of the KV Kamath committee: on its recommendations, Raising and
Accelerating MSME Performance scheme launched for supporting various COVID-19 Resilience and
Recovery Interventions.
o It will access to market and credit, strengthening institutions and governance at the Centre and
State.
 There is a strong case for urgent government intervention — the costs of intervening early on will be much
less than the price of delayed action.
o An online Portal “Champions” has been launched. This covers many aspects of e-governance
including grievance redressal and handholding of MSMEs.
 To begin with, all dues owned by governments and public sector undertakings to MSMEs can be
immediately cleared. This will help ease their immediate cash flow woes.
o Factoring Regulation (Amendment) Act, 2021 passed to help MSMEs by providing them added
avenues for getting credit facility, especially through Trade Receivables Discounting System (TReDS).
 The government could set up a credit guarantee fund that backstops loans to MSMEs.
 Promoting international competitiveness: The International Cooperation Scheme (ICS) is also in place to
make it easier for MSMEs to participate in international exhibitions, trade fairs, and other events that will
help them grow globally.

CONCLUSION:
 MSMEs being the growth engine of the economy, there is a need to prepare a roadmap for a sector in
addition to the ad-hoc initiative undertaken. Delineation of the objectives, vision and mission is necessary to
give clarity on the path to be treated. An inclusive, sustainable vision to compete with the global MSMEs, by
collaborating the industry groups, researchers, government and other stakeholders is the need of the hour.

Textile Sector
CURRENT STATUS:
 A total of 59 textile parks have been sanctioned under SITP by the textile’s ministry out of which 22 textile
parks have been completed. Further, the proposal to set up Mega Textile Parks by the Ministry of Textiles is
at the advanced stage of discussion. The government is considering a plan to set up 1,000-acre mega textile
parks.

IMPORTANCE OF TEXTILE INDUSTRY TO INDIA:

 Linkage between textile and agriculture: The close linkage of the textile industry to agriculture for raw
materials such as cotton has helped the growth of both the sectors and contributed to Indian economy.
 Ancient culture and traditions: The ancient culture and traditions of the country in terms of textiles make the
Indian textiles sector unique in comparison to the industries of other countries.
 Wide variety of products: The industry is capable of producing a wide variety of products suitable to different
market segments, both within India and across the world.
 Diversified segments: The textile industry in India has large and diversified segments that in-turn enable
businesses and end-consumers to choose from a wide array of products.
 Skilled manpower: The availability of highly skilled manpower provides a suitable platform for the textile
industry to have an upper hand as compared to its counterparts.
 Huge potential: There is a huge potential in the domestic and international markets that will help the industry
tackle any possible headwinds in the coming decade.
 Buyer-driven value chains: It promotes buyer-driven value chains where large retailers, marketers and
branded manufacturers play the pivotal roles.
 Incomparable employment potential: owing to the presence of the entire value chain from fibre to apparel
manufacturing within the country is an inherent and unique strength of the industry.

CHALLENGES IN TEXTILE SECTOR:

 Higher Taxes: The industry body alleged that a multi-stage tax is levied on every value addition. State and
central taxes, plus levies are resulting in Indian yarn becoming non-competitive in global markets.
 High Cost of Raw Materials: Compared to its global competitors, Indian spinning mills have to spend more on
raw materials, which directly affects its cost of production and hence the country's competitiveness in the
global market.
 Cheaper Import: The cotton spinning industry has been hit by cheaper import of garments and yarn from
Bangladesh, Sri Lanka and Indonesia. This is because of the lower cost of their raw materials as compared to
India.
 Competition: Rising competition from neighbouring countries such as China, Bangladesh, Vietnam, and
Turkey in areas such as cotton fabric, apparels, MMF and carpets.
 Low Demand: Sluggish demand in major export destinations, EU and USA as a result of the global economic
crisis.
 Domestic Challenges: Domestic challenges such as lack of technology up-gradation, inefficient infrastructure
and fragmented industry structure among others.
 Delays: Duties and taxes are not being refunded in time.
 Highly fragmented: The Indian textile industry is highly fragmented and is being dominated by the
unorganized sector and small and medium industries.
 Outdated technology: The Indian textile industry has its limitations of access to the latest technology
(especially in small-scale industries) and failures to meet global standards in the highly competitive market.
 Inflexible labour laws: India's system of labour regulations is rather complex. There are over 200 labour laws,
including a quarter of Central Acts. Several labour laws such as the Industrial Disputes Act, 1947 put
limitations on firm size and not allow manufacturing firms to grow.

Way forward
 It should be realised by the application of new ideas, cutting-edge technology, and facilitation.
 establishing mega-apparel parks and a shared infrastructure for the textile sector: The focus should be
on updating outdated machines and technologies.
o Ministry of Textiles has issued a notification to set up 7 Mega Integrated Textile Region and
Apparel (PM MITRA) Parks.
o The PM MITRA scheme is Inspired by the 5F vision of Hon'ble Prime Minister - Farm to Fibre to
Factory to Fashion to Foreign. It aspires to fulfil the vision of building an Aatmanirbhar Bharat
and to position India strongly on the Global textiles map.
o In 2015, the government approved "Amended Technology Upgradation Fund Scheme
(ATUFS)" for technology upgradation of the textiles industry.
 Attracting Foreign Direct Investment (FDI): The Indian government has devised a variety of export
promotion programmes for the textile industry.
o For example, under the automatic method, India has approved 100 percent FDI in the Indian
textiles sector.
 Rational labour laws are required: Several high-level expert groups have proposed that company size
restrictions be removed and that hiring and firing be made more flexible.
 Increased exports: To expand its export potential, India must strike trade agreements with wealthy
countries.
o Silk Samagra Scheme: It focuses on improving the quality and productivity of domestic silk
thereby reducing the country’s dependence on imported silk.
 Skilled labour force: To address the shortage of skilled workers, the government launched the Scheme
for Capacity Building in Textile Sector (SCBTS) and named it SAMARTH Scheme.
 PRODUCTION LINKED INCENTIVE (PLI) SCHEME FOR TEXTILES launched for the financial help of the
textile sector.
CONCLUSION:
 India needs a comprehensive blueprint for the textile sector. Once that is drawn up, the country needs to
move into mission mode to achieve it. In this context, the new Textiles Policy 2020 being formulated by the
Centre should aim at developing a competitive textile sector which is modern, sustainable and inclusive.
Semiconductor industry
In news: The government has agreed to prolong the PLI (Production-Linked Incentive) plan with a budgeted
incentive of Rs 76,000 crore for the next six years in order to stimulate semiconductor manufacture in India.
 Semiconductor is a physical material used in electrical devices and equipment to regulate and control
current flow.
 They are the basic components of integrated circuits, microchips, or simply chips, and are known as the
brains of modern electronics. They are made of silicon, germanium, or other pure elements.
Semiconductor and global order:
 With the majority of semiconductor manufacturing and supply capacity concentrated in a few
countries, including Taiwan, South Korea, the United States, Japan, and, more recently, China,
governments around the world have realised that treating chip manufacturing as a strategic imperative
is in their national interest.
India’s take on Semiconductor manufacturing
 India, as one of the first countries to recognise semiconductor chip production, has launched a
semiconductor mission to propel the chip and display industries forward.

Challenges with Semiconductor industry

 High Expenditures are Required: Semiconductors and display production is a highly complex and
technology-intensive industry that requires major and ongoing inputs due to large capital investments,
high risk, extended gestation and payback periods, and fast technological developments.
 Government Fiscal Support: When one considers the number of investments normally necessary to set
up production capabilities in the different sub sectors of the semiconductor industry, the level of fiscal
support now envisioned is microscopic.
 Lack of Fab Capacity: India has a good chip design skill pool, but it has never developed chip fab capacity.
The ISRO and the DRDO both have their own fab foundries; however, they are largely for their own needs
and are not as advanced as the most advanced in the world.
 Inadequate PLI Grants: India's Production Linked Incentive (PLI) plan promises to provide just half of the
cost of establishing at least two greenfield semiconductor fabs in the form of fiscal support.
 Chip fabs are also very thirsty facilities, needing millions of litres of pure water, a very reliable power
supply, a large amount of land, and highly experienced personnel.

Road ahead
 Sufficient Financial Assistance for All Elements: Given India's significant skill and experience, it could be
better if the new mission concentrates budgetary support, at least for the time being, on other
components of the chip-making chain, such as design centres, testing facilities, and packaging.
 Increasing Self-Reliance: Future chip manufacturing should not be a one-trick pony; instead, it should
establish an ecosystem that includes design, fabrication, packaging, and testing.
o In this industry, India must also improve research and development, which is currently
inadequate.
 Connectivity and Capability-Related Measures: For India to make a presence in the specialty chip
manufacturing and design business, a number of variables must come together.
o The Indian government must work quickly to connect allied industries in India in order to
develop a chip manufacturing ecosystem. It is necessary to improve national capabilities.
 Taking Advantage of Groupings Like Quad: For India, multilateral collaboration is a need, not a choice,
when it comes to developing important and emerging technologies. A nice place to start is the Quad
Semiconductor Supply Chain Initiative.
 PRODUCTION-LINKED INCENTIVE (PLI) SCHEME: DLI aims to nurture at least 20 domestic companies
involved in semiconductor design and facilitating them to achieve turnover of more than ₹1500 Crore in
the next 5 years.
Conclusion
The Indian government has taken an ambitious industrial programme that will assist create the basis for India's
development over the next decade.
More of these types of incentives and expenditure will be required in the future, as India isn't the only
country aiming to establish a chip manufacturing base. Gaining a modicum of control over
semiconductors is critical for all countries.

INFRASTRUCTURE

PREVIOUS YEAR QUESTIONS:

1. With growing energy needs should India keep on expanding its nuclear energy programme? Discuss 2018
the facts and fears associated with nuclear energy.

2. Access to affordable, reliable, sustainable and modern energy is the sine qua non to achieve 2018
Sustainable Development Goals (SDGs). Comment on the progress made in India in this regard.

3. Examine the developments of Airports in India through Joint Ventures under Public-Private 2017
Partnership (PPP) model. What are the challenges faced by the authorities in this regard?

4. What are ‘Smart Cities? Examine their relevance for urban development in India. Will it increase 2016
rural-urban differences? Give arguments for Smart Villages in the light of PURA and RURBAN
Mission.

5. Justify the need for FDI for the development of the Indian economy. Why there is gap between 2016
MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India.

6. There is a clear acknowledgement that Special Economic Zones (SEZs) are a tool of industrial 2015
development, manufacturing and exports. Recognizing this potential, the whole instrumentality of
SEZs requires augmentation. Discuss the issues plaguing the success of SEZs with respect to
taxation, governing laws and administration.

7. The right to fair compensation and transparency land acquisition, rehabilitation and resettlement 2014
act, 2013 has come into effect from 1 January 2014. What implication would it have on
industrialization and agriculture in India?

8. National urban transport policy emphasizes on moving people instead of moving vehicles. Discuss 2014
critically the success of various strategies of the government in this regard.

9. Explain how private public partnership agreements, in longer gestation infrastructure projects, can 2014
transfer unsuitable liabilities to the future. What arrangements need to be put in place to ensure
that successive generations’ capacities are not compromised?

10. Adaptation of PPP model for infrastructure development of the country has not been free from 2013
criticism. Critically discuss the pros and cons of the model.

INTRODUCTION
 Infrastructure are the basic physical facilities (roads, buildings, power supplies) and organisational structures
(schools, hospitals, banks) needed for operation of society.
 Infrastructure is considered as the “lifeline of an economy”, therefore, the GoI has always given priority to
the developmental aspects of this sector.
 The World Bank considers power, water supply, sewerage, communication, roads & bridges, ports, airports,
railways, housing, urban services, oil/ gas production and mining sectors as vital aspects of infrastructure.
 Infrastructure investment is key for post-COVID revival. As FM presents the Budget Mobilizing investments
through large-scale privatization of operational assets is key. This could make or break a moment for achieving
the dream of a USD 5 trillion economy.
 The capital expenditure for 2022-23 has been pegged at Rs 7.5 lakh crore. Together with grants in aid for
creation of capital assets, the effective capital expenditure for the next year is budgeted at Rs 10.67 lakh
crore, 27 per cent more than the RE of 2021-22 at Rs 8.40 lakh crore.
 Recently government came with the PM Gati shakti: The scope of PM Gati Shakti National Master Plan will
encompass the seven engines for economic transformation, seamless multimodal connectivity and logistics
efficiency.
o The projects pertaining to these 7 engines in the National Infrastructure Pipeline will be aligned
with PM Gati Shakti framework

SIGNIFICANCE OF INFRASTRUCTURE
 Improving growth: India needs to spend about $ 1.4 trillion over these infrastructure in order to achieve the
GDP of $5 trillion by 2024-25.
 Increase in investment: It opens up possibilities of investment by making available a number of necessary
inputs and services, opening up the size of the market as well as increasing the supply elasticity.
 Inclusive Growth: Quality infrastructure is not only vital for faster economic growth but also to ensure
inclusive growth.
 Creating jobs: Any infrastructural investments play a pivotal role in the generation of employment
opportunities.
 Social Capital: Investment in infrastructure improves social capital and leads to: Poverty alleviation,
Improvement in literacy rate, Minimize the income inequality.
 Easy Mobility: It provides robust and resilient communication and connectivity to the nation.
 Environmental Benefits: Development of Renewable energy infrastructure will aid in attaining NDCs
(Nationally Determined Contributions) of India.
 Trade & commerce: Infrastructure facilities play a vital role in the development of trade & commerce. They
act as a platform for the expansion of trade and other commercial activities at a rapid speed.
 Provide Support: Infrastructure is the support system on which depends the efficient working of a modern
industrial economy.
 Industrial Development: Micro, small, and medium enterprises (MSMEs) production and growth necessitate
access to high-quality, dependable infrastructure services in order to compete effectively with large-scale
enterprises.
 Agricultural development: Agricultural growth and the establishment of agro-processing enterprises would
be supported by the expansion of infrastructure facilities such as irrigation, rural electrification, highways,
and road transport.
 National Defence: They also play an important part in national defence. Development of military and defense
infrastructure is crucial for national defence.
 Government Revenue: Transportation, communication, and telecommunication infrastructure help to
shatter the country's economic isolation.
 Economic development: Infrastructure contributes to economic development of a country both by increasing
the productivity of the factors of production and improving the quality of life of its people.

ISSUES RELATED TO INFRASTRUCTURE

 Land Acquisition: Resistance from local communities has proven to be a potent force and has led to delays in
infrastructure projects.
 Uneven Private Participation: The record so far of the infrastructure sectors in regard to private participation
and even within segments of the same sector itself is very uneven.
 Environmental Impact Assessment: Environmental safeguards and guidelines are evolving, which are similar
to the scale and complexity of infrastructure projects.
 Regulatory uncertainty: due to various risks which include procedural delays, lengthy processes in land
acquisition, payment of compensations, environmental concerns, lesser traffic growth than expected etc.
 Inadequate Dispute Resolution Facilities: Lack of proper dispute resolution mechanism adds to the delays.
Disputes often lead to lengthy litigation and substantial project delays.
 Delays in infrastructure projects: leading to time and cost overruns in the implementation phase.
 The transport network is not planned holistically: The lack of interconnectedness and synergies in the
transport network prevent the efficient movement of people and goods.
 Slack in Capacity: Another emerging challenge for the achievement of large infrastructure projects is the
capacity of the private sector to undertake or implement such projects.
 Key issues in infrastructure financing in India:
o Fiscal Burden: Almost half of the total investment in the infrastructure sector is done by the
Government through budget allocations.
o Asset-Liability Mismatch of Commercial Banks: Commercial banking sector’s ability to extend long-term
loans to the infrastructure sector is limited.
o Subdued Investments in PPP Projects: Private sector investment is yet to revive in the backdrop of
subdued interest from potential stakeholders. Legacy issues and weak balance sheets have led to limited
participation from existing infrastructure players in India.
o Investment Obligations of Insurance and Pension Funds: Insurance and pension funds are constrained
by their obligation to invest a substantial portion of their funds in Government securities.
o Government has made provision to financially support the viability gap to the tune of 20% of the
cost of the project in the form of capital grant from its viability gap fund.
o Need for an Efficient and Vibrant Corporate Bond Market: The corporate bond market is still a long way
to go in providing adequate financing to the infrastructure sector in India.
o Insufficiency of User Charges: A large part of the infrastructure sector in India especially irrigation, water
supply, urban sanitation, and state road transport is not amenable to commercialisation for various
reasons.
o Legal and Procedural Issues: Issues relating to land acquisition and environmental clearances add
uncertainty which affects the risk appetite of investors as well as banks.
o High fiscal deficit due to COVID19 crises, government faces heat in spending infrastructure projects.

WAY FORWARD
 Cooperation of Multi-stakeholders: The success of the infrastructure expansion plan would depend on Multi
Stakeholders of the pipeline playing their due role.
o These include State governments and their public sector enterprises and the private sector.
o In this context, the Fifteenth Finance Commission has recommended the setting up of a High-Powered
Intergovernmental Group to re-examine the fiscal responsibility legislations of the Centre and States.
 Implementing the recommendation of Narasimhan Committee and Sunil Mehta Committee to tackle the
issue of NPA.
 Revitalising the bond and credit markets: Institutional investors are more suited to fund infrastructure
projects given the long-term patient capital requirement of infrastructure projects.
o The National Highways Authority of India (NHAI) launched Masala Bonds in May 2017, for raising
capital for funding the infrastructure projects in India.
o Rs. 20,000 crores to set up and capitalize a Development Financial Institution (DFI) – to act as a
provider, enabler and catalyst for infrastructure financing.
 Revitalising asset monetisation: The direct benefit of asset monetisation is that it creates an enabling
environment for participation of long-term institutional investors and introduces private sector.
o Under national asset Monetization pipeline 15% of assets with an indicative value of Rs 0.88 lakh
crore are envisaged for rollout in the current financial year.
 Skill development: It includes introducing market oriented vocational training courses in Industrial Training
Institutes (ITIs) so that we can utilize our human capital in improving our growth.
 Setting up single quasi-judicial authority: to minimize the delay in litigation process issues of all the
infrastructure sectors.
 Private-Public Partnership: Allowing the private players into some former fully government owned
infrastructure sectors, such as telecommunications and domestic civil aviation, etc.
o The National Infrastructure Pipeline is a group of social and economic infrastructure projects in India
over a period of five years with a sanctioned amount of ₹102 lakh crore.
 Formulating land acquisition law: after consulting all the stakeholders to address one of the major problems
in this area.
 Climate change and disaster resilience: There is a clear need for ensuring that all new and existing
infrastructure systems are climate and disaster resilient.
 Improving global competitiveness: infrastructure bottleneck is a primary constraint in terms of India’s
competitiveness, as reflected in the World Economic Forum’s Global Competitiveness Index.
 Encouraging green financing: The financing of green projects such as renewable energy; clean transportation
(including mass/public transportation); sustainable water management and water recycling; waste to energy
plants; energy efficient buildings can be funded from proceeds raised by issuing green debt securities.

CONCLUSION
In terms of the potential to attract global investment, India is in a sweet spot when compared to other emerging
economies. Government and the corporate world should work together to iron out structural issues and develop
frameworks that allow transparent and flexible risk sharing mechanisms to attract investments in the
infrastructure sector.

Benefits of ALLOTING Infrastructure ‘Status’

When any sector gets the infrastructure ‘statuses, then its entrepreneurs get multiple benefits (as and when
notified) such as:
 Government Benefits: tax benefits, lower import duties, lease of public land and property at a minimum price,
faster environment clearance, automatic FDI approval, etc.
 Access to funding: Infrastructure status will also ensure easier access to institutional credit -
o RBI could ease access and higher limit on external commercial borrowing, relax lending norms (PSL), Debt
restructuring, etc.
o Easy access to funds from the World Bank and other multilateral institutions.
o SEBI could provide relaxation in the REITS/InvITs norms to raise funds from the market.
o IRDAI & PFRDA could oblige insurance and pension companies to invest a minimum amount in
infrastructure companies etc.

ENERGY

INTRODUCTION
 Energy is a critical aspect of the development process of a nation. Beside industrial uses it is also used on a
large scale in agriculture and related areas like production and transportation of fertilisers, pesticides and
farm equipment. To sustain economic growth one of the important components is energy.
 The two major sources of energy can be classified under:

DATA/ FACTS
 As per Indian Energy Outlook report 2021 - India is the 3rd largest energy consuming country.
 The Per Capita Electricity Consumption which was a mere 16.3 units in 1947, has increased to 1208 units in
2019-20.
 The total electricity generated including that from captive plants during the year 2020-21 was 15.73 lakh GWh
as compared to 16.23 lakh GWh during the year 2019-20.
 India has 80 gigawatts of renewable energy, which is nearly 20% of its total installed capacity.
 In the power sector, the all-India installed power capacity is about 334 GW, including 62 GW of renewable
energy.
 India has improved its rank to 76th position in the Energy Transition Index of WEF.
Oil and Gas supply chain
 Upstream Sector: They identify oil and natural gas deposits and engage in the extraction of these resources
from underground. E.g.: ONGC, Oil India ltd.
 Midstream sector: This sector involves transportation of oil and gas from blocks to refineries and from
refineries to distribution centres. It also includes storage infrastructure.
 Downstream sector: They include refineries and marketing. E.g., Indian Oil Corporation Ltd – It is the largest
company in India by sales and second largest refiner (31% share).

ISSUES AND CHALLENGES WITH ENERGY SECTOR IN INDIA

 Impact of the Covid-19: On the energy system shows following expected declines in 2020 -
o 5% in global energy demand,
o 7% in energy-related CO2 emissions and
o 18% in energy investment.
o 20% in oil consumption
 Multiple ministries and agencies: Multiple ministries and agencies are currently involved in managing energy
related issues, presenting challenges of coordination and optimal resource utilization.
 Highly dependent on fossil fuel like Coal: India’s 90% of primary energy supply is fulfilled by fossil fuel.
Currently, over 80% of its electricity comes from burning coal, oil and biomass.
 High AT&C losses: The energy losses in transformation, transmission and distribution during the year 2019-
20 was at 20.46 percent for all India which was highest for the North east region - 29.98 percent.
o The Accelerated Power Development Program was launched in 2002-03 with the main objective of
reducing AT&C losses.
 Low per capita energy consumption: The Per Capita Electricity Consumption which was a mere 16.3 units in
1947, has increased to 1208 units in 2019-20.
 Financial Health of State Discoms: Years of populist tariff schemes, mounting AT&C losses and operational
inefficiencies have adversely affected the financial health of State Discoms which are currently plagued with
humongous out-standing debts.
o Ujwal DISCOM Assurance Yojana: A scheme for the Financial Turnaround of Power Distribution
Companies (DISCOMs).
 Under-procurement of Power by States: Increasing power generation costs due to limited fuel availability,
poor financial health of State Discoms, high AT&C losses have contributed to suppressed demand projections
by State Discoms.
 Policy Paralysis: The micro level policies governing the fuel cost pass-through, mega power policy,
competitive bidding guidelines are not in consonance with the macro framework like The Electricity Act 2003
and the National Electricity Policy.
 Variety of subsidies and taxes: They distort the energy market and promote the use of inefficient over
efficient fuels. They also make Indian exports and domestic production uncompetitive as energy taxes are not
under GST.
 Coal supply: The coal sector has failed to match production with the growth in coal-based generation
capacity. This has created a gap between the demand and supply of coal.
 Lower average tariff: In 2013-14, the average cost of supplying power was Rs 5.9/kWh whereas the average
tariff was Rs 4.8/kWh.
o Supplying electricity at tariff lower than the cost to supply, along with delay in tariff revisions has led
to discoms facing huge financial losses.
 Inefficient Devices: The Power-hungry devices and equipment consume higher than required electricity.
o BEE- Star Rating Programme: Standards & Labelling programme to ensure informed decision by
consumer for appliances by the Bureau of Energy Efficiency (BEE).
o UJALA Scheme: The Unnat Jyoti by Affordable LEDs for All (UJALA) scheme was launched to provide
LED bulbs to domestic consumers.
 Discontinuous power supply: SAUBHGAYA initiative launched that aims to provide electricity to the
households that are not electrified yet.
 Agricultural wastage: Average tariff was the lowest for agricultural consumers at 1.8 Rs/kWh due to direct
subsidies received from the state government and cross-subsidisation.
o KUSUM Scheme: Installation of solar-pumps and providing extra income opportunities to farmers by
selling the surplus electricity to DISCOM.
 Aging Power Plants and Transmission network: Since most of the power plants and transmission lines have
been installed immediately after independence, they have become old and inefficient.
 Interstate Disputes: India is a federal democracy, and because rivers cross state boundaries, constructing
efficient and equitable mechanisms for allocating river flows has long been an important legal and
constitutional issues.

WAY FORWARD
 Unified Ministry of Energy: It is advocated by the Kelkar Committee and National Energy Policy (by NITI
Aayog).
 Huge potential of renewable energy: There is high potential for generation of renewable energy from various
sources wind, solar, biomass, small hydro and cogeneration bagasse.
 Balanced Regulatory Interventions: Regulators need to be sensitized to the challenges faced by the sector
and policy framework needs to be crafted and enforced to ensure a win-win situation for all the stakeholders.
 Increased Financing Facilities for Energy Sector: A robust and sustainable credit enhancement mechanism
for funding in the Energy Sector needs to be put in place through increased participation by global funding
agencies like The World Bank, ADB etc. in the entire value
chain.
 Smart Electricity Grid and Smart Meter Network:
Interconnected and complex nature of the electricity grid
delivers several benefits including:
o Reliability: Since the grid is an enormous network,
electricity can be deployed to the right places across
large regions of the country.
o Flexibility: The electricity grid allows a power system
to use a diversity of resources, even if they are
located far away from where the power is needed.
o Economic competition: Because the grid allows
multiple generators and power plants to provide electricity to consumers, different generators compete
with each other to provide electricity at the cheapest price.
 Thus, One Nation, One Grid launched with Objective to increase the efficiency of the transmission
and distribution process.
 Public Private Partnership (PPP) model: There is a strong need to push for wider-scale implementation of
PPP models. The private sector has been playing a key role in generating power.
 Uneven distribution of renewable energy: Recently, NITI Aayog pointed out that electricity buyers in
renewable-poor states are comparatively less willing to purchase renewable electricity as their cost is higher
than the conventional sources.
 Reduce the AT&C losses: With innovative technologies like Big Data, AI etc the AT&C losses can be minimised.
 Renewable purchase obligations (RPO): RPO should be strictly enforced and inter-state sale of renewable
energy should be facilitated.
 Addressing coal shortage: Mission coking coal launched to Augmenting Coking Coal Production.
 General Network Access: The Central Electricity Regulatory Commission came out with a draft proposal to
facilitate regulatory framework for General Network Access (GNA).
 if implemented, would bring in a radical change to the country’s power disbursal system and create
a level playing field.

CONCLUSION
 The power sector is critical to the country's economic growth and development. The problems that this
industry faces have a direct effect on other areas of the economy. As a result, the government needs to make
enhancing the productivity of this sector by effective government initiatives a top priority.

Critical analysis of PRADHAN MANTRI UJJWALA YOJANA

Launched on May 1, 2016, PMUY, through which subsidised LPG connections were claimed to have been provided
to about 4.5 crore poor households until 2018.
Its objectives are:
 Empowering women and protecting their health.
 Reducing the serious health hazards associated with cooking based on fossil fuel.
 Reducing the number of deaths in India due to unclean cooking fuel.
Since the inception of the Pradhan Mantri Ujjwala Yojana (PMUY), LPG coverage grew at a quick pace and reached
almost all households by April 2019.
 Household LPG connections grew at a sedate pace before PMUY was introduced in May 2016.
 Following the implementation of the scheme, overall household LPG coverage grew swiftly to reach
94.3% as on April 1, 2019.
Despite wide coverage, LPG refills ordered by consumers have been constantly declining in recent years.
 In 2018-19, refills consumed on an average reduced to 2.98 instances per year from 3.4 per year in 2017-
18.
 LPG consumption by BPL families with existing connections was estimated to be 3-4 refills per year.
 Meagre refill: Of the 3.18 crore PMUY consumers who had an LPG connection for one year or more as on
December 31, 2018, 17.4% never ordered a second refill and 33.15% ordered only 1-3 refills per year.
o This indicates that more than half the beneficiaries consumed less than the national average of
3.21 reflills.
 Towards commercial use: Even as half the beneficiaries ordered less than 4 refills a year, about 2.98 lakh
customers with a single cylinder connection ordered 2 to 20 refills in a day. Such high level of consumption
is impossible in a domestic connection and is only possible in commercial set-ups such as restaurants
indicating that there might have been diversions of connections towards commercial use.
 Back to the old ways: A survey of 1,662 beneficiaries, conducted between April 2016 and December 2018,
showed that 35.44% reverted to traditional fuels mainly due to higher price of LPG refills and easy
availability of traditional fuel which is considered "unclean".
Way forward
The Comptroller and Auditor General (CAG) of India submitted a performance audit report on the Pradhan Mantri
Ujjwala Yojana (PMUY) on December 11, 2019. It observed that:
 Delay in installation: Under the scheme, new connections should be installed within seven days from the
day of providing required details.
o CAG observed that only 72.7 lakh connections (19%) were installed within seven days.
 Restrict Diversion of cylinders: The report finds that nearly 14 lakh beneficiaries consumed three to 41
cylinders in a month, and nearly two lakh beneficiaries had an annual consumption of more than 12
cylinders.
o CAG noted that this points to risk of domestic cylinders being diverted for commercial purposes
and recommended that high consumption cases should be regularly reviewed to curb diversion.
 Meet with Safety standards: Pre-installation inspection is required before issuing LPG connections to
ensure that a beneficiary’s premises meets required safety standards (such as ventilated kitchen, elevated
stove).
o CAG observed that there were many instances where installation inspection report was not
available.
 Lack of performance indicators: CAG noted that there are no parameters to assess outcomes related to
the scheme such as improvement in health of women and reduction in air pollution.
o It recommended that the Ministry of Petroleum and Natural Gas should develop a roadmap to
assess these outcomes.
Ujjawala 2.0
  Union Budget 2021-22 provided an additional 1 crore LPG connections. To cover those families which
could not get benefit under first phase.
 Enrolment under the scheme has been made more easier for the benefits of migrants.
Conclusion
Continuing to help the economically poor for maintaining LPG use is not just a fiscal subsidy, but also a social
investment in freeing up women's productive time and reducing India's public health burden in the aftermath of
the epidemic.

DISCOMs: PRESENT STATUS, CHALLENGES AND STRATEGIES

India has one of the largest and most complex power sectors in the world. Over the past few decades, the country
has witnessed a remarkable evolution. Today, almost every citizen has access to grid electricity, power deficiency
has decreased sharply, and the installed renewable energy capacity has reached a fourth of the total capacity.
 However, the sector still faces significant challenges. Most power distribution companies (or discoms)
incur losses every year—the total loss is estimated to be ₹ 90,000 crore in FY 2021
o Due to these accumulated losses, discoms are unable to pay for generators on time— as of March
2021 an amount of ₹ 67,917 crore was overdue.
o They are also unable to make the investments necessary for ensuring continuous high-quality
power, or build the infrastructure required to facilitate the transition from fossil fuel to
renewable (but intermittent) energy sources, such as solar or wind.

Challenges being faced by the DISCOMs in India

 A high degree of aggregate technical and commercial (AT&C) losses, the charging of inadequate or lower
rates as compared to the cost of electricity delivery, and insufficient subsidy support from state
governments are all contributing to DISCOMs' perilous financial status.
 Not supporting growing needs: transformer and substation capabilities were built to fulfil a minimum
demand of 250 or 500 watts, assuming that only lights, fans, and televisions were used, rather than
refrigerators and mixers.
 High subsidies: Around 25% of energy sales are too subsidised, and agricultural users are likewise
subjected to inconsistent, low-quality supplies.
 Higher Cost of Power Procurement: Power procurement accounts for almost 80% of the expenditure of
the discoms.
 Lack of Independence and Autonomy: The Electricity Amendment Act, 2003 has provided for State
Electricity Regulatory Commissions (SERCs) to ensure independence and autonomy in fixing electricity
tariffs.
o However, there is political interference in fixing tariffs leading to lower tariffs on electricity.
 Inability to boost rates due to a lack of political agreement at the state level: Many states record losses
because they were unable to close the gap between electricity expenses and income.
o Opposition parties in Karnataka, for example, recently challenged a rate increase of 30 paise.
 Emergence of alternative sources of energy and resultant decline in cross-subsidy tariff: DISCOMs were
able to charge higher prices from commercial and industrial customers to cross-subsidize agricultural
and low-income families due to the emergence of alternative energy sources and the resulting drop in
cross-subsidy tariffs.

Road ahead
 Discom Restructuring: The distribution sector has been largely vertically unbundled—the three different
functions of generation, transmission, and distribution have now been separated. While there might be
de jure unbundling, the degree of de facto unbundling might vary.
o In states such as Gujarat, the unbundling was an important step towards improving the
performance of discoms.
 Introducing private players and good governance: Most discoms are state-owned, and only about 10
percent of India’s population is served by private distribution licensees. For a state-owned utility to
succeed, there should be a clear separation between utility and state.
 o Good corporate governance practices, including the use of independent directors, can help
ensure such separation.
o Higher private participation in distribution holds out the possibility of greater efficiency.
 Franchisee models have been successfully implemented in Odisha and Bhiwandi in
Maharashtra, where there have been rapid improvements in metering, billing, and
collection.
 Regulatory Reforms: The state governments should promote autonomy, competence, and transparency
of the State Electricity Regulatory Commission (SERC).
o Tariffs should be regularly revised to ensure that they fairly reflect the actual fixed and variable
costs. No new regulatory assets should be created.
o One way to insulate regulatory functions from political pressures is to create regional electricity
regulatory commissions with the participation of the central government.
o Electricity Amendment Bill 2021: The bill seeks to delicense power distribution to reduce entry
barriers for private players for creating competition in the segment, which would ultimately
enable consumers to choose from multiple service providers.
 Introducing DBT: For consumers, who receive subsidised electricity, direct benefit transfer (DBT) can help
improve efficiency and reduce leakages. It has recently been implemented in parts of Madhya Pradesh.
 Operational Reforms: The overall AT&C loss figure in India is as high as 24.54 percent.
o Many discoms need to improve their billing efficiency through better metering.
o They should fully utilise the revamped central government reform scheme to achieve 100
percent metering using prepaid or smart meters while being cognisant of cybersecurity threats.
o In Gujarat, discoms were able to significantly reduce their technical losses through investment in
improving their grid.
o Investment in distribution infrastructure is a major component of the revamped central
government reform scheme announced in Budget ’21, and state discoms should aggressively use
this support to upgrade their distribution infrastructure.
 Renewable Energy Integration Reforms: States and discoms are mandated to meet the targets of
renewable purchase obligations (RPOs) every year.
o However, the must-run status of RE means that some states end up purchasing more than what
they need while falling short of their obligations.
o A stringent implementation of the RPO mandate would ensure a fairer distribution of the excess
cost of absorbing RE.
 Giving one-time financial support: UDAY Scheme: Aims at improving the financial position of DISCOMs.
Under the scheme, states are supposed to take over 75% of the discoms’ debt and the DISCOMs were
required to reduce AT&C losses to 15%.

Conclusion
A combination of low-cost renewable energy, use of technology in smart prepaid meters with a liberal dose of
privatisation can potentially break the high debt trap for discoms. It is up to policymakers to exploit the
opportunity with conviction to see it through its logical conclusion.

Renewable Energy
India has witnessed the fastest rate of growth in renewable energy capacity addition among all large economies,
during the last 7.5 years with renewable energy capacity growing by 2.9 times and solar energy expanding by over
18 times.
 As per NITI Aayog - India’s Renewable Energy Capacity is 4th largest in the world.

RECENT DEVELOPMENTS IN RENEWABLE ENERGY SECTOR

GOVERNMENT INITIATIVES TO PROMOTE RENEWABLE ENERGY:
 FDI Policy: FDI up to 100% is allowed in the renewable energy sector under the Automatic route and no prior
Government approval is needed
 National Solar Mission: It is a part of the National Action Plan on Climate Change. It is an initiative to promote
solar power in India.
 PLI Scheme: The scheme proposes a financial incentive to boost domestic manufacturing and attract large
investments in the electronics value chain including electronic components and semiconductor packaging.
 Nation Green Corridor Programme: This project aims at synchronising energy that is produced from
renewable energy sources with the
conventional stations.
 Promotion of Solar Parks and Ultra Mega Solar
Power Projects: The aim of the mega project is
to set up at least 25 Solar Parks and Mega-Solar
Power Projects to produce 20, 000 MW of solar
energy between 2014-15 and 2021-22.
 National Clean Energy Fund: It is the fund
created using the carbon tax for backing
research and development of innovative eco-
friendly technologies.
 Sustainable Rooftop Implementation for Solar
Transfiguration of India (SRISTI) scheme: This
scheme provides financial aids to the beneficiaries who install a solar power plant at the rooftop within the
country.

R EASONS FOR THE GROWT H OF RENEWABLE ENERG Y :

 Growth of energy demand: Expansion of electricity coverage: Increased coverage of electricity, along
with the provision of last-mile connectivity to all households under the SAUBHAGYA scheme or Sahaj
Bijli Har Ghar Yojana has led to higher demand for energy.
 Rise in energy demand: As urbanisation increases, there is also an Increase in the per capita
consumption of energy leading to the growth of energy demand.
 Economic growth: Despite the COVID-induced slowdown, India is one of the few countries which are
looking at a substantial growth rate in the future, thus increasing the requirement of energy in the
post-COVID world.
 Growing acceptance of electric mobility: Electric and hybrid vehicles have become the technology of
choice around the world. This will create additional power demand for charging needs of the Electric
vehicles.
 India’s commitments under the Paris climate deal: Apart from decreasing the energy
intensity and creation of carbon sink, India has also committed itself to meet 40% of its total energy
demand from non-fossil sources.
 Thus, it is imperative to invest in renewable energy to meet this target.
 Personal energy invested by the PM: PM has set the targets and reiterated that the Indian
government is committed to increasing the share of renewable energy in India’s total energy share.
 Initially, the target for renewable energy was set at 175 GW, but now it has been
further revised to 450 GW by 2030.
 Impact of COVID: COVID has led to people understanding the importance of cleanliness. This has also
created a favourable perception of clean energy. Therefore, thermal energy, being one of the largest
emitters of pollution, will naturally be considered an inferior source of energy.
 Air Pollution: Rise in the levels of air pollution in Delhi and other major cities have led to a change in
the policy direction towards clean energy driven growth in India.

B ENEFITS OF RENEWABLE ENERGY :

 Opportunity for the private sector: There is a possibility of a business of around $20 billion per year in
the renewable energy sector.
o A target of setting up 450 GW of renewable energy sources by 2030 means that we need to
augment the renewable energy capacity by almost 25-30 GW per year.
o This can be harnessed as a high return on investment opportunity by the private sector.
  Low maintenance cost: As compared to the traditional sources of energy like coal-based or oil-based
thermal power plants, solar energy has the advantage of almost no requirement of procurement of fuel
as well as lesser wear and tear due to lack of movement of parts. Therefore, return on investment is
higher in the long run.
 Government incentives: Solar energy is a sustainable source of energy. Therefore, unlike thermal energy
where the government policy is to penalise the usage, renewable energy will always be incentivised to
invest additional resources and create more energy capacity.
 Sustainability: Renewable energy is a cleaner source of pollution, thus, benefitting the environment in
general and reducing pollution and the associated diseases in particular.
 Atmanirbhar Bharat: Investment by the private sector in renewable energy would also be helpful in
fulfilling the Government’s objective of self-reliance. It will also create employment opportunities in the
country.
 Last-mile connectivity: As renewable energy can also be decentralised, therefore, it is better placed to
extend last-mile connectivity in remote areas, where it might not be financially feasible to stretch the
main grid.
o This is also economical for the government and households as decentralised
connectivity decreases the Transmission and distribution losses.
 Emission commitments: India made a commitment to COP-21 Paris Convention in December 2015 that
by 2030, it would reduce carbon emission by 33%-35% of 2005 levels.

C HALLENGES :
 Reliability: By their very nature, solar and wind energy are variable in availability both spatially as well as
geographically. They are not available on-demand, unlike thermal or nuclear energy. Therefore, they have
to be supplemented with other sources of energy, to maintain the base load.
o Nation Green Corridor Programme: This project aims at synchronising energy that is produced
from renewable energy sources with the conventional stations.
 Creation of storage infrastructure: To overcome the variable nature of renewable sources of energy, it is
vital to invest in affordable batteries of large capacity. This would require adequate commitment from
the government side to inspire confidence in the private sector.
 Funding: As already stated, renewable energy requires setting up large projects to harness the economies
of scale. This requires a large initial investment, which can be a deterrent at the beginning of the project.
o FDI up to 100% is allowed in the renewable energy sector under the Automatic route and no prior
Government approval is needed.
o National Clean Energy Fund: It is the fund created using the carbon tax for backing research and
development of innovative eco-friendly technologies.
o Sustainable Rooftop Implementation for Solar Transfiguration of India (SRISTI) scheme: This
scheme provides financial aids to the beneficiaries who install a solar power plant at the rooftop
within the country.
 Building manufacturing capability: It is important to set up manufacturing capacity in India to decrease
imports and promote Atmanirbhar Bharat.
o More manufacturing would also mean an increase in investments and additional employment
generation in India.
 Energy Trilemma: In order to build a strong basis for prosperity and competitiveness, India must balance
the three core dimensions of the energy trilemma: affordability and access, energy security and
environmental sustainability.

SOLAR POWER AND INDIA:

 Solar power in India is a fast-developing industry. The country’s solar installed capacity reached 35.12 GW
as of 30 June 2020. India has the lowest capital cost per MW globally of installing solar power plants.
 The Indian government had an initial target of 20 GW capacity for 2022, which was achieved four years ahead
of schedule. In 2015 the target was raised to 100 GW of solar capacity (including 40 GW from rooftop solar)
by 2022, targeting an investment of US$100 billion.
 India has established nearly 42 solar parks to make land available to the promoters of solar plants. In the
decade ending 31 March 2020, India expanded its installed solar power capacity by 233 times from 161 MW
to 37,627 MW.
 India has implemented safeguard duties on import of solar equipment from China and Malaysia, which have
been extended until July 2021 at a rate of around 15%.
 Rooftop solar power accounts for 2.1 GW, of which 70% is industrial or commercial. In addition to its large-
scale grid-connected solar photovoltaic (PV) initiative, India is developing off-grid solar power for local energy
needs.

CHALLENGES & ISSUES:

 Low domestic cell manufacturing capacity at 3.1 GW last year
 Heavy reliance on China for importing of photovoltaic cells, modules and associated equipment
 Projected addition of capacity in a COVID-19 affected future could fall short of stated goals (100 GW by 2022)
 India’s Domestic Content requirement clause is facing legal challenge at WTO.
 Land availability in India for solar plant is less due to high population density.
 India’s solar waste is estimated to be around 1.8 million by 2050 also needs to be tackled.
 Challenges with respect to importing critical raw materials such as polysilicon.

GOVERNMENT INITIATIVES:
 ‘One Sun One World One Grid’ (OSOWOG) initiative proposed by India to set up a framework for facilitating
global cooperation which aims at building a global ecosystem of interconnected renewable energy resources
that can be easily shared.
 International Solar Alliance (ISA) aims to deploy over 1,000 GW of solar generation capacity globally and
mobilise investment of over $1 trillion by 2030. India has also put forward the concept of “One Sun One
World One Grid” to harness abundant solar power on global scale.
 The MNRE, which provides a 30 per cent subsidy to most solar powered items such as solar lamps and solar
heating systems, has further extended its subsidy scheme to solar-powered cold storages.

WAY FORWARD:
 Integrated policies: The key requirements are integrated policies fully supported by States. Industry must get
help to set up facilities and avail low-cost financing both important elements in China’s rise and be able to
invest in intellectual property.
 Import Reduction: However, in terms of manufacturing of solar equipment, it is dominated by a handful of
countries. India, in order to become a world leader in solar power, cannot just rely on large scale solar
deployment by importing solar equipment.
 Sustainable Growth: There is an immediate necessity to develop the entire value chain ecosystem to become
competitive and achieve sustainable growth in the long run.
 Flexible financing options for individuals: to install rooftop solar installations would also support a faster
adoption of clean energy.
 Focus on last mile connectivity in remote areas: where developing transmission infrastructure is a challenge
through small solar installations or solar community grids by using a domestically manufactured product with
small power inverters or batteries in every home may be helpful to ensure power for all in countries like India.

INDIA’S KEY FOCUS FOR NEXT 5 YEARS

 Methanol and Biomass: Utilizing other alternatives like methanol-based economy and biomass.
o Bio-CNG vehicles with 20% blending in petrol is also a target for the government.
o Generating energy from Biomass is a better option since it will clean the cities and also decrease
our energy dependence. Fuels created from biomass have a high calorific value and are cleaner
than traditional biomass.
 The Twin Challenge: India has a twin challenge of providing more as well as cleaner energy to the
population in India.
 o It should focus on getting into the manufacturing of solar panels under the Atma Nirbhar Bharat
initiative because the demand is to generate jobs and supply decentralised energy to all the
households in India.
o Developing the whole supply chain of all the components besides the manufacturing sector.
 Hydrogen based FCV: is likely to change the landscape of renewables and moving towards Hydrogen
Based Fuel Cells Vehicles (FCV) is another area of focus.
 Grid Integration: It is the practice of developing effective ways to provide variable renewable energy (RE)
to the grid.

INFRASTRUCTURE: RoadS

Introduction
India has the second-largest road network in the world, spanning a total of 5.89 million kilometres (kms). This
road network transports 64.5% of all goods in the country and 90% of India’s total passenger traffic uses road
network to commute.

Key highlights of Budget 2022-23 and road sector

 The allocation for the Ministry of Road Transport and Highways has seen a 68% increase with
₹1,99,107.71 crore set aside for it in the Union Budget 2023.
o This is in line with the massive target set for expanding National Highways network by 25,000
km in 2022-2023.
 To finance road projects, the government will also mobilise ₹20,000 crore through innovative financing
to complement public financing. Of the 35 multi-modal logistics parks the government plans across the
country, four will be awarded in the next fiscal.
 The PM Gati Shakti programme — which envisages co-ordinated planning across Ministries and States
for development of infrastructure — as one of the four key pillars of the Budget.

SIGNIFICANCE OF ROADS SECTOR IN INDIA

 Social Connectivity: Greater access to urban areas from remote places for basic amenities like healthcare and
education.
 Economic Connectivity: Increased investment in road infrastructure will help in facilitating economic growth.
 Boost the manufacturing sector and exports and can complement programmes such as “Make in India”.
 Creating employment opportunities: Programme has the potential to create direct and indirect employment,
and migrant workers from the distressed agricultural sector to the construction sector which will reduce rural
distress.
 Transporting perishable goods: It will help in transporting perishable agricultural products from one place to
other within a short span of time.
 Security: From the point of view of National Security and Defence, Border Roads form a key linkage for fast
deployment of troops at strategic locations.
 Improving Urban Public Transport: Road transport is also used as a feeder to other modes of transport such
as they provide a link between railway stations, air and sea ports, thus improving urban public transport.
 Roadways serve for the special links for feeder roads to important railway routes and ports. This is essential
for the development of domestic and international trade.
 Achieving SDG: Transport contributes directly to five targets on road safety (Target 3.6); energy efficiency
(Target 7.3); sustainable infrastructure (Target 9.1), urban access (Target 11.2), and fossil fuel subsidies
(Target 12.c) emphasize that sustainable transport is not needed solely for its own sake, but rather is essential
to facilitate the achievement of a wide variety of SDGs.

I SSUES AND C HALLENGES WITH ROADS SECTOR

 Accidents and safety concerns: Road safety is a major issue in the country with nearly 400 road related deaths
being recorded daily. At least a part of the fatalities is because of the poor quality of roads.
 Legislative lacunae: old vehicles ply without regulation culminating into tyre bursts on high-speed
expressways.
 Inadequate surveillance: ‘Hit and run’ cases go un-investigated due to absence of surveillance infrastructure;
73% two-wheeler accident victims do not wear helmets and a significant proportion of four wheelers do not
wear seatbelts or not possess driving license.
 Skewed road traffic engineering: Two-wheelers accounted for the highest share in total road accidents but
have been neglected during road traffic engineering and planning as shown by lack of separate lanes for them
and pedestrians.
 Road Maintenance: Annual outlay allocated for maintenance and repair of National Highways is only 40
percent of required amount. Defining criteria for converting state to national highways.
 Capacity of existing highways: The existing length of the NH network is 1.22 lakh km, which is 2.2 percent of
the country’s total road network of 56.03 lakh km. This limited capacity of National Highways is carrying 40
per cent of India’s total road.
 Land Acquisition: Delays in acquiring land can affect project costs as the average cost of land has escalated
from Rs. 0.80 crore per hectare during 2012-13 to Rs. 3.20 crore per hectare during 2017-18.
 Cost escalation for roads: Delays in acquiring land can affect project costs as the average cost of land has
escalated from Rs. 0.80 crore per hectare during 2012-13 to Rs. 3.20 crore per hectare during 2017-18.
 Lack of quality driving schools: Drivers’ fault was responsible for 80% killings in road accidents in 2016,
underscoring the need for improved enforcement and also for establishment of quality driving schools, driver
testing centers and standardized driver license regulations by RTOs.

Way Forward
 Expansion of Road Connectivity: Expanding the road network by improving the implementation capacity of
states’/UTs’ public work departments through institutional strengthening and training.
o Also, a dedicated Metropolitan Urban Transport Authority in each city with a population of more than
1 million by 2022-23 is needed.
 Improve Road Maintenance and Safety: Maintain NH assets by adopting a maintenance management system
(MMS).
 Streamline Land Acquisition: Ensuring the proper functionality of MORTH’s Bhoomi Rashi web portal.
Sensitize stakeholders to iron out details of land acquisitions like determining market value, deciding a
compensation amount, disbursement of compensation, etc.
 Skill Development: Introducing vocational training courses on road construction in Industrial Training
Institutes.
o Collaborate with original equipment manufacturers and other stakeholders to set up driving training
centres to train commercial vehicle drivers.
 Increase Emphasis on Research and Development: Earmark 0.1 per cent of MORTH’s annual budget for R&D.
Establish a transport data centre at the national level for applied research on roads and enhance R&D on IT-
enabled traffic management systems.
 Increase the capacity and reach of public transport: Transform state road transport undertakings and
promote public transport, rural transport and last mile connectivity.
o The central government should work with states to develop bus ports and provide technological
support such as VAHAN (for vehicle registration) and Saarthi (for driving licences).
 Improve the Electronic Toll Collection (ETC) System: Ensuring the complete setup and streamlining of
‘FASTag’ charging system. Engage with stakeholders and concessionaires (for PPP toll plazas) to ensure that
all toll plazas have the requisite infrastructure for ETC.

ROAD SAFETY
 Road safety is also an important sustainable development issue as illustrated by its express inclusion in the
2030 Agenda for Sustainable Development.
 India has just 1% of the world’s vehicles but accounts for 11% of all road crash deaths.
 o India is also witnessing 53 road crashes every hour, killing 1 person every 4 minutes.
o India has seen around 4.5 lakh road accidents in the past year. It resulted in at least 1.5 lakh deaths
over the past few years.

SIGNIFICANCE OF ROAD SAFETY:

 Dominant mode of transport: Road transport is the dominant mode of transport in India, in terms of traffic
share and in terms of contribution to the national economy.
 To meet the demand for road transport, the number of vehicles and the length of road network have
increased over the years.
 A negative externality of expansion in road network, motorization and urbanization in the country is the
increase in road accidents and road crash fatalities.
 Road traffic injuries are one of the leading causes of death, disabilities and hospitalization in the country
imposing huge socio-economic costs.

ISSUES AND CHALLENGES:

 Infrastructural deficits: In India, quality of road construction is low and road standards are not enforced by
builders, which lead to development of potholes; also, maintenance of roads is a corrective measure than
preventive in India.
 Skewed road traffic engineering: Two-wheelers accounted for the highest share in total road accidents but
have been neglected during road traffic engineering and planning as shown by lack of separate lanes for them
and pedestrians.
 Traffic rules violation: Over speeding, driving under the influence of alcohol or drugs, tiredness or riding
without a helmet, driving without seatbelts.
 Inadequate surveillance: ‘Hit and run’ cases go un-investigated due to absence of surveillance infrastructure;
73% two-wheeler accident victims do not wear helmets and a significant proportion of four wheelers do not
wear seatbelts or possess driving license.
 Lack of emergency medical services: Administration and availability of first aid at accident sites and
transportation of victims from site to hospital is found wanting on the majority of highways.
 Weak Vehicle Safety Standards in India: In 2014, crash tests carried out by the Global New Car Assessment
Programme (NCAP) revealed that some of India’s top-selling car models have failed the UN’s frontal impact
crash test.
 Lack of awareness: among people regarding the importance of safety features like airbags, Anti-lock Braking
system etc. Moreover, Vehicle manufacturers do not provide them as standard fitment but only in higher
class of vehicles reducing their reach.

GOVERNMENT INITIATIVES:

 As a signatory to the Brasilia Convention, the government intends to reduce traffic

fatalities by 50% by 2020.

 A combined and congruent action by state and citizens can go a long way in reducing road
Signatory to related tragedies and loss of life.
Brasilia
Convention  Through the Brasilia Declaration Countries plan to achieve the SDG 3.6: By 2020, halve the
number of global deaths and injuries from road traffic accidents.

 Creating a National Road Safety Board to advise the government on road and traffic
management.

 Higher fines for traffic rules violation,

Motor
Vehicles  Recalling defective vehicles, dangerous for the environment and people,
(Amendment)
Act, in 2019  Creating a Solatium Fund for victims of hit-and-run accidents,
  Protects Good Samaritans from civil and criminal liability,

 Punishment to the owner for violations committed by Juvenile,

 Regulate corruption by Automated testing for driver’s licence and fitness certificate (FC).

Vehicular  Front and side crash tests for new car models came into force in 2017
engineering
measures  The government introduced the pedestrian protection regulation for new car models. It
introduced by came into force in October 2018.
the
government  New cars are required to have airbags fitted as standard and to have a speed warning
device above 80 km/h.

Road  The government notified the guidelines for road safety audits on National Highways
engineering
measures are  Roadside Safety Crash barriers, installing speed warning boards and other signboards
taken by the were also done by the government.
government
 The government also committed to reducing the Black spots in the Roads.

WAY FORWARD:
 3-Year Action Agenda of NITI Aayog: The government has to implement the recommendations suggested in
the 3-Year Action Agenda of NITI Aayog such as -
o Standardizing the reporting of accidents
o Create necessary provisions to ensure that the accident victim will reach hospitals within 10 minutes of
the accident. This can be achieved by building emergency health services, providing enough ambulances,
etc.
 KS Radhakrishnan panel on Road Safety: to ensure adequate safety standards in the design, construction,
and maintenance of roads, along with creating awareness among people on road safety rules, insurance
policies, etc.
 S. Sunder Committee on road safety (2007): recommended scientific study of road infrastructure which
includes effective road engineering solutions at the design stage, rectification of accident hot spots etc.
 Tamil Nadu model on removing black spot: The government has to implement the Tamil Nadu model of
identifying and removing Black spots. Tamil Nadu recorded the highest number of accidents in 2017. But now
they have reduced the total number of accidents by 25%.
 Dedicated corridors for vulnerable sections: The government has to provide attention to vulnerable sections
like motorists and pedestrians. The government should plan dedicated corridors, especially in places
registering higher accidents.
 Proper implementation of Good Samaritan Laws: The Government has to enact the Good Samaritan Laws
like Karnataka or Delhi. This will protect the persons involved in helping the accident victims.

CONCLUSION:
 The number of road traffic deaths continues to climb, reaching 1.35 million in 2016, while the rates of death
relative to the size of the world population has stabilized in recent years. At this rate, the SDG target to halve
road traffic deaths by 2020 will not be met. Further progress will depend upon future success in addressing
the range of significant challenges which remain.

GREEN NATIONAL HIGHWAYS CORRIDOR PROJECT

 In News: The Ministry of Road Transport and Highways (MoRTH) had launched a National Green Highways
Mission (NGHM) following the promulgation of ‘Green Highways Policy’ in September 2015.
 The Green National Highways Corridor Projects (GNHCP) supports the implementation of the NGHM and the
provision of green and safe transport.
 The project comprises components like:
 o Sustainable development and maintenance of National Highways,
o Institutional Capacity Enhancement, Road Safety and
o Research and Development.

OBJECTIVE:
 To reduce the impact of air pollution and dust by planting trees and shrubs along the National Highways,
they will act as natural sink for air pollutants and arrest soil erosion at the embankment slopes.
 To upgrade the existing road to two-lanes with paved shoulder configuration; and alleviate the current
unsafe and congested conditions of the road.
 To demonstrate safe and green National Highway corridors in selected States and enhance the institutional
capacity of the MoRTH in mainstreaming safety and green technologies.

THREE COMPONENTS OF THE PROJECT:

Green Highway Corridor  This includes upgradation and maintenance for five years of about 783
Improvement and km of selected existing National Highways in the states of Rajasthan,
Maintenance Himachal Pradesh, Uttar Pradesh and Andhra Pradesh.

 It will support the capacity enhancement of MoRTH in its pursuit to

conserve natural resources and improve climate vulnerability of the
Institutional Capacity National Highways network and reduce Greenhouse Gas (GHG)
Enhancement emissions.

Road Safety  It will provide support to improve road safety data analytics and highway
safety monitoring and implementation.

SIGNIFICANCE:
 This infrastructure project will provide seamless connectivity by strengthening and improving the logistics
performance.
 It will promote efficient use of construction materials and water to reduce the depletion of scarce natural
resources, and help lower GHG emissions.
 The project will support the ministry with an in-depth analysis of gender-related issues in the transport sector
along with help in creating jobs for women by training women-led micro enterprises and women collectives
to implement green technologies in the highway corridors.
 It will also facilitate the transportation of agricultural produce from the surrounding areas to their market
places of respective states by enabling movement of heavy vehicles in all weather conditions.
 The project will strengthen and widen existing structures; construct new pavements, drainage facilities and
bypasses; improve junctions; and introduce road safety features. It is imperative that the infrastructure
investments are climate resilient.
 It will also support the Bharatmala Pariyojana Program (BPP).

KEY FEATURES OF GREEN HIGHWAYS POLICY 2015:

 Promote greening and development of eco-friendly National Highway corridors across the country with
participation of farmers, private sector and government institutions including the Forest Department.
 It addresses the issues that lie in the road of development and shows the way towards sustainable
development.
 Planting of trees in any particular area will depend on the soil suitability and climatic conditions.
 Its objective is to reduce the impact of air pollution and dust by planting trees and shrubs along the National
Highways. They will act as natural sinks for air pollutants and arrest soil erosion at the embankment slopes.

ISSUES AND CHALLENGES:

 Scarcity of resources and high construction cost: The natural resources required for road construction such
as soil, aggregates and sand are becoming scarce and increasingly being brought in over large distances from
the construction site, leading to spiralling construction costs.
 Vulnerable to climate change risks: India is highly vulnerable to climate change risks and successive,
increasingly frequent, extreme climate-related events have disrupted economic activity.
 Road Safety Challenges: Road accidents and fatalities in India are the highest in the world.
 Environmental impact: The direct, indirect and induced adverse impacts resulting from the widening of
proposed sub-project roads may cause adverse environmental impacts in their area of influence.

WAY FORWARD:
 It is important to ensure that the transport infrastructure that is created is resilient to the impacts of
disasters and climate change induced extreme events.
 The project also seeks to mainstream wherever feasible in the project highway designs, 'green roads'
approach that would consider promoting resource efficiency and sustainability measures.
 In ecologically sensitive habitats such as sanctuaries or national parks to avoid adverse environmental impacts
on critical natural habitats and wildlife, the project must work on identifying and mitigating, if required.
 The project should properly implement the National Green Highways Policy, which has a thrust on tree
plantation for creating carbon-sink and employment.

5. TRANSIT ORIENTED DEVELOPMENT

 In News: The redevelopment of New Delhi Railway Station (NDLS) has become the first project to be
undertaken on the Transit-Oriented Development (TOD) concept in the NCR.
 TOD integrates land use and transport planning and aims to develop planned sustainable urban growth
centers, having walkable and liveable communes with high density mixed land-use.
 Citizens have access to open green and public spaces and at the same time transit facilities are efficiently
utilized.
 TOD focuses on creation of high-density mixed land use development in the influence zone of transit
stations.

OBJECTIVE:
 Public Transport: To promote the use of public transport and reduction in private owned vehicles by
developing high density zones in the influence area, which would increase the share of transit and walk trips
and also result in reduction in pollution and congestion in the influence area.
 Reduction in Travel: To provide all the basic needs of work/ job, shopping, public amenities, entertainment
in the influence zone with mixed land-use development which would reduce the need for travel.
 Road Network: To establish a dense road network within the development area for safe and easy movement.
 Inclusivity: To develop inclusive habitat in the influence area so that the people dependent on public
transport can live in the liveable communities within the walkable distance of transit stations.
 Safety to Vulnerable Section: To ensure development of a safe society with special attention to safety of
women, children, senior citizens and differently abled by making necessary amendments to the building bye
laws.
 Planned Urbanization: To prevent urban sprawl by accommodating the growing population in a compact area
with access to the transit corridor, which would also consolidate investments and bring down the
infrastructure cost for development.
 Climate Friendly: To reduce carbon footprints by shifting towards environmentally friendly travel options for
the line haul as well as for access and egress trips.

VISION OF TOD:
 Enable Transformation: to assist in transformation of cities from private vehicle dependent city to public
transport-oriented development
 Accessible Public Transport: to promote the usage of public transport by making it accessible, encourage
green mobility by encouraging people to walk and cycle and at the same time curb pollution and other
negative impacts of motorization.
 Compact Walkable Communities: to create liveable and affordable communities, which are compact and
walkable.

PLAN OF TOD:
 A TOD typically includes a central transit stop (such as a train station, or light rail or bus stop) surrounded by
a high-density mixed-use area, with lower-density areas spreading out from this centre.
 A TOD is also typically designed to be more walkable than other built-up areas, through using smaller block
sizes and reducing the land area dedicated to automobiles.
 Factors such as Rapidly growing population, Urbanization, migration to cities, and traffic congestion are the
drivers for TOD.

BENEFITS OF TOD:
 Higher quality of life with better places to live, work, and play
 Greater mobility with ease of moving around
 Increased transit ridership
 Reduced traffic congestion, car accidents and injuries
 Reduced household spending on transportation, resulting in more affordable housing.

WAY FORWARD:
 Implementation of TOD would entail the involvement of various agencies for preparation of master plans
or sector plans, reviewing the infrastructure building regulations, provision of public transport and traffic
control, etc.
 Cities should provide transparency and clarity in the policy and procedures for TOD, as well as the economic
incentives for all stakeholders.
 Cities may encourage public private partnership in planning and implementation of TOD as well as
infrastructure upgradation to foster the technical knowhow and financial capacity of the private sector.
 TOD, on a wider board, needs the involvement of multiple agencies, both from the private as well as the
public sector.
 Cities may launch awareness programs about the components of TOD, its benefits, incentives to be reaped
by the land owners, developers, infrastructure agencies and other bodies, and provide improved quality of
life.

INFRASTRUCTURE: Railways

Introduction
 Being the third largest network in the world under single management and with over 68,102 route kms IR
strives to provide safe, efficient, competitive and world class transport system.

Budget 2022-23
 Railway Budget 2022-23: Indian Railways to launch more semi-high-speed trains in the coming years.
 concept of ‘One Station One Product’ will be popularized in a bid to help local businesses as well as supply
chains.
 2,000 kilometres of the rail network will be brought under Kavach, the indigenous world-class
technology for safety as well as capacity augmentation in the financial year 2022-23.
 Moreover, during the next three years, one hundred PM Gati Shakti Cargo Terminals for multimodal
logistics facilities will be developed.
S IGNIFICANCE OF RAILWAYS
 Cheapest mode of transport: Railways provide the cheapest and most convenient mode of passenger
transport both for long distance and suburban traffic.
 Facilitating development and growth: Indian Railways have played a significant role in strengthening the
development and growth of agriculture and industries.
 Supplying Raw Materials: Railways help in supplying raw materials and other facilities to the factory sites and
finished goods to the market.
 National integration: Railways are particularly suited to long distance journey and provide a strong medium
of national integration.
 Defence and internal security: Railway help in the defense and internal security of the country by ensuring
the quick movement of troops, defense equipment, etc. to remote places.
 Disaster Mitigation: Railways play a vital role in mitigating the sufferings of the people in the event of natural
calamities like droughts, floods, famines, earthquakes, etc.
 Vital link: Railways are also helpful in removing isolation between cities and countryside (rural areas) and
have played a significant role in disseminating innovations and new ideas.
 Additional infrastructure: many passenger trains were converted into isolation center and as a clinic in covid-
19 pandemic.

I SSUES AND C HALLENGES AS PER THE NITI INDIA @75

 Congested networks: Over-stretched infrastructure with 60 per cent plus routes being more than 100 percent
utilized, leading to a reduction in average speed of passenger and freight trains.
 Internal generation of resources: Negligible non-fare revenues and high freight tariffs have led to a sub-
optimal freight share. Low and static prices for the passenger segment have also contributed to low internal
generation of resources.
 Organizational structure: Delays in decision making, inadequate market orientation and long project approval
durations lead to slow turnover times and delays in the implementation of railways projects.
 Safety and poor quality of service delivery: There have been a number of accidents and safety issues in the
IR in recent years. Poor cleanliness of trains and stations, delays in train departures/arrivals, quality of food
and difficulties in booking tickets are key issues.
o Recently, the Indian Railways tested 'Kavach'-Automatic Train Protection System by making two
trains move towards each other at full speed.
o The Kavach system was announced in the 2022 Union Budget as a part of the Atmanirbhar Bharat
initiative. Around 2,000 km of rail network is planned to be brought under the indigenous system to
enable safety and capacity augmentation in 2022-23.
 Efficiency of terminals: Poor terminal facilities lengthen loading and unloading times. Eighty percent of
railway loads come from terminals. The functioning of terminals needs to be strengthened to improve rail
freight.
 Economies of scale: The lack of scale economies especially impact management quality and system
accountability.
 General inefficiencies: Indian Railways lags behind on a lot of parameters. It missed most of its targets,
including electrification, track renewals, bridge works, and doubling of tracks.
 Environmental concern: Indian railway runs the fourth largest railway system globally and its environmental
footprint in water and noise pollution and waste management is a matter of grave concern.
o Thus, The Indian Railways has decided to be self-reliant for its energy needs by utilizing its vacant
lands for Renewable Energy (RE) projects.
o In January 2020, it was announced that the entire network of the Indian Railways will run
on electricity by 2024 and become a net-zero emission network by 2030.

Way Forward
 Better utilization of existing infrastructure: Prioritize ongoing projects to improve capacity utilization. At the
same time, we need to maintain and upgrade the existing network to ensure that supply keeps up with
demand.
 Redevelop and modernize railway stations: The availability and quality of passenger amenities, station
buildings, platform surfaces and circulating areas need to be enhanced to better serve the needs of rail
passengers.
 Ease organizational rigidity through structural reforms: Consider opening up the ownership and operations
of freight terminals and ownership of locomotives and rolling stock to the private sector under a transparent,
neutral (non-railway) and fair regulatory mechanism.
 Rationalize fare structures and subsidies: Revisit IR’s pricing model to make the passenger and freight
segments sustainable. Freight tariffs should be competitive with the cost of road transportation.
 Enhance the ease of doing business: Set up an independent homologation and standardization agency to
adopt new railway technology and improve the speed and reliability of the railway network
 Monetize land resources: with the railways, particularly through developing non-railway revenues such as
through retail or other activities.
 Enhance safety of trains: With the help of proven technologies and rational approaches railways should try
to eliminate level crossings and cattle crossings and fence railway tracks in areas with high levels of activity
to prevent accidents.
 Set up an independent regulator for the Indian Railways: The government has already approved the
formation of the RDA, an independent regulator for IR in February, 2018.
 Implement the 22 recommendations: of the High-Level Safety Review Committee chaired by Dr. Kakodkar.
Such as:
o Implementation of advance signaling system is needed
o Elimination of all level crossings
o All new coaches need to have only LHB design which are much safer.
o Indian railways must eventually be corporatized into Indian railways corporation and Indian rail
regulatory authority would be needed to regulate IRC activities.

CONCLUSION
 NITI Aayog’s strategy for New India @75 envisages many targets in railway infrastructure such as increasing
the speed of infrastructure creation from the present 7 km/day to 19 km/day, 100% electrification of broad-
gauge track by 2022-23. Given this, a strong argument in favour of privatization is that it will lead to better
infrastructure which in turn would lead to improved safety, reduction in travel time, etc.

BIBEK DEBROY COMMITTEE ON RAILWAY MODERNISATION

“Mobilization of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway
Board” is the theme of the Report. The final Report was submitted in June, 2015 and reviews almost all areas of
Indian Railways operations. The key recommendations of this committee are as follows:
 Transition to commercial accounting: The financial statements of Indian Railways need to be re-drawn,
consistent with principles and norms nationally and internationally accepted.
 Streamline recruitment & HR processes: There is a multiplicity of different channels through which people
enter the railway services. It essentially recommended unifying and streamlining the process.
 Establishment of Independent Regulator RRAI: setting up an overarching Railway Regulatory Authority of
India (RRAI) as an independent regulatory body. The Railway Board should continue only as an entity for the
Indian Railways (PSU).
 Encouraging private entry: Private entry into running both freight and passenger trains in competition with
Indian Railways should be allowed and private participation in various railway infrastructure services and non-
core activities like production and construction, should be encouraged.
 Indian Railway Manufacturing Company: The Committee proposes that all these existing production units
whether it is for coaches or locomotives should be placed under a government SPV known as the Indian
Railway Manufacturing Company (IRMC).
 Raising resources: An Investment Advisory Committee may be set up, consisting of experts, investment
bankers and representatives of SEBI, RBI, IDFC and other institutions for raising resources for investment.
 Social costs & JVs to bear them: Constructing new suburban lines should be undertaken as joint ventures
with state governments. There are too many Zones and Divisions and thus a rationalization exercise is
required.
 Changing relationship between government & Railways: A separate Railway budget should be phased out
progressively and merged with the General Budget.
 Decentralisation: Decentralisation should happen at the bottom level duties.
 Non- core areas: Separation of activities like running of hospitals, schools, catering, real estate development,
manufacturing of locomotives, coaches and wagons from the core business of running trains.
 Entry of Private Players: recommended that private entry into running both freight and passenger trains
should be allowed.
o Accordingly, Ministry of Railways has invited private participation for operation of passenger train
services over 109 Origin Destination (OD) pairs of routes using 151 modern trains on existing rail
infrastructure.
o 100% FDI allowed in the Railway.

BENEFITS OF PRIVATISATION IN RAILWAY

 Improved efficiency: A private firm is interested in making a profit, and so it is more likely to cut costs and be
efficient.
 Lack of political interference: Governments often make poor economic managers as they are motivated by
political pressures rather than sound economic and business sense.
 Long term Planning: A government might think only in terms of the next election and thus be unwilling to
invest in infrastructure improvements which will benefit the firm in the long term. This could be facilitated by
private enterprises.
 Shareholders: Private players face pressure from shareholders to perform efficiently.
 Increased competition: It would ensure improved quality of service with competitive fares.
 Prevent Government’s loss: The revenue generated by the Indian Railways is low and keeps the system
always in losses.
 Improved quality of service: The quality of service in Indian Railways faces massive criticism especially in the
fields of catering and punctuality.
 Latest technology: The privatization will also help in accommodating the latest technology in railway coaches,
station and online services etc.
 Lesser accidents: Private ownership is considered synonymous with better maintenance, which will reduce
the number of accidents, thus resulting in safe travel and higher monetary savings in the long run.
 Reducing the supply demand deficit: Since waitlisted passengers comprise ~15% of the reserved passengers.
 Facilitating capacity augmentation: as capacity constraints lead to loss of passenger business to other modes
such as air travel.

CHALLENGES IN PRIVATISATION IN RAILWAYS

 Natural monopoly: Privatization in railways might create a private monopoly which might seek to set higher
prices which exploit consumers.
 Public interest: Given that a private enterprise runs on profit, it might hike fares, thus rendering the service
out of reach for lower income groups.
 Coverage Limited to Lucrative Sectors: With privatization routes which are less popular could be eliminated,
thus having a negative impact on connectivity, rendering some parts of the country virtually inaccessible.
 Accountability: Private companies are unpredictable in their dealings and do not share their governance
secrets with the world at large. In such a scenario it would be difficult to pin the accountability on a particular
entity, in case of a discrepancy.
 Fragmentation in railways industry: In the UK, rail privatization led to breaking up the rail network into
infrastructure and train operating companies. This led to areas where it was unclear who had responsibility.
 Regulatory Burden: High costs and lower returns, policy uncertainty, lack of a regulator to create a level
playing field, lack of incentives for investors and procedural/operational issues such as delays in land
acquisition etc. have significantly restricted private sector participation.
RECENT DEVELOPMENTS: RAILWAYS
1. Dedicated Freight Corridors
 In News: Indian Railways conducted a trial run on Rewari –Madar Section of Western Dedicated Freight
Corridor (WDFC).
 DFC is a high-speed and high-capacity railway corridor dedicated exclusively for freight (goods and
commodity) movement.
 The project was first proposed in April 2005 to address the needs of the rapidly developing Indian economy.
 In 2006, the Government of India established a dedicated body, the Dedicated Freight Corridor Corporation
of India (DFCCIL), to develop two corridors - Western Dedicated Freight Corridor (WDFC) and Eastern
Dedicated Freight Corridor (EDFC).
 Four more Freight Corridors were also announced in 2010:
o East-West Corridor (Kolkata-Mumbai)
o North-South Corridor (Delhi-Chennai)
o East Coast Corridor (Kharagpur-Vijaywada)
o Southern Corridor (Chennai-Goa)

SIGNIFICANCE OF DFCs:
 Increased Capacity: The DFC shall reform the transportation sector and will create more capacity on trunk
routes of Indian Railways as goods trains shall be able to run freely on DFC without any restrictions imposed
by movement of passenger trains.
 Decongestion: Around 70% of the freight trains currently running on the Indian Railway network are slated
to shift to the freight corridors, leaving the paths open for more passenger trains.
 Business Generation: Tracks on DFC are designed to carry heavier loads than most of Indian Railways. DFC
will get track access charge from the parent Indian Railways, and also generate its own freight business.
 Punctuality: The new section means on the Indian Railway main line, more passenger trains can be pumped
in and those trains can, in turn, achieve better punctuality.
 Reduce unit cost of transportation by speeding up freight train operations & higher productivity.
 Reduction in Pollution: As per a 30 year greenhouse gas (GHS) emission forecast, if there were no dedicated
freight corridors, the GHG emissions would be 582 million ton
CO2, while the emissions with the two DFCs in service would
be less than one-fourth at 124.5 million ton CO2.

ISSUES AND CHALLENGES:

 Issue of Land Acquisition: Due to route alignment, the
railways have to acquire large swathes of private land that
are already developed, making the construction of the
corridor difficult. The ministry is also required to pay market
price for any land acquisition, further compounding the
financial problem.
 Concern over technology: While the railways want to run
double-stacked containers in the Delhi-Mumbai corridor on
diesel locomotives, Japanese International Cooperation
Agency (JICA), which has financed the project, has suggested
electric ones, saying it is more environmentally-friendly.
 Double stack vs single stack: The project has adopted
different technical standards for WDFC and EDFC. WDFC would have moving dimensions made for double
stacked containers and moving dimensions for EDFC are being made for single stack container operations.
 Slow progress: The progress for both Logistics Parks and Delhi Mumbai Industrial Corridor has been very slow
which will have an impact on the overall objective of the project.

WAY FORWARD:
 New and modern technologies and practices need to be adopted
 Another important step could be to allow private participation, along with Indian Railways in bringing end
users.
 Clear policies which can integrate and fasten up the process of land acquisition need to be developed.

CONCLUSION:
 The DFCs project is the biggest leap for Indian Railways, not just because of its route length, but also because
of the technology it ushers, the rail infrastructure it will enable, and the socio-economic transformation it
shall result in.

INFRASTRUCTURE: AVIATION

Introduction
 Airways play a vital role as modern means of transportation. It is very important for the growth of trade and
commerce.
 India is presently among the top 10 civil aviation markets in the world.
 India’s passenger* traffic stood at 341.05 million in FY20. It grew at a compound annual growth rate (CAGR)
of 11.13% during FY16-FY20.

Significance OF AVIATION SECTOR

 High Speed: It is the fastest means of transport which can transport passengers and goods within minimum
time viz. other transport.
 Generate Economic Growth: It generates economic growth, creates jobs, and facilitates international trade
and tourism.
 Strategic Importance: It has great strategic relevance which can be harnessed for internal and external
security.
 Easy transport of costly and light goods: It is convenient to send costly, light and perishable goods through
air transport which can’t be transported via road or rail.
 Free from physical barriers: Air transport is free from physical barriers like rivers, mountains and valleys etc.
thereby ensuring seamless travel across the globe.
 Useful in natural calamities: During earthquake, flood, accidents and famine air transport is used extensively
as rail and road are not very effective for rescue operations.
 Aviation Education and Skill Building: Estimated direct additional employment requirement of the Civil
Aviation Sector by 2025 is about 3.3 lakh.

Factors RESPONSIBLE for development of aviation sector in india

 Emerging economy: India is one of the fastest growing economies of the world, so in near future there will
be higher household disposable incomes.
 Investment: Entry of low cost carriers and increased flow of FDI in aviation sector due recent reforms in
aviation sector which increased FDI cap to 100%.
 Tourism: Increased tourist inflows both domestic and international will boost the aviation industry in India.
 Higher household incomes and emerging urban middle class
 Strong and sustained economic growth
 Entry of low cost carriers (LCC)
 Increased tourist inflow and domestic movements of peoples
 Sustained business growth
 Supporting Government policies and regulatory framework

I SSUES AND C HALLENGES

 Capacity and infrastructure: Mumbai and Chennai airports are already close to saturation. Capacity and
infrastructure constraints could decrease efficiency and safety and have negative economic effects.
 Skilled workers: Shortage and gap in the availability of industry recognised skills from airline pilots and crew
to maintenance and ground handling personnel could constrain the growth of different segments of the
sector.
 High cost to passengers and air cargo: The rates and fare charged by airlines are substantially higher than
that of Railways/Roadways. It is a class transport rather than mass transport.
o Digi Yatra Platform: It is a biometric based digital processing system that avoids multiple checks of
passengers at the airport by issuing a unique Digi Yatra ID through which a passenger can enter and
fulfill other checking requirements at the airport.
 Taxes on Aviation Turbine Fuel (ATF): Due to high taxes and lack of competition among providers, ATF is
relatively expensive in India. Since it remains outside the GST network, there are also regional disparities in
its price.
 Predatory Pricing: It means deliberately selling products below the cost price, to eliminate rival companies.
It’s detorious for the economy because in the long term, either the firm will collapse or it will establish
monopoly by eliminating rivals.
o UDAN Scheme (Ude Desh Ka Aam Naagrik)/ Regional Connectivity Scheme (RCS): 10-year scheme
will promote balanced regional growth and make flying affordable for the population.
 Aviation safety: Although, the number of aviation safety violations in 2017 (337) has declined in comparison
to 2016 (442), the absolute number still remains high.
o GPS-Aided Geo Augmented Navigation (GAGAN): GPS-Aided Geo Augmented Navigation (GAGAN)
is India’s first Satellite-based Augmentation System.
o It provides additional accuracy for safety in civil aviation and has expansion capability for seamless
navigation services across geographies.
 Govt. owned Air India is making losses, 2018: Union tried to sell its 76% shares to privatize Air India, but no
one came to buy.
 Outbreak of Covid-19: pandemic dented aviation sector due to nation-wide lockdowns and restrictions by
various countries.
 Regulatory delays: Thus, Government came with eGCA.
o Under this the function & process of the Directorate General of Civil Aviation (DGCA) is being moved
to an online platform to provide faster delivery of services & regulation oversight.

Way Forward
 Enhance aviation infrastructure: Complete the planned airports under the UDAN initiative in a time-bound
manner. The infrastructure capacity in the 10 biggest airports (in terms of traffic) should be significantly
augmented.
 Increase investment in the sector: Reduce taxes on MRO services and consider granting infrastructure status
for MRO. Monetize vacant real estate near AAI airports in all major centres of traffic to increase non
aeronautical revenues.
 Address shortage of skilled manpower: Promote collaboration between Original Equipment Manufacturers
(OEMs), industry and educational institutes to teach the latest concepts in the aviation industry.
 Ease the regulatory environment for airports: Deregulate further and open up the aviation market to help
increase passenger and freight traffic in India. Currently FDI over 49% in Aviation sector operations requires
government approval.
 Prioritize aviation safety: Shift focus to pre-empting and preventing accidents/incidents. There should be
zero tolerance of safety violations. It should also be authorized to impose fines and penalties depending upon
the nature of violations.
 Promote air-cargo growth: Develop an integrated digital supply chain or e-cargo gateway based on the
National Air Cargo Community System (NACCS) platform and promote “Fly-from-India” through the creation
of transhipment hubs.
 State governments should play a much more active role in the airport sector since aviation is a key enabler
of local economic development.
 Development of MRO industry: Conditions should be created that allow Indian MRO (Maintenance Repairs
and Overhaul/Operations) industry to grow rapidly. India has strong comparative advantages to become a
world-leading centre of MRO.
 Increase investment in the sector through financial and infrastructure support: Create additional parking
hubs at suitable locations, accessible through short haul flights, to accommodate additional aircraft.
 Privatization in the Aviation sector: The process for disinvestment of Air India and its subsidiaries
commenced in June 2017. In January 2022 Air India privatised to Tata Sons.
 Making India a Transhipment Hub: This will augment India’s trading capacity as a service provider, emerging
as a foreign exchange earner and enabler for better connectivity in the region.
 The NITI Aayog INDIA@75 suggested that:
 Ease the Regulatory Environment for Airport:
o Deregulate further and open up the aviation market to help increase passenger and freight traffic in India.
o Adopt a consistent model for tariff determination so that it reduces passenger cost.
 Address Shortage of Skilled Manpower:
o Expedite commencement of courses by the National Aviation University after due consultation with
stakeholders.
o Facilitate greater involvement of the private sector in sponsoring aviation institutions, industrial training
and R&D projects.
 Prioritize Aviation Safety:
o Shift focuses on pre-empting and preventing accidents/incidents.
o There should be zero tolerance of safety violations. DGCA should be given autonomy for an effective
aviation safety oversight system.
Conclusion
 With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed
to achieve its vision of becoming the third-largest aviation market by 2024 and the 17 SDGs and 169 targets
by 2030. However the real achievement will be witnessed only when every district in the country would be
connected to the air grid and the common man would be able to access and afford the same.

AVIATION SECTOR: VISION 2040

 The Ministry of Civil Aviation (MoCA) on January 15, 2019 unveiled the Vision 2040 document, which
highlights the growth potential in different sub-sectors of Indian aviation and the key action steps are
required to be taken to achieve the desired objective.
 As per the document the total passenger traffic (to, from and within India) in India is expected to rise nearly
six-fold from 187 million in FY 2018 to around 1124 million in FY 2040. This includes around 821 million
domestic passengers and around 303 million international passengers (to and from India).
 The overall CAGR (compound annual growth rate) works out to around 9% in domestic and 7% in
international traffic during FY 2018-2040.

NATIONAL CIVIL AVIATION POLICY 2016

AIM OF THE POLICY
 India to become 3rd largest civil aviation market by 2022 from 9th.
 Domestic ticketing to grow from 8 crore in 2015 to 30 crore by 2022. To grow domestic passenger traffic
nearly four-fold to 300 million by 2022.
 Airports having scheduled commercial flights to increase from 77 in 2016 to 127 by 2019.
 Cargo volumes to increase by 4 times to 10 million tonnes by 2027.
 Enhancing ease of doing business through deregulation, simplified procedures and e-governance.
 Promoting ‘Make In India’ in the Civil Aviation Sector.
 Ensuring availability of quality certified 3.3 lakh skilled personnel by 2025.

HIGHLIGHTS OF NCAP
 Regional Connectivity Scheme:
o Capping of fare: Rs 1,200 for 30 minutes and Rs 2,500 for hour-long flights.
 o Revival of airstrips/airports as No-Frills Airports at an indicative cost of Rs. 50 crore to Rs. 100 crore.
 Route Dispersal Guidelines (RDG): MoCA will categorize the air traffic routes into 3 categories.
 5/20 rule scrapped:
o Replaced with a scheme which provides a level playing field.
o All airlines can now commence international operations provided that they deploy 20 aircraft or 20% of
total capacity, whichever is higher for domestic operations.
 Bilateral Traffic Rights: Government of India will enter into 'Open Sky' ASA on a reciprocal basis with SAARC
countries and countries located beyond 5,000 km from Delhi. i.e. these countries will have unlimited access,
in terms of number of flights and seats, to Indian airports, leading to increased flight frequencies.
 Ease of Doing Business:
o A single window for all aviation related transactions, complaints, etc.
o More focus on ease-of-doing business as government plans to liberalize regime of regional flights.
 Infrastructure Development:
o Restoration of air strips at a maximum cost of Rs. 50 crore through Airports Authority of India (AAI).
o Four Heli-hubs to be developed. Helicopter Emergency Medical Services to be facilitated.
o Development of Greenfield and Brownfield airports by State governments, private sector or in PPP mode
to be encouraged.
o Future tariffs at all airports will be calculated on a 'hybrid till' basis. Under ‘hybrid till’, only up to 30 per
cent of the non-aeronautical revenues, which include segments like retail, food & beverages and parking,
would be used for cross-subsidisation of aeronautical charges.

Ports and Waterways

Introduction
Port performance in an economy is crucial for trade competitiveness of that economy. Expansion of port capacity
has been accorded the highest priority by the Government through implementation of well-conceived
infrastructure development projects.
Inland Waterways
 Inland waterway is a network of rivers, canals, backwaters, and creeks that can be utilized for transportation
instead of or in addition to roads and rails. It is the cheapest mode of transport.
 Water diversion from the rivers causes navigation difficult, making the Inland waterway less competitive.
 Canals are controlled by the Inland Waterway Authority. The Inland Waterways Authority of India Act, 1985
empowers the Government to declare waterways with potential for the development of shipping and
navigation as National Waterways.

SIGNIFICANCE
 Cheapest means of transport: Rivers are a natural highway that does not require any cost of construction
and maintenance.
o According to World Bank, the cost of transporting one tonne freight over 1 km by waterway is Rs 1.19
compared with Rs 2.28 and Rs 1.41 by road and rail, respectively.
o The inland waterways can reduce the logistics cost (12-14% of GDP) and bring it on par with the
global standards (8- 10% of GDP).
 Low maintenance and operation cost: Even the cost of construction and maintenance of canals is much less
or they are used, not only for transport purposes but also for irrigation, etc. Moreover, the cost of operation
of inland water transport is very low.
 Least consumption of energy: Waterways are a fuel-efficient and environment-friendly mode of
transportation. The boats and steamers, even if mechanized, consume much lesser fuel and do not pollute
the surrounding.
o One litre of fuel moves 24 tonne - km on road, 95 tonne-km on rail and 215 tonne-km on IWT.
 Suitable for heavy bulky goods: Waterway can carry much larger quantities of heavy and bulky goods such
as coal, and, timber, etc.
 No friction: Since the boats and steamers flow in the direction of water the friction force is less as compared
to road and railways.
 Eco-friendly: The boats and steamers consume much lesser fuel and do not pollute the surrounding.

ISSUES AND CHALLENGES

 Cost estimation: In respect to operating costs per ton-km, IWT has lower cost than rail and road transport.
However, this cost argument is challengeable.
 Inadequate depth: To be viable for a navigable inland waterway, the river needs enough depth throughout
the year. However, in their natural state; many Indian rivers simply do not have that level of water which will
necessitate extensive dredging.
 Problem of siltation: Perennial rivers originating from Himalayan Mountain travel through the tarai region
from where it carries huge number of sands and silts which get deposited in the course of rivers as well as at
the mouth of rivers. Due to siltation the river depth decreases and the water availability also reduces.
 Connectivity to ports: Weak hinterland connectivity between production centres and gateway ports often
leads to higher costs and delays because of sub-optimal mode choices.
 Transhipment port: A large percentage of containers in India are currently transhipped through other ports,
such as Colombo (just south of India), Singapore (East), Dubai and Salalah (West) due to the absence of
transhipment port in the country. This has led to additional costs and delays due to the feeder voyage from
India to the hub port.
 Regulatory issues for inland waterways: States’ Ferries Acts from various years govern cross ferry movement
and this may present a barrier to inland navigation, as the regulations may not take into account safety
considerations.
o Inland Vessels Act, 2021: Replace separate rules framed by states with a uniform regulatory
framework for inland vessel navigation.
o It calls for maintaining centralised record of data on inland vessels, which will include all information
about registration of vessels, vessel crew and certificates issued.

Way Forward
 Public-Private Partnership: Strengthening public-private partnership has the key role to play in developing
the inland waterways sector. Private players can undertake terminal development, cargo and passenger
handling, and building low-draft vessels and related repair facilities.
 Development of Basic Infrastructure: Measures should be taken to develop basic infrastructure, address
technological bottlenecks and maintenance of rivers to ensure year-round navigability.
o The Sagarmala project seeks to develop a string of ports around India’s coast.
o It focuses on modernizing and developing ports, enhancing port connectivity, supporting coastal
communities, and stimulating port-linked industrialization.
 Ensuring Last Mile Connectivity: Measures should be taken to taken to ensure availability of seamless,
multimodal last-mile connectivity to and from hinterland to reduce transhipment cost and make inland water
transport economically more viable.
o JAL MARG VIKAS PROJECT: was implemented as an initiative towards national integration with an
aim to reduce rail and road congestion, carbon footprint, and minimal resource depletion.
 Incentivising Cargo Transport: Cargo transport through inland waterways should be incentivised.
 Higher Road Taxes for Inflammable Goods: Higher Road taxes can be levied on transportation of coal and
inflammable material over longer distances.
 Development of Passenger Terminal: The government should develop passenger terminal development,
offer financial support to ferry operators to improve safety, and facilitate insurance coverage to boost
passenger transport.
 Promoting River Tourism: Measures should be taken to promote river tourism in states like Assam and Kerala.

Conclusion
 National waterways provide a cost-effective, logistically efficient and environment friendly mode of
transport, whose development as a supplementary mode would enable diversion of traffic from over-
 congested roads and railways. Hence, the waterways project deserves better regulation and development
across the country.

Logistics Sector

Introduction
 An efficient, competitive and resilient logistics ecosystem is pivotal to boost exports. Despite multiple
challenges, India has made substantial progress in trade-related logistics, reflected in leading global indices.
 The Indian logistics sector is a sunshine industry and is going through a phase of transformation on account
of various reform initiatives and policy changes.
 The major reforms include the GST, roll out of E-Way bill and the sector being granted infrastructure status.
Significance OF LOGISTICS SECTOR
 Reduction in the losses in agriculture: The losses in the agriculture and food processing sector are very high,
largely owing to infrastructural facilities leading to delay in transportation, so proper logistics facilities must
be available to cater to this problem.
 Integrated Multi Modal Transport Planning: is the need of the hour to achieve a healthy modal mix of
transport which is efficient, faster, safer, import substituting, cost effective and pollution free.
 Scope for employment generation: The logistics sector employs around 45 million people (Formal and
informal) with a sectoral growth rate of around 14-15% in the last few years.
 Support the agricultural sector, on which over half of the population depends, has a critical dependence on
the logistics sector.
o Specifically, for agricultural products, the same reduction in logistics costs increased demand by 12%
and increased agricultural employment by 6%.
 An efficient logistics network along with a transparent cross border trade facilitation is the main driver of
export competitiveness in the country.
 Reduction of cost: Improved and efficient transportation and logistics reduce both transport cost and time.
Moreover, they reduce cost of production by minimizing the need for large inventories. This means less capital
required for warehouses, insurance and the like.
 Open market for other goods: The conventional view of demand in the logistics sector states that it is derived
demand. However, growth in transport and logistics enterprises can create markets for other goods.
 Manufacturing Sector: Logistics sector provides efficient and cost effective flow of goods on which other
commercial sectors depend
 improved logistics can bring positive environmental spill-overs. Currently, the share of CO2 emissions from
logistics is around 7% of the total CO2 emissions in India.
o In Delhi alone, freight movement alone amounts to 67% of the total PM2.5 emissions, 61% of the
total SO2 emissions, and 62% of the total NOx emissions.

I SSUES AND CHALLENGES OF LOGISTICS SECTOR

 Cost of logistics: The cost of logistics remains high due to challenges in accessing finance, underdeveloped
infrastructure, poor connectivity and an unfavourable modal mix.
 Coordination due to multiple stakeholders’ involvement: Logistics has four key components that account for
the majority of the sector that falls under different segments of regulatory oversight, which adds complexity
to the system. The presence of multiple agencies often leads to duplicate processes.
o PM Gati shakti Mission is launched to improve the coordination among different ministries for
robust infrastructure development.
o PM Gati Shakti - National Master Plan for Multi-modal Connectivity, essentially a digital platform to
bring 16 Ministries including Railways and Roadways together for integrated planning and
coordinated implementation of infrastructure connectivity projects.
o The multi-modal connectivity will provide integrated and seamless connectivity for movement of
people, goods and services from one mode of transport to another.
o It will facilitate the last mile connectivity of infrastructure and also reduce travel time for people.
 o PM Gati Shakti will incorporate the infrastructure schemes of various Ministries and State
Governments like Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN etc.
o Economic Zones like textile clusters, pharmaceutical clusters, defence corridors, electronic parks,
industrial corridors, fishing clusters, agri zones will be covered to improve connectivity & make
Indian businesses more competitive.
o It will also leverage technology extensively including spatial planning tools with ISRO imagery
developed by BiSAG-N (Bhaskaracharya National Institute for Space Applications and Geoinformatics.
 Lack of interoperable technology: The movement of goods across modes suffers from the absence of last
mile connectivity and infrastructure.
o Integrated approach to Logistics infrastructure under Gati Shakti, development of 35 Multi Modal
Logistics Parks (MMLPs) under Bharatmala Pariyojana, a number of port connectivity projects under
Sagarmala, etc
 Competition and underutilized capacity: There is no level playing field as the public sector provides benefits
that are not available to private players such as container train operators or foreign vessel owners, leading to
limited competition, capacity underutilization and other inefficiencies.
o Government came with Dedicated freight corridors and Multimodal last mile connectivity projects
to provide seamless connectivity.
 Warehousing capacity and fragmented structure: India’s current reported warehousing capacity is 108.75
MMT of which the private sector makes up less than 20 per cent.
o There is low value addition in the warehouse sector. Handling and warehousing facilities are still
largely un-mechanized with manual loading, unloading and handling in the case of many
commodities.
 Seamless movement of goods across modes and high dwell time: In addition to lack of interoperable
technology, the movement of goods across modes suffers from the absence of last mile connectivity and
infrastructure.
 Border compliance and document processing time: India’s average border compliance time for exports is
106 hours and for imports 264 hours. India’s document processing time is an average of 38 hours for exports
and 61 hours for imports.
 Inadequate Funding: Logistic sector is now classified under the infrastructure sector thus, stakeholders now
can avail long gestation period funds.
 Saftey aspects: poor logistics practices lead to practices such as overloading of trucks, which compromises
road safety.

Way Forward
 Reduction in logistics costs will result in more competitive goods and services, resulting in more trade and
commerce for India.
 Focus on new technology, improved investment, skilling, removing bottlenecks, improving inter modal
transportation, automation, single window system for giving clearances, and simplifying processes.
o Ministry of Commerce and Industry (MoCI) is developing an integrated logistics portal which would
serve as a transactional e-marketplace by connecting buyers, logistics service providers and the
relevant government agencies.
o Recently the MoCI also launched a new Logistics Ease Across Different States (LEADS) Index to rank
states for the support they provide to improve logistics infrastructure within their respective
jurisdictions.
 Improving the logistics sector has huge implications on exports and it is estimated that a 10 per cent
decrease in indirect logistics cost can increase 5-8 percent of exports.
o Freight Smart Cities initiative will help in improving the efficiency of urban freight and create an
opportunity for reduction in the logistics costs.
 The need of the hour is to formulate an integrated logistics policy. A mechanism needs to be created to
measure the sector’s performance at regular intervals.
o Draft National Logistics policy with aim to promote seamless movement of goods across the country
and is at the near-finalization stage
 Better performance in logistics will augment programmes like Make in India, and also enable India to become
an important part of the global supply chain.
 Improve regulatory regime: Proposed National Logistics Law under consultation with stakeholders to provide
an agile regulatory environment through a unified legal framework for “One Nation-One Contract” paradigm.
 Rationalization in tax rates: Taxation reforms like GST and creation of Logistics Division in the Department of
Commerce.

Conclusion
 The commitment of GoI towards an integrated development of the logistics sector through policy
amendments, infrastructural development, tax reforms and technology adoption will certainly deliver
desirable results. It will also shoot up the country's performance in global rankings and pave the way for India
to become a logistics hub. Such measures will also contribute to creation of a New India by 2022.

RECENT DEVELOPMENTS IN LOGISTIC SECTOR

1. NEW NATIONAL LOGISTICS LAW
 In News: The Ministry of Commerce and Industry is considering replacing the Multimodal Transportation of
Goods Act, 1993 (MMTG) with a National Logistics Efficiency and Advancement Predictability and Safety Act
(NLEAPS).
 It is expected to streamline rules and address supply-side constraints, leading to lower logistics costs and
greater competitiveness for Indian products worldwide.
 The national logistics policy will clarify the roles of the Union government, state governments and key
regulators.
 It will create a single-window e-logistics market and focus on the generation of employment, skills and
making medium and small enterprises competitive

OBJECTIVES:
 To drive economic growth and trade competitiveness of the country.
 Modernise and formalise the logistics services and promote digitisation in the sector, which is key for the
smooth movement of goods.
 To reduce the logistics cost from the present 14% of the GDP to less than 10% of GDP by 2022.

DATA/FACTS:
 India ranked 44 in the World Bank’s Logistics Performance Index 2018.
 The Indian logistics sector provides livelihood to more than 22 million people (Economic Survey 2017-18).

SIGNIFICANCE:
 One Nation-One Contract: National Logistics Law that would provide an agile regulatory environment through
a unified legal framework for the “One Nation-One Contract”.
 Facilitate Ease of Doing Business: By integrating the various means of transport, documentation and
stakeholders, through technology platforms would result in a much-simplified way of working, which will
enhance the ease of doing business.
 Impetus to employment and growth: Proper implementation will help in doubling the employment in the
logistics sector by generating additional 10-15 million jobs and focus on enhancing skills in the sector and
encouraging gender diversity.

ISSUES AND CHALLENGES:

 High logistics cost: Logistics cost of India is particularly high and has been a pain point for the industry for the
longest time, impacting the competitiveness of domestic goods in the international market.
 Interoperable technology across modes: The lack of interoperability of software systems used by the
authorities governing different modes of transport leads to inefficiencies as it increases transit time and the
need for manual intervention when switching modes.
 Lack of skilled and specialist personnel: There is a serious lack of skilled personnel and specialists in the
Logistics sector in India. The laborers are under-skilled, over-worked and lack the desired skill-set to make the
process more efficient.
 Port and shipping problem: Understaffed ports, overstuffed berths and delayed evacuation of cargo cause
the logistics companies to suffer without a fault.
 Government policies and bottleneck: With compliance mandates being tightened even more, the logistics
companies in India face the consequence of bottlenecks with increased regulations.

GOVERNMENT INITIATIVES:
 Introduction of GST and e-Way bill system has brought efficiency in the logistics and transportation sector. It
has reduced turnaround time of trucks by over 20%.
 Geo-tagging of all warehousing: This will help the farmers to locate a warehouse or cold storage unit in the
10 km vicinity to store their produce. Warehousing shall be promoted to comply with WDRA norms.
 Village Storage Scheme through Women Self-help groups shall provide backward linkages for seeds thereby
reducing logistics costs.
 Refrigerated vans shall be attached to passenger trains to promote movement of perishables quickly.
 Krishi Udan scheme shall be promoted/launched whereby horticulture and perishable commodities shall be
transported through the air-route.
 National Organic e-Market will be developed for organic products.
 Delhi – Mumbai and Chennai – Bengaluru express highways to be made operational by 2023.
 100 more airports shall be established under the UDAN scheme.

WAY FORWARD:
 The ‘make in india’ initiative should be linked to the national logistics policy, as the same would lead to
encouragement of nationalism, and local production. In the longer run, it will lead to cost reduction, and
increased exports.
 During the initial years of the policy, a middle ground needs to be reach that between producing locally and
importing from abroad.
 Steps need to be taken in terms of making India technologically ready to support the objectives of the policy
on the technical front.
 The country is right on track with regards to developing supporting infrastructure to incorporate the Make in
India initiative, and the logistical framework promised within the policy.

CONCLUSION:
 The intricacies of logistics businesses in India are subject to external and internal challenges. By careful
management, planning and realistic goal-setting, they can be overcome to be able to thrive, succeed and
compete in the Indian economy with the international counterparts.

INVESTMENT MODELS

Introduction
 Infrastructure projects require large amount of investment. Govt alone can’t finance it due to fiscal deficit
targets. Such projects also require the level of technical expertise, management skills and professionalism
that may not be available in the traditional bureaucratic apparatus.
 PPP involve collaboration between a government agency and a private-sector company that can be used to
finance, build, and operate projects such as public transportation networks, parks, and convention centers.
Financing a project through a PPP can allow a project to be completed sooner or make it a possibility in the
first place.
Importance of Investments Model
 More opportunities: It opens up the possibilities of large-scale production. Large scale production units which
require huge investment can be established in the country.
 Technology: It enables the country to make use of modern techniques of production. In this process helps in
making scientific inventions and technological advances.
 Urbanization: It also leads to industrialization and urbanization.
 Tools and equipment: It provide the necessary tools and equipment for production.
 Employment: It creates employment opportunities. New factories, irrigation projects, construction work
certainly add to the existing opportunities of employment.

PUBLIC INVESTMENT MODEL

In this model Government requires revenue for investment that mainly comes through taxes.
 Productivity: As the world is facing the prospect of an extended period of weak economic growth, by
enhancing public-sector investment large pools of savings can be channelized into productivity.
 Economy: Properly targeted public investment can do much to boost economic performance, generating
aggregate demand quickly, fuelling productivity growth by improving human capital, encouraging
technological innovation, and spurring private-sector investment by increasing returns.
 Sustainable growth: Though public investment cannot fix a large demand shortfall overnight; it can accelerate
the recovery and establish more sustainable growth patterns.

PRIVATE INVESTMENT MODEL

For a country to grow and increase its production investment is required. Presently tax revenue of India is not
adequate to meet this demand so government requires private investment.
 Private investment can be source from domestic or international market.
 From abroad private investment comes in the form of FDI or FPI.
 Private investment can generate more efficiency by creating more competition, realization of economies of
scale and greater flexibility than is available to the public sector.

PUBLIC-PRIVATE-PARTNERSHIP (PPP) MODEL

PPP is a long-term contract between a public sector organisation and a private sector company. It is an
arrangement between government and private sector for the provision of public assets and/or public services. It
allows for:
 Building a large-scale public infrastructure such as highways, ports etc.
 Provide public utility services such as electricity, gas, water, transport, health etc.
 Investments undertaken by the private sector entity, for a specified period of time.
 Partnerships: It works well when private sector technology and innovation combine with public sector
incentives to complete work on time and within budget.
 As PPP involves full retention of responsibility by the government for providing the services, it doesn’t
amount to privatization.
 Risk: There is a well-defined allocation of risk between the private sector and the public entity.
 Private entity is chosen on the basis of open competitive bidding and receives performance linked payments.
 PPP route: can be alternative in developing countries where governments face various constraints on
borrowing money for important projects.
 It can also give required expertise in planning or executing large projects.

SECTOR SPECIFIC PUBLIC PRIVATE PARTNERSHIP (PPP)

BUILD-OPERATE-TRANSFER (BOT)
In this approach, the government gives a concession to a private entity to build a facility (and possibly design it
as well), own the facility, lease the facility to the public sector and then at the end of the lease period transfer
the ownership of the facility to the government.
 Owner: Private player but after time limit is over/ his investment recovered, the ownership transferred to
Government.
 Financer: Government
 Operation and maintenance (O&M): private player during contract period, then government itself start
operating it (or outsource).
 Toll collection:
o If BOT Toll model then private player levies toll from users. E.g., Highway
o If BOT Annuity model, then Government pays private player fixed fund at regular period from its budget.

DESIGN-BUILD-OPERATE-TRANSFER (DBOT)
In this model, entire responsibility for the design, construction, finance, and operation of the project for the
period of concession lies with the private party.
 Owner: Private player but after time limit is over / his investment recovered, the ownership transferred to
Govt.
 Financer: Private player responsible to arrange from his pocket / market.
 Operation and maintenance (O&M): Private player during the contact period, then government itself may
start operating it (or outsource it to a third private company)
 Toll collection: Could be toll or annuity depending on project. E.g., Delhi-Mumbai highway - private players
would love to have a Toll model, whereas in Nagaland Manipur highway they’d prefer annuity model due to
less growth projection in traffic.
 Examples: Water pipelines contract by Corporations.

BUILD-OPERATE-LEASE-TRANSFER (BOLT)
 Usually associated with brownfield projects e.g., Govt owned existing airport is leased to private player for
operation, he renovates it and charges user fees for same. After the contact period is over/ investment
recovered then govt again assumes operational responsibilities (or gets another private player). Thus, Govt
remains the owner in perpetuity.

BUILD-OWN-OPERATE (BOO)
 In this model ownership of the newly built facility will rest with the private party.
 On mutually agreed terms and conditions public sector partner agrees to ‘purchase’ the goods and services
produced by the project.

TOLL-OPERATE-TRANSFER (TOT)
 Private player pays upfront fees (e.g., ₹ 15000 crore) to the government to obtain the ‘right to collect toll’ on
an existing road (brownfield) for a fixed period (e.g., 50 years).
 Advantages:
o To Government: we got upfront money to finance schemes / build new roads; no need to pay salary of
those toll-booth employees.
o To private player: we will make profit depending on how much traffic comes. • 2018: NHAI award
projects worth 680+ kms in Andhra Pradesh and Gujarat.
o Budget-2020: due to FASTAG toll collection became easier. So, Govt. will monetise at least twelve
highway bundles worth 6000+ Kms before 2024.

LEASE-DEVELOP-OPERATE (LDO)
 In this type of investment model either the government or the public sector entity retains ownership of the
newly created infrastructure facility and receives payments in terms of a lease agreement with the private
promoter.
 It is mostly followed in the development of airport facilities.

NON-PUBLIC PRIVATE PARTNERSHIP (PPP) MODEL

In these models, the private player is not given ownership of infrastructure or right to collect toll/user fee at
any point of time. So, they’re not PPP. Notable examples are:
 Engineering, Procurement and Construction (EPC)
 Outsourcing / Contracting out
GOVERNMENT - OWNED CONTRACTOR - OPERATED (GOCO) MODEL
 Private contractors operate the army’s base workshops that repair equipment from guns and vehicles to tanks
and helicopters. Government remains the owner of the workshop/depot.
 A private player is given a contract to take over the operation/ running of such a workshop/ depot. He will be
responsible for warehousing operations, transportation of material, repair, maintenance etc.

BENEFITS:
 Decreased salary bill for Government.
 Private operators can easily go into partnership with Original Equipment Manufacturer (OEM) for service,
repair and spare parts.
 Private firms will not have to invest in land, infrastructure, machinery.

CHALLENGES:
 Private operators may not have the expertise to deal with military equipment;
 Strategic & Security challenges

CLUSTER BASED INVESTMENT MODELS:

 In India, the new HAM is a mixture of BOT Annuity and EPC Models.
Hybrid Annuity  Here, hybrid annuity means the first 40% payment is made as fixed amount in five
Model (HAM) equal installments whereas the remaining 60% is paid as variable annuity amount
after the completion of the project depending upon the value of assets created.
 Under BOT annuity, a developer builds the highway, operates it for a specified
BOT Annuity Model duration and transfers it back to the government.
 The governments start payment to the developer after the launch of commercial
operation of the project. Payment will be made on a six-month basis.
 In this Toll based BOT model, a road developer constructs the road and he is
allowed to recover his investment through toll collection.
BOT Toll Model  This toll collection will be over a period of nearly 30 years in most cases.
 There is no government payment to the developer as he earns his money invested
from tolls.
 Funding: Under this model, the cost is completely borne by the government.
 Government invites bids for engineering knowledge from private players.
EPC Model:  Procurement of raw materials and construction costs are met by the government.
Engineering,  Participation: The private sector’s participation is minimal and is limited to the
Procurement and provision of engineering expertise.
Construction  Risk: A difficulty of the model is that it causes high financial burden for the
government.
 Delay: Before the government chose EPC over PPP in 2014, road construction rate
had dwindled significantly to around just 3 km per day.

H OW IS EPC DIFFERENT AND BETTE R THAN PPP?

 Capital: Govt. here bears the entire financial burden and funds the project. Capital is either raised by issuing
bonds like NHAI bonds or by taking steps to secure road toll receivables post construction.
 Clearance: Govt. now takes care of clearances, acquiring land and estimating the traffic a very huge exercise
that had to be done by private parties earlier.
 Risk: With decreased risk on private builders and increased incentives for early road construction, it creates
a comfortable base to lure investors to carry on the EPC work i.e., the contractor now designs the installation,
procures the necessary materials and builds the project, either directly or by subcontracting part of the work.
 Time: Timeline required to construction reduces remarkably.
 In a nutshell, while the government takes responsibility for raising capital, procuring clearances and such, the
private builder constructs roads. Thus, significant surge in road construction pace is expected.
PROBLEMS WITH PPP PROJECTS
 Disputes: PPP projects have been stuck in issues such as disputes in existing contracts, non-availability of
capital and regulatory hurdles related to the acquisition of land.
 Record: Indian government has a poor record in regulating PPPs in practice.
 Crony Capitalism: Metro projects become sites of crony capitalism and a means for accumulating land by
private companies.
 Performance: Across the world PPPs are facing problems, performance of PPPs has been very mixed according
to study conducted by various research bodies.
 Political intervention: It is also argued that PPP is mere a ‘’language game” by governments who find it
difficult to push privatization, or when politically it is difficult to contracting out.
 Loans: Loans for infrastructure projects are believed to comprise a large share of the non-performing asset
portfolio of public sector banks in India.
 Capitalisation: In many sectors, PPP projects have turned into conduits of crony capitalism. Many PPP projects
in infrastructure sector are run by “politically connected firms” which have used political connections to win
contracts.
 Higher cost: PPP firms use every opportunity for renegotiating contracts by citing reasons like lower revenue
or rise in costs which becomes a norm in India.
 Public resources: Frequent renegotiations also resulted into drain of larger share of public resources.
 Opportunistic behaviour: These firms create a moral hazard by their opportunistic behaviour.

VIJAY KELKAR COMMITTEE REPORT ON REVISITING AND REVITALISING PPP MODEL

 Finance Minister in the Union Budget 2015-16 announced that the PPP mode of infrastructure development
has to be revisited and revitalised.
 In pursuance of this announcement, a Committee on Revisiting & Revitalising the PPP model of Infrastructure
Development was set-up which was chaired by Dr. Vijay Kelkar.

KEY RECOMMENDATIONS OF THE COMMITTEE:

 Defence Ministry’s Lt. Gen. D B Shetkar (Retd.) committee (2016) to “enhance combat capability and re-
balancing defence expenditure” recommended GOCO Model.
 Prudent utilization of viability gap funds where user charges cannot guarantee a robust revenue stream.
 Improved fiscal reporting practices and careful monitoring of performance.
 The experience India has already gathered in managing PPPs, the government must move the PPP model to
the next level of maturity and sophistication.
 An Infrastructure PPP Adjudication Tribunal (IPAT) chaired by a Judicial Member with a Technical and/or a
financial member, where benches will be constituted by the Chairperson as per needs of the matter in
question.
 Rebidding: Projects that have not achieved a prescribed percentage of progress on the ground should be
scrapped. Re-bid them once issues have been resolved or complete them through public funds and if viable,
bid out for Operations and Maintenance.
 Sector specific institutional frameworks may be developed to address issues for PPP infrastructure projects.
 Umbrella guidelines may be developed for stressed projects that provide an overall framework for
development and functioning of the sector specific frameworks.
 "Swiss Challenge" to be discouraged to avoid information asymmetries and lack of transparency.
 Amend the Prevention of Corruption Act, 1988 to distinguish between genuine errors in decision-making and
acts of corruption.
 Set up an institution for invigorating private investments in infrastructure, providing guidance for a national
PPP policy and developments in PPP.
 Discourage government participation in SPVs that implement PPP projects unless strategically essential.
 Ministry of Finance to allow banks and financial institutions to issue Zero Coupon Bonds which will also help
to achieve soft landing for user charges in infrastructure sector.
 Other sectors: Encourage use of PPPs in sectors like Railways, Urban, etc. Railways to have an independent
tariff regulator.
 Capacity building: Set up an institute of excellence in PPP to inter alia guide the sector, provide policy input,
timely advice and undertake sustainable capacity building.
 Integrated development: Ensure integrated development of infrastructure with roadmaps for delivery of
projects.

WHY GOVERNMENTS PREFERS PPP

 Long term partnership: PPP ensures the long-term partnership to deliver assets and services to the public at
a concessional rate.
 Increases efficiency of the infrastructure projects by means of long-term collaborations between private and
public sectors.
 Increases cooperation: between public authorities and the world of business, ensuring funding, management
and maintenance of infrastructure built.
 Delivery quality services that provide whole life costing.
 New option for public sector finances. The Governmental fiscal situation improves.
 Transfer Risk, increases competition and maintain value of public assets.

Way Forward
 Infrastructure is a critical determinant of economic growth. It has a direct bearing on investment,
manufacturing sector, logistics and productivity. Infrastructure is equally important for social sectors be it
education or health.
 SDG Goal 9 focuses on building resilient & sustainable infrastructure.
 Increasing mobility: new projects especially large-scale transit projects are significant for increasing mobility
and for the series of changes in land use patterns. PPPs have the potential to deliver infrastructure projects
better and faster. Currently, PPP contracts focus more on fiscal benefits.
 Assessment: There is need for a serious assessment of the efficacy and the likely benefits of increasing private
sector participation in metro rail projects before the adoption of this model.

FOREIGN INVESTMENT MODELS

FOREIGN DIRECT INVESTMENTS (FDI)

 FDI occurs when an investor based in one country (the home country) acquires an asset in another country
(the host country) with the interest to manage the asset.
 In India, foreign affiliate means a subsidiary company or an associate in which investors own a total of at
least 10%, but not more than half of shareholder’s voting power.
 FDI can be made through two routes that are:
1. Automatic Route: Indian companies engaged in various industries can issue shares to foreign investors
up to 100% of their paid-up capital in Indian companies
2. Government Approval Route: Certain activities that are not covered under the automatic route requires
prior Government approval for FDIs. Earlier, the approval route used to pass through a government body
known as Foreign Investment Promotion Board (FIPB), but it was recently abolished.
 FDI (USD 35.73 billion) received in the first 5 months of 2020-21 is 13% higher as compared to the first five
months of 2019-20 (USD 31.60 billion).
 Total FDI inflow grew by 55%, i.e., from USD 231.37 billion in 2008-14 to USD 358.29 billion in 2014-20.

FDI IN INDIAN CONTEXT:

 According to World Investment Report released by UNCTAD, India jumped from 12th position in 2018 to 9th
in 2019 on the list of the World’s top FDI recipients.
 "India ranked among the top 10 for FDI in 2019 and has rank 63 in World Bank’s ‘Ease of Doing Business 2020,
still the foreign investment has remained at 2 per cent of GDP."
 Investor Friendly: Since 1991, the regulatory environment for foreign investment has consistently been eased
to make it investor friendly, making India one of the fastest growing economies of the world.
 The GoI with intent to attract and promote FDI has put in place a policy framework on FDI which is
transparent, predictable and easily comprehensible.

ACCORDING TO THE NEW FDI POLICY:

 Recently government has approved a new FDI policy which aims to curb opportunistic
takeovers/acquisitions of Indian companies due to the current Covid-19 pandemic.
 An entity of a country, which shares a land border with India or where the beneficial owner of an investment
into India is situated in or is a citizen of any such country, can invest only under the Government route.
 A transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need
government approval. India shares land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh
and Myanmar.
 Investors from countries not covered by the new policy only have to inform the RBI after a transaction rather
than asking for prior permission from the relevant government department.
 India is biggest FDI host in the sub region, with more than 70% of inward stock.

GOVERNMENT MEASURES TO INCREASE FDI:

 Production Linked Incentive (PLI): In 2020, scheme for electronics manufacturing, have been notified to
attract foreign investments.
 FDI (Automatic Route): In 2019, the Central Government amended FDI Policy 2017, to permit 100% FDI under
automatic route in coal mining activities.
 FDI (Digital sector): Further, the government permitted 26% FDI in digital sectors. The sector has particularly
high return capabilities in India as favourable demographics, substantial mobile and internet penetration,
massive consumption along with technology uptake provides great market opportunity for a foreign investor.
 FDI (Manufacturing): It was already under the 100% automatic route, however in 2019, the government
clarified that investments in Indian entities engaged in contract manufacturing is also permitted under the
100% automatic route provided it is undertaken through a legitimate contract.
 Contract Manufacturing: Production of goods by one firm, under the label or brand of another firm.
 Foreign Investment Facilitation Portal (FIFP): it is the online single point interface of the Government of India
with investors to facilitate FDI. It is administered by the Department for Promotion of Industry and Internal
Trade, Ministry of Commerce and Industry.
 Increase in FDI Inflows is further Expected: As foreign investors have indicated interest in the government’s
moves to allow private train operations and bid out airports.
 Permit to NRI's: In March 2020, Government permitted non-resident Indians (NRIs) to acquire up to 100%
stake in Air India.
 Defense sector: Valuable sectors such as defence manufacturing where the government enhanced the FDI
limit under the automatic route from 49% to 74% in May 2020, could also attract large investments going
forward.

WAY FORWARD:
 Foreign Direct Investment (FDI) is a major driver of economic growth and an important source of non-debt
finance for the economic development of India. A robust and easily accessible FDI regime, thus, should be
ensured.
 Economic growth in the post-pandemic period and India’s large market shall continue to attract market-
seeking investments to the country.

FOREIGN PORTFOLIO INVESTMENT (FPI)

 FPI consists of securities and other financial assets held by investors in another country. It does not provide
the investor with direct ownership of a company's assets and is relatively liquid depending on the volatility of
the market.
 Along with FDI, FPI is one of the common ways to invest in an overseas economy. FDI and FPI are both
important sources of funding for most economies.
 FPI may take the form of:
 o Investment by Foreign Institutional
o Investors (FIIs) or their subaccounts
o Qualified Foreign Investors (QFIs).
 Portfolio investment is an investment in a foreign country where the investing party does not seek control
over the investment.
 FPIs can be made by individuals, companies, or even governments in international countries. This type of
investment is a way for investors to diversify their portfolio with an international advantage.

FPI IN INDIAN CONTEXT:

 FPI stands for those investors who hold a short-term view on the company, in contrast to FDI.
 FPIs generally participate through the stock markets and get in and out of a particular stock at much faster
frequencies. Short term views are associated often with lower stake in companies.
 Hence, globally FPIs are defined as those who hold less than 10% in a company. In India, the hitherto existing
closest possible definition to an FPI was ‘Foreign Institutional Investor (FII)’.
 Currently, in India, the term FPI refers to FIIs or their ‘sub-accounts’, or ‘qualified foreign investors (QFIs)’ who
are permitted to hold up to 10% stake in a company.

INVESTMENT MODELS FOLLOWED BY INDIA

VIABILITY GAP FUNDING (VGF)

 Aims: at supporting infrastructure projects that are economically justified but fall marginally short of financial
viability.
 Availability: only for infrastructure projects where private sector sponsors are selected through a process of
competitive bidding.
 Project cost: total Viability Gap Funding under this scheme will not exceed twenty percent (20%) of the Total
Project Cost; provided that the Government or statutory entity that owns the project may, if it so decides,
provides additional grants out of its budget, upto a limit of a further twenty percent of the Total Project Cost.
 Funding: can be provided by both central and state governments.

INDIA INFRASTRUCTURE FINANCE COMPANY LTD.

 This a government company created in 2006 to provide long term finance to viable infrastructure projects
through the Scheme for Financing Viable Special Purpose Vehicle Infrastructure Projects.
 Eligibility: The sectors eligible for financial assistance from IIFCL are transportation, energy, water, sanitation,
communication, social and commercial infrastructure. IIFCL accords overriding priority to PPP Projects.

INFRASTRUCTURE DEBT FUND

 Infrastructure Debt Funds (IDFs) are investment vehicles to accelerate the flow of long-term debt to the
sector.
 Aims: at taking out a substantial share of the outstanding commercial bank loans.
 IDFs are set up by sponsoring entities either as NBFC or Trusts/Mutual Funds.
 Funding: It prescribes 70:30 Debt equity ratio for the fund.

3P INDIA
 The planned 3P India entity will examine issues related to regulation, financing structure, management of
contracts and stressed Public-Private Partnership projects.
 Some recent announcements for PPP projects are – Rs 4200 crore Jal Marg on Ganga, 8500 Kms of Highways,
Ultra-Modern Solar Plants.

INFRASTRUCTURE INVESTMENT TRUST FUND (INVITS)

 InvITs are similar to mutual funds. While mutual funds provide an opportunity to invest in equity stocks, an
InvIT allows one to invest in infrastructure projects such as road and power.
 InvITs raise funds from a large number of investors and directly invest in infrastructure projects or through a
special purpose vehicle.
 Two types of InvITs have been allowed: One, which invests in completed and revenue generation
infrastructure projects; the other, which has the flexibility to invest in completed or under-construction
projects.
 InvITs which invest in completed projects take the route of public offer of its units, while those investing in
under construction projects take the route of private placement of units. Both forms are required to be listed
on stock exchanges. The minimum application size for InvIT units is Rs. 10 lakhs.
 According to SEBI rules, at least 90% of funds collected, after paying for expenses, taxes and repayment of
external debt, should be passed on to investors every six months.

Government will also initiate following reforms

 Infra Finance Reforms- Finance Market Reforms:
o Government and SEBI will undertake technical reforms to strengthen municipal bond market, and NBFCs
such as: infrastructure investment trusts (InvITs), Infrastructure Development Funds (IDFs),
o Stringent monitoring to prevent ILFS-NBFC type crisis in future.
o FDI, FPI investment norms will be relaxed.
 Credit Enhancement Fund (CEF):
o Pension and insurance companies usually avoid investing in bonds lower than ‘AA’ rating, due to strict
regulatory norms by PFRDA and IRDAI respectively.
o So, the Government will ask them to relax the investment norms for infrastructure projects.
 National Infrastructure Pipeline (NIP):
o It aims to mobilize 100 lakh crore worth infrastructure investment in the next five year (2019-20 to 2024-
25).
o This funding will be spread across Energy (24%), Roads (19%), Urban (16%), Railways (13%), Irrigation (7%)
etc.

NITI A AYOG : 'S TRATEGY FOR N EW I NDIA @75'

 NITI Aayog in its document targeted investment rates to 36 per cent by 2022-23 from 28 percent of 2017-
2018.
 Capital formation: To raise the rate of investment (gross fixed capital formation as a share of GDP) slew of
measures will be required to boost both private and public investment.
 Private investment: needs be encouraged in infrastructure through a renewed public-private partnership
(PPP) mechanism on the lines suggested by the Kelkar Committee.
 Robust ecosystem: A mature PPP framework, along with a robust enabling ecosystem shall enable the
Government to accomplish, to a considerable extent, what our Prime Minister, has said “The Government
has no business to do business” and thereby promote private sector investments and participation towards
the nation building.
 An institutionalized mechanism like the National Facilitation Committee (NFC) to ensure time bound
resolution of issues.
 Ensure adoption of principles of good governance by the Special Purpose Vehicle (SPV).
 Contracts need to focus more on service delivery instead of fiscal benefits.
 Better identification and allocation of risks between stakeholders.
 Prudent utilization of viability gap funds where user charges cannot guarantee a robust revenue stream.

NATIONAL MONETISATION PIPELINE

In news: Over a four-year period, from FY 2022 to FY 2025, the NMP anticipates a total monetisation potential of
Rs 6 lakh crores through the Central Government's key assets.
 The NMP does not involve monetization through disinvestment or monetisation of non-core assets.
o Assets, both core and non-core: Core Assets are assets that are critical to an entity's business
objectives and are utilised to provide infrastructure services to the public/users.
 o Non-core assets are assets that are not core to the business, such as land parcels and buildings.
 Under the Union Budget 2021-22, monetization of assets was recognised as one of the three pillars for
improved and sustainable infrastructure financing in the country.
o As a result, the National Monetisation Pipeline (NMP) is expected to run concurrently with the
National Infrastructure Pipeline and contribute to the development of a unified framework for
the monetisation of fundamental assets.
 Three essential imperatives underpin the framework for core asset monetisation:
o Monetization of rights rather than ownership, i.e., the return of assets at the conclusion of a
transaction's life cycle.
o Brownfield assets that have been de-risked and have a consistent revenue generating profile
are crucial.
o Contractual partners will be required to conform to Key Performance Indicators (KPIs) and
Performance Standards in structured agreements with specified contractual frameworks and
transparent competitive bidding.
 The NMP's assets and transactions are intended to be implemented using a variety of instruments and
models.

What is the list of assets?

 The assets on the NMP list include: 26,700 km of roads, railway stations, train operations and tracks,
2,8608 Ckt km worth of power transmission lines, 6 GW of hydroelectric and solar power assets, 2.86 lakh
km of fibre assets and 14,917 towers in the telecom sector, 8,154 km of natural gas pipelines and 3,930
km of petroleum product pipelines.
Challenges
 lack of identifiable revenues streams in various assets
 level of capacity utilisation in gas and petroleum pipeline networks,
 dispute resolution mechanism not detailed in the guidelines,
 regulated tariffs in power sector assets, and
 low interest among investors in national highways below four lanes.
 other key impediments to the monetisation process are asset-specific challenges such as presence of
an identifiable revenue stream.
o This is specifically relevant to the railway sector, which has seen limited PPP success as a mode
of project delivery.
Way forward
 Multi-Stakeholder Approach: The success of the infrastructure expansion plan will be determined by the
participation of other stakeholders.
 State governments and its public-sector companies, as well as the private sector, are among them.
 The Key to Success is Execution: While the government has attempted to solve several difficulties as a
result of the NMP framework's infrastructure development, the plan's implementation remains critical to
its success.
 Mechanism for Resolving Disputes: Furthermore, an effective conflict resolution process is required.