I

M.A. PART - II

GROUP II - (I) AGRICULTURAL ECONOMICS

PAPER II : AGRICULTURAL GROWTH AND
DEVELOPMENT
Module 1 : India’s Agricultural Development since
Independence
Agricultural Productivity - Extensive vs. intensive growth - Theories
of agricultural development - Agricultural in India’s national
economy. Equity (inter-regional and intraregional), input use
efficiency and sustainability of growth since Independence. Issue
relating to public and private capital formation in agriculture.
Agriculture’s adjustment problems in a liberalized and globalizing
economy - Emerging constraints and potential.

Module 2 : Water Resources - Availability, Utilization and

Management
Productivity, equity and sustainability aspects of water use w.r.t.
major, medium and minor irrigation systems - Pricing and
institutional reforms in irrigation - Public investment in irrigation and
watershed development - Equity, ecological and externality
aspects.

Module 3 : Agrarian Reforms

Objectives and evolution - Economic and extra - economic factors
influencing enactment and implementation - evaluation of reforms
affecting agrarian structure and relations - Increasing dominance of
small scale farming and role of land reforms.

Module 4 : Agricultural Growth and Rural Development

Role of agriculture in provision of food and nutritional security in
developing economies - Trends in agricultural employment and real
wages - Inter-class and gender based income disparities and
poverty - Trends in rural - urban income disparity.

Module 5 : Incentives and Disincentives for Growth

Land reform policies and growth. Development and evaluation of
research and extension systems. Resource allocation for
agricultural development programmes - Evaluation of rural credit
policies - Financial sector reforms and rural credit - Micro - finance,
self-help groups and NGO’s - Price, subsidy and taxation policies -
Crop and livestock insurance - Infrastructural development
(including marketing) for agriculture - Barriers to internal Trade.
 II

Module 6 : Political Economy of Indian Agriculture

Modes of production - Market interlocking and forced commerce -
Methods of surplus extraction - State, community and household -
Law and property rights. Foreign capital and Indian agriculture -
Multinationals and international institutions. Issues relating to
globalization of agricultural trade - WTO. Role of rural self-help
institutions.

Reference :

1. Agarwal B. (ed) (1998), structure of Patriarchy, State,

Community and Household in Modern Asia, Indian Association
for Women’s Studies (Module 6)

2. Agarwal B. (1990), Women, Poverty and Agricultural Growth in

India (Module 4)

3. Adelman Ira and Thorbeck (eds.) (1989), Role of Institutions in

Economic Development, Special Issue, Vol. 17, Number 9,
Pergaman Press (Modules 3 and 6)

4. Basu Kaushik (1990), Agrarian Structure and Economic

Underdevelopment, Harwood, Switzerland (Module 3)

5. Bhaduri Amit (1994), The Economic Structure of Backward

Agriculture (Module 6)

6. Breman Jan and Munle Sundipto (eds.) (1991), Rural

Transformation in Asia, Oxford University Press (Modules 4 &
6)

7. Dantwala M. L. (1991), Indian Agricultural Development since

Independence, Second revised edition, Oxford 7 I.B.H. Pvt.
Ltd. (General)

8. Dhawan B.D. (1994), Irrigation in India’s Agricultural

Development : Productivity, Stability and Equity, Second
edition (Module 2)

9. Dewan Ritu (1990), Political Economy of Agrarian Reforms in

India, Himalaya Publications Pvt. Ltd. (Module 3).

10. Indian Council of Social Science Research (1980), Alternatives

in Agricultural Development, Allied Publishers Pvt. Ltd.
(Modules 1 & 4).

11. Reserve Bank of India (2000), Report on Micro - credit,

Mumbai (Module 5).
 III

12. Reserve Bank of India (1993), A Review of the Agricultural

Credit System in India, Mumbai (module 5)

13. Scott Jeffery J. (eds.) (2001), The WTO After Seattle, Institute
for International Economics, Washington D.C. (Modules 1 & 5).

14. Tripathi S. L. and Dinesh C. (eds.) (1987), crop Insurance in

India, Vaikunth Mehta National Institute of Co-operative
Management, Pune (Module 5).

15. Uma Kapila, (1999), Indian Economy Since Independence,

revised edition, Academic Foundation. (Modules 1 & 5)

™™™™
 1

Module 1

1
INDIA'S AGRICULTURAL DEVELOPMENT
SINCE INDEPENDENCE
Unit Structure :

1.0 Objectives
1.1 Introduction
1.2 Concept of Agricultural Productivity.
1.3 Extensive vs. intensive growth.
1.4 Theories of agricultural development.
1.5 Agriculture in India's national economy.

1.6 Equity in Agriculture (inter-regional and intra-regional).

1.7 Input use efficiency and sustainability of growth since
Independence.

1.0 OBJECTIVES

x To understand the Concept of Agricultural Productivity.

x To understand the Concept of Extensive vs. intensive growth.
x To acquaint with the Theories of agricultural development.
x To familiar with the importance of Agriculture in India's national
economy
x To acquaint with the Equity in Agriculture (inter-regional and
intra-regional).
x To familiar with the Input use efficiency and sustainability of
growth since Independence.

1.1 INTRODUCTION :AGRICULTURAL PRODUCTIVITY

Agricultural productivity is measured as the ratio of
agricultural outputs to agricultural inputs. While individual products
are usually measured by weight, their varying densities make
measuring overall agricultural output difficult. Therefore, output is
usually measured as the market value of final output, which
excludes intermediate products such as corn feed used in the meat
industry. This output value may be compared to many different
 2

types of inputs such as labour and land (yield). These are

called partial measures of productivity. Agricultural productivity may
also be measured by what is termed total factor productivity(TFP).
This method of calculating agricultural productivity compares an
index of agricultural inputs to an index of outputs. This measure of
agricultural productivity was established to remedy the
shortcomings of the partial measures of productivity; notably that it
is often hard to identify the factors cause them to change. Changes
in TFP are usually attributed to technological improvements.
A) Sources of Agricultural Productivity
Some sources of agricultural productivity are

x Mechanization
x High yield varieties, which were the basis of the Green
revolution
x Fertilizers: Primary plant nutrients: nitrogen, phosphorus and
potassium and secondary nutrients such as sulphur, zinc,
copper, manganese, calcium, magnesium and molybdenum on
deficient soil.
x Liming of acid soils to raise pH and to provide calcium and
magnesium
x Irrigation
x Herbicides
x Pesticides
x Increased plant density
x Animal feed made more digestible by processing
x Keeping animals indoors in cold weather
B) Importance of Agricultural Productivity
The productivity of a region's farms is important for many
reasons. Aside from providing more food, increasing the
productivity of farms affects the region's prospects for growth and
competitiveness on the agricultural market, income distribution and
savings, and labour migration. An increase in a region's agricultural
productivity implies a more efficient distribution of scarce resources.
As farmers adopt new techniques and differences in productivity
arise, the more productive farmers benefit from an increase in their
welfare while farmers who are not productive enough will exit the
market to seek success elsewhere.
As a region's farms become more productive,
its comparative advantage in agricultural products increases, which
means that it can produce these products at a lower opportunity
cost than can other regions. Therefore, the region becomes more
 3

competitive on the world market, which means that it can attract

more consumers since they are able to buy more of the products
offered for the same amount of money.
Increases in agricultural productivity lead also to agricultural
growth and can help to alleviate poverty in poor and developing
countries, where agriculture often employs the greatest portion of
the population. As farms become more productive, the wages
earned by those who work in agriculture increase. At the same
time, food prices decrease and food supplies become more stable.
Labourers therefore have more money to spend on food as well as
other products. This also leads to agricultural growth. People see
that there is a greater opportunity earn their living by farming and
are attracted to agriculture either as owners of farms themselves or
as labourers. However, it is not only the people employed in
agriculture who benefit from increases in agricultural productivity.
Those employed in other sectors also enjoy lower food prices and a
more stable food supply. Their wages may also increase.
Agricultural productivity is becoming increasingly important
as the world population continues to grow. India, one of the world's
most populous countries, has taken steps in the past decades to
increase its land productivity. Forty years ago, North India produced
only wheat, but with the advent of the earlier maturing high-yielding
wheats and rices, the wheat could be harvested in time to plant
rice. This wheat/rice combination is now widely used throughout
the Punjab, Haryana, and parts of Uttar Pradesh. The wheat yield
of three tons and rice yield of two tons combine for five tons of grain
per hectare, helping to feed India's 1.1 billion people.
C) Agricultural Productivity and Sustainable Development
Increase in agricultural productivity is often linked with
questions about sustainability and sustainable development.
Changes in agricultural practices necessarily bring changes in
demands on resources. This means that as regions implement
measures to increase the productivity of their farm land, they must
also find ways to ensure that future generations will also have the
resources they will need to live and thrive.

The causes for low productivity of Indian agriculture can be

divided into 3 broad categories, namely, (1) General factors, (2)
Institutional factors and (3) Technological factors.
 4

D) General Factors

(a) Overcrowding in Agriculture:

The increasing pressure of population on land is an
important demographic factor responsible for low yield in
agriculture. The area of cultivated land per cultivator has declined
from 0.43 hectare in 1901 to 0.23 hectare in 1981 despite an
expansion of area under cultivation. Hence, agricultural sector has
become overcrowded and this has adversely affected the
agricultural productivity.

(b) Discouraging Rural Atmosphere:

The Indian farmers, living in rural areas are generally
tradition-bound, illiterate, ignorant, superstitious and conservative.
Their attitude of apathy and neglect keeps the system of cultivation
primitive. The farmers are not prepared to accept anything new as
a consequence of which modernization of agriculture becomes
difficult.

(c) Inadequate non-firm Services:

Shortage of finance, marketing and storage facilities are also
responsible for agricultural backwardness in India. The co-
operatives and other institutional agencies have not been able to
eliminate the village money lenders. Storage facilities for farmers
are not still available to preserve their agricultural product for a
better price.

(d) Natural Calamities:

Indian agriculture is a gamble in the monsoon. If monsoon
becomes favourable, we have a good crop; otherwise agriculture is
affected by drought, flood and cyclone.

Institutional Factors

(a) Size of Holding:

The small size of holdings in India is an impediment in the
way of progressive agriculture. The average size of holdings in
India is less than 2 hectares. In case of very small firms, it is difficult
to introduce new technology. Further, due to fragmentation of
holdings a great deal of labour and energy is destroyed in
cultivation.
 5

(b) Pattern of Land Tenure:

The agrarian structure in India is not conducive for a
progressive agriculture. The tendril relationships were such that the
big landlords used to have a considerable influence on their
respective areas. The actuarial cultivator had known incentive for
improvement and more production. Though the zamindari system
has been abolished, absentee landlordism still prevails; heavy rents
are still extracted and there is no security of tenancy. Under these
circumstances, it is unwise to expect any remarkable increase in
agricultural productivity due to the apathetic attitude of the tillers of
the land.

Technological Factors

(a) Poor Technique of Production:

The technique of production adopted by Indian farmers is
old, outdated and inefficient. The tradition-bound poor farmers have
not yet been able to adopt the modern methods to get the best yield
from their land. The seeds they use are of poor quality and the age-
old, traditional wooden plough still exists in Indian agriculture. The
farmers do not enjoy the benefits of agricultural research and
development programmes. They consider agriculture as a way of
life rather than a business proposition. Therefore, production
remains at a low level.

(b) Inadequate Irrigational Facilities:

Indian agriculture is a gamble in monsoon due to non
availability of irrigation facilities. In spite of several measures,
irrigation has not substantially increased in India.

E) Measures to Improve Productivity of Indian agriculture

The F.A.O. has suggested following measures to increase the

productivity of Indian agriculture:

1. The farmers should be provided with a stable price for their

agricultural products at a remunerative level.

2. There should be an expansion of adequate marketing facilities to

sell the agricultural product.

3. The land tenure system should be changed in favour of the

cultivator.
 6

4. There should be a provision of cheap credit on reasonable terms

especially to small farmers for better techniques of production.

5. The modern inputs like fertilisers. Pesticides and improved seeds

should be made available to the farmers at reasonable prices.

6. There should be provisions of education, research and extension

of agro-economic services to spread the knowledge of improved
methods of farming.

7. The State should make provision for the development of

resources which are not possible in the part of individual farmers
e.g. large scale irrigation, land reclamation or resettlement projects.

8. There should be an extension of land used and intensification

and utilisation of land already in use through improved and
scientific implements.

To improve agricultural productivity, a number of things must

be accomplished at world level:

a. Reduction of the present rate of degradation and loss of

productive farmland due to erosion, salinization, water
logging, and nutrient depletion:

Technologies for these purposes are available, but are little

used because of the expense. However, many non-technological
methods have been used for years by farmers (contour ploughing,
abandonment of marginal agricultural lands, planting of wind
barriers, fallowing). Erosion can be prevented by the careful
selection of appropriate crops, keeping ground cover on the soil,
and contour ploughing. Irrigation increases crop yields by about
200%, so more land must be irrigated to increase production
efficiency, but this uses great quantities of water. More efficient
methods must be utilized to prevent water shortages, as only 45%
of irrigation water is actually absorbed by plants. Drip irrigation and
other efficient delivery systems, better water distribution systems,
improved control systems, and raising crops suited to the climate
and soil will aid in this endeavour. Excessive or continual irrigation
leads to salinization and water logging of the soil, which will
diminish or destroy its agricultural capacity.
 7

b. Raising the crop yield on current agricultural land, :

As most land is not producing yields even close to the

maximum possible (in past because modern technologies are not
used). If the gap between current and potential yield could be
bridged, the production of soybeans could be increased by 64%,
that of peanuts by 208%, pulses by 472%, and cereals by 170%
over a period of several years. The theoretical maximum yield for
cereals is 13.4 tons per hectare, but the average cereal yield (1992-
1994) was 2.77 tons per hectare – not even close to this figure
(Goklany, 1998). There are regional inequities as well. Yields tend
to be much lower in the tropical developing countries with large,
growing human populations. For instance, in Sub-saharan Africa,
yields of cereal grains are only one-third of the cereal yield in the
northern hemisphere. Increasing yields can raise income for
marginal agriculturalists and reduce dependence upon destructive
slash-and-burn agricultural methods.

This may be done by improving tillage methods to preserve

soils and nutrients, which will be more beneficial than removing rain
forest to open more agricultural land. Other techniques might
include soil testing to determine soil chemistry profiles, crop
rotation, nutrient and water management, terracing, instituting
appropriate tillage methods for the soil/terrain, crop diversification,
and interspersing crops with trees. These methods could reverse
the nutrient depletion characteristic of so many cultivated soils in
tropical areas. To increase productivity, one must also reduce
losses from disease and pests, both during growth periods and
after harvest (currently an average of 42% of crop yields is lost to
these agents). Pest and disease-resistant varieties, better storage
facilities and improved transportation could help in this, as well as
the development of new high-yield crop varieties, suitable to local
weather and soil conditions. Except for the “green revolution” with
rice, less effort has been put into the development and study of
tropical crops than temperate ones.

c. Reforming agricultural practices to be less harmful to

forests and forest regeneration:

Among these reforms could be reductions in the use of

burning, minimizing the use of toxic chemicals, and using swidden
land less intensively by increasing fallow times. Zero tillage
agriculture should also be utilized. When the soil is left untilled,
organic matter is retained, preserving soil fertility and preventing
 8

erosion and runoff. Where the soils contain organic matter, forests
can often regenerate.

d. Improving the distribution of agricultural products:

Distribution systems are extremely unequal in most tropical

countries, and often unreliable. Access to food and other
agricultural goods must be increased in terms both of availability
(delivery) and affordability.

e. Reduction of the environmental impacts of new

technologies.

To diminish environmental impacts, agricultural management

systems must be devised which are suitable for specific areas and
crops. This would allow reduction in artificial inputs, so that fertilizer
and pesticide use could be considerably reduced.

f. Reformation of policies relating to water management,

allocation, and distribution.:

For instance, governments will frequently subsidize water

use for agriculture, reducing incentives for water conservation. That
users pay fairly for water is essential (now, frequently, the poor pay
more for water than the rich). Many countries have achieved
considerable water conservation by this method (Chile, Jordan,
India and others), and it could certainly be applied by most tropical
countries.

g. Retention of trees as crops to protect water and soil

resources.

In southern Malaysia, 60% of the forested area has been

kept in forest, while the other lands are used for agricultural
purposes (Spears, 1988). How much of this land will remain
protected with increasing demand for palm oil and other products is
questionable, however.

h. Development of agro-forestry projects:

Cash crops might be raised in small-scale agro-forestry

plots. Such crops as papayas, peppers, palm fruits, mangos and
many other local crops are being raised in this way in the Amazon.
According to Spears (1988), the need for industrial wood could be
provided by tree plantations of approximately 25 million hectares,
 9

about 10% of the remaining forest area, but as of the date of the
article, only 2.6 million hectares of such plantations had been
established. They could preclude the need to remove virgin forest,
particularly if they consist of rapidly-growing species. Such projects
can act as alternatives to the expansion of agricultural areas.

i. Provision of a system of tropical agricultural research

stations and,

Especially, agricultural extension workers and soil experts to

assist local farmers. This is absolutely essential for the success of
agricultural reform. If farmers don’t know or understand the
methods, nothing can be improved.

j. Provision of governmental guidance and regulation:

The “green revolution” was successful and widespread only

partly because of the dispersal of information to virtually all rice-
growers. In addition, some coercive regulation was undertaken by
governing bodies – usually local – in some places. In country like
Bali, for instance, water for irrigation is provided only to those
farmers who use the new varieties of rice.

Some of these scenarios require that new technologies be

developed, others do not. All of these changes require that
economic benefits accrue to farmers to provide them with
incentives for using different technologies and methods, and for
using them effectively. Economic and scientific aid will be required
from international agencies as well as national governmental
agencies in order to assure that any changes made are sound,
adapted to local conditions, and environmentally safe.

1.2 EXTENSIVE FARMING AND INTENSIVE FARMING

A) Extensive farming or extensive agriculture (as opposed

to intensive farming) is an agricultural production system that uses
small inputs of labour, fertilizers, and capital, relative to the land
area being farmed.
Extensive farming most commonly refers to sheep and cattle
farming in areas with low agricultural productivity, but can also refer
to large-scale growing of wheat, barley and other grain crops in
areas like the Murray-Darling Basin. Here, owing to the extreme
age and poverty of the soils, yields per hectare are very low, but the
 10

flat terrain and very large farm sizes mean yields per unit of labour
are high. Nomadic herding is an extreme example of extensive
farming, where herders move their animals to use feed from
occasional rainfalls.
Extensive farming is found in the mid-latitude sections of
most continents, as well as in desert regions where water for
cropping is not available. The nature of extensive farming means it
requires less rainfall than intensive farming. The farm is usually
large in comparison with the numbers working and money spent on
it. In most parts of Western Australia, pastures are so poor that only
one sheep to the square mile can be supported.
Just as the demand has led to the basic division of cropping
and pastoral activities, these areas can also be subdivided
depending on the regions rainfall, vegetation type and agricultural
activity within the area and the many other parentheses related to
this data.
Extensive Growth, in economics, is based on the
expansion of the quantity of inputs in order to increase the quantity
of outputs, opposite to that of intensive growth. Thus, extensive
growth is likely to be subject to diminishing returns. It is therefore
often viewed as having no effect on per-capita magnitudes in
the long-run.
Reliance on extensive growth can be undesirable in the
long-run because it exhausts resources. To maintain economic
growth in the long-run, especially on a per-capita basis, it is good
for an economy to grow intensively; for example, by improvements
in technology or organisation, thereby increasing the production
possibilities frontier of the economy.
Extensive farming (as opposed to intensive farming) is an
agricultural production system that uses little inputs on vast areas
of land, such as the Great Plains. Extensive farming most
commonly refers to sheep and cattle farming in areas with low
agricultural productivity, but can also refer to large-scale growing of
wheat, barley and other grain crops in areas like the Murray-Darling
Basin. Here, owing to the extreme age and poverty of the soils,
yields per hectare are very low, but the flat terrain and very large
farm sizes mean yields per unit of labour are high. Nomadic herding
is an extreme example of extensive farming, where herders move
their animals to use feed from occasional rainfalls.
 11

Advantages
Extensive farming has a number of advantages over intensive
farming:

1. Less labour per unit areas is required to farm large areas,

especially since expensive alterations to land (like terracing)
are completely absent.
2. Mechanisation can be used more effectively over large, flat
areas.
3. Greater efficiency of labour means generally lower product
prices.
4. Animal welfare is generally improved because animals are
not kept in stifling conditions.
5. Lower requirements of inputs such as fertilizers.
6. If animals are grazed on pastures native to the locality, there
is less likely to be problems with exotic species.
7. Local environment and soil are not damaged by overuse of
chemicals.
Disadvantages:
Extensive farming can have the following problems:

1. Yields tend to be much lower than with intensive farming in

the short term.
2. Large land requirements limit the habitat of wild species (in
some cases, even very low stocking rates can be
dangerous), as is the case with intensive farming

B) Intensive farming

Intensive farming (or Capital Intensive farming) has a large

investment and usually works with a lot of food production at one
time, Bernard Mathews is an example of a capital intensive farming
system, with lots of animals in a small space.

Intensive farming or intensive agriculture is an

agricultural production system characterized by a low fallow ratio
and the high use of inputs such as capital, labour, or heavy use
of pesticides and chemical fertilizers relative to land area. This is in
contrast to many sorts of traditional agriculture in which the inputs
per unit land are lower. With intensification, labour use typically
goes up, unless, or until, it gets replaced by machines (energy
inputs) at which point labour use can decrease dramatically.
 12

Agricultural intensification has been the dominant response to

population growth, as it allows for producing more food on the
same amount of land.
Intensive animal farming practices can involve very large
numbers of animals raised on limited land which requires large
amounts of food, water and medical inputs (required to keep the
animals healthy in cramped conditions). Very large or confined
indoor intensive livestock operations (particularly descriptive of
common US farming practices) are often referred to as factory
farming and are criticised by opponents for the low level of animal
welfare standards and associated pollution and health issues.
Modern day forms of intensive crop based agriculture involve the
use of mechanical ploughing, chemical fertilizers, plant growth
regulators or pesticides. It is associated with the increasing use
of agricultural mechanization, which have enabled a substantial
increase in production, yet have also dramatically increased
environmental pollution by increasing erosion and poisoning water
with agricultural chemicals.
Advantages :
Intensive agriculture has a number of benefits:

1. Significantly increased yield per acre, per person, and per

monetary input relative to extensive farming and therefore,
2. Food becomes more affordable to the consumer as it costs less
to produce.
3. The same area of land is able to supply food and fibre for a
larger population reducing the risk of starvation.
4. The preservation of existing areas of woodland and rainforest
habitats (and the ecosystems and other sustainable economies
that these may harbour), which would need to be felled for
extensive farming methods in the same geographical location.
This also leads to a reduction in anthropogenic CO2 generation
(resulting from removal of the sequestration afforded by
woodlands and rainforests).
5. In the case of intensive livestock farming: an opportunity to
capture methane emissions which would otherwise contribute to
global warming. Once captured, these emissions can be used
to generate heat or electrical energy, thereby reducing local
demand for fossil fuels.
 13

Disadvantages:
Intensive farming, however, alters the environment in many ways.

1. Limits or destroys the natural habitat of most wild creatures, and

leads to soil erosion.
2. Use of fertilizers can alter the biology of rivers and lakes. Some
environmentalists attribute the hypoxic zone in the Gulf of
Mexico as being encouraged by nitrogen fertilization of the
algae bloom.
3. Pesticides generally kill useful insects as well as those that
destroy crops.
4. Is often not sustainable if not properly managed—may result
in desertification, or land that is so poisonous and eroded that
nothing else will grow there.
5. Requires large amounts of energy input to produce, transport,
and apply chemical fertilizers/pesticides
6. The chemicals used may leave the field as runoff eventually
ending up in rivers and lakes or may drain into groundwater
aquifers.
7. Use of pesticides have numerous negative health effects in
workers who apply them, people that live nearby the area of
application or downstream/downwind from it, and consumers
who eat the pesticides which remain on their food.

1.3 THEORIES OF AGRICULTURAL DEVELOPMENT

Agricultural Development Theories are attempts to explain

the forces in society and the economy that lead to agricultural
change.

Theories of Agricultural Development

1. The Conservation Model

2. The Urban Impact Model (or location model)
3. The Diffusion Model
4. The High-Payoff Input Model

1. The Conservation Model

The conservation model of agricultural development evolved

from the advances in crop and livestock husbandry associated with
the English agricultural revolutions and the concepts of soil
exhaustion suggested by the early German soil scientists. It was
 14

reinforced by the concept in the English classical school of

economics of diminishing returns to labour and capital applied to
land and labour. The conservation model emphasized the evolution
of a sequence of increasingly complex land- and labour-intensive
cropping systems, the production and use of organic manures, and
labour-intensive capital formation in the form of physical facilities to
more effectively utilize land and water resources.

Conservation agriculture (CA) aims to make better use of

agricultural resources through the integrated management of
available soil, water and biological resources, combined with limited
external inputs. It contributes to environmental conservation and to
sustainable agricultural production by maintaining a permanent or
semi-permanent organic soil cover. Zero or minimum tillage, direct
seeding and a varied crop rotation are important elements of CA.

Adoption of CA at the farm level is associated with lower

labour and farm-power inputs, more stable yields and improved soil
nutrient exchange capacity. Crop production profitability under CA
tends to increase over time relative to conventional agriculture.
Other benefits attributed to CA at the watershed level relate to more
regular surface hydrology and reduced sediment loads in surface
water. At the global level, CA sequesters carbon, thereby
decreasing CO2 in the atmosphere and helping to dampen climate
change. It also conserves soil and terrestrial biodiversity.

Conservation agriculture is practised on about 57 million ha,

or on about 3 percent of the 1 500 million ha of arable land
worldwide. Most of the land under CA is in North and South
America. It is rapidly expanding on small and large farms in South
America, where practising farmers are highly organized in local,
regional and national farmers' organizations. In Europe, the
European Conservation Agricultural Federation, a regional lobby
group, unites national CA associations in the United Kingdom,
France, Germany, Italy, Portugal and Spain.

Despite these apparent advantages, and despite the few

notable exceptions in the developing world, CA has spread
relatively slowly, especially in farming systems in temperate
climates. The transformation from conventional agriculture to CA
seems to require considerable farmer management skills and
involves investment in new equipment. However, it may also
require minimum levels of social capital to foster its expansion.
 15

DEFINING CONSERVATION AGRICULTURE

Conservation agriculture [CA] can be defined by a
statement given by the Food and Agricultural Organization of
the United Nations as “a concept for resource-saving agricultural
crop production that strives to achieve acceptable profits together
with high and sustained production levels while concurrently
conserving the environment” (FAO 2007).
Agriculture according to the New Standard Encyclopaedia is
“one of the most important sectors in the economies of most
nations” (New Standard 1992). At the same time conservation is
the use of resources in a manner that safely maintains a resource
that can be used by humans. Conservation has become critical on
the fact that the world population has increased over the years and
more food needs to be produced every year (New Standard 1992).
Sometimes referred to as "agricultural environmental
management", conservation agriculture may be sanctioned and
funded through conservation programs promulgated through
agricultural legislation, such as the U.S. Farm Bill.

Conservation agriculture has emerged as an alternative to

conventional agriculture as a result of losses in soil productivity due
to soil degradation (e.g. erosion and compaction). Conservation
agriculture aims to reduce soil degradation through several
practices that minimize the alteration of soil composition and
structure and any effects upon natural biodiversity. In general,
Conservation agriculture includes any practice that reduces,
changes or eliminates soil tillage and avoids the burning of residue
in order to maintain adequate surface cover throughout the year
(ECAF, 2001). In contrast, conventional forms of agriculture
regularly use ploughs to enable a deep tilling of the soil (FAO,
2001). The line between conventional and Conservation agriculture
often blurs as conventional agriculture utilizes many practices
typical of Conservation agriculture , such as minimum or no-tillage.
Hence, the differentiating feature of Conservation agriculture and
conventional agriculture is the mind-set of the farmer. The
conventional farmer believes that tilling the soil will provide benefits
to the farm and would increase tillage if economically possible. On
the other hand, the conservation farmer questions the necessity of
tillage in the first place and feels uncomfortable when tillage occurs.

Conservation agriculture maintains a permanent or semi-

permanent organic soil cover consisting of a growing crop or a
 16

dead mulch. The function of the organic cover is to physically

protect the soil from sun, rain and wind and to feed soil biota.
Eventually, the soil micro-organisms and soil fauna will take over
the tillage function and soil nutrient balancing, thereby maintaining
the soil's capacity for self-recuperation. Residue-based zero tillage
with direct seeding is perhaps the best example of conservation
agriculture , since it avoids the disturbance caused by mechanical
tillage. A varied crop rotation is also important to avoid disease and
pest problems. The last two decades have seen the perfecting of
the technologies associated with minimum or no-tillage agriculture
and their adaptation for nearly all farm sizes, soil and crop types
and climate zones.

Some examples of Conservation agriculture techniques

include:

1. Direct sowing/direct drilling/no-tillage: The soil remains

undisturbed from harvest to planting except for nutrient injection.
Planting or drilling takes place in a narrow seedbed or slot
created by coulters, row cleaners, disk openers, in-row chisels
or roto-tillers. Weed control is primarily by herbicides with little
environmental impact. Cultivation is a possibility for emergency
weed control. This strategy is the best option for annual crops.

2. Ridge-till: The soil remains undisturbed from harvest to planting

except for nutrient injection. Planting takes place in a seedbed
prepared on ridges with sweeps, disk openers, coulters, or row
cleaners. Residue is left on the surface between ridges. Weed
control is by herbicides and/or cultivation. Ridges are rebuilt
during cultivation.

3. Mulch till/reduced tillage/minimum tillage: The soil is

disturbed prior to planting. Tillage tools such as chisels, field
cultivators, disks, sweeps or blades are used. Weed control is
by herbicides and/or cultivation. In non-inversion tillage, soil is
disturbed (but not inverted) immediately after harvest to partially
incorporate crop residues and promote weed seed germination
to provide soil cover during the intercrop period. These weeds
are later chemically destroyed (using herbicides) and
incorporated at sowing, in one pass, with non-inversion drills.

4. Cover crops: Sowing of appropriate species, or growing

spontaneous vegetation, in between rows of trees, or in the
period of time in between successive annual crops, as a
 17

measure to prevent soil erosion and to control weeds. Cover-

crop management generally utilizes herbicides with a minimum
environmental impact.

How can conservation agriculture contribute to Sustainable

Agriculture & Rural Development (SARD)
In addition to fostering environmental sustainability through
soil and water conservation, conservation agriculture can contribute
to the social and economic pillars of SARD through:
- reducing the workload and time spent for agricultural production
therefore enabling livelihood diversification and business
development and freeing time for other activities such as education,
family care, community development and political empowerment.
- stabilizing crop yields, especially through reducing drought
sensitivity and dependence upon price-fluctuating purchased
fertilizer inputs.
- increasing production and agricultural earnings.
- enhancing crop biodiversity and diversifying food intakes.
- fostering the development of secure livelihoods for other rural
actors such as rural artisans and small entrepreneurs.
Key Principles
The Food and Agricultural Organization of the United
Nations (FAO) has determined that conservation agriculture has
three key principles that producers (farmers) can proceed through
in the process of conservation agriculture . These three principles
outline what conservationists and producers believe can be done to
conserve what we use for a longer period of time.
The first key principle in Conservation agriculture is
practicing minimum mechanical soil disturbance which is
essential to maintaining minerals within the soil, stopping
erosion, and preventing water loss from occurring within the
soil. In the past agriculture has looked at soil tillage as a main
process in the introduction of new crops to an area. It was believed
that tilling the soil would increase fertility within the soil through
mineralization that takes place in the soil. Also tilling of soil can
cause severe erosion and crusting which will lead to a decrease in
soil fertility. Today tillage is seen as a way as destroying organic
matter that can be provided within the soil cover. No-till farming has
caught on as a process that can save soils organic levels for a
longer period and still allow the soil to be productive for longer
 18

periods .Also with the process of tilling cause the time and labour
for producing that crop.
When no-till practices are followed, the producer sees a
reduction in production cost for a certain crop. Tillage of the ground
required more money due got fuel for tractors or feed for the
animals pulling the plough. The producer sees a reduction in labour
because he or she does not have to be in the fields as long as a
conventional farmer.
The second key principle in Conservation agriculture is
much like the first in dealing with protecting the soil. The
principle of managing the top soil to create a permanent organic
soil cover can allow for growth of organisms within the soil
structure. This growth will break down the mulch that is left on the
soil surface. The breaking down of this mulch will produce a high
organic matter level which will act as a fertilizer for the soil surface.
If the practices of conservation agriculture were being done for
many years and enough organic matter was being built up at the
surface, then a layer of mulch would start to form. This layer helps
prevent soil erosion from taking place and ruining the soils profile or
layout.
In the article “The role of conservation agriculture and
sustainable agriculture” the layer of mulch that is built up over time
will start to become like a buffer zone between soil and mulch that
will help reduce wind and water erosion. With this, comes the
protection of a soils surface when rain is falling to the ground.
Rainfall on land that is not protected by a layer of mulch is left open
to the elements. But when soils are covered under a layer of mulch,
the ground is protected so that the ground is not directly impacted
by rainfall. This type of ground cover also helps keep the
temperature and moisture levels of the soil at a higher level rather
than if it was tilled every year.
The third principle is the practice of crop rotation with
more than two species. According to an article published in
the Physiological Transactions of the Royal Society called “The role
of conservation agriculture and sustainable agriculture,” crop
rotation can be used best as a disease control against other
preferred crops. This process will not allow pests such as insects
and weeds to be set into a rotation with specific crops. Rotational
crops will act as a natural insecticide and herbicide against specific
crops. Not allowing insects or weeds to establish a pattern will help
to eliminate problems with yield reduction and infestations within
 19

fields. Crop rotation can also help build up a soils infrastructure.

Establishing crops in a rotation allows for an extensive build up of
rooting zones which will allow for better water infiltration.
The breakdown of organic molecules in the soil into
phosphates, nitrates and all the other "ates" are then in a form
which plants can use. Ploughing increases the amount of oxygen in
the soil and increases the aerobic processes, hastening the
breakdown of organic material. Thus more nutrients are available
for the next crop but, at the same time, the soil is depleted more
quickly of its nutrient reserves.
Examples
In conservation agriculture there are many examples that
can be looked towards as a way of farming but at the same time
conserving. These practices that are done now are known well by
most producers. The process of no-till is one that follows the first
principle of conservation agriculture, with doing minimal mechanical
soil disturbance. No-till also brings other benefits to the producer.
According to the FAO tillage is one of the most “energy consuming”
processes that can be done: It takes a lot of labour, time, and fuel
to till. Producers can save 30% to 40% of time and labour by
practicing the no-till process.
Besides conserving the soil, there are other examples of
how conservation agriculture is used. According to an article
in Science called “Farming and the Fate of Wild Nature” there are
two more kinds of conservation agriculture . The practice of wildlife-
friendly farming and land sparing are ideas for producers who are
looking to be more conservative towards biodiversity.
Wildlife-friendly farming is a practice of setting aside land
that will not be developed by the producer (farmer). This land will
be set aside so that biodiversity has a chance to establish itself in
areas with agricultural fields. At the same time, the producer is
attempting to lower the amount of fertilizer and pesticides used on
the fields so that organisms and microbial activity have a chance to
establish themselves in the soil and habitat. But as in all systems,
not all can be perfect. To create a habitat suitable for biodiversity
something has to be reduced, and as in this case for agriculture
farmers, yields can be reduced. This is where the second idea of
land sparing can be looked on as an alternative.
Land sparing is another way that producer and
conservationist can be on the same page. Land sparing advocates
 20

that the land that is being used for agricultural purposes continue to
produce food and products but at an increase in yield. With an
increase in yield on all land that is in use, other land can be set
aside for conservation and production for biodiversity. Land in
agriculture stays in production but would have to increase its yield
potential to keep up with demand. Land that is not being put into
agriculture would be used for conserving biodiversity.
Benefits
In the field of conservation agriculture there are many
benefits that both the producer and conservationist can obtain.
On the side of the conservationist, conservation agriculture
can be seen as beneficial because there is an effort to conserve
what people use every day. Since agriculture is one of the most
destructive forces against biodiversity, Conservation agriculture
can change the way humans produce food and energy. With
conservation come environmental benefits of Conservation
agriculture . These benefits include less erosion possibilities, better
water conservation, improvement in air quality due to less emission
being produced, and a chance for larger biodiversity in a given
area.
On the side of the producer and/or farmer, Conservation
agriculture can eventually do all that is done in conventional
agriculture, and it can conserve better than conventional
agriculture. Conservation agriculture according to Theodor
Friedrich, who is a specialist in Conservation agriculture , believes
“Farmers like it because it gives them a means of conserving,
improving and making more efficient use of their natural resources".
Producers will find that the benefits of Conservation agriculture will
come later rather than sooner. Since Conservation agriculture
takes time to build up enough organic matter and have soils
become their own fertilizer, the process does not start to work over
night. But if producers make it through the first few years of
production, results will start to become more satisfactory.
Conservation agriculture is shown to have even higher yields
and higher outputs than conventional agriculture once Conservation
agriculture has been establish over long periods. Also, a producer
has the benefit of knowing that the soil in which his crops are grown
is a renewable resource. According to New Standard
Encyclopaedia, soils are a renewable resource, which means that
whatever is taken out of the soil can be put back over time. As long
as good soil upkeep is done, the soil will continue to renew itself.
 21

This could be very beneficial to a producer who is practicing

Conservation agriculture Conservation agriculture and is looking to
keep soils at a productive level for an extended time.
The farmer and/or producer can use this same land in
another way when crops have been harvested. The introduction of
grazing livestock to a field that once held crops can be beneficial for
the producer and also the field itself. Livestock can be used as a
natural fertilizer for a producer’s field which will then be beneficial
for the producer the next year when crops are planted once again.
The practice of grazing livestock in a Conservation agriculture
helps the farmer who raises crops on that field and the farmer who
raises the livestock that graze off that field. Livestock produce
compost or manures which are a great help in producing soil
fertility. With the practices of Conservation agriculture and grazing
livestock on a field for many years can allow for better yields in the
following years as long a practices are continued to be followed.
The FAO believes that there are three major benefits from
Conservation agriculture .

x Within fields that are controlled by Conservation agriculture the

producer will see an increase in organic matter.
x The second benefit is an increase in water conservation due
layer of organic matter and ground cover to help eliminate
transportation and access runoff.
x The third benefit is an improvement of soil structure and rooting
zone
Future Development
As in any other businesses, producers and conservationist
are always looking towards the future. In this case Conservation
agriculture is a very important process to be looked at for future
generations to have a chance to produce. There are many
organizations that have been created to help educate and inform
producers and conservationist in the world of Conservation
agriculture. These organizations can help to inform, conduct
research and buy land in order to preserve animals and plants.
Another way in which Conservation agriculture is looking to
the future is through prevention. According to the European Journal
of Agronomy producers are looking for ways to reduce leaching
problems within their fields. These producers are using the same
principles within Conservation agriculture , in that they are leaving
cover over their fields in order to save fields from erosion and
 22

leaching of chemicals out of fields. Processes and studies like this

are allowing for a better understanding on how to conserve on what
we are using and finding ways to put back something that may
have been lost before.
Within the same journal article comes another way in which
producers and conservationist are looking towards the future.
Circulation of plant nutrients can be a vital part to conserving for the
future. An example of this would be the use of animal manure. This
process has been done for quite some time now, but the future is
looking towards how to handle and conserve the nutrients within
manure for a longer time. But besides just animal waste also food
and urbanized waste are being looked towards as a way to use
growth within Conservation agriculture . Turning these products
from waste to being used to grow crops and improve yields is
something that would be beneficial for conservationists and
producers.
Problems
As much as conservation agriculture can benefit the world,
there are some problems that come with Conservation agriculture .
There are many reasons why conservation agriculture cannot
always be a win-win situation.
There are not enough people who can financially turn from a
conventional farmer to a conservationist. Within the process of
Conservation agriculture comes time; when a producer first starts to
process as a conservationist the results can be a financial loss to
that certain producer. Since Conservation agriculture is based upon
establishing an organic layer and producing its own fertilizer, then
this may take time to produce that layer. It can be many years
before a producer will start to see better yields than he/she has had
previously before. Another financial undertaking is purchasing of
new equipment. When starting Conservation agriculture a producer
may have to buy new planters or drills in order to produce
effectively, also comes the responsibility of harvesting a crop.
These financial tasks are ones that may impact whether or not a
producer would want to conserve or not.
With the struggle to adapt comes the struggle to make CA
grow across the globe. Conservation agriculture has not spread as
quickly as most conservationists would like. The reasons for this is
because there is not enough pressure for producers in places such
as North America to change their way of living to a more
conservative outlook. But in the tropics there is more of a pressure
 23

to change to conservation areas because of the limited resources

that are available. Places like Europe have also started to catch
onto the ideas and principles of Conservation agriculture , but still
nothing much is being done to change due to their being a minimal
amount of pressure for people to change their ways of living.
With Conservation agriculture comes the idea of producing
enough food. With cutting back in fertilizer, not tilling of ground and
among other processes comes the responsibility to feed the world.
According to the Population Reference Bureau, at the 2000 census
count of the world population there were around 6.08 billion people
on earth. By 2050 there will be an estimated 9.1 billion people. With
this increase comes the responsibility for producers to increase
food supply with the same or even less amounts of land to do it on.
With Conservation agriculture problems arise in the fact that if
farms do not produce as much as conventional ways, then this
leaves the world with less food for more people.
A conceptual framework for studying conservation agriculture
adoption
 24

2. Urban Impact Model – The Urban-Industrial Impact Model

Key concepts:

1. Agriculture must change input combinations.

2. Agriculture must respond to demand changes

The Agricultural Growth Process

x Adopting new inputs; technique

x Gaining new information in inputs
x Learning about market demands

Works Better Near Urban Areas

x Economic information more complete
x Less uncertainty

The conservation model stands in sharp contrast to models in

which geographic differences in the level and rate of economic
development are primarily associated with urban-industrial
development. Initially, the urban-industrial impact model was
formulated (by von Thunen) to explain geographic variations in the
intensity of farming systems and in the productivity of labour in an
industrializing societies Later it was extended by T. W. Schultz to
explain the more effective performance of the factor and product
markets linking the agricultural and non-agricultural sectors in
regions characterized by rapid urban-industrial development. The
model has been tested extensively in the United States, but has
received only limited attention in the less developed world.

Hypotheses

1. Economic development occurs in a specific locational matrix.

2. These locational matrices (growth centres) are primarily

industrial-urban.

3. The existing economic organization works best at or near the

centre of a particular matrix of economic development, and it also
works best in those parts of agriculture which are situated
favourably in relation to such a centre; and it works less
satisfactorily in those parts of agriculture which are situated at the
periphery of such a matrix.
 25

3. The Diffusion Model

The diffusion of better husbandry practices was a major

source of productivity growth even in pre-modern societies. The
diffusion approach to agricultural development rests on the
empirical observation of substantial differences in land and labour
productivity among farmers and regions.

The route to agricultural development, in this view, is through

more effective dissemination of technical knowledge and a
narrowing of the dispersion of productivity among farmers and
among regions. The diffusion model of agricultural development
has provided the major intellectual foundation for much of the
research and extension effort in farm management and production
economics since the emergence, in the last half of the nineteenth
century, of agricultural economics as a separate sub-discipline
linking the agricultural sciences and economics. The developments
that led to the establishment of active programs of farm
management research and extension occurred at a time when
experiment-station research was making only a modest contribution
to agricultural productivity growth. A further contribution to the
effective diffusion of known technology was provided by the
research of rural sociologists on the diffusion process. Models were
developed emphasizing the relationship between diffusion rates
and the personality characteristics and educational
accomplishments of farm operators. The insights into the dynamics
of the diffusion process, when coupled with the observation of wide
agricultural productivity gaps among developed and less developed
countries and a presumption of inefficient resource allocation
among "irrational tradition-bound" peasants, produced an extension
bias in the choice of agricultural development strategy during the
1950s. The limitations of the diffusion model as a foundation for the
design of agricultural development policies became increasingly
apparent as technical assistance and community development
programs, based explicitly or implicitly on the diffusion model, failed
to generate either rapid modernization of traditional farms or rapid
growth in agricultural output.

4. The High Payoff Input Model

The inadequacy of policies based on the conservation,

urban-industrial impact, and diffusion models led, in the 1960s, to a
new perspective that the key to transforming a traditional
agricultural sector into a productive source of economic growth is
 26

investment designed to make modern high payoff inputs available

to farmers in poor countries. Peasants, in traditional agricultural
systems, were viewed as rational, efficient resource allocators.
They remained poor because, in most poor countries, there were
only limited technical and economic opportunities to which they
could respond.

The new, high payoff inputs, as identified by Schultz , can be

classified into three categories:

(a) the capacity of public and private sector research institutions to

produce new technical knowledge;

(b) the capacity of the industrial sector to develop, produce, and

market new technical inputs; and

(c) the capacity of farmers to acquire new knowledge and use new
inputs effectively.

The enthusiasm with which the high payoff input model has
been accepted and translated into an economic doctrine has been
due in substantial part to the Success of efforts to develop new
high-productivity grain varieties suitable for the tropics. New high-
yielding wheat and corn varieties were developed in Mexico,
beginning in the 1950s, and new high-yielding rice varieties in the
Philippines in the 1960s. These varieties were highly responsive to
industrial inputs, such as fertilizer and other chemicals, and to more
effective soil and water management. The high returns associated
with the adoption of the new varieties and the associated technical
inputs and management practices have led to rapid diffusion of the
new varieties among farmers in several countries in Asia, Africa,
and Latin America. The impact on farm production and income has
been sufficiently dramatic to be heralded as a "green revolution."
The significance of the high payoff input model is that policies
based on the model appear capable of generating a sufficiently
high rate of agricultural growth to provide a basis for overall
economic development consistent with modern population and
income growth requirements.

As interpreted generally, the model is sufficiently inclusive to

embrace the central concepts of the conservation, urban-industrial
impact, and diffusion models of agricultural development. The
unique implications of the model for agricultural development policy
are the emphasis placed on accelerating the process of
 27

development and propagation of new inputs or techniques through

public investment in scientific research and education.

The high payoff input model, as developed by Schultz,

remains incomplete as a theory of agricultural development,
however. Typically, education and research are public goods not
traded through the market place. The mechanism by which
resources are allocated among education, research, and other
alternative public and private sector economic activities is not fully
incorporated into the Schultz model. The model does treat
investment in research as the source of new high-payoff
techniques. It does not explain how economic conditions induce the
development and adaption of an efficient set of technologies for a
particular society. Nor does it attempt to specify the processes by
which factor and product price relationships induce investment in
research in a particular direction.

Schultz Thesis
1. The peasant is a highly rational and economic being.
2. The peasant efficiently allocates available resources.
GIVEN:
• Context in which peasants live and produce
• Resources, objectives, knowledge
High Pay-Offs Inputs
• Enhance current resources
• Come from outside the agricultural sector
• Accompanied by education
• In form peasants can use
• At price peasants can afford
Policies Implied by the High Pay-off Input Model
1. INVEST IN RESEARCH TO PRODUCE NEW TECHNOLOGY
BUT, technology based on local conditions.
2. INVEST IN CAPACITY OF LOCAL INDUSTRY
To develop, produce and supply the new inputs.
3. INVEST IN CAPACITY OF FARMERS to be able to use the
modern inputs
-- General basic education
-- Adult education
-- Extension system
 28

1.4 THE IMPORTANCE OF AGRICULTURE IN

INDIAN ECONOMY

Agriculture is the dominant sector of Indian economy, which

determines the growth and sustainability. About 65 per cent of the
population still relies on agriculture for employment and livelihood.
India is the first in the world in the production of milk, pulses, jute
and jute-like fibres; second in rice, wheat, sugarcane, groundnut,
vegetables, fruits and cotton production; and is a leading producer
of spices and plantation crops as well as livestock, fisheries and
poultry.

Agriculture, for decades, had been associated with the

production of basic food crops. Agriculture and farming were
synonymous so long as farming was not commercialized. But as
the process of economic development accelerated, many more
other occupations allied to farming came to be recognized as a part
of agriculture.

At present, agriculture besides farming includes forestry, fruit

cultivation, dairy, poultry, mushroom, bee keeping, arbitrary, etc.
Today, marketing, processing, distribution of agricultural products
etc. are all accepted as a part of modern agriculture. Thus,
agriculture may be defined as the production, processing,
marketing and distribution of crops and livestock products.
According to Webster's Dictionary, "agriculture is the art or science
of production of crops and livestock on farm."

Agriculture plays a crucial role in the life of an economy. It is

the backbone of our economic system. Agriculture not only
provides food and raw material but also employment opportunities
to a very large proportion of population. The following facts clearly
highlight the importance of agriculture in this country.

1. Source of Livelihood:

In India the main occupation of our working population is

agriculture. About 70 per cent of our population is directly engaged
in agriculture. In advanced countries, this ratio is very small being 5
per cent in U.K., 4 per cent in USA., 16 per cent in Australia, 14 per
cent in France, 21 per cent in Japan and 32 per cent in USSR. This
high proportion in agriculture is due to the fact that the non-
agricultural activities have not been developed to absorb the rapidly
growing population.
 29

2. Contribution to National Income:

Agriculture is the premier source of our national income.

According to National Income Committee and C.S.O., in 1960-61,
52 per cent of national income was contributed by agriculture and
allied occupations. In 1976-77, this sector alone contributed 42.2
per cent while in 1981-82, its contribution was to the tune of 41.8
per cent. In 2001-02, it contributed around 32.4 per cent of national
income. This was further reduced to 28 per cent in 1999-2000.
Contrary to this, the proportion of agriculture in U.K. is only 3.1, in
USA it is 3 percent, 2.5 per cent in Canada, 6 per cent in Japan, 7.6
per cent in Australia. The mere conclusion of all this is that more
developed a country the smaller is the contribution of agriculture in
national output.

3. Supply of Food and Fodder:

Agriculture sector also provides fodder for livestock (35.33

crores). Cow and buffalo provide protective food in the form of milk
and they also provide draught power for farm operations. Moreover,
it also meets the food requirements of the people. Import of food
grains has been very small in recent years, rather export avenues
are being looked for.

4. Importance in International Trade:

It is the agricultural sector that feeds country's trade.

Agricultural products like tea, sugar, rice, tobacco, spices etc.
constitute the main items of exports of India. If the development
process of agriculture is smooth, export increases and imports are
reduced considerably. Thus, it helps to reduce the adverse balance
of payments and save our foreign exchange. This amount can be
well utilized to import other necessary inputs, raw-material,
machinery and other infra-structure which is otherwise useful for
the promotion of economic development of the country.

5. Marketable Surplus:

The development of agricultural sector leads to marketable

surplus. As country develops more and more people are to be
engaged in mining, manufacturing and other non- agricultural
sector. All these people depend upon the food production which
they can meet from the marketable surplus. As agricultural
development takes place, output increases and marketable surplus
expands. This can be sold to other countries. Here, it is worth
 30

mentioning that the development of Japan and other countries were

made possible by the surplus of agriculture. There is no reason why
this could not be done in our own case.

6. Source of Raw Material:

Agriculture has been the source of raw materials to the

leading industries like cotton and jute textiles, sugar, tobacco,
edible and non-edible oils etc. All these depend directly on
agriculture. Apart from this, many others like processing of fruits
and vegetables, dal milling, rice husking, gur making also depend
on agriculture for their raw material. According to United Nations
Survey, the industries with raw material of agricultural origin
accounted for 50 per cent of the value added and 64 per cent of all
jobs in the industrial sector.

7. Importance in Transport:

Agriculture is the main support for railways and roadways

which transport bulk of agricultural produce from farm to the
mandies and factories. Internal trade is mostly in agricultural
products. Besides, the finance of the govt, also, to the large extent,
depends upon the prosperity of agricultural sector.

8. Contribution to Foreign Exchange Resources:

Agricultural sector constitutes an important place in the

country's export trade. According to an estimate, agricultural
commodities like jute, tobacco, oilseeds, spices, raw cotton, tea
and coffee accounted for about 18 per cent of the total value of
exports in India. This shows that agriculture products still continue
to be significant source of earning foreign exchange.

9. Vast Employment Opportunities:

The agricultural sector is significant as it provides greater

employment opportunities in the construction of irrigation projects,
drainage system and other such activities. With the fast growing
population and high incidence of unemployment and disguised
unemployment in backward countries, it is only agriculture sector
which provides more employment chances to the labour force. In
this way, significance of agriculture emerges more and more.
 31

10. Overall Economic Development:

In the course of economic development, agriculture employs

majority of people. This means raising the level of the national
income and standard of living of the common man. The rapid rate
of growth in agriculture sector gives progressive outlook and further
motivation for development. As a result, it helps to create proper
atmosphere for general economic development of the economy.
Thus, economic development depends on the rate at which
agriculture grows.

11. Source of Saving:

Improvement in agriculture can go a long way in increasing

savings. It is seen that rich farmers have started saving especially
after green revolution in the country.

This surplus amount can be invested in agriculture sector for

further; development of the sector. Saving potentials are large in
agriculture sector which can be properly tapped for the
development of the country.

12. Source of Government Income:

In India, many state governments get sizeable revenue from

the agriculture sector. Land revenue, agricultural income tax,
irrigation tax and some other types of taxes are being levied on
agriculture by the state governments. Moreover, considerably
revenue is earned by way of excise duty and export duty on
agricultural products. Raj committee on Agricultural Taxation has
suggested imposition of taxation on agricultural income for raising
revenue.

13. Basis of Economic Development:

Prof. Nurkse has laid sufficient emphasis on the

improvement of agriculture for a balanced growth of an economy.
The development of agriculture provides necessary capital for the
development of other sectors like industry, transport and foreign
trade. In fact, a balanced development of agriculture and industry is
the need of the day.

From the above, explanation it may be concluded that

agriculture occupies an important place in the development of an
economy. It is in fact, a pre-condition for economic upliftment.
 32

Present Scenario of Indian Agriculture

In the past few years, Indian agriculture has done

remarkably well in terms of output growth. The 11th Five Year Plan
(2007-12) witnessed an average annual growth of 3.6 per cent in
the gross domestic product (GDP) from agriculture and allied
sector. The growth target for agriculture in the 12th Five Year Plan
is estimated to be 4 per cent. Indian agriculture is benefitting huge
from rising external demand and the sector's wider participation in
the global economy.

In order to boost investments in the sector, the Government

of India has allowed 100 per cent foreign direct investment (FDI)
under automatic route in storage and warehousing including cold
storages. The government has also allowed 100 per cent FDI under
the automatic route for the development of seeds.

Department of Agriculture and Cooperation under the

Ministry of Agriculture is the nodal organisation responsible for
development of the agriculture sector in India. The organisation is
responsible for formulation and implementation of national policies
and programmes aimed at achieving rapid agricultural growth
through optimum utilisation of land, water, soil and plant resources
of the country.

Market Dynamics

Backed by policy impetus by the Government of India, the

country ranks 10th in global agricultural and food exports, as per
Economic Survey 2012-13. Agriculture accounts for about 10 per
cent of the total export earnings and provides raw material to a
large number of industries. “Exports of agricultural products are
expected to cross US$ 22 billion mark by 2014 and account for 5
per cent of the world's agriculture exports,” according to the
Agricultural and Processed Food Products Export Development
Authority (APEDA).

Total exports of Indian agriculture and processed food

products from April 2012 to February 2013 stood at Rs
11,254,275.51 lakh (US$ 20.74 billion) as compared to Rs
7,186,784.33 lakh (US$ 13.24 billion) during the same period last
year, according to the data provided by APEDA. As of March 1,
2013, India has wheat stocks of around 27.1 million tonnes (MT),
as against a requirement of mere 7 MT, while total food grains
 33

stocks in the central pool (including rice) is estimated to be almost

63 MT, as against a requirement of 21.2 MT.

Wheat exports from India are expected to grow by 23 per

cent to 8 MT in the financial year 2013-14, on the back of strong
global prices and surplus domestic supply. Exports of rice are also
expected to cross 10 MT from 7.3 MT during previous year due to
robust demand from West Asia, Africa and South-East Asian
countries.

Major Developments and Investments

The total planned expenditure for the Ministry of Agriculture
has increased considerably to Rs 27,049 crore (US$ 4.98 billion) in
the Union Budget 2013-14. The outlay is 22 per cent over the
revised estimates of the year 2012-13. Further, the amount of Rs
1,000 crore (US$ 184.32 million) has been allocated to continue
support to the new green revolution in Eastern States like Assam,
Bihar, Chhattisgarh and West Bengal to increase the rice
production. An outlay of Rs 500 crore (US$ 92.17 million) is also
proposed for starting a programme of crop diversification that would
promote technological innovation and encourage farmers to choose
crop alternatives in the original green revolution States.

Under the Rashtriya Krishi Vikas Yojana, an outlay of Rs

9954 crore (US$ 1.83 billion) and Rs 2250 crore (US$ 414.64
million) have been proposed for mobilizing higher investment in
agriculture and the National Food Security Mission respectively. A
memorandum of understanding (MoU) has been signed between
Indian Council of Agricultural Research (ICAR) and Ramakrishna
Mission Vivekananda University (RKMVU) for establishment of
632nd Krishi Vigyan Kendra (KVK) in South 24 Parganas district,
West Bengal. The ICAR and the World Bank have been
implementing a joint National Agricultural Innovation Project (NAIP)
in the country to accelerate the collaborative development and
application of agricultural innovations. Till date, an amount of Rs
727.93 crore (US$ 134.13 million) has been released by the World
Bank for the project.

The Chennai based Indian Overseas Bank (IOB) keeping its

thrust on agricultural lending under priority sector area has
proposed to open 15 special agricultural credit branches in
Karnataka and Maharashtra. The bank intends to lend about Rs
500 crore (US$ 92.17 million) through these branches.
 34

Government Initiatives

Some of the major initiatives taken by the Government of India are:

1. The Union cabinet has approved the proposal of the department

of agricultural research and education under the Ministry of
Agriculture for the establishment of the National Institute of
Biotic Stress Management (NIBSM) at Raipur, Chhattisgarh
during the 12th Five Year Plan at an estimated cost of Rs
121.10 crore (US$ 22.31 million). The institute will address the
impact of biotic stress and harness potentials of emerging tools
of biotechnology in agriculture

2. To provide relief to small and marginal farmers especially in

drought prone and ecologically-stressed regions, the allocation
for the Integrated Watershed Programme has been increased to
Rs 5387 crore (US$ 992.79 million) from Rs 3050 crore (US$
562.12 million)

3. The National Livestock Mission will be launched in 2013-14 to

attract investment and to enhance productivity of livestock,
taking into account local agro-climatic conditions. Rs 307 crore
(US$ 56.58 million) have been provided for the Mission

4. In addition, Government has substantially improved the

availability of farm credit and increased minimum Support Price
to improve investment in the farm sector. The annual agriculture
credit target for the financial year 2013-14 has been fixed at Rs
7,00,000 crore (US$ 128.98 billion) against the target of Rs
5,75,000 crore (US$ 105.95 billion) in 2012-13

5. The Government of India plans to set up a Regional Rural Bank

(RRB) Credit Refinance Fund with a capital of US$ 2.1 billion to
disburse short term crop loans to small and marginal farmers

Road Ahead

The Indian agriculture sector is now moving towards another

green revolution. The transformations in the sector are being
induced by factors like newfound interest of the organised sector,
new and improved technologies, mechanised farming, rapid growth
of contract farming, easy credit facilities, etc.
 35

The Ministry of Agriculture is promoting a new strategy for

farm mechanization through its various schemes and programmes.
A dedicated Sub-Mission on Agricultural Mechanization has been
proposed for the 12th Plan which includes custom-hiring facilities for
agricultural machinery as one of its major components. In the
th
12 Five Year Plan, the Government intends to increase the share
of expenditure on agricultural research and development (R&D).
The Government will focus on strengthening the Agricultural
Technology Management Agencies (ATMA) concept through
improved integration with Krishi Vikas Kendras (KVKs).

1.5 EQUITY IN AGRICULTURE (INTER-REGIONAL

AND INTRA-REGIONAL)

Farm equity refers to the net worth of the farm sector’s

assets (i.e., farmland, machinery, equipment, facilities, crop
and livestock inventories) against which there are no debt.
This represents all farm proprietors’ residual claims to farm assets.
Increases in farm equity in the late 1970s became increasingly
important for most agricultural producers as a source of
additional collateral against which to obtain credit for operating and
expansion purposes. The level of farm equity ranges widely from
one farm to another. The overall debt-asset ratio is a measure of
the farm sector’s financial condition or solvency.

A) ARE DISPARITIES IN INDIAN AGRICULTURE GROWING?

Indian agriculture is known for its diversity which is mainly

the result of variations in resource endowments, climate,
topography and historical, institutional and socio---economic
factors. Policies followed in the country and nature of that became
available over time has reinforced some of the variations resulting
from natural factors. As a consequence, production of agriculture
sector has followed an uneven path & large gaps have developed
in productivity between different geographic locations across the
country. These regional variations have remained a subject of
concern for couple of reasons. Large variation in productivity leads
to regional disparities and is generally considered as discriminatory.
It is against the democratic policy to leave some regions behind
other in making economic progress.

Identification of various levels of productivity helps to

analyze the reasons for variation in performance and in developing
 36

location specific strategies for future growth and development.

Variation in productivity also indicates scope to raise production
and attain growth.

Indian agriculture has witnessed tremendous changes during

the last 3 decades following the adoption of green revolution
technology during late 1960's. The green revolution technology was
initially adopted on a large scale in the regions well endowed with
irrigation. As this technology possessed vast potential for increase
in productivity, it led to impressive growth in agricultural output in
the regions where it was adopted. Because the spread of green
revolution technology was highly skewed in favour of certain states
and regions, this led to a high growth in agricultural output in
selected regions while the other regions suffered from stagnancy or
poor growth in agricultural output.

Consequently, the first decade following green revolution is

believed to have increased inter-state disparities in development
and incomes. During the decade of 1980's efforts were made to
spur agricultural growth in low productivity and stagnant states and
regions. For this, special drives were launched to diffuse improved
agricultural technology in hitherto under-developed states. New
crop varieties, technologies and enterprises were developed for
rain-fed, dry-land and other ecological settings to improve
agricultural productivity and income in such regions. Some studies
have observed that these efforts have borne fruits and agricultural
growth during the decade of 1990's has become broad based. It
has been demonstrated based on specific crops or group of crops
that agricultural growth has picked up in low productivity eastern
states. Such indications have been used to create an impression
that agriculturally underdeveloped states have progressed at a fast
rate during 1980's and early 1990's which is further interpreted to
infer that regional differences in agriculture income and productivity
across states have narrowed down after initial phase of green
revolution.

Though there has been some improvement in recent years,

the conditions in agriculture have not changed much and are
almost the same that they were about three decades back. The rate
of soil exhaustion which takes place in the normal process of
agriculture is not being replenished through natural and artificial
methods. And there has been a fall or decline from the low of
fertility or productivity where it was believed to have stabilized. The
 37

fear of decline is greater now and is likely to be still more in future

because in increasing production quickly, the possibilities are there
of exploiting the land resources ignoring the ideas of natural
balance and thus damaging or impairing its inherent productive
capacity.

It is an attempt to examine the inter-state variations in

agricultural productivity. However, conclusions about inter-state
disparities in agricultural development based on single crop, group
of crops or even crop sector can be misleading. There has been
progressive diversification towards livestock production within
agricultural sector which implies that exclusion of livestock sub
sector while evaluating growth performance is not justifiable. Thus,
inter-state performance of agricultural sector should be analyzed
based on state domestic product from the total agriculture.

Thus, inter-state performance of agricultural sector should

be analyzed based on state domestic product from the total
agriculture. It is interesting to see how agricultural growth has
contributed to growing gap between rich and poor states in the new
economic era i.e. after 1990-91. Accordingly, we have examined
the trend in agricultural productivity, output growth and regional
divergence in per rural person and per hectare Net state Domestic
Product (NSDP) from agriculture during the period 1990-91 to
2009-10. Inter-state divergence was measured using simple
measure of coefficient of variation (CV).

B) Variations in Agriculture productivity:

Agricultural productivity here is defined as net domestic

product from agriculture and allied activities at constant prices.
During the triennium ending 1990---93,Uttar Pradesh was at the top
of the ladder in respect of total Agricultural productivity. This was
followed by Maharashtra And Andhra Pradesh. On the other hand,
Goa was At the bottom of scale in respect of total agricultural
productivity. This Was followed by Nagaland, Meghalaya and
Manipur. All these states belong to the underdeveloped north
eastern region of India. Agricultural productivity was higher than
the national average (of Rs. 9255) in 10 States, viz., Andhra
Pradesh, Bihar, Gujarat, Karnataka; Madhya Pradesh;
Maharashtra; Rajasthan; Tamil Nadu; Uttar Pradesh and West
Bengal. Haryana was just close to the national average.
 38

During the triennium ending 2000---03, Uttar Pradesh was

again at the top of the ladder in respect total agricultural
productivity at the constant Prices. This was followed by
Maharashtra and Andhra Pradesh. On the other hand, Goa was at
the bottom of the Scale in respect of total agricultural productivity at
the constant Prices.

This was followed by Nagaland , Manipur and Meghalaya.

All these states are part Of underdeveloped north western region.
Total agricultural productivity at the constant Prices was higher than
the national average (of Rs. 15380) in 11 States, viz. ,West Bengal,
Punjab, Karnataka, Rajasthan, Madhya Pradesh, Tamil Nadu,
Bihar, Haryana, Gujarat, Orissa and Assam.

During the triennium ending 2007---10, Uttar Pradesh keep

hold of its top position in Respect of total agricultural productivity at
the constant Prices followed by Andhra Pradesh and Maharashtra.
On the other hand, Goa was at the bottom of the scale in Respect
of total agricultural productivity at the constant prices. This was
followed by Meghalaya, Nagaland, and Tripura. Total agricultural
productivity at the constant Prices was higher than the national
average (of Rs. 19749) in11 States, viz., West Bengal, Punjab,
Madhya Pradesh, Karnataka, Rajasthan, Tamil Nadu, Gujarat,
Haryana, Bihar, Orissa and Kerala.

From the above discussion, it was clear that Uttar Pradesh

keep hold of its top position throughout the study period.
Maharashtra has slipped its position from second to third during the
study period. Moreover, Jammu & Kashmir and Nagaland Had
deteriorated its relative position continuously from 17 to 18 to 19
and 21 to 22 To 23 respectively during the study period .Manipur
which had slipped its position From 19 to 24 during 1990---93
through 2001---03 had improved its relative position to sixteen by
the triennium ending 2007---10. Growth of Agricultural productivity
of the nation as a whole showed an acceleration Of 4.71 per cent
during the twenty years under review spanning from 1990---91
through 2009---2010. However, there is lot of variations in
productivity growth at the State level which varies from 8.9 per cent
in Nagaland to 2.7per cent in Tamil Nadu. Productivity growth was
than national average during the reference period in Andhra
Pradesh, Himachal Pradesh, Jammu & Kashmir; Meghalaya;
Tripura; West Bengal And Nagaland. Productivity growth was
 39

approaching to national average in Orissa. Furthermore, growth in

agricultural productivity during 1990’s was 6.54 per cent which
sharply declined to 3.01during 2000’s. Decline in growth of
agricultural productivity has been noticed in all the states of Indian
Union with the only exception Of Madhya Pradesh where
agricultural productivity had increased from 1.6 per cent During
1990’s to 6.2 per cent during 2000’s. Sharpest declined (80 per
cent and more) in productivity growth has been observed in Assam;
West Bengal and Manipur. Least decline (less than 20 percent) has
been noticed in Tamil Nadu and Orissa. Decline in the agricultural
productivity in Andhra Pradesh, Goa; Karnataka; Meghalaya;
Punjab; Rajasthan and Haryana varied between 40 to 60 per cent.

C) Agriculture Productivity and Growth

During the triennium ending 1990---93, Kerala was at the top
of the ladder in respect of agricultural productivity per hectare of
gross cropped area at the constant prices. This was followed by
Tamil Nadu and Manipur. On the other hand, Madhya Pradesh Was
at the bottom of scale in respect of per hectare agricultural
productivity at constant Prices followed by Rajasthan and Orissa.
Per hectare Agricultural productivity was higher than the national
average (of Rs. 13523) in 9 States, viz., Kerala; Tamil Nadu;
Manipur; Punjab; Assam; Goa; Haryana; Jammu & Kashmir and
Meghalaya.

During the triennium ending 2000---03, Nagaland was at the

top of the ladder followed by Jharkhand and Jammu & Kashmir. On
the other hand, Chhattisgarh was At the bottom of the scale
followed by Madhya Pradesh and Rajasthan. Per hectare
Agricultural productivity was higher than the national average (of
Rs.27506) in 14 States, viz., Bihar; Himachal Pradesh; Jammu &
Kashmir; Jharkhand; Kerala; Manipur; Meghalaya; Nagaland;
Punjab; Tamil Nadu; Tripura; Uttar Pradesh; Uttarakhand and
West Bengal. Haryana was at the level of national average.

During the triennium ending 2007---10, Tripura was at the

top of the ladder followed By Jammu & Kashmir and Jharkhand. On
the other hand, Rajasthan was at the bottom of the scale in respect
of per hectare agricultural productivity. This was followed by
Madhya Pradesh and Chhattisgarh. Per hectare agricultural
productivity Was higher than the national average of Rs. 33668 in
12 States ,viz., Andhra Pradesh; Himachal Pradesh; Jammu
 40

&Kashmir; Jharkhand; Kerala; Manipur; Meghalaya; Nagaland;

Punjab; Tamil Nadu; Tripura and West Bengal.

During the period of 1990---1991 to 1999---2000 the growth

rate of per hectare agricultural productivity in different states of
India at constant prices was found to be highest in Tripura at 10.4
per cent followed by Himachal Pradesh at 6.6 percent and Tripura
at 5.6 per cent. On the other hand, Maharashtra with (–) 0.3 per
cent was at the bottom of the scale of per hectare agricultural
productivity growth at constant prices. Maharashtra was followed by
Assam and Manipur. Per hectare agricultural productivity grow at
higher than the national average of 4.21percent only in four states,
namely, Andhra Pradesh; Himachal Pradesh; Jammu &Kashmir
and Nagaland.

During the year 2000---2001 to 2009---2010 the growth rate

of per hectare agricultural productivity in different states of India at
constant prices was highest in Tripura followed by Chhattisgarh and
Madhya Pradesh. On the other hand, Bihar was at the bottom of
the scale of growth rate of per hectare agricultural productivity
Followed by Nagaland; Uttar Pradesh and Uttarakhand. There were
four states where growth rate was higher than the national average
of 2.11 percent (these 4 States are Chhattisgarh; Tripura, Madhya
Pradesh and Orissa). During 1900’s, Bihar Was having highest
growth of per hectare agricultural productivity followed by Tripura
and Nagaland. On the other hand, Goa was at the bottom followed
by Madhya Pradesh and Tamil Nadu.

Furthermore, growth rates of per hectare agricultural has

deteriorated during 2000’s as compared to 1990’s in all the states
of Indian Union with the only exception of Madhya Pradesh where
per hectare agricultural productivity has grown at the rate of 5.07
per cent – slightly more than that of 1990’ sat 4.7 percent.
Moreover 11 states Have equal to or less than two percent growth
of per hectare agricultural productivity (four have negative growth
rates).

D) Variations in Per Rural Capita Productivity:

Inter-state variation in agricultural productivity was also
judged from the variation in NSDP from agriculture per rural person
(Table 3). This includes variation due to agricultural productivity and
land---man ratio. Rural per capita agricultural productivity for the
country as a whole was around Rs. 800 in the early 1990's. It
 41

increased at the rate of 1percent during 2001's and by 1.44 percent

per annum at the end of 2010 decade.

During the triennium ending 1990-1993 Punjab was at the

top of ladder in respect of Per capita productivity. Punjab was
followed by Haryana, Tamil Nadu and Karnataka. On other hand,
Bihar was at the bottom of scale followed by Tripura, Meghalaya
and Orissa. Moreover per capita productivity was more than the
national Average of Rs. 2711 in six states, namely, Haryana,
Karnataka, Madhya Pradesh, Punjab, Rajasthan and Tamil Nadu.

During the triennium ending 2000---2003 per capita

agricultural productivity was found to be highest again in Punjab
followed by Haryana, Nagaland and Himachal Pradesh. On the
other hand, per capita agricultural productivity was found to be
lowest in Jharkhand followed by Chhattisgarh, Bihar and Orissa.
There were 8 states Where per capita agricultural productivity was
more than national average of Rs. 4914. These states were Andhra
Pradesh, Haryana, Himachal Pradesh, Jammu & Kashmir,
Nagaland, Punjab and West Bengal. During the triennium ending
2007—2010 Punjab was again at the top of the ladder in respect of
per capita agricultural productivity. Punjab was followed by
Haryana, Nagaland and Himachal Pradesh. On the other hand
Bihar was at the bottom with respect to per capita agricultural
productivity followed by Jharkhand, Manipur and Kerala. There
were 7 states in India which were having per capita productivity
more than the national average of Rs. 5221, namely, Andhra
Pradesh, Haryana, Himachal Pradesh, Jammu & Kashmir,
Karnataka, Nagaland and Punjab.

During the period of 1990---1991 to 2009---2010, the growth

rate of per capita agricultural productivity in different states of India
at constant prices was found highest in Nagaland followed by
Himachal Pradesh. Andhra Pradesh, Jammu & Kashmir, Tripura
and Meghalaya were having around 4 percent in their per capita
Agricultural productivity. On the other hand, Tamil Nadu was at the
bottom of the Scale of per capita agricultural productivity. Seven
states were having higher growth Rate as compared to national
growth rate (Andhra Pradesh, Himachal Pradesh, Jammu &
Kashmir, Meghalaya, Nagaland, Orissa and West Bengal).

During the period of 1990---1991 to 1999---2000 the growth

rate of per capita agricultural productivity in different states of India
 42

at constant prices was found to be Highest in Nagaland followed by

Himachal Pradesh, Tripura and West Bengal. On the other hand,
Madhya Pradesh was at the bottom of the scale of per capita
agricultural productivity growth at constant prices. The growth rate
of per capita agricultural productivity was higher than the national
average of 10.5 percent only in two states, namely, Himachal
Pradesh and Nagaland.

During the year 2000---2001 to 2009---2010 the growth rate

of per capita agricultural Productivity in different states of India at
constant prices was highest in two states, namely, Chhattisgarh
and Madhya Pradesh followed by Andhra Pradesh, Jharkhand and
Orissa. Tripura was at the bottom of the scale of growth rate of per
capita agricultural productivity. There were 8 states where growth
rate was higher than the national average of 0.71 percent (these 8
states are Andhra Pradesh, Goa, Gujarat, Haryana, Jharkhand,
Karnataka, Madhya Pradesh and Orissa).

Furthermore, growth rates of per capita agricultural has

deteriorated during 2000’s as compared to 1990’s in all the states
of Indian Union with the only exception of Madhya Pradesh where
per capita agricultural productivity has grown at the rate of 3.9
percent – more than that of 1990’s. Moreover 18 states have less
than one per cent growth of per capita agricultural productivity (Six
have negative growth rates.)

E) Regional Disparities

Variation in total agricultural productivity, per hectare

agricultural productivity and Rural per capita agricultural
productivity among the different states of Indian Union For different
years is measured through coefficient of variation. There is a clear
upward trend in coefficient of variation of both agricultural
productivity per unit of Area as well as agricultural income per rural
person. Variation in total productivity Was estimated 85.6 percent at
the beginning of 1990’s which increased to 92.26 per cent by the
beginning of 2000’s but declined marginally to 89.94 percent by the
end of 2000’s. Apparently interstate variation in agricultural
productivity over period of time has increased.

Likewise, regional disparities in per hectare agricultural

productivity have increased From 42.42 percent from the beginning
of 1990’s to 47.34 percent by the end of 2000’s. Rural per capita
 43

agricultural productivity showed similar trend as that of Total

agricultural productivity but with little lesser magnitude. This is
because interstate variation in agriculture productivity has been
further sharpened due to inequality in land---man ratio and creation
of some more states. There is clear evidence that since 1990---91
regional divergence in agricultural productivity and Income has
grown and the gap between underdeveloped and developed, and,
poor and rich states has continued to increase. This has happened
despite special efforts made to reduce inter---state disparities by
promoting level of agricultural development in underdeveloped
states. There is a need to make more vigorous efforts on
technological, institutional, and infrastructural fronts to raise
productivity and to accelerate growth rate not only of crop sector
but also of livestock and other Sub sectors of agriculture in under
developed states. Special and immediate focus Is needed for
eastern states namely, Bihar, Orissa and Assam, hill regions and
eastern Uttar Pradesh. There is no room for complacency on this
score.

F) Has the Pattern Changed?

The changes in the productivity pattern can be classified into

two categories, that is, (i) Shifts, and (ii) Deviations, When two or
more patterns are compared on arranging the level of productivity
under the same state on an increasing or decreasing order and if
they do not exhibit similarity between them, “Shifts” are said to
have occurred. On the other hand, when difference in the level of
productivity between the states, than they are taken as
“Deviations”.

There have not been much variations or shifts in the pattern

during twenty years under review spanning from 1990---91 through
2009 to 2010. However some deviations do occur as the farmers
respond to change in seasonal conditions, price differentials and
other influencing factors. No major change has been observed in
the productivity pattern across different states of Indian union
during the period under review. In respect to per hectare
agricultural productivity, during the period triennium ending 2001 to
2003 over 1990---1993, Nagaland had improved its position to a
great extent, that is, from twelve to first and Bihar from seventeen
to fourth. On the other hand, Goa had deteriorated its relative
position from seven to sixteen; Punjab from fourth to twelve and
Tamil Nadu from second to tenth. However, Tripura and Uttar
 44

Pradesh had also deteriorated its relative position. During the

triennium ending 2007---2010 over triennium ending 2001---03,
Tripura had improved its relative position from eighth to first while
Uttar Pradesh has deteriorated its relative position from sixth to
sixteen.

Likewise, with regards to per capita agricultural productivity,

Himachal Pradesh has improved its relative position from fifteen to
fourth; West Bengal from sixteen to eight and Meghalaya from
twenty to tenth during the reference period of twenty years. On the
other hand, Kerala has deteriorated its relative position from twelve
to twenty; Madhya Pradesh from fifth to twelfth and Tamil Nadu
from third to seventeen. No major change has been observed
during 2000’s with the only exception of Madhya Pradesh which
has improved its relative position from twenty first to twelfth.
However during 1990’s Himachal Pradesh also improved its
position from fifteen to fourth; Nagaland from eleven to third; West
Bengal from sixteen to sixth and Tripura from Twenty first to
eleventh. On the other hand, Madhya Pradesh has deteriorated its
relative position from fifth to twenty first and Tamil Nadu from third
to sixteen.

To test whether there is a shift in the productivity pattern;

Kendall’s Rank Correlation Coefficient was computed. Ranks were
assigned to each state on the basis of its percentage and
correlation coefficients were worked out for each pair of years. All
the correlation coefficients were very highly significant. This
indicates that there have not been any shifts in the productivity
pattern between the years. Further the total changeover the period
under review, that is, 1990---91through 2009---10 was examined by
the test of concordance. The estimated value of the concordance
coefficients was computed to be 0.8952 and was significant at 0.01
level of significance. Hence it can be definitely concluded that there
have been no shifts in the productivity pattern between the years or
over a period of twenty years.
 45

Fig. 1.1 Total Agricultural productivity in Different States of India

Fig. 1.2 Hectare Agricutural productivity in Different States of India

Fig. 1.3 Per Capita Agricultural productivity in Different States of

India
 46

Table 1.1 Total Agricultural Productivity in Different States of India

at Constant Prices.
 47

Table 1.2 Per Hectare Agricultural Productivity in Different States of

India at Constant Prices
 48

Table 1.3 Rural Per Capita Agricultural Productivity in Different

States of India at Constant Prices
 49

G) Input use efficiency and sustainability of growth since

Independence
Sustainable agriculture integrates three main goals--
environmental health, economic profitability, and social and
economic equity. A variety of philosophies, policies and practices
have contributed to these goals. People in many different
capacities, from farmers to consumers, have shared this vision and
contributed to it. Despite the diversity of people and perspectives,
the following themes commonly weave through definitions of
sustainable agriculture.

Sustainability rests on the principle that we must meet the

needs of the present without compromising the ability of future
generations to meet their own needs. Therefore, stewardship of
both natural and human resources is of prime importance.
Stewardship of human resources includes consideration of social
responsibilities such as working and living conditions of labourers,
the needs of rural communities, and consumer health and safety
both in the present and the future. Stewardship of land and natural
resources involves maintaining or enhancing this vital resource
base for the long term.

A systems perspective is essential to understanding

sustainability. The system is envisioned in its broadest sense, from
the individual farm, to the local ecosystem, and to communities
affected by this farming system both locally and globally. An
emphasis on the system allows a larger and more thorough view of
the consequences of farming practices on both human communities
and the environment. A systems approach gives us the tools to
explore the interconnections between farming and other aspects of
our environment.

A systems approach also implies interdisciplinary efforts in

research and education. This requires not only the input of
researchers from various disciplines, but also farmers, farm
workers, consumers, policymakers and others.

H) Agricultural Development in India since Independence

Since independence India has made much progress in

agriculture. Indian agriculture, which grew at the rate of about 1
percent per annum during the fifty years before Independence, has
grown at the rate of about 2.6 percent per annum in the post-
 50

Independence era. Expansion of area was the main source of

growth in the period of fifties and sixties after that the contribution of
increased land area under agricultural production has declined over
time and increase in productivity became the main source of growth
in agricultural production. Another important facet of progress in
agriculture is its success in eradicating of its dependence on
imported foodgrains. Indian agriculture has progressed not only in
output and yield terms but the structural changes have also
contributed. All these developments in Indian agriculture are
contributed by a series of steps initiated by Indian Government.
Land reforms, inauguration of Agricultural Price Commission with
objective to ensure remunerative prices to producers, new
agricultural strategy1, investment in research and extension
services, provision of credit facilities, and improving rural
infrastructure are some of these steps.

Notwithstanding these progresses, the situation of

agriculture turned adverse during post-WTO period and this
covered all the sub sectors of agriculture. The growth rates in
output of all crops decelerated from 2.93 percent to 1.57 percent.
The livestock declined from 4.21percent to 3.40 percent. The
fisheries declined from 7.48 percent to 3.25 percent. Only, forestry
witnessed a sharp increase from 0.09 percent to 1.82 percent. The
crop sector, which forms largest segment of agriculture, showed
poorest growth during post-WTO period in comparison to all other
periods. Further, within crop sector, all crops except sugar showed
declining trend between initial years of reforms and post-WTO
period.

This deceleration is very high in Cereals, Corse Cereals,

Pulses, Oilseeds, and Drugs & Narcotics. The growth rate turned
negative in the case of pulses. Both dominant nature of agriculture
and decelerating growth trend in agriculture attracts attention of
policymakers, researchers and economists. The main cause of
failure of all development policy for agriculture is that there is no
availability of any separate development strategy2 for Indian
agriculture. This is due to the fact that we had not available
necessary data to study the characteristics of Indian agriculture.

I) Changing Agrarian Economy since Independence

In this section we focused on how agrarian economy has

changed since Independence. Keeping this view in mind this
 51

section follows land use pattern, population and agricultural

workers, distribution of operational holding, and cropping pattern.

J) Land Use Pattern

The basic factor in agriculture is land. A knowledge about

land use pattern is vital to understand whether the utilisation of land
in India is at its full potential or far from its full potential. In India the
classification of land has had its roots in agricultural statistics. Till
1950, the land in India was broadly classified into five categories: (i)
Area under forests; (ii) Area not available for cultivation; (iii)
Uncultivated lands including current fallows; (iv) Area under current
fallows; and (v) Net area sown. But then it was realised that such a
classification did not give a clear picture of the actual area under
different categories of land use required for agricultural planning.
Hence, a reclassification was adopted from March 1950. Under it,
land in India now classified under nine different categories. These
are as: (i) forests; (ii) barren and uncultivable lands; (iii) land put to
non-agricultural uses; (iv) cultivable wastes; (v) permanent pastures
and other grazing lands; (vi) miscellaneous tree crops and groves
not included in the net area sown; (vii) current fallows; (viii) other
fallows; and (ix) net sown area.

Table 1.4 shows changes in land use pattern in India since

1950/51.The total geographical area of the country is 328726
thousand hectares in which 93% area is reporting area which
means that the area for which record is available. It was 88% in
1950/51. The net sown area has risen by 18.44% from 1950/51 to
2000/01. The net sown area is only 46 % of total reporting area that
was 41 % of total reporting area in 1950/51. The area under non
agricultural use has increased from 12690 thousand hectares to
24070 thousand hectares since 1950/51.

But barren and uncultivable land has fallen from 37484

thousand hectares to 17709 thousand hectares. Both the cultivable
waste land and fallow land have also decreased during this period.
But even today 4.4 percent of total reporting area is available as a
cultivable waste land and 4.8 percent of total reporting area is
fallow land.

This indicates that there is scope to increase the net sown

area by at least 5 to 10 percent by improving both cultivable waste
land and fallow. Gross sown area was 131893 thousand hectares
in 1950/51 and it has increased to 185704 thousand hectares in
 52

2001/02. This shows that only 11 percent of net sown area was
used for more than one crop in 1950/51 and this figure increased to
31 percent in 2001/02. This point out that gross sown area can be
increased by 70 percent of net sown area through intensive
cropping.

Table 1.4 : Changes In Land Use Pattern in India from 1950-51 to

2001-02

K) Changing Agricultural Structure

We look at changing structure of Indian agriculture in terms

of employment and land holding. The share of agriculture in
employment declined from about 82 percent in 1950/51 to about 72
percent by 2001. During the same duration, the share of agriculture
in total GDP also declined from 54.66 percent in 1950/51 to 24
percent by 2001.Among agricultural workforce about 45.6 percent
are registered as agricultural labour and the rest, i.e., 54.4 percent
as cultivators while 28.1 percent was registered as agriculture
labour and the rest as cultivators in 1950/51. This indicates that
agricultural workforce shifted from cultivators to agricultural labours
(see Table 2).

There were 48900 million operational holding in 1960/61 and

covered area of 131400 million hectares. These operational holding
 53

increased to 115580 million in 2000/01and covered area of 163357

million hectares. It shows that the number of operational holding
has increased by about 66680 million units but the area covered by
then has not significantly increased. It implies that size of
operational holding has been reducing

Table 1.5 : Population and Agricultural Workers in India since 1950-5

Table 1.6 : shows that the number of marginal and small holdings
and the area under such holdings has increased while the number
of semi-medium, medium, and large holdings and the area under
such holdings has reduced. It reveals that the inequalities in the
distribution of land among the cultivators has reducing trend but the
number of uneconomic holdings has an increasing trend, i.e., small
and marginal holdings are increasing in both number and
percentage.
 54

Table 1.6 : The Percentage Distribution of Operational Holding by

Size Class, 1960-61 to 2000-01

L) Changes in Cropping Pattern

Cropping pattern means the proportion of area under

different crops at a particular period of time. A change in cropping
pattern means a change in the proportion under different crops.
Table 1.7 indicates that the area under non-food crops as a
proportion of the total cropped area is increasing but still there is
dominance of food crops. At the beginning of the economic
planning in India, 76.7 percent land was put under food crops and
about 23.3 percent on non-food crops. By 2001, area under food
crops had come down to 65.83 percent and under non-food crops
has increased to 34.17 percent. This shift in the allocation of area
from food crops to non-food crops reflect a change from
subsistence cropping to commercial cropping. This shifting of land
from food crops to non-food crops was mainly influenced by the
prevailing price in market and profitability per hectare.

Similarly, here it can also be concluded that, there is

preponderance of cereals, about 54.43 percent of the area is
devoted to the production of cereals, while only 11.4 percent is
devoted to pulses. Though, the area under both cereals and pulses
is increasing but the rate of increase in area under cereals is
greater than that of pulses. It means whatever cropped area
increased as a result of irrigation facilities, chemical fertiliser, and
high yielding varieties of seeds, a greater part of it is devoted to
 55

foodgrains. Within cereals, area under coarse cereals is gradually

declining since 1950/51. This is due to fact that coarse cereals are
inferior goods.

Table 1.7 : Changes In Cropping Pattern in India since 1950-51

Furthermore, Table 1.7 also shows that area under fruits and
vegetables and oilseeds is gradually increasing since 1950/51. This
is because the consumption pattern is shifting from cereals to non-
cereals. This phenomenon can be seen in Tables 5 and 6

Table 1.8 : Trends in Food Consumption Pattern from 1972-73 to

2004-05, All India (Rural)
 56

Table 1.9 : Trends in Food Consumption Pattern from 1972-73 to

2004-05, All India (Urban)

Following inferences can be drawn in these two tables.

1. The share of food in the total budget expenditure of a household

has been showing a decline over the years in both rural and urban
sector. In rural all India, the share of food declined from 72.9
percent in 1972-73 to 55 percent in 2004-05 and in urban all India it
declined from 64.5 percent in 1972-73 to 42.5 percent in 2004-05.

2. Although cereal continues to be the important constituent of a

household’s food
Basket, its share in total budget is declining.

3. The share of pulses is also showing declining trend.

4. The consumption of vegetables and fruits, milk, meat, egg, and

fish, and edible oil has shown an increase. The structural shift in
consumption pattern is on account of the consumption
diversification effect because of easy access to supply, changed
tastes and preferences, and change in relative prices. Increasing
urbanization and economic growth reduces per capita demand for
cereals and increases the demand for non-cereals food items.
Modernisation of agricultural also bears a similar negative
relationship with the per capita consumption of cereals.
Mechanization of agricultural activities and improvement in
infrastructure also contribute to reduction in energy requirement
and thus less cereal consumption.
 57

M) Performance of Indian Agriculture

Output Growth

Agricultural growth is one of the main facets of India’s economic

development and national food sufficiency policies. Tables 1.10 &
1.11 show the growth rate of agriculture by sector and different crop
wise. The aggregate agricultural output increased annually at 2.6
percent during period from 1950/51-2006/07. Disaggregating of
aggregate agricultural output growth into sub periods shows that
annual growth rate of agriculture was the highest during the period
1981/82-1990/91 and the lowest during period 1950/51-1965/66.
Further disaggregating of agriculture into sub sectors; crop,
livestock, forestry, and fishing, shows that fisheries and livestock
were the main sources of the acceleration in growth rate of
agricultural output in 1980s. The growth rate of aggregate
agricultural output turned up 3.29 percent during the initial years of
reforms, which was 0.43 percentage point higher than the previous
period. However, the situation of agriculture turned adverse during
post- WTO period and this covered all the sub sectors of
agriculture. The growth rates in output of all crops decelerated from
2.93 percent to 1.57 percent. The livestock declined from 4.21
percent to 3.40 percent. The fisheries declined from 7.48 percent to
3.25 percent. Only, forestry witnessed a sharp increase from 0.09
percent to 1.82 percent.

Table 1.10 : Average Annual Compound Growth in Value of Output

(Group Wise)
 58

Table 1.11 : Average Annual Compound Growth in Value of Output

(Crop Wise)

The crop sector, which forms the largest segment of agriculture,

grew annually at 2.5 percent since 1950/51. The acceleration rate
of crop sectors fluctuated around 2.5 percent during all sub periods.
It grew at the lowest rate during post-WTO period in comparison to
all other periods. Further, within crop sector, all crops except sugar,
condiment, spices, fruits and vegetables showed declining trend
between 1950/51-1965/66 and 1991/92- 2006/07. This deceleration
is very high in Cereals, Corse Cereals, Pulses, Oilseeds, and Drugs
& Narcotics. Similar declining trend in growth rate of all crops is
also confirmed by Table 1.12 that shows average annual
compound growth rate of output in physical term for all major crops.

Table 1.12 : Average Annual Compound Growth in real term

(Crop Wise)

These growth rates are lower than the growth rate of rural
population. Thus, the clear implication of this growth trends is that
the per capita output in agriculture is declining. This seems to be
one of the causes for rising disparity between rural and urban areas
in India.
 59

Net Availability of Foodgrains

Table 1.13 shows net availability of foodgrains for per capita per
day. An average availability of foodgrains per capita per day was
429.8 gram in 1950s and increased to 475.5 gram during 1990s.
Further, it decreased to 446.6 gram in the first decade of 21st
century. Within foodgrains, all food crops reveals similar trend
except coarse cereals. The availability of coarse cereals is
continuously declining.

Table 1.13 : Net availability of foodgrains (per day) India

1.6 INPUT USE PATTERN (INPUT USE EFFICIENCY)

Agricultural production and efficiency largely depend upon the

inputs applied and the methods adopted. In India, “while population
grows, the land surface is fixed and of this only a certain proportion
is available for cultivation” (Planning commission, 1961). Further
scope for bringing extra land under the plough is limited. If more
production is to be got out of this existing area, the problem has to
be tackled on a wide front. This can be done by applying inputs in a
more intensive way and by adopting modern methods of production
through use of improved technology, besides making an adequate
provision for institutional financing, better methods of marketing,
etc. Technical factors, i.e., technology have received increasing
emphasis and the recent breakthrough in agriculture is the outcome
of these factors. These technological factors comprise (i) irrigation;
(ii) Consumption of fertilisers and manure; (iii) Improved seed, and
(iv) agricultural implements.

Water is another basic factor in agriculture next only to land.

Only rainfall is the natural source of water in agriculture. But rainfall
is the most unreliable and is marked by wide variations in different
parts and also variation from year to year in its quantity, incidence,
 60

and duration. Therefore, only artificial supply of water through

irrigation is the way to overcome the problem of deficiency of water.
Irrigation water comes from two sources: surface water and ground
water. Surface water is provided by the flowing water of rivers or
the still water of tanks, ponds, lakes, and artificial reservoirs. The
surface water is carried to the filed by canals, distributaries, and
channels. Ground water is tapped by sinking wells where drought
animals, diesel or electric power is utilized to take out water. In
India canals, tanks, wells including tube-wells are the principal
sources of irrigation. Since 1950-51, considerable importance had
been attached to the provision of canal irrigation and well irrigation.
Even though 40 percent of irrigation is supplied by canals, now well
irrigation has caught up rapidly irrigation by tub-wells has been
expanded considerably. In the meantime, tanks and other source of
irrigation are declining in importance (see Table 11).

Table 1.14 : Sources of Irrigation

Table 1.14 shows that the net irrigated area has risen by 163
percent from 1950/51 to 2000/01. This increment in irrigated area is
very nominal and only 39 percent of net sown area is irrigated area.
This figure is very unsatisfactory and it is matter of concern that
why only 39 percent of net sown area is irrigated area. It is also
concerning matter that growth in gross irrigated area is also very
nominal. Thus, there is scope to increase agricultural production by
increasing both net and gross irrigated area.
 61

Table 1.15 : Changes in Irrigated Area in India from 1950-51 to

2000-01

In any scheme for boosting agricultural output, the use of

chemical fertiliser has an important role. India’s soil though varied
and rich in deficient in nitrogen and phosphorus two plants nutrients
which together with organic manure influence crop return, which
population rising at a first rate, the use of larger and larger doses of
chemical fertiliser is the only way to augment our foodgrains
production. The new agricultural strategy was based on increased
use of fertiliser.

Since adoption of the new agricultural strategy in the sixties,

the consumption of chemical fertiliser has been growing rapidly.
The Government is also encouraging the use of fertiliser through
heavy subsidies. That is why the consumption has gone up
abnormally high from 70000 tonnes in 1950-51 to 2,177,000 tonnes
in 1970-71, 12,546,000 tonnes in 1990-91 and 19,145,000 tonnes
in 1999-2000 (see Table 1.16). The fertiliser consumption per
hectare of gross cropped area has also gone up steadily, from 0.50
kg in 1950-51 to 74 kg in 1995-96. The corresponding figures for
developed countries are much higher than the Indian Agriculture
(see Table 1.17).
 62

Table 1.16 : Production, Import, and Consumption of Fertiliser

The low consumption may be due to the poor economic

condition of farmers, lack of Assured irrigation (58.5 % of the
cropped area lack irrigation facilities), inadequate Demonstration
and promotion for the use of fertilisers, insufficient supply at the
proper time, high price of fertiliser, absence of soil testing facilities
so as to recommended the precise deficiencies in the soil and
recommended proper dose of fertiliser, and wrong notion among
some conservative farmers regarding the use of chemical fertilisers.
Improved seeds have played vital role in augmenting agricultural
production in developing countries like India. These seeds not only
help in increasing in agricultural production by 10 to 20 percent but
introducing new characteristics in the biological structure of the
plant. For, example researches have made it possible to develop
such seeds which are quick maturing, provide higher agricultural
yield and are resistant to insects, diseases and droughts. In India
the success of Green Revolution is partly associated with the use of
high yield variety (HYV) seeds. The HYV programme was started in
1966. Between 1967-68 and 1996-97 the area under HYVP has
witnessed 12.6 times increase (from 6.07 million ha to 76 million
ha).

The success of the programme remains most marked in the

case of wheat and rice. The HYV programme has led to 4.84 times
increase in the output of wheat from 1966-67 (11.39 million tonnes)
to 1990-91 (51.1 million tonnes) and 1.78 times increase in the
production of rice from 1967-68 (37.6 million tonnes) to 1990-91
(74.3 million tonnes). The implements and tools used by the Indian
farmers are primitive, crude, and obsolete which impede the
 63

development of modern agriculture. New farm machineries not only

save time, reduce cost of production but also increase agricultural
production. These machineries replace the animal and human
power and perform various works of agriculture ranging from
ploughing, showing, and harvesting to the marketing of the
produce. There is difference of opinion amongst scholar regarding
the mechanisation of agriculture. In fact small and scatter land
holding, cheap and abundant human labour and poverty amongst
farmers go against total mechanisation of Indian agriculture but the
possibility of limited mechanisation is not ruled out. In many cases
where the use of animal and human power has become costlier,
mechanization is proving to be boon for agriculture. Even small
farmers prefer to use these machineries to save the time and
money.

Studies show that sufficient progress has been made in

respect of farm mechanisation in India. For example, the number of
tractors which was less than 10000 in 1950-51 increased to 1 lakh
in 1970-71 and 14.5 lakhs in 1990-91. Similarly, the number of
diesel pump sets increased from 80,000 in 1950-51 to 48.5 lakhs in
1990-91 and electric irrigation pump sets from 26,000 in 1950-51 to
91 lakhs in 1990-91. But most of the mechanisation has largely
been confirmed to the rich farmers belonging to the developed
areas of the country.

Table 1.17 : Fertiliser Consumption per Hectare of Agricultural Land

in Selected Countries in 2004-05
 64

1.7 QUESTIONS

1. Explain in detail the concept of agricultural productivity.

2. Differentiate between Extensive and Intensive growth.
3. Write note on the following.
a) The conservation model of agricultural development
b) The Urban Impact model
c) The Diffusion model of agricultural development.
d) The High-Payoff Input model.
4. Explain the role of agricultural in India’s National Economy.
5. Critically Examine the Inter-regional and Intra-regional equity in
agriculture
6. Explain the Input use efficiency pattern since Independence.

™™™™
 65

2
ISSUES RELATING TO PUBLIC AND
PRIVATE CAPITAL FORMATION IN
AGRICULTURE

Unit Structure

2.0 Objectives
2.1 Introduction India’s Agrarian Crisis.
2.2 Agriculture's adjustment problems in a liberalised and
globalising economy: Emerging constraints and potential
2.3 Need of Globalisation
2.4 Productivity gains from globalization and economic reforms
2.5 Agricultural growth and performance: an economy-wide
analysis
2.6 Agricultural Growth and Performance: An Inter-State
Analysis
2.7 Challenges of Globalization
2.8 Conclusion
2.9 Questions

2.0 OBJECTIVES

x To understand the India’s Agrarian Crisis.

x To understand Agriculture's adjustment problems in a liberalised
and globalising economy: Emerging constraints and potential

x To acquaint with the Need of Globalisation & Productivity gains

from globalization and economic reforms.
x To familiar with Agricultural growth and performance: an
economy-wide analysis.

x To understand the Challenges of Globalization.

 66

2.1 INTRODUCTION INDIA’S AGRARIAN CRISIS:

A) Deceleration in Agricultural Growth

India’s GDP grew at an annual rate of 5.8 percent from
1995-96 to 2004-05 at 1993-94 constant prices, but agricultural
growth declined to about 2 percent, resulting from
stagnation/decline in productivity during the last decade. Plan-wise
trends of growth of total GDP and GDP from agriculture are
presented in Figure 4.It is evident from the figure that India’s
agricultural sector has grown more than targeted growth rate during
th th th
the 6 , 7 and 8 Five Year Plans but fell short of targeted growth
th th th
during the 9 and 10 Plan. During the 10 Plan, agricultural GDP
grew at an annual rate of mere 2.1 percent against the targeted
growth rate of 4 percent. Indian agriculture is at a crossroads. With
about 70 percent population living in rural areas and about 58
percent of its workforce engaged in agriculture, India needs positive
th
change in agricultural sector. Therefore, in the 11 Five Year Plan,
the National Development Council has adopted a 14 point
resolution dividing responsibilities equally between the Central and
the state governments with an aim to achieve four percent
th
agricultural growth by the end of 11 plan. The agricultural sector
has been allocated additional Rs. 25,000 crore from the Central
government in the next four years.
B) Declining Investment and Rising Subsidies
One of the important reasons for deceleration in agricultural
growth has been declining levels of investment in agriculture and
allied sectors and irrigation (Table 1). As Table 1 illustrates, share
of agriculture and irrigation in total plan expenditure has declined
th
from 37.3 percent in First Five Year Plan to 10.6 percent in 10 Five
th
Year Plan (Figure 5). In the 6 Plan additional head of rural
development was introduced and its share in total plan expenditure
th
has increased over the years from 6.4 percent in 6 Plan to 9.5
th
percent in 9 plan and then slightly declined to nearly 8 percent in
th
10 plan.
 67

Figure 2.1 Plan-wise Trend of Growth of Total GDP and Agriculture GDP
(including Allied Sectors) at 1993-94 constant Prices

The share of public sector in gross capital formation in

agriculture has declined during the last decade from 30.9 percent in
1995-96 to 25.6 percent in 2003-04, while share of private sector
has increased from 69.1 percent to 74.4 percent during the same
period (Figure 6). However, due to high degree of complementarity
between public and private investment in agriculture, there is a
need to increase public investment. The share of agriculture
sector’s capital formation in GDP has declined from 1.9 percent in
the early 1990s to about 1.2 in the early 2000s, which is a cause of
concern. However, there is an indication of reversal of this trend of
late, with the public sector investment in agriculture reaching the
highest level since the early 1990s at Rs. 5,249 crore in 2003-04 at
1993-94 prices. This has helped in improving the share of
agriculture sector’s capital formation in GDP from 1.28 percent in
2001-02 to 1.31 percent in 2003-04.
 68

Table 2.1 Plan Expenditure on Agriculture and allied Sectors,

Irrigation, and Rural Development (Rs. crore)

Figure 2.2 Share (%) of Agriculture and allied Sectors, and Irrigation
in Total plan Expenditure during Plan Periods

A key reason for declining public investment in agriculture

has been ever increasing agricultural subsidies such as fertilizers,
power, irrigation, food, etc. Total agricultural subsidies have
increased at an annual compound growth rate of about 12 percent
between 1993-94 and 2002-03 (Rs. 14,069 crore in 1993-94 to
about Rs. 36,514 crore). The share of fertilizer subsidies in total
 69

agricultural subsidies is about 36 percent (GOI, 2007). Trends in

food and fertilizer subsidies during the 1990s and 2000s are
presented in Figure 2.4. The amount of subsidy on fertilizers has
increased from Rs. 4389 crore in 1990-91 to about Rs. 22,452
crore in 2006-07 (at an annual compound growth rate of 10.6%).
Food subsidies have also witnessed a significant increase during
the 1990s and 2000s, rising from Rs. 2450 crore in 1990-91 to Rs.
25,181 crore in 2003-04 and then marginally declined to Rs. 24,200
crore in 2006-07. The amount of food and agricultural subsidies is
greater than public investment in agriculture and allied sector,
irrigation and rural development combined. In addition there has
been deterioration of institutions/ organizations providing inputs and
services such as credit, seeds, technology, extension, to
agricultural sector.
Figure 2.3 Share of Public and Private Sector in Investment in
Agriculture (at 1993-94 prices); 1995-96 to 2003-04

Figure 2.4 Trnds in Food and Fertilizer Subsidies in India

 70

Table 2.2 Reasons for Adopting Contract Farming as Reported by

Respondents

Table 2.3 Reasons for Discontinuing Contract Farming as Reported

by Respondents

Table 2.4 Reasons for not Adopting Contract Farming as Reported

by Respondents

2.2 AGRICULTURE'S ADJUSTMENT PROBLEMS IN

A LIBERALISED AND GLOBALISING ECONOMY:
EMERGING CONSTRAINTS AND POTENTIAL

India, which is one of the largest agricultural-based

economies, remained closed until the early 1990s. By 1991, there
was growing awareness that the inward-looking import substitution
and overvalued exchange rate policy coupled with various domestic
policies pursued during the past four decades, limited
entrepreneurial decision making in many areas and resulted in a
high cost domestic industrial structure that was out of line with
 71

world prices. Hence the new economic policy of 1991 stressed both
external sector reforms in the exchange rate, trade and foreign
investment policies, and internal reforms in areas such as industrial
policy, price and distribution controls, and fiscal restructuring in the
financial and public sectors. In addition, India’s membership and
commitment to World Trade Organization (WTO) in 1995 was a
clear sign of India’s intention to take advantage of globalization and
face the challenge of accelerating its economic growth.

One measure of economic growth is given by productivity

growth as it forms the basis for improvements in real incomes and
welfare. The concept of productivity growth gained importance for
sustaining output growth over the long run as input growth alone is
insufficient to generate output growth because of diminishing
returns to input use. This paper, which examines India’s
productivity growth in the agricultural sector in the context of
globalization, has three main aims. First, it examines these possible
links in the agricultural sector in general. Second, it discusses the
problems and prospects for agricultural productivity growth of
various Indian states. Third, the paper highlights the challenges of
globalization and draws policy implications for the success of Indian
agriculture.

2.3 WHY GLOBALIZE?

Globalization in the context of agriculture can be best

discussed in the context of three components – improvement of
productive efficiency by ensuring the convergence of potential and
realized output, increase in agricultural exports and value added
activities using agricultural produce, and finally, improved access to
domestic and international markets that are either tightly regulated
or are overly protected. These components are linked in various
ways. For example, productive efficiency would enhance value
added activities in agriculture through agro-processing and exports
of agricultural and agro-based products. These activities in turn
would increase income and employment in the industrial processing
sector. Thus globalizing agriculture has the potential to transform
subsistence agriculture to commercialized agriculture and to
improve the living conditions of the rural community.

However, economic reforms within India are necessary to

pave the path to successful globalization. The stated objective of
 72

the new economic policy is to raise the economy’s growth rate from
the current 5.5 per cent achieved over 15 years to about 7 or 8 per
cent per year. Ahluwalia (1996) explains that this indirectly requires
an improvement in agricultural growth from between 2 and 3 per
cent in the past to about 4 per cent per year. Although initially, with
respect to agriculture, there was no major policy reform package in
the 1990s, it was however anticipated that the opening up of the
agricultural sector to foreign trade, the move to a market
determined exchange rate and reduction of protection for industry
would, over time, benefit the agricultural sector. Manmohan Singh
(1995), the then Finance Minister, in his inaugural address at the
54th Annual Conference of the Indian Society of Agricultural
Economics, brought to notice that a policy of heavy protection of
the industrial sector operated to the disadvantage of the agricultural
sector when industrial prices were raised relative to world prices
and thus the profitability of investing in industry was raised relative
to agriculture. This would lead to a shift of resources from
agriculture to industry.

A policy of heavy industrial protection also led to an

appreciation of the exchange rate. Ahluwalia (1996) noted that
over-valuation of the exchange rate (before the Indian rupee was
devalued by 18 per cent in two phases starting in July 1991)
discouraged agricultural exports more than industrial exports
because Indian industrial policy had sought to offset the constraints
faced by industries via a system of export incentives for market
support. Agricultural exports on the other hand were denied any
such incentives as they did not use imported inputs. Ahluwalia
(1996) argued that in the past, the agricultural sector was
negatively protected because of the above two reasons and the fact
that farmers were denied access to the world markets due to trade
barriers. Exports of plantation crops and a few commercial crops
were free from export restriction but exports of essential
commodities, particularly food products, were subject to bans,
quotas and other restrictions. Interestingly, Kruger and others
(1991) showed that while many developed countries continue to
protect agriculture, developing countries do not do so. However, no
formal attempt or theoretical framework has yet been used to
assess the extent of negative protection in Indian agriculture. The
implementation of economic reform in the Indian agricultural sector
has been a gradual process. These include an 87% cut in tariff on
agricultural products, sustenance of high-yield crop varieties,
removal of minimum export price on selected agricultural products,
 73

a lift on quantity restrictions on the export of some crops and

various land reforms related to tenancy rights and land ceilings.

2.4 PRODUCTIVITY GAINS FROM GLOBALIZATION

AND ECONOMIC REFORMS

In the wake of India’s efforts towards globalization and

economic reforms, the expected benefits of total factor productivity
(TFP) growth1 can be represented using the production frontier.
The production frontier traces out the maximum output obtainable
from the use of inputs. In the figure below, F1 and F2 are the
production possibility frontiers in time 1 and 2 respectively.
Opportunities from globalization and economic reforms can lead to:

a) shift from A to B due to technical efficiency

b) shift from B to C on existing frontier due to input growth
c) upward shift from C to D due to technological progress

1 TFP growth is productivity growth related to the use of all inputs

in production and is given by the residual of output growth not
accounted for by input growth.

Figure 2.5 Total factor productivity gains from globalization and

economic reforms.

Each of the above-mentioned shifts, which constitute various

sources of TFP growth, can be linked with trade gains. The
movement from A to B led by technical efficiency allows increases
 74

in output when inputs and technology are used to their fullest

potential to obtain the greatest yield. Given that India has been
involved in agricultural production for so long, there would be
learning-by-doing gains that can help boost production given the
expected increase in demand as India opens up. The increased
production would enable a better utilization of inputs, especially that
of advanced capital technology. The reduction in the tariff rate for
agricultural products from 113 per cent in 1990-1991 to 26 per cent
in 1997-1998 is also expected to motivate local producers into
rethinking their production techniques and efficiently utilizing the
inputs and technology to keep costs of production down in order to
remain competitive. The optimum or efficient use of land and water
resources would then allow agriculture to respond to the demand
for other products such as horticulture and livestock which is
expected to increase following a rising trend in the per capita
incomes of both rural and urban groups.

The move from an overvalued exchange rate to that of a

market determined rate would also make agricultural exports
cheaper and hence boost exports. The new trading opportunities
would necessitate an increased use in the quantity of inputs to
boost output and this allows for the movement from B to C along
the existing production possibility frontier. Increased exports would
bring about economies of scale and as Verdoon’s law states, output
growth would lead to productivity growth.

The scale of output under increased exports would justify the

huge fixed costs underlying technologically advanced equipment
and hence increase incentives to adopt high quality inputs. The use
of such inputs would result in technological progress and this is
represented by the shift from C to D. The reduction in tariff rates in
industry from 1990-1991 to 1997-1998 range from 153 per cent to
25 percent for consumer goods, 77 per cent to 18 per cent for
intermediate goods and 97 per cent to 24 percent for capital goods.
This means that farmers now have relatively cheaper access to
imported new technology and better capital equipment as well as
the option of adopting better farming techniques and this should
lead to technological progress. In particular, the development of
agro-processing as an instrument for agricultural and rural
modernization will bring benefits, given its capital-intensive and
technology-intensive nature. Lower duty rates on plastics and
metals also lower costs of packaging. These forms of cost
efficiency should allow competitive pricing of products. In addition,
 75

external competition can be expected to motivate local producers

into the production of improved quality intermediate inputs for
agriculture.

The importance of technology in agricultural development

was first demonstrated in the 1970s with impressive growth in
yields following the introduction of new wheat and rice varieties. But
this technology was limited to areas of assured irrigation as the new
seeds also required heavy inputs of fertilizers and pesticides for
optimal results. However, the potential for further extending this
technology is not yet exhausted as there is scope for expanding
irrigation further and improving the quality of irrigation in many
areas. For further technological progress, genetic engineering and
the biotechnology revolution provides a prospect of developing new
varieties that can flourish with less dependence on water and
chemical inputs. Such reduced dependence upon chemical
fertilizers and pesticides is also desirable because of environmental
considerations, which are an increasing concern. It must however
be acknowledged that the link between trade liberalization and
productivity growth is two-way as they both feed on each other. The
above discussion has shown how productivity gains can be
obtained from openness but to benefit from openness via increased
demand for exports, agricultural products need to be priced
competitively. In other words, productivity growth is necessary to
lower the costs of production.

2.5 AGRICULTURAL GROWTH AND

PERFORMANCE: AN ECONOMY-WIDE ANALYSIS

Although India’s economic reforms were initiated in June

1991, the process of liberalization was implemented gradually and
thus it is difficult to assess the full impact of the liberalization
measures. Nevertheless, an attempt is made to discuss what is
observable in terms of agricultural growth. One observation is that
the expected increase in exports due to liberalization simply did not
occur. India’s share in world exports was 0.6 per cent in 1997; India
has to aim for at least 4 per cent by 2005 in order to meet the
growing import demands for capital goods, raw materials and crude
oil as well as to meet her external financial commitments. For the
last decade or so, India’s share in world exports of agriculture has
been between 2 per cent and 3 per cent. Furthermore, as table 3
shows, India is not as competitive as the other countries and
 76

calculations show that India’s crop yields have increased at a

slower rate over the1990s. In addition, the agricultural sector’s
output growth decreased to 2.9 per cent during 1992-1993 to 1998-
1999. Kalirajan and others (2001) explain that two important
reasons for the slowdown are that there was no major breakthrough
in developing new high-yielding varieties during the 1990s and
there was a decline in the environmental quality of land which
reduced the marginal productivity of the modern inputs. What could
this mean in terms of the effectiveness of the policies of reduced
protection to industry, a market determined exchange rate and the
opening of the agricultural sector to foreign trade?

First, although the reduction to protection of industry is

substantial, there is reason to believe that the reduction was not
necessarily sufficient to benefit the agricultural sector whose tariffs
were also drastically reduced. Hence, the expected shift in
resources to agriculture did not occur. Second, is the apparent
ineffectiveness of the market determined exchange rate in boosting
exports. This is however not surprising as the exchange rate may
not be a key factor determining agricultural export demand for
India. In general, unlike manufacturing industries, agriculture did
not benefit much from these two policies because the share of
imported inputs in the value of agricultural production is small. It is
likely that a change in the mindset and attitude of farmers has yet to
take place and there are delays or hesitation in embracing India’s
openness. Third, in opening up the agricultural sector to foreign
trade, India has taken major steps towards trade liberalization since
1991, partly on its own initiative and partly from its commitments to
WTO. Kalirajan and others (2001) provide a detailed review of
these reform procedures. But why have the benefits from trade
liberalization been slow to come? One reason is that prospects for
growth in agricultural exports depend partly on domestic policies
and partly on the removal of protectionist policies pursued by
developed countries such as Japan and members of the European
Union (EU). An OECD report (1998) estimated that the producer
equivalent subsidy in the OECD countries increased by US$ 9.3
billion from 1988 to 1993 and this subsidy as a percentage of the
value of production in 1997 was 9 per cent in Australia, 20 per cent
in Canada, 47 per cent in EU and 70 per cent in Japan. These
protectionist practices do not seem likely to come to an early end.
An UNCTAD report (1999) noted that 29 member countries of the
OECD spent an average of US$ 350 billion a year in agricultural
support between 1996-98. Schumacher (2000) further reports that
 77

the EU provides product-specific trade distorting domestic support

to at least 50 different agricultural products. The implication of
these reports is that food exports from India may not show a large
increase given the international environment and the still-existing
restrictions on exports in the major importing markets based on the
self-sufficiency argument and food security. Other macroeconomic
factors, such as the recession in developed countries in 1996-98 as
well as the 1997 South-East Asian financial crisis, have clouded
the possibilities of increasing Indian exports.

Another problem faced by Indian agricultural exporters is the

protectionist measures in the form of non-trade barriers that
developed countries use to restrict market access. This is by
tightening requirements of quality, testing and labelling, and anti-
dumping and countervailing measures. For example, in May 1997,
the EU banned marine products from India citing unhygienic
processing conditions. The extra costs of meeting the standards
required in export markets as well as costs associated with
changes in the production mix and transactions associated with
exports may well be discouraging Indian exporters. One existing
problem of India’s agricultural protection is the use of input
subsidies.

The general argument favouring this has been that it is

necessary to encourage the use of particular inputs for production
for various benefits. For India, Gulati and Sharma (1995) show that
the input subsidy in per cent of GDP increased from 2.13 in the
triennium ending 1982-1983 to 2.73 in the triennium ending 1992-
1993. But the benefits of these subsidies have accrued to only
certain classes of farmers in some regions cultivating irrigated
crops. Furthermore, highly subsidized prices of inputs such as
irrigation water and electricity for pump sets have encouraged
cultivation of water-intensive crops, over-use of water, ground water
depletion/salinity and water logging in many areas. Subsidy for
nitrogen fertilizer on the other hand has resulted in nitrogen
phosphorous potassium imbalance and acted as a disincentive for
use of the environmentally friendly organic manure. As a result, the
linkage between food crops and non-food crops, which include
fodder, has been reduced. These adverse consequences are a
drain on the fiscal burden of central and state Governments. Thus,
if not properly monitored, input subsidies can be counterproductive
and, in this context, protection to lower costs of production should
be done selectively in the course of liberalization.
 78

In fact, Agenda 21 of the United Nations Conference on

Environment and Development in 1992 stressed that there is a
need for integration of environmental considerations in the pricing
of natural and other resources in such a way that prices reflect
social costs. Such a pricing policy will not only lead to a more
efficient use of scarce resources but also result in subsidy
reductions and improvements in environmental quality. The money
saved from the reduction of subsidies can be spent in the
development of rural infrastructures, agricultural research, farmers’
education and other forms of support for agriculture.

2.6 AGRICULTURAL GROWTH AND

PERFORMANCE: AN INTER-STATE ANALYSIS

While the above analysis has provided a general view of the

impact of economic reforms, this section examines agricultural
growth and performance in the states of Bihar, Karnataka, Tamil
Nadu and Punjab with their attendant policy implications. The table
below shows the yield for various crops in these four states.

Table 2.5 Yield of major crops (kg/ha)

 79

Table 4 shows that the yields for various crops in these

states differ greatly. While Tamil Nadu had the highest yield in rice,
oil seeds and sugarcane, Punjab enjoyed the highest yields in
wheat, coarse cereals, pulses and food grains. Karnataka on the
other hand is seen to do well in cotton and Bihar performed quite
well in pulses and coarse cereals. Further analysis and findings by
Kalirajan and others (2001) show that Punjab had made
remarkable achievements on the agricultural front while Bihar had
remained stagnant in the last two decades, with Karnataka and
Tamil Nadu showing moderate achievement.

Clearly, differences in physical endowments, climatic

conditions and institutional characteristics are some of the reasons
for the varying productivity performance. Thus, having across the
board economic reforms is likely to work less effectively than state-
specific policy measures that enable each state’s agricultural yields
to reach their full potential. The comparative advantage of each
state’s agricultural production should be determined and with inter-
state restrictions removed, total agricultural output would see a very
significant increase. For example, Karnataka with less favourable
soil and water resources should be given incentives to concentrate
on agro-processed products and corporate agriculture in
horticulture, floriculture and animal husbandry, or to undertake
watershed development to help with dry land agriculture. Many
studies have indicated that with watershed areas, productivity
growth has been mainly due to seed and fertilizer use. Thus, this
state has to be given input subsidies for high yielding seed varieties
but at the same time, the farmers need to be educated on the over
use of chemical fertilizers.

With Bihar, agricultural performance is problematic on many

fronts. First, although demographic pressure has increased and
agricultural technology has improved, most of the uncultivated land
is concentrated in southern Bihar, where irrigation facilities have not
kept pace and the soil is of poor quality. Given the physiography of
southern Bihar, wells are also unsuitable and thus the dominant
mode of irrigation has been through tanks whose expansion and
maintenance has been neglected. Second, the infrastructural
facilities of Bihar have been lagging as seen by the infrastructure
development index in table 5. Due to infrastructural bottlenecks,
availability of modern goods and services has not increased or their
supply remains costly or unreliable.
 80

Table 2.6 Infrastructure development index

(All India = 100)

Third, agriculture in Bihar is dominated by small and

marginal farmers and the prevalence of mass poverty is largely
related to the backwardness of agriculture. Fourth and importantly,
the state agricultural policies in Bihar are in dire need of review.
The semi-feudal production condition still exists in rural areas and
the ineffective protection of tenancy rights has hindered agricultural
growth. The slow pace of land consolidation reflects inadequate
financial outlays and a shortage of manpower. Kalirajan and others
(2001) note that marketing and extension services in Bihar are also
rather weak compared to the other states. Punjab on the other
hand, was one of the few states which enjoyed the success of land
reforms and the high priority of investment in rural infrastructure as
seen in table 5.

Also, the irrigation base of the small and medium sized

farms was comparable to that of large farms. In addition, the
Punjab Agricultural University at Ludhiana contributed to the
development of new seed varieties. However, there are clear signs
of a decline in crop yields since the 1990s and this has been
associated with the increasing use of fertilizers and excessive water
use which have increased the unit cost of production as a result of
declining soil quality. Hence, care is needed when providing further
input subsidies in fertilizer and water use. Another related fact is the
steep increase in wages in Punjab and in the absence of
productivity increases, the cost increase has affected the
profitability of farmers. With Tamil Nadu, the main crop has been
rice as this state is blessed with two monsoons. But from 1992-
1997, there has been a steady decline in the areas irrigated by
canals and an increase in well-irrigated areas while the use of tanks
remains an unreliable source of irrigation.

However, major improvements in about 10 rice varieties

released in the early 1990s can be expected to improve productivity
growth in rice production although pests and diseases as well as
imbalance in the use of fertilizers are major constraints.2 Thus
 81

Tamil Nadu could do with subsidies of pesticides and farmers

should be educated on the more effective use of fertilizers to obtain
high yields. Interestingly, the cropping pattern of late has shown
increasing substitution of food crops by commercial crops but there
is concern that the benefits will reach farmers only with the
development of adequate infrastructure such as roads and markets.
Table 5 shows, however, that Tamil Nadu has a higher index than
the all India average of infrastructure.

2.7 CHALLENGES OF GLOBALIZATION

It is important to realize that globalization poses many

challenges to a developing country like India, which had relied on a
state directed and regulated policy regime for more than four
decades. In moving to a more open, market-based economy there
are many transitional problems that the country has to manage.
The Government must play a pro-active role in facilitating the
globalization process so that the opportunity sets for the economic
agents are widened and the adverse effects of globalization are
minimized. The Indian Government must also prepare the
necessary information base and develop its capacity to articulate
India’s concerns and policy trade-offs in the international forums for
multilateral trade and environmental negotiations. In addition, the
Government should embark on an extensive programme to educate
farmers on the need to meet the standards required in the export
markets. In fact, India needs to seek technical assistance in
creating the capacity for meeting such standards and to consider
watershed developments for environmental considerations. Equally
important is the need to disseminate information about possible
export markets to farmers, so that market access is achieved at
minimum cost.
Given the requisite information about markets and
profitability, the likelihood of farmers investing in post-harvest and
processing technologies and storage and efficient transportation
arrangements as well as developing supporting infrastructure is
very high. Although the brave and bold move by India to reduce the
tariff rate for agricultural products from 113 per cent in 1990-1991
to 26 per cent in 1997-1998 deserves to be applauded, the
question of whether India is ready to compete in world markets
remains to be seen. The infant industry argument may still hold for
India to shield itself from external competition but one can easily
question the length of time that is required to that end. Also, a delay
in opening up to foreign trade has the danger that local producers
may become too complacent and never be ready for competition.

As India opens up externally, it is also expected to face

vulnerability in the wider international price fluctuations and thus
 82

Acharya (1998) claims that a minimum price support scheme is

important. These prices can also act as a signal to adopt modern
inputs and invest in yield-raising infrastructure for increasing
production. For instance, keeping basic staple food grains at
reasonable prices would induce farmers to switch over to high
value crops. However, during the 1990s, Kalirajan and others
(2001) shows that procurement prices especially for rice and wheat
have been increasing faster than the general price level. Such high
prices along with guaranteed purchases by the Food Corporation of
India have pushed up market prices. These higher prices are partly
responsible for the large buffer stocks with the Food Corporation.

If this trend continues, India’s comparative advantage will be

eroded. With openness and high price instability, unstable export
revenue can also be expected. One way of reducing such risk is for
India to diversify her agricultural exports. For example, since 1990,
even in commodities such as tea, coffee, cocoa and spices, where
India is supposed to have comparative advantage international
prices have been unstable. Besides increasing the type of exports
to obtain more export revenue, India should also seriously consider
exporting more value added agricultural products through agro-
processing such as processed vegetables, fruits, fish and meat
products given that export or even local demand for basic
agricultural products would decline as incomes rise. The move to
higher value added activities within the agricultural sector also
spells greater opportunities for industrialization and vice versa as
borne by Kalirajan and Shand’s (1997) findings of a bi-directional
relationship between agriculture and industry for most Indian states.

On the other hand, Sivakumar and others (1999) establish

empirical evidence of high forward linkages of agriculture due to the
presence of agro-industries while Satyasaiand Viswanathan (1999)
show the significance of the spill over effects to the industrial sector
via the intensive use of purchased inputs in the agricultural sector.
The lack or slow pace of internal or domestic liberalization is also
seen to hinder the possible gains from external or trade
liberalization. For example, although central zoning restrictions
have been abolished, state government restrictions on inter-state
and even inter-district restrictions on marketing and movement of
goods still exist in many cases. This interferes with the benefits
from crop specialization and economies of scale arising from
comparative advantage. The land market is another example of
distortion whereby land ceilings exist preventing the operation of
 83

large-sized farms. This has led to the emergence of a large number

of small economically unviable land holdings.

The easy leasing of land should be permitted with assurance

of resumption. Yet another problem lies with the insufficiency of
credit to agriculture. From 1995-1996, the Rural Infrastructure
Development Fund was set up to allocate funds for the completion
of projects and the government has committed itself to
strengthening the cooperative credit structure through substantial
refinancing and restructuring of the Regional Rural Banks.
However, as mentioned earlier, due to varying institutional factors
in the Indian states, these domestic reforms can be expected to
yield quite different results.

2.8 CONCLUSION

Although India missed the opportunity to open up two

decades ago, its attempts to do so now must be regarded as better
late than never. Others such as Desai (1999) observe that, “the
logic of the global economy as well as India’s interests dictate that
India become proactive in its liberalization policies. India must
liberalize not because it has no choice but because it is the best
choice”. His lament that India has adopted a ‘victim mentality’ when
it really needs to adopt a ‘winner mentality’ has become less of a
concern as over time, India has shown commitment to stay on the
bandwagon of globalization. Having realized that globalization is a
necessary but not a sufficient condition for high growth production,
India has undertaken economic reforms, both internal and external.
However, it must be ensured that these reforms are synchronized
so that the pace of both reforms is set right in order to work hand in
hand to promote agricultural productivity growth.

Thus, training the farmers and educating them appropriately

to change their mindset and reorienting them to take up new
activities or adopt foreign technology is of utmost importance. In
this context, it is necessary to involve non-governmental
organizations in training and mobilizing the rural poor to face the
challenge of liberalization. Also, with domestic economic reforms,
more care needs to be exercised to draw up state-specific
liberalization measures to maximize their benefits. Lastly, in the
implementation of these reforms for successful globalization, one
crucial element, not entirely within control is the need for good
 84

governance and stability in the political and economic environment.

Political leaders who are the ultimate decision makers in these
matters need to examine their own role dispassionately.

It is quite apparent that at this relatively early stage, there is

little observable evidence of gains to India’s agricultural
performance after opening up. However, there could easily be
benefits that have not yet surfaced, or are yet to be identified and
perhaps too difficult or intangible to measure. Whatever the case, it
is highly likely that it is too soon to assess the full impact of
globalization and economic reforms. Furthermore, the process of
liberalization has been gradual and remains incomplete. For
example, the complete removal of quantitative restrictions after
March 2001 will have provided an opportunity for Indian farmers to
tap world markets and, if they are successful, results should start to
become evident soon. Export promotion via the development of
export and trading houses as well as effective liberalizing export
promotion zone schemes for agriculture are fairly recent measures
and only time will tell as to how effective these measures are. Other
possibilities such as agro-industry parks for promoting exports are
also in the pipeline.
In conclusion, India has successfully set sail on the waters of
globalization and economic reforms and even in the wake of
economic and political instability, she has to carefully steer her
course in order to reap the benefits of increased productivity growth
in the agricultural sector.

2.9 QUESTIONS

1. Explain the concept of India’s agrarian crisis.

2. Examine the role of agriculture in a liberised and globalized
economy.
3. Explain the need of globalization in economic reforms with
special reference to agriculture.
4. Explain agricultural productivity gains from globalization and
economic reforms.
5. Examine the performance and growth of agriculture in India’s
post reform period.
6. Agricultural growth and performance is same in all States :
Comment.

™™™™
 85

Module 2

3
WATER RESOURCES – AVAILABILITY,
UTILISATION AND MANAGEMENT
Unit Structure :

3.0 Objectives
3.1 Water Resources-Availability, Utilisation & Management
3.2 Major and Medium Irrigation systems in India’s water future
and Overview
3.3 Development of Irrigation under the Plans
3.4 Water use Efficiency Studies of Completed Major / Medium
Irrigation Projects
3.5 Questions

3.0 OBJECTIVES

x To study water resources - Availability, Utilisation and

management.
x To study on overview of major and medium Irrigation system in
India water future.
x To study development of Irrigation under the plans.
x To understand water use efficiency studies of completed major /
medium Irrigation Projects.

3.1 WATER RESOURCES – AVAILABILITY,

UTILISATION AND MANAGEMENT

Productivity, equity and sustainability aspects of water use w.r.t.

major, medium and minor irrigation systems – Pricing and
institutional reforms in irrigation – Public investment in irrigation and
watershed development – Equity, ecological and externality
aspects

Water is the most crucial input for agricultural production.

Globally, agriculture accounts for more than 80% of all freshwater
used by humans, most of that is for crop production. Currently
most of the water used to grow crops is derived from rainfed soil
moisture, with non-irrigated agriculture accounting for about 60%
 86

of production in developing countries. Though irrigation provides

only 10% of agricultural water use and covers just around 20% of
the cropland, it can vastly increase crop yields, improve food
security and contribute about 40% of total food production since
productivity of irrigated land is almost three times higher than
that of rainfed land. The Food and Agriculture Organization has
predicted a net expansion of irrigated land of about 45 million
hectares in 93 developing countries (for a total of 242 million
hectares in 2030) and projected that water withdrawals
by the agriculture sector will increase by about 14% during
2000 – 2030 to meet food demand.

Agriculture sector in India has been and is likely to remain

the major consumer of water but the share of water allocated to
irrigation is likely to decrease by 10 – 15 per cent in the next
two decades. Current use efficiency or productivity of irrigation
water is so low that most, if not all, of our future water needs
could be met by increased productivity or efficiency alone,
without development of additional water resources.
Improving water use efficiency by 40% on rainfed and irrigated
lands would be required to counter- balance the need for
additional withdrawals for irrigation over the next 25 years to
meet the additional demand for food. Growing more crop per
drop of water use is the key to mitigating the water crisis, and
this is a big challenge to many countries.

Vagaries of monsoon and declining water table due to

over exploitation have resulted in shortage of fresh water
supplies for agricultural use, which calls for an efficient use
of this resource. Strategies for efficient management of water
for agricultural use involves conservation of water, integrated
water use, optimal allocation of water and enhancing water use
efficiency by crops.

Water-use Efficiency/ Water Productivity

Productivity of irrigation water is defined broadly as the

quantity or value of crop output per unit of water used.
Definition of water productivity varies depending on how the
denominator in this ratio is specified. When, at one extreme,
water released from the system is used as the denominator,
water productivity becomes all-inclusive subsuming water-
use efficiency (WUE), that is, the ratio of consumptive use of
 87

water to the water released. At the other extreme, when the

denominator consists of water lost as evapo-transpiration by
plants in any particular season, and then improvement in water
productivity can arise basically from the improvement in
yields.

For farmers, WUE is the yield of harvested crop product

achieved from the water available through rainfall, irrigation and
soil water storage. Improving WUE in agriculture will require an
increase in crop water productivity (an increase in marketable
crop yield per unit of water removed by plant) and a reduction in
water losses from the crop root zone. The amount of water
required for food production depends on the quantity of
agricultural commodities produced. For example, the production
of 1 kg beef would require 14 times more water than for 1 kg
of wheat grain. Hence, enhancing WUE in agriculture may also
require some socio-economic adjustment to encourage
and develop more water efficient enterprises. For
comprehensive improvement of WUE in agriculture, it is
necessary to raise the following ratios to their maximum: soil-
stored water content/ water received through rainfall and
irrigation, water consumption/ soil storage of water,
transpiration/ water consumption, biomass yield/ transpiration,
and economic benefit/ biomass yield. Upgradation of all
these component parameters is the key issue for enhancing
WUE.

Scope for Improving Water-use Efficiency in Agriculture

Considering the productivity of water in more than 40

irrigation systems worldwide, an International Water
Management Institute study demonstrated a 10-fold difference
in the gross value of output per unit of water consumed by
crops. Some of these differences is due to environment, or the
price of grain versus high- valued crops. But even among
grain-producing areas, the differences are large. In many
areas, potential productivity of water is not realized partly due to
poor irrigation management. Improving performance of irrigated
agricultural systems should be a high-priority action.

Efficient Water Management

Water is the most crucial input for agricultural production.
Vagaries of monsoon and declining water-table due to its overuse
 88

resulted in shortage of fresh water supplies for agricultural use,

which calls for an efficient use of this resource. Strategies for
efficient management of water for agricultural use involves
conservation of water, integrated water use, optimal allocation of
water and enhancing water use efficiency by crops.

Conservation of water
In-situ conservation of water can be achieved by reduction
of runoff loss and enhancement of infiltrated water and reduction of
water losses through deep seepage and direct evaporation from
soil. Runoff is reduced either by increasing the opportunity time or
by infiltrability of soil or both. Opportunity time can be manipulated
by land shaping, tillage, mechanical structures and vegetative
barriers of water flow and infiltrability can be increased through
suitable crop rotations, application of amendments, tillage,
mulching etc. Water loss by deep seepage can be reduced by
increasing soil-water storage capacity through enlarging the root
zone of crops and increasing soil- water retentively. Direct
evaporation from soil can be controlled with shallow tillage
and mulching.

Ex-situ conservation of water can be achieved by

harvesting of excess water in storage ponds for its reuse for
irrigation purpose.

Integrated water use

Efficient utilization of water resources and minimization of

detrimental effect of water management on soil and water
resources can be achieved by the integrated use of water from
different sources viz., by irrigation to supplement profile stored
rainwater, conjunctive use of surface-water and groundwater,
poor and good quality water and recycled (waste) water for
irrigation. Supplemental irrigation for growing crops is an integrated
use of rainwater stored in the profile and the irrigation water
regardless of its source.

Small (30-50 mm) early post-emergence irrigation

stimulates root extension into deeper layers thus causing greater
use of profile-stored water. So the water extraction obtained from
the supplemental irrigation at crucial crop growth period is more
than the proportionate increase in the level of supplemental
irrigation, which is referred as priming effect of the supplemental
 89

irrigation. The priming effect varies with soil type, fertility level
and amount of irrigation. It generally increases with the increase
in the N rate, soil water retentively and decreases with the
increase in the amount of irrigation after a certain threshold value.

Optimal allocation of water

Optimal allocation of available water among the competing
crops and optimum timing of application is to be decided under
adequate and limited water supply situation so as to maximize
economic returns from available water. Under adequate water
supply situation optimal allocation involves timing of irrigations so
that crop yields are maintained at their achievable potential, as per
climatic conditions of the location. Under limited water supply
situation irrigation water must be allocated so that periods of
possible water deficits coincide with the least sensitive growth
periods. Thus irrigation scheduling should be decided based on
the water availability. The procedure for optimal allocation of
water under limited water supply condition includes quantifying
water use (ET or T) vs crop biomass relations and
employment optimizing models with operational constraints.
Crop simulation models can be used to schedule irrigation under
different water availability conditions.

Enhancing water-use efficiency crops

Water-use efficiency by crops can be improved by selection

of crops and cropping systems based on available water supplied
and increasing seasonal evapotranspiration (ET). The later can be
achieved by selection of irrigation method, irrigation
scheduling, tillage, mulching and fertilization.

Water use efficiency

The water utilized by crop is evaluated in terms of Water
Use Efficiency. This water use efficiency can be classified into

1. Crop Water Use Efficiency (CWUE)

It is the ratio of crop yield (Y) to the amount of
water used by the crop for evapotranspiration (ET)
 90

2. Field Water Use Efficiency (FWUE)

It is the ratio of crop yield (Y) to the total amount of water
used in the field (WR)

3. Physiological Water Use Efficiency (PWUE)

The physiological WUE is calculated in terms of the
amount of C2O fixed per unit of water transpired

Strategies to increase water use efficiency

Water-use efficiency (WUE) of crops can be improved by
selection of crops and cropping systems based on available water
supplies and increasing seasonal evapotranspiration (ET). The
later can be achieved by selection of irrigation method, irrigation
scheduling, tillage, mulching and fertilization.

Selection of crops and cropping system

Selection of crops and cropping systems for high water-use
efficiency should be done on the basis of availability of water
under rainfed crops, limited irrigated crops and fully irrigated
crops. The average WUE of different crops varies from 3.7 to
13.4 kg/ha/mm of water.

Table 3.1. WUE of some important field crops in India

Crops WUE (kg-ha/mm)

Rice 3.7
Finger millet 13.4
Wheat 12.6
Sorghum 9.0
Maize 8
Groundnut 9.2
 91

Table 3.2. WUE of some important field crops in India

High Medium Low

Maize Wheat Green
Sorghum Barley Gram
Pearl millet Oats Pigeonpea
Finger millet Soybean
Sugarcane Peas

Rainfed crops
The amount of rainfall converted into plant-available soil
water is determined by the amount and intensity of rainfall,
topography, infiltrability and water retentivity of soil, depth of root
zone and soil depth. Depth of soil due to its effect on the
available water storage capacity decides the type of cropping
locality. On medium soil depth monocropping or intercropping can
be practiced whereas in deep soil with 200 mm available soil
moisture status double cropping can be practiced.

Limited irrigated crops

Selection of crops and cropping sequences under limited
irrigation situation should be done as there should be minimum
water stress during the growing season although some water-
stress to the crops and associated yield reduction is inevitable.
Therefore, along with selection of crops special care should be
taken for irrigation scheduling of these crops.

Fully irrigated crops

Under fully irrigated condition selection of crops is not
constrained by water availability but by adoptability of the crops
to prevailing climatic and soil condition. In general, water use
efficiency of C4 plants is higher than C3 plants, particularly under
semi-arid environment.

Increasing seasonal evapotranspiration

Seasonal evapotranspiration (ET) is a measure of
consumptive water use by the crops. Increasing the transpiration
(T) component of ET, results in higher utilization of water by the
crops to increase the productivity. The T can be increased by
following improved irrigation methods, irrigation scheduling, tillage,
mulching and fertigation.
 92

Irrigation method
Efficient micro-irrigation methods like sprinkler and drip
irrigation for utilization of available water in case of scarce in
lean season developed mainly for high value horticultural and
plantation crops could save up to 50per cent of water and also
increase the crop yield and quality substantially.

Irrigation scheduling
Under adequate water availability the main emphasis is on
securing potential yield of the crops without wasting water.
Whereas, under limited water supply, the objective is to achieve
maximum WUE. There are different methods for irrigation
scheduling viz., critical crop growth stages, feel and appearance
method, soil moisture depletion approach, irrigation water at
different cumulative pan evaporation method.

Tillage
Tillage practices mainly influence the physical properties of
soil viz., soil moisture content, soil aeration, soil temperature,
mechanical impedance, porosity and bulk density of soil and also
the biological and chemical properties of soil which in turn
influence the edaphic needs of plants viz., seedling emergence
and establishment, root development and weed control. Tillage
also influences the movement of water and nutrients in soil and
hence their uptake by crop plants and their losses from soil-plant
system.

Tillage affects the WUE by modifying the hydrological

properties of the soil and influencing root growth and canopy
development of crops. Tillage methods influence wettability, water
extraction pattern and transport of water and solutes through its
effect on soil structure, aggregation, total porosity and pore size
distribution. Tillage system suitable for a soil depends upon soil
type, climate and cropping system practiced. Shallow inter-row
tillage into growing crops reduces short-term direct evaporation
loss from soil even under weed-free condition by breaking the
continuity of capillary pores and closing the cracks.

Deep tillage to a depth of 30-45 cm at 60-120 cm intervals

helps in breaking subsoil hard pans in alfisols facilitating growth
and extension of roots and improving grain yield of crops as well
as increasing residual soil moisture. However, the benefit is
absent in suboptimal rainfall years and restricted to only deep-
rooted crops in high rainfall years.
 93

Conservation tillage practice normally stores more plant

available moisture than the conventional inversion tillage
practices when other factors remain same. The high soil moisture
content under conservation tillage is due to both improved soil
structure and decrease in the evaporation loss under continuous
crop residue mulch cover. Increase in the available water
content under conservation tillage, particularly in the surface
horizon, increases the consumptive use of water by crops and
hence improves the water use efficiency.

Off season tillage or summer ploughing opens the soil and

improves infiltration and soil moisture regimes.

Mulching
Mulching influences WUE of crops by affecting the
hydrothermal regime of soil, which may enhance root and shoot
growth, besides it helps in reducing the evaporation (E) component
of the evapotranspiration. Under moisture stress conditions, when
moisture can be carried over for a short time or can be conserved
for a subsequent crop, mulching can be beneficial in realizing
better crop yield.

Fertilization
There is strong interaction between fertilizer rates and
irrigation levels for crop yield and WUE. Application of nutrients
facilitates root growth, which can extract soil moisture from deeper
layers. Furthermore, application of fertilizers facilitates early
development of canopy that covers the soil and intercepts more
solar radiation and thereby reducing the evaporation.

Weed control
Weed management is the most efficient and practical
means of reducing transpiration. Weeds compete with crops for
soil moisture, nutrients and light. Weeds transpire more amount of
water compared to associated crops plants.

Cultural manipulations
A timely –sown crop result in good stand and vigour and
thereby higher efficiency of the basally-applied N fertilizer. On the
other hand a crop sown late requires additional inputs like seed,
fertilizer, irrigation etc. to compensate for the loss in crop stand
and yield. In adequate crop stand is the major cause of low crop
 94

productivity under stresses environment like rainfed, drought and

flood-prone conditions. Weed competes with crop plants for
water, nutrients, sunlight and thereby reduce crop yields and
consequently NUE.

Varieties
Breeding and selecting crop cultivars that make more
efficient use of soil and fertilizer N (including higher N fixation and
N portioning) while maintaining productivity and crop quality has
been a long-term goal of production agriculture. Development of
nutrient efficient cultivars could help decrease fertilizer inputs and
resulting nutrient losses to air and groundwater..

Incidence of insects and diseases

Plant health is government by diseases, insects and
weeds that compete for water and nutrient resources and low
NUE. Incidence of insects and diseases generally increases at
higher levels of N application. Stem-borer infestation in rice was
42per cent more than application of 40 kg N/ha than without N
under lowland conditions (Sharma, 2002). At higher levels of N,
the rice crop lodged and showed greater susceptibility to bacterial
leaf blight and bacterial lead, streak, resulting in low grain yield.

Precision farming techniques

Application of N on the basis of soil test valued is
essential to economize on the cost of fertilizer application. Land
levelling and root zone wetting through micro-irrigation systems
also lead to efficient use of water and N fertilizer inputs.
Employment of drip irrigation and fertigation techniques have
grained popularity in recent years, particularly in the widely-
spread high-value crops. Precisely in controlled quantity and at
appropriate time directly to the root zone as per crop needs at
different growth stages. This nor only enhances WUE but also
enables efficient use of nutrients, particularly N for higher
productivity. Using N in accordance with chlorophyll meter has
been found to be more efficient than fixed schedule N fertilizer
splits as key growth stages. Precision land levelling has
tremendous impact on agronomic efficiency of N, P and K. Under
irrigated agriculture, precision water management has large
bearing on the water productivity, higher yield and income. Higher
water productivity and NUE was reported under precision drill
seeding compared to broadcasting and traditional drill.
 95

Interaction with other Inputs

The utilization of nutrients can be improved by optimum
and synergistic interaction with other inputs viz., water, tillage
and mulches. These inputs modify the physical, chemical and
biological environment of soil, which influence the nutrient recovery
by crop plants.
Significant and positive interaction between applied N and
water supply was observed on wheat yield and water and nutrient
use efficiency by wheat (Bhale et al., 2009). With 80 kg N/ha, N
use efficiency increased up to 300 mm water supply in sandy loam
soil. Interestingly, with 120 kg/ha, it did not increase when water
supply was increased from 50 mm to 125 mm, but increased
markedly when water supply was further increased to 300 mm
(Table No 3.3). This implied that the balance between these two
inputs influenced input use efficiency.

Table 3.3 Nitrogen and irrigation effects on water use efficiency

(kg/grain/mm) and nitrogen use efficiency (kg grain/kg fertilizer N) in
sandy loam soil

Application irrigation and nutrient i n conjunction through

pressure irrigation system result in efficient utilization of both
resources. This will save water as well a reduces nutrient
leaching losses and thereby increased WUE as well as NUE. This
will increase the yield and quality f crops. There is saving of
water and nutrient to the extent of 35 and 22 per cent,
respectively. Fertigation is most commonly used for plantation
crops like banana, sugarcane and orchards of Maharashtra.

Amelioration of problem soils

Soil related constraints affecting crop production influence
the nutrient use efficiency crops. For example liming of acid soils
with calcite, dolomite or paper mill sludge improves the
phosphorus use efficiency. Similarly amelioration of alkali and
saline-alkali soils with gypsum helps in improving nutrient use
 96

efficiency. Any other physical constraint like sub-soil compaction

should be ameliorated using appropriate tillage practices to improve
the nutrient use efficiency.

3.2 MAJOR AND MEDIUM IRRIGATION SYSTEMS IN

INDIA’S WATER FUTURE: AN OVERVIEW

Water Availability in India

India receives a total precipitation of about 4000 Billion

cubic metres (BCM). However, rainfall in India shows a very
high degree of spatial and temporal variability. Nearly 3000 BCM
of precipitation occurs during the monsoon months from June till
September. The spatial variability is also very conspicuous as it
varies between 100 mm in Western Rajasthan and 11000 mm at
Cherrapunji in Meghalaya. There are 13 major river basins in the
country having a catchment area exceeding 200 sq.Km. The flows
in rivers vary significantly. Available water resources have been
assessed to be 1869 BCM. However in view of the physiographical
and topographical features, the utilizable water is assessed as
1123 BCM comprising of 690 BCM of surface water and 433 BCM
of replenishable groundwater.

Considering the high variability in the yield of the rivers

both temporally and spatially, conservation of water resources
becomes very important. As per available information, a total of
about 225 of surface water storage have since been created.
Further due emphasis has been laid on water conservation
through rainwater harvesting and artificial recharge to the
groundwater. However, the per capita storage of about 190 cubic
meters in the country is miniscule compared to per capita
storages in countries like USA, Australia, Brazil & China which are
about 5961, 4717, 3388 and 2486 cubic meters respectively. Due
emphasis has to be laid on conservation of water, recycling of water
into utilizable water, introducing efficient methods and better
management practices. This is more so to meet the increasing
demand of water for various purposes in view of growing
population, industrialization and urbanization.

Population Growth & Demographic Changes and their Impact

The total population of the country in 1901 was 238.4
million. After independence, our country witnessed a spurt in
 97

population growing at a rate more than 20% per decade. In 1951,

it was 361.1 million which increased to 439.2 million in 1961 and
then on to 683.3 millions in 1981. The surge was unabated
through 1990s. The population of 846.4 millions in 1991 attained
1028.7 million at the turn of the twenty first century i.e in 2001. It
is being forecast that the population could be of the order of
about 1210 millions by 2011 on the basis of about 17.64%
growth rate for the 2001-2011 decade. Of particular interest to
development is the changing character of the urban-rural trend.

Table 3.4 Population Growth & Urban-Rural Characteristic Trend

Unit: In Millions

Total %Population % Urban

Year Population Growth Rural Urban Population
1951 361.1 298.6 62.5 17.31
1961 439.2 21.63 360.3 78.9 17.96
1971 548.2 24.82 439.0 109.2 19.92
1981 683.3 24.64 525.6 157.7 23.08
1991 846.4 23.87 630.6 215.8 25.50
2001 1028.7 21.54 742.6 286.1 27.81
2011* 1210.2 17.64 833.1 377.1 31.16
*provisional

It is obvious that urban growth trend is progressive while

rural growth is regressive as per the emerging results of the
Census study. Relatively increased rate of urban population
growth would require relatively higher allocation of water for
domestic purposes. Further, the industrial growth also calls for
more requirement of industrial water supply. Related challenge
also comes in the form of pollution of water which needs to be
addressed as part of urbanization issues.

Sectoral Demands on Water

Water requirement for various sectors as assessed by
NCIWRD are given in Table here:
 98

Table 3.5 Annual Water Demand

The High and Low projections in the Table above are based
on the upper and lower limit of the population projection for the
year. NCIWRD has adopted figures of 1581 million and 1346 million
as the high and low projection of population for the year 2050.

a) Irrigation Requirement
Irrigation Use is the most critical parameter in water
management. NCIWRD estimates that the share of irrigation
demand out of the total will decline to 72% by 2025 and to 68%
by 2050 as revealed in Table above. The population for 2012 has
been projected to be of the order of 1.2 billion by Census study
(as given in Section1.3). Hoping that the present decadal growth
rate will decline steadily, a population of 1.58 billion, the upper limit
adopted by NCIWRD will itself be under-estimation for 2050.
Therefore, for analysis, only the higher limit is adopted. Between
2025 and 2050, there is a projected demand gap of nearly 200
BCM. Considering from XII Plan onwards, the demand gap could
be of the order of 250 BCM. Even if a fair percentage of this
additional demand is borne by groundwater, the extra burden on
surface irrigation will be of the order of 150 BCM to achieve
self-sufficiency by 2050. The need and urgency about creating
more storage through Major & Medium Irrigation sector in the
country is apparent.

b) Non-Irrigation (Domestic, industrial & energy) Requirements

Due to rapid industrialization and urbanization in a

developing country like ours, the demands on domestic, industrial
and energy requirements are expected to mount at a rapid rate.
NCIWRD has projected for domestic-industrial-energy
requirements, an additional demand of 100 BCM for 2050 over
 99

that of 2025. Considering from XII Plan onwards, it can be

estimated to be of the order of 150 BCM. The extent of this
additional demand can be realized from the fact that it is almost
equal to the additional live storage capacity envisaged from projects
likely to be commissioned in future.

Impact of Climate Change

With all these challenges notwithstanding, another challenge
has emerged - the global threat of climate change. It is understood
in common terminology as 'Global Warming'. The effect of climate
change could be, as experts attribute, the thinning of ice
cover and reduction of its duration and increase in sea level due
to increase in temperature. There could be changes in the
variability of climate and changes in the frequency and intensity of
extreme climatic events. It could be induced through human
activities or natural variability. It affects all natural processes
thereby influencing agrarian economies considerably. Climate
change is not only a major global environmental problem but also
an issue of great concern to a developing country like India.

Initiatives Taken By Government Of India

With the view to address this challenge, the National
Action Plan on Climate Change (NAPCC) has been prepared by
the Government of India and released by the Hon’ble Prime
Minister on 30th June, 2008. The NAPCC has laid down principles
and identified the approach to meet the challenges of impact of
climate change through eight National Missions. One among
them – National Water Mission identifies the strategies for
achieving the goals of (a) Comprehensive water database in
public domain and assessment of impact of climate change on
water resources (b) promotion of citizen and state actions for water
conservation, augmentation & preservation (c) Focused attention to
vulnerable over-exploited areas (d) increasing water use efficiency
by 20% and (e) promotion of basin-level integrated water resources
management.

National Water Mission

The main objective of the National Water Mission is

“conservation of water, minimizing wastage and ensuring its
more equitable distribution both across and within States
through integrated water resources development and
management”. The Mission Document outlines the goals,
 100

strategies, action plan, timelines and assigns nodal

responsibility for achieving the identified goals. The five
identified goals for National Water Mission are:

1. Comprehensive water data base in public domain and

assessment of the impact of climate change on water
resources;

2. Promotion of citizen and state actins for water conservation,

augmentation and preservation;

3. Focused attention to vulnerable areas including over-exploited

areas;

4. Increasing water use efficiency by 20%;

5. Promotion of basin level integrated water resources

management.

Two very important targets to be undertaken during XII Plan

relate to increase in the water use efficiency by 20% and reducing
the gap of about 15% between the irrigation potential created and
the irrigation potential utilized by half during the XII Plan. It is in
this background that the focus of the XII Plan in respect of major
and medium irrigation sector should be primarily on bridging the
gap between irrigation potential created and utilized and also
promoting of measures fo increasing water use efficiency.
Simultaneously due importance should also be given to the
completion of all ongoing projects at the earliest.

It may now be emphasized that the objective of bridging the

gap between IPC & IPU, and that of increasing the water use
efficiency require immediate actions for adoption of better
management practices.

A CRITICAL REVIEW OF MMI PROJECTS: 1947-2010

Recommendations of Irrigation commissions

The first Irrigation Commission was appointed in 1901 to

report on irrigation as a ‘means of protection against famine in
India’. Prior to setting up of this commission, a few Famine
Commissions had been set up and those Commissions had also
recommended the development of irrigation works to contain the
adverse impact of frequent famines. However, it was only after
 101

appointment of the First Irrigation Commission that a number of

ambitious construction programmes were taken up to fight famine.
The Commission in its Report recommended financial yardsticks
for taking up famine relief and protective works. It also made a
thorough review of irrigation development in the provinces and
recommended proposals for new schemes. The more
important public works recommended by the Commission
included Chankapur storage on river Girna, Maladevi storage on
river Pravara, storage works on the rivers Ujjani and
Ghataprabha, improvement of Kurnool-Cuddapah Canal, storage
works on rivers Cauvery and Krishna, the Ken Canal, the diversion
of Sarada waters into the Ganga above the Narora weir and
location of suitable storage sites on the rivers Sabarmati, Mahi and
Narmada.

That Commission inter-alia suggested the need for

conjunctive use of surface and ground water, preparation of
complementary programmes covering engineering works,
watershed management and ayacut development and also
recommended constitution of seven River Basin Commissions for
the whole country to oversee all water resources development.
Keeping in view the social urges and the demand for the
removal of regional and social disparities, the Commission
recommended construction of minor works in a time bound
framework in under-developed area. In order that irrigation in India
should pay for itself, the Commission recommended that the water
rates should be raised to a level sufficient to cover the cost of
maintaining and running the works and a reasonable rate of
interest on investment. It also advocated the use of computers for
the collation of irrigation and agriculture statistics in order to
provide the latest information to irrigation planners.

The Irrigation Commission supported the adoption of B: C

Ration criteria in sanctioning projects as practiced then. However,
it also recommended that the practice of accepting projects with
B:C ratio more than 1.5 be relaxed in the case of drought areas
with lower limit of 1.0. The Commission also recommended the
setting up of a High Level Authority, “The National Water
Resources Council”, to take policy decisions for the conservation,
utilization and inter basin transfers of water; to lay down priorities
for the use of water; to keep a continuous watch on the
working of the River Basin Commissions and problems of
inter-state rivers and to ensure that the formulation and
 102

execution of irrigation projects were in accordance with the highest

national interest.

The Commission further highlighted the importance of soil

conservation in protecting the watershed and, therefore,
recommended adoption of such measures as afforestation,
pasture development, protection of river fringes, road sides and the
shore lines of the reservoir and the control of forest fires.
Similarly, the concept of participatory irrigation management
by constituting water users’ associations was another important
recommendation for economical and efficient use of water
resources. The Commission also suggested that a special
administrative agency for the coordinated and expeditious
development of command area under the medium and major
projects was necessary and each project should have a separate
ayacut development agency. These recommendations were taken
into consideration from time to time during the subsequent Plan
Periods.

3.3 DEVELOPMENT OF IRRIGATION UNDER THE

PLANS

In the First Five Year Plan (1951-56), the country launched a

major irrigation programme. A number of Multipurpose and Major
Projects were taken up, such as Bhakra Nangal, Nagarjunasagar,
Kosi, Chambal, Hirakud, Kakrapar and Tungabhadra.
Simultaneously, minor irrigation schemes including ground
water were given emphasis under the Agricultural Sector, along
with financial assistance from the Centre.

During the periods of Second Five year Plan (1956-61), third

Five year Plan (1961-66) and the Three Annual Plans (1966-69),
irrigation programmes were being implemented with new starts.

During the Fourth Five Year Plan (1969-74), the emphasis

was shifted to the completion of ongoing projects, integrated use
of surface and ground water, adoption of efficient management
techniques and modernization of existing schemes. The new
starts, however, continued. During the fifth Plan (1974-78),
Command Area Development Programme was launched as a
Centrally Sponsored Scheme with the objective of reducing
the lag between potential created and optimum utilization of
 103

available land and water. The programme was conceived as a

means of co-ordinating all related activities to meet with these
objective under one umbrella. Initially, 60 Major and Medium
projects were covered with a CCA of 15 Mha.

During the Annual Plans of 1978-80 and the Sixth five Year
Plan (1980-85), ‘new starts’ continued and at the end of Seventh
Plan, there were as many as 182 major and 312 medium ongoing
projects requiring an estimated amount of Rs. 39,044 carore at the
1990-91 price level for their completion. ‘New starts’ were,
therefore, restricted considerably and greater emphasis was laid
on completion of projects, which were in the advance stages of
completion (those with an expenditure of 75 percent or more). This
was continued during 1990-91 & 1991-92 Annual Plans, VIII Plan
(1992-97) and IX Plan (1997-2002).

For speedy completion of ongoing projects in advance stage

of construction Accelerated Irrigation Benefit Programme (AIBP)
was launched in 1996-1997. During VIII Plan period irrigation
potential of 2.22 mha was created under major and medium
sector at an annual rate of 0.44 mha per annum. During IX Plan
period this increased to 4.12 mha out of which 1.65 mha (nearly
40%) was through AIBP. Renovation, Modernization and
Rehabilitation of old irrigation schemes gained momentum. User’s
participation in major and medium irrigation schemes received
greater attention. Repairs and improvement to the minor irrigation
projects, as a part of integrated micro-development, also received
encouragement. Similarly, sprinkler and drip irrigation programmes
and the conjunctive use of surface and ground water gained
momentum.

Development and Utilization of Irrigation Potential – Trend

Analysis

As per the reassessment of the Committee constituted by

MoWR in May 1997, the currently accepted figures of Ultimate
Irrigation Potential (UIP) under the major and medium projects
sector is 58.47 MHa and Potential Created (PC) and utilized up to
X Plan are 41.64 Mha and 33.74 respectively. The assessment
of Ultimate Irrigation Potential needs to be periodically
reviewed to account for revision in scope, technological
advancement, inter n transfer of water, induced recharging of
ground water, etc. The created irrigation potential in respect of
major and medium projects increased from 9.72 mha in preplan
 104

period to 46.24 mha (tentative) including 4.60 MHa anticipated to

be created in XI plan. In the corresponding period the potential
utilization has been from 9.70 mha period during pre plan period
to 35.10 mha (including 1.36 Mha anticipated during XI plan). The
pattern of irrigation potential creation and its corresponding
utilization during the plan period is shown in Figure 3.1 below:

Figure 3.1
 105

Plan-wise expenditure incurred in Irrigation Sector

The Plan-wise expenditure incurred on Irrigation and Flood

Control Sectors in shown in

Table 3.6 below:

Table 3.6: Plan wise expenditure incurred on Irrigation and Flood

Control Sectors

Although plan expenditure on irrigation has increased from

Rs. 441.8 crore in the 1stPlan to Rs. 100106 crore in the X Plan, the
share in total plan expenditure had decreased from 23% in the Ist
Plan to 6 % in the X Plan. The expenditure in respect of major/
medium projects vis-à-vis the overall expenditure on irrigation
sector as a whole is indicated in the figure 3.2 below.
 106

figure 3.2

Irrigation Projects: Time and Cost over runs

The numbers of major & medium projects taken up and

completed in different plan periods are given in Table 2.3

Table 3.7 Plan-wise proliferation of Schemes in MMI Sector

 107

The projects being taken up and being completed from time

to time have been analysed and the balance projects awaiting
completion at the end of each plan period is given in the Fig. 3.3
below:

Study of the graph (Fig: 3.3) indicates that there has been
an increase in the number of projects awaiting completion at the
end of IV Plan. However, the backlog has remained between 500
and 600 projects since then. The backlog decreased at the end
of VII plan but increased again to the present levels. The present
back log is of the order of 571. It is, therefore, necessary that
the ongoing projects be given attention for ensuring
completion with focused funding under the schemes like AIBP and
the implementation of new projects be taken up in case of
specific necessity only. Simultaneously, the increase is indicative
of a saturation of the capacity of the individual state governments
towards physical completion of the projects. While financial
capacity building is addressed through schemes like AIBP, it is
necessary to address the problem of other measures like
capacity building in terms of human resources and other
software measures also.
 108

Figure : 3.3

Cost overruns

A study was made in respect of ongoing, major/medium and

ERM projects separately by analyzing their latest estimated costs,
year of start and total expenditure envisaged against the
projects till XII plan by which most of the projects are targeted to
complete.

In respect of ERM projects, there were outliers like

Choudhary Charan Singh Lalchura project of UP which
indicated a cost escalation of the order of 3000% from 1978
onwards. However, the project has not been considered a
representative one and ignored in view of the fact that ERM
projects are not expected to have such long gestation period
and the project is that of involving new construction of dam
and reservoir. For rest of the 12 representative projects, there was
a maximum escalation of the order of 138 % over the original
cost indicating an escalation of 1.38 times the estimated
approved cost for one project. Rest of the projects has indicated no
significant cost escalation.

In respect of ongoing major projects, out of 151 projects, 24

projects indicated very high cost escalation of the order of 1000%
and more. However, these projects have been taken up earlier
than 1980 and may have specific problems of implementation. For
the rest of the projects, the average escalation is of the order of
200% or less. Most of the projects have the start year later then
1985. In respect of medium projects, out of 132 projects, 24
projects indicate escalation of 500% or more. The rest are well
spread out between no escalations to 500% escalation. The cost
 109

escalation does not indicate any relation with the year of start
and many recently taken up projects also show the escalation
which is a quite substantial.

Overall, it is seen that the escalation Time and cost overruns

have been a major cause for worry with M M I projects. Overall,
the escalation is influenced strongly by local conditions and
cost overruns occur due to time overruns and consequent
price escalation over time. Provision of financial resources in a
timely fashion with adequate capacity to manage them by the
implementing departments is the need of the hour. This indicates
that implementation strategies adopted by the individual project
authorities need detailed study and specific solutions for
prevention of further escalation in the costs. There were no
significant regional trends in the escalation value of different types
of projects.

Micro Irrigation

Surface / gravity irrigation needs more water in compared to

micro irrigation and leads to water accumulation of excess water in
absence of proper drainage arrangement. Yields of crop are better
in micro irrigation in addition to the saving of water. Water saving
in various crops from sprinkler irrigation ranges from 16% to
69% over the traditional method and increase in crop yield from
3% to 57% whereas in drip water saving range is5% to 68% and
yield increase in crop is 10% to 50%. Although, it involves more
O&M cost for energy charges as compared to surface irrigation,
micro irrigation is more efficient system to increase water use
efficiency. Irrigation efficiency in drip irrigation is about 90% as
compared to about 65% in the case of sprinkler irrigation and about
35-50% in case of lined distribution of conventional method of
irrigation as per the CWC studies, 1991. In addition to water
saving, micro irrigation results in enhanced growth & yield, saving
labour & energy, flexibility in operation etc.

Micro Irrigation is being implemented through drip or

sprinkler irrigation systems depending upon the crop and agro
climatic conditions. In Sprinkler Irrigation, water is discharged
under pressure in the air through a set of nozzles attached to a
network of high density polyethylene (HDP) pipes, simulating
rainfall. These systems are suitable for irrigating crops where the
 110

plant density is very high. Sprinkler Irrigation Systems may be

portable, semi-permanent and large volume sprinkler.

Drip Irrigation involves technology for irrigating plants at the

root zone through emitters fitted on a network of pipes (mains,
sub-mains and laterals). The emitting devices could be drippers,
micro sprinklers, mini-sprinklers, micro-jets, misters, fan jets,
micro- sprayers, foggers etc. which are designed to discharge
water at prescribed rates.

At present, central assistance is being provided under

CADWM Programme for development of infrastructure to
facilitate use of sprinkler/drip irrigation systems as an alternative to
construction of field channels. The assistance under this item
will be limited to construction of stilling tank, pump house and
laying of conveyance pipes up to farmers’ fields. The cost norms
as applicable for OFD works will also be applicable for such
works.

3.4 WATER USE EFFICIENCY STUDIES OF

COMPLETED MAJOR/MEDIUM IRRIGATION
PROJECTS

To make a realistic assessment of water use efficiency and

performance of completed irrigation projects, the studies in
respect of a few completed Major/Medium Irrigation Projects were
taken up by Government of India by actual field
measurements of discharges and losses in canal & distribution
system. The scope of studies was evaluation of following
efficiencies and aspects of completed Irrigation Projects:
1. Storage Efficiency;
2. Conveyance efficiency;
3. On Farm application Efficiency;
4. Drainage Efficiency;
5. Irrigation Potential created and utilized.

The selected projects are located in various agro

climatic zones and thus are representative of major regions of
India.

To have a realistic assessment of Water Use Efficiency of

Completed Major/Medium Irrigation Projects in the country, the
studies of a few projects on pilot basis were taken up in 2006 by
 111

Central Water Commission under the Plan Scheme of Ministry of

Water Resources – ‘R&D in Water Sector’. The studies of 30
projects have been completed so far.

Present Status of Water Use Efficiency of Irrigation Projects in

India Based On Studies Carried Out

The result of studies are summarized and given in Table-3.8

The table gives the name of the project, type of the project and its
culturable command area, conveyance efficiency, on-farm
application efficiency and overall water use efficiency of the project.

Table-3.8: Water Use Efficiency of Completed Major/Medium

Irrigation Projects based on Field Measurements of Losses

Sl. Name of Culturable Conveyance On Farm Overall

No. Project Command Efficiency Application Project
Area (Hectare) (%) Efficiency Water Use
(%) Efficiency
(%)
(1) (2) (3) (4) (5) (6)
1. Bhairavanithipp 4,856 86 67 58
a Project
2. Gajuladinne
(Sanjeevaiah 10,300 57 45 26
3. Gandipalem 6,478 73 38 28
Project
Godavari Delta
4. System
(Sir Arthur 4,10,108 83 54 45
Cotton
5. Kurnool –
Cuddapah 65,465 62 45 28
C l
6. Kaddam 27,519 51 36 18
Project
7. Koil Sagar 11,700 83 75 62
Project
8. Krishna Delta
System 5,29,000 87 46 40
9. Nagarjuna 8,89,000 56 39 22
Sagar Project
10. Narayanapuram 15,855 47 32 15
Project
11. Nizamsagar 93,659 87 45 39
Project
12. Srisailam 59,900 50 34 17
Project
 112

13. Rajolibanda
Diversion 35,410 82 51 42
14. Somasila 54,650 56 32 18
Project
15. Sri Ram Sagar 3,71,054 78 57 45
Project
16. Tungabhadra
High Level 45,800 81 58 47
Canal
17. Tungabhadra
Low Level 61,163 72 45 32
18. Vamsadhara 82,087 91 58 53
Project
19. Yeleru Project 27,240 50 28 14

20. Augmentation
Canal 85,443 79 72 57
Project
21. Dholabaha 2,600 74 71 53
Dam Project

22. Ranjit Sagar 3,00,000 51 65 33

Dam Project

23. Ahraura Dam

Irrigation 14,964 70 70 49
Project
24. Matatila Dam 1,79,880 68 80 54
Project

25. Naugarh Dam

Irrigation 64,221 71 70 50
Project
26. Pili Dam 4,044 58 65 38
Project

27. Walmiki 6,271 62 62 38

Sarovar
Project
28. East Baigul
Reservoir 16,605 64 65 42
Project
Aver 69 52 38
age
 113

Based on these limited studies, it may be concluded that

water use efficiency of Irrigation Projects in India is quite low and
there is a huge scope to increase the same.

Major Findings and Recommendations of studies

A. Water Use Efficiency

x Wide variation in the water use efficiency of projects.
x Varies from as low as 14% to high up to 62%.
x Average values of efficiencies:
- Conveyance: about 70 %;
- On farm application: about 50 %;
- Overall project efficiency: about 35 %
‘On-Farm application Efficiency’ is relatively less in comparison
to conveyance efficiency.
B. Major Findings for Low Water Use Efficiency
Poor or non-maintenance of canal and distribution network
resulting in:
- Growth of weed & vegetation;
- Siltation of canals;
- Damages in lining in lined canals;
- Distortion of canal sections due to siltation or collapse of slopes;
- Leakages in gates and shutters;
a. Non provision of lining in canals, field channels & water
courses passing through permeable soil strata and thus having
high seepage losses;

No regulation gates on head regulators of minors causing

uneven distribution of water;
Over irrigation due to non-availability of control structures in
distribution system;
Poor management practices;
Lack of awareness among farmers

Measures recommended for increasing Water Use Efficiency

A. Structural Measures

a. Regular/periodic maintenance of canals by clearing off weed/

vegetation growth etc.;
b. Restoration of sections of all channels to their designed
sections;
c. Repair of damaged lining in canals and regular
 114

maintenance of lining so that progressive damage to lining

could be avoided;
d. Selective lining of canals in reaches passing through permeable
soil strata;
e. Lining of field channel/water courses having high losses;
f. Regular maintenance of gates and shutters so as to eliminate
losses on account of leakages.
g. Repair / Replacement of damaged gates and shutters;
h. Improve control in distribution networks by providing
appropriate control structures in canals and distribution system;
i. Installation of water meters for ensuring volumetric supply of
irrigation water to farmers;
j. Rehabilitation & Restoration of Structures.
B. Non-structural Measures

Involvement of farmers in the management of Irrigation

Systems for ensuring equitable distribution and efficient use of
irrigation water;

a. Formation of Water Users Associations in the command area

and giving them the responsibility of distribution of irrigation
water and maintenance of Irrigation system progressively
starting from field channels;
b. Adopting Participatory Irrigation Management practices.
c. Training of farmers so as to educate them on various
issues related to correct agricultural practices and the
advantage of optimal irrigation and harms of over Irrigation.
d. Providing agricultural extension facilities in the command of
each Project.
e. Appropriate pricing policy for irrigation water to avoid wastages
and over irrigation.

Actions Being Taken For Enhancing Water Use Efficiency Of

Irrigation Projects And Role Of Farmers

Government of India has taken many steps for enhancing

the water use efficiency of existing Irrigation Project, Projects
under execution and projects contemplated for execution in
future:

(i) A National Water Mission has been set up and one of its
goals is to increase the water use efficiency by 20%.
(ii) Lack of data is a serious constraint to improving water use
efficiency in irrigation.
 115

(iii) Encouraging and popularizing water saving technologies for

irrigation like sprinkle and drip irrigation especially in water
deficit areas.
(iv) Low ‘On-farm application efficiency’ is the main culprit for having
low water use efficiency of Irrigation Projects. One of the
reasons for low on farm application efficiency has been
non-existence of water channels and water sources at the field
level in many projects due to non development of
command area. Pari passu development of command is being
insisted upon in all ongoing irrigation projects so that irrigation
potential created could be utilized concurrently and irrigation
water is utilized efficiently.
(v) Invariably, the farmers at head reaches draw more water and
farmers in the middle and tail reaches receive less water or
no water at all, resulting in low water use efficiency of
irrigation projects. This problem can be resolved only by
involvement of beneficiaries i.e. farmers in the distribution of
irrigation water at field level and in the management of
irrigation systems. Accordingly, the formation of Water User
Associations in the command area of Irrigation Projects is
being encouraged and insisted upon so as to evolve
farmers in the distribution and management of irrigation
projects.
(vi) Participatory Irrigation Management practices and Farmer’s
cooperatives are being promoted by Government of India.

3.5 QUESTIONS

1. Explain the concept of water use efficiency in agriculture.

2. Explain the importance of selection of crops and cropping
system for high water-use efficiency.
3. Discuss the impact of population growth on availability of water
in India.
4. Write a note on water availability in India.
5. Critically examine the major and medium irrigation system in
India.
6) Explain development of irrigation during planning period in India

™™™™
 116

4
INSTITUTIONAL REFORMS
Unit Structure :

4.0 Objectives
4.1 Introduction
4.2 Need for Reforms
4.3 Field level Reforms
4.4 Management Level Reforms
4.5 Necessity of Participatory Irrigation Management (PIM)
4.6 Capacity building of farmers and functionaries
4.7 Strengthening of Water and Land Management Institutes
(WALMIs)
4.8 Suggestions for Private Sector / NGOs
4.9 Questions

4.0 OBJECTIVES

x To study institutional set up of major and medium irrigation

projects.
x To understand the need for institutional reforms.
x To study the field level reforms.
x To study management level reforms.
x To study the necessity of participatory irrigation management
(PIM)
x To study the capacity building of farmers and functionaries.
x To study the strengthening of Water and Land management
Institutes.
x To understand concept of water audit

4.1 INTRODUCTION
The implementation and sustained operation of major and
medium irrigation projects is a prime necessity for efficiently
delivering the water resources to the beneficiaries in an
optimal manner. The development and implementation of major
 117

and medium irrigation projects has a long gestation period. Also,

the project is required to last “forever” as the benefits accruing
from the project assume ever increasing economic
significance. The irrigation project, therefore, faces a changed
environment in terms of technological, social and financial
aspects over its operational period. The ever changing scenario
is to be responded to by the institution in-charge of implementing
the projects so that the solutions given by them are appropriate and
as per the needs of the field.

In this context, the Working Group also examined the

institutional set up prevailing at various levels in the country and
context in which these institutions are required to perform. It has
been realized early on that there is a need for institutional reforms
for delivering the MMI Projects as well as operating them for future.
The aspects were examined in great deal by National Commission
on Integrated Water Resources development in 1999 and
extensive suggestions were made to this end. Based on the
previous works, recommendations in these areas, as well as
considering the current socio economical and technological set
up, the Working Group has come up with the following analysis.

4.2 NEED FOR REFORMS

Looking at the MMI Sector the following three aspects have to

be dealt with by the institutions:
(i) Planning and construction aspects
(ii) Field level implementation for delivery

(iii) Operation and management of macro infrastructure

(iv) Management and continued sustenance of beneficiary
institutions.

During the early development periods the emphasis was

on creation of assets in form of MMI Projects comprising of head
works and canal networks. This phase has reached an advance
stage, though still considerable work is yet to be done.
Simultaneously, sustained activities of planning and implementation
have brought about sizable assset base which need to be managed
efficiently to allow it to continue providing benefits at its original
designed level. Therefore, it is necessary to pay attention to these
aspects also.
 118

In respect of the existing institutions in form of water

resources development at State Government level and relevant
Central Government departments, more than 50 years of
developmental activities have brought about a sound technological
base. MMI Projects are heavily dependent upon topographical,
geotechnical set up and hydrology for the implementation.
It is not possible to continue to find easy sites in terms of the
above aspects and increasing demands of water has to be
necessarily met by exploiting fresh sites. For this purpose there is
a need for continued technological upgradation of the institutions
for meeting these challenges.

With growing awareness about the finiteness of water

resources as well as pressure to produce more for each unit of
water. The last mile networks and social aspects of optimal
distribution of available water in equitable manner need
multifunctional agencies to achieve the objectives of integrated
development. It has been learnt from experience that
Governments cannot do everything and a top down management
approach fails quite often to achieve the objectives at the point of
contact with the people unless there is motivated involvement and
initiative of the people themselves.

Working Group feels that with about 583 MMI projects in

various stages of development and an asset base of about 1200
MMI projects, both the above aspects need to be reflected in the
institutional reform recommendations.

4.3 FIELD LEVEL REFORMS

Field level reforms largely address the irrigation delivery net

work below the outlet of a minor canal. For this purpose, command
area development activities have been found to be the key to
success. A number of States as well as Central Government
have taken up command area development activities either
through the irrigation development or through a separate
department/authority. Sponsoring of these activities from a central
level has been in place since 1974-75 but the progress has not kept
face with the increase in irrigation potential in the country.
Reforms of the institution involved are required is follows:
(i) Development of a multi-disciplinary approach for establishing
the desired cropping pattern in step with development of physical
net work and increased availability of irrigation water. The
implementing agencies have to have a fairly large number of grass
 119

root level workers in the agricultural extension services area who

can hand-hold the farmers while they make change from
traditional rain-fed agriculture pattern to economically viable and
sustainable irrigated agriculture pattern. The present strength and
capacity of Irrigation and Command Area Departments are not
adequate to meet these demands.

(ii) A strong social component has to be brought in terms of

establishing participatory irrigation management practice
culminating in establishment of Water User Association (WUA). A
strong component of social mobilization is involved here which
has to overcome various socio-political hurdles. Necessary
l e g a l m e c h a n i s m in f o r m o f irrigation acts or PIM acts have to
be put in place. While passing an act does provide an enabling
work, its acceptance and wide spread implementation remains in
the realm of social organization. Development of synergies
between the line department and independent workers/NGOs
in the field needs to be introduced as a wide ranging
measure through institutional mechanism between the department
and the independent entities.

Financial sustainability of the field level works has been a

major cause of worry. Reforms for collection of irrigation service
fees and its rational distribution to maintain the project as well as
field level activities like WUA need be promoted. A number of
suggestions have been made regarding the revenue sharing
between WUA and the government department. Recommendations
reflect these approaches.

4.4 MANAGEMENT LEVEL REFORMS

The overall management tier is formed by the Water

Resources Departments in the states who have the necessary
technological and financial wherewithal to manage the large
structure and networks associated with the MMI projects in the
state. The departments are also assisted at the central level by
the Central Water Commission. As has been elucidated earlier,
there are a sizeable number of projects in the country which are
already in operation for the last 25 years or more. It has been
observed that with the change in demands and developments in
the command areas, the delivery needs of the projects have also
changed. The departments are therefore, being called upon to not
 120

only create new assets but also to maintain and manage the old
existing assets. Thus, the challenges of technological nature as
well as social and financial nature have to be addressed.

The Working Group has laid special emphasis on the

Extension, Renovation and Modernisation of the existing projects
(ERM projects) before setting up the grass root level mechanisms
for on farm management and improvement of the water use
efficiency. For this purpose, specific challenges have to be
addressed in the areas of construction planning and techniques to
be adopted. Also, for improvement in the operational area, new
technologies like automation techniques will also have to be
integrated in the institutional experience base.

On the other hand, it has been observed that the recruitment

policy of the government has resulted in erosion of the working
strength of the technical personnel and adequate attention has
not been paid to the continued skill development of the personnel.

With the focus on the timely and equitable delivery of the

water, the social and agricultural aspects of on farm management
of the irrigated agriculture need be addressed by the higher
management in charge of the system management. For this
purpose, the multi-disciplinary approach has to be brought about by
having a team of experts and workers of the associated disciplines
into the w orki n g s t re n gt h of t he dep art m e nts . Similarly, the
other related departments also need to have access to the core
level expertise and information related to Major and Medium
projects management from technological and hydrological angles.
At present, there is a very little lateral exchange of personnel by
way of deputation in the related departments. It is necessary that
the lateral movements are encouraged as a part of the cross
institution building efforts.

Even though the MMI projects are treated as a prime

responsibility of the Water Resources Departments, the role of
the associated departments like agriculture, social welfare,
Cooperative affairs and economics and statistics is equally
important to necessitate reforms commensurate with the needs
of the individual departments. The role of Agriculture
Extension services in the field works has been decreasing over
the years due to lack of manpower and other factors. It is
necessary that the agriculture extension services are introduced
in a mission mode into the management of the MMI projects.
 121

Focussed research and analysis of the status of irrigation

projects is also needed for meeting the goal of improved
management of the available projects as well in the planning of new
projects. The research institutions like WALMI need a re-look and
additional resources so that the desired informed decisions can be
supported by the applied research through these institutions.
Additionally, studies by expert institutions are also required for
addressing macro level problems. Supporting such institutions
for well-directed research and development is also needed.
Adequate financial resources need be allocated through which the
in-house expertise in these institutions is also built up.

MMI projects implementation suffers delays largely due to

problems of land acquisition and resistance due to insufficient
consultations with the beneficiaries/ affected personnel. Most of
these areas are in purview of a multitude of departments at the
state government level. It is necessary to establish suitable
working mechanisms, w h i c h can cross the departmental
boundaries with minimum delay.

Thus, it is recommended that the higher level management

of the MMI projects need be more inter-disciplinary nature with
establishment of a collective decision and policy making process.

It is further recommended by the working group that

the capacity building of the water resources departments in terms
of manpower as well as skill sets is the need of the hour and
adequate resources may be provided for this purpose.

4.5 NECESSITY OF PARTICIPATORY IRRIGATION

MANAGEMENT (PIM)

A major factor leading to the inefficient operation and

management of canal irrigation systems is the lack of involvement
of farmers or water users in the management of irrigation services.
Unless there is a paradigm shift in the prevailing style of
management, there would be no improvement in the performance
of the services and consequently in the productivity of the irrigation
lands. Involving or promoting participation of users in decisions
regarding distribution and use of available water, fostering in them
the concept of ownership of the system and also entrusting
them with the day to day responsibilities of operation and
maintenance, and to pay for the improved services are some of
 122

the essential steps towards achieving this paradigm shift. This

demands a balance amongst the resources available to meet the
ever-growing food requirement of the populace at an economical
cost. The PIM is needed for the following purposes:
a) Need of increase in agricultural production
b) Problem of fiscal availability
c) O & M cost and recovery of irrigation charges
d) Other compulsions:
Besides above aspects, there are other compulsions like
non- availability of water when it is needed, taking immediate
problems like leakages, adopting flexibility in water distribution
and taking many more initiatives by farmers’ group to make their
farm economy a sustainable proposition. PIM appears extremely
necessary and worthwhile.

4.6 CAPACITY BUILDING OF FARMERS AND

FUNCTIONARIES

After sustained efforts, the PIM initiatives have taken root in

a few states only and a large amount of Irrigated areas are yet to
establish these initiatives. In order to set up these initiatives in
new areas and make them sustain against all odds, the
capacity-building of farmers / functionaries have to be taken up in
three different ways:

x Periodical training on water and crop management etc.;

x Day-to-day information on input availability and market rates of

production;

1. Adaptive trials of laboratory tested technology and

demonstration of best practices / latest technology in the field.

The training of farmers can be imparted by WALMIS

and other national and regional institutes established for the
purpose. All 14 WALMIS / IMTIs need strengthening before they
are expected to take up works like these. The day-to-day
information can be made available to farmers either through
e-Kiosks or e- chopals and/or through mobiles. This aspect is
also very important which are needed to be seriously considered
by States. The first and third issues are already covered under
existing CADWM Programme and the second issue needs to be
exclusively provided under the programme in the project.
 123

4.7 STRENGTHENING OF WATER AND LAND

MANAGEMENT INSTITUTES (WALMIS)

During eighties it was realised to have the multi-disciplinary

training organisations for in- service officials related with irrigated
agriculture with focus on efficient and sustainable management of
Water & Land Resources. Accordingly, 14 Water & Land
Management Institutes (WALMIs) / Irrigation Management Training
Institutes (IMTIs) were set up under USAID assisted Water
Resources Management and Training (WRM&T) Project to provide
need based trainings with objectives viz. to promote
advancement of science and acquisition of scientific knowledge,
to provide in-service training of multi disciplinary nature to officers
and staff engaged in irrigation management and training to
farmers, to undertake action research / adaptive research on
water & land management related aspects, to undertake
activities that will promote optimal use of water and land
esources, to conduct workshops, seminars, farmers’ meets and
publication of magazines, periodicals etc. and to provide
consultancy services in water management and land
development for irrigated agriculture.

The role set for WALMIs / IMTIs are quite comprehensive and
would have served the intended purpose. However, WALMIs
have not been able to function as per assigned objective due to
various constraints viz. lack of eminent, experienced and willing
officers on full time basis to lead the Institutions, frequent
transfers of Directors and faculty members, Governing body not
consisting of requisite professional members of related discipline,
not able to pay due attention and not meeting regularly as
stipulated, key posts remain vacant for a long time,
inadequate financial support from State Governments to run
these Institutions and absence of an umbrella organisation at the
national level so as to coordinate various activities of
national and international importance.

A Task Group was constituted by the Ministry of

Water Resources under the Chairmanship of Additional
Secretary (Water Resources) to assess the functioning of the
WALMIs. A proforma was prepared and circulated to all the
WALMIs so that the information received from the institutes
could be compiled. Based on the information received from the
 124

various WALMIs / IMTIs, an assessment is made by the Task

Group with regard to existing infrastructural facilities and faculty
composition of the WALMIs / IMTIs. The Task Group has
recommended to provide need based - one time financial
assistance for modernization of existing infrastructure/and
creation of additional infrastructure to those Institutes who carry
reform measures, sign MoU between States, Institutes and
Government of India. The Ministry will formulate policy /
scheme to provide financial assistance to each WALMI/IMTI but the
initiative to avail it has to come from WALMIs / IMTIs and fund in
installments will directly be provided to the institutes. Each
installment will be linked with deliverable outputs. The
implementation of the Scheme will be monitored by MoWR.

For providing one-time financial assistance, the State

Governments / WALMIs were requested to submit proposals
indicating minimum requirement of central fund required to upgrade
and to strengthen the WALMIs / IMTIs in their States. They were
requested to make the proposal as per the stipulations
mentioned in the Task Group report on “Strengthening of
WALMIs / IMTIs” already circulated to the State Governments
and WALMIs. The proposals amounting to about Rs.100.00 crore
have been submitted by WALMIs/IMTIs.

WALMIs can play an effective role in implementation of

CADWM Programme in context of formation of Water Users’
Association (WUA)s and capacity building in improved water and
crop management at micro-level. It can also play positive roles in
facilitating institutional strengthening of Water Users’ Associations
in each State, act as Nodal Institute for Information, education
and communication (IEC) and demonstrations on optimal use of
Land and Water, in promotion of Mass Awareness on Water related
issues, for Performance Evaluation and Benchmarking of
completed Irrigation Projects and filling gap in the area of Research
in Water sector. Ministry of Water Resources has no existing
scheme to support WALMIs/IMTIs as recommended by Task
Group. A new scheme is required to be formulated to strengthen
these Institutes.

1. Use of Technology and Management Tools in Programme

Implementation
Technology
Enough advances have been made in the
telecommunication, computer and other sectors of science.
 125

This is required to be suitably incorporated in the old

programme like CADWM which is still , more or less ,
implemented without using these tools and techniques. As
various posts remain vacant for long and do not get easily filled
up, the deficiencies are required to be made up by resorting to
modern tools and technique.

2. Empowerment of farmers
E-kisok or e-chopals or information- sharing through mobile
may be established at suitable places. This will also provide a
platform for interaction/ networking of farmers and equip them
with updated information/knowledge/ technology on availability of
inputs and market information.

The monitoring of the programme may use the work track

system using mobile phones and geographic information system
(GIS) software to identify the location of different work sites for their
close monitoring.

3. Bench marking
Benchmarking may be defined as, A systematic process
for securing continual improvement through comparison with
relevant and achievable internal or external norms and
standards. Benchmarking is a management tool of measuring
one’s own performance and practices against the best competitors
and is a sequential exercise of learning from others experiences
of similarly placed organisations and functions. Internally,
comparison will be with previous performance against desired
target.

The interest in benchmarking is driven by the objective of the

organization or it may be responding to a variety of drivers.

In the irrigation sector, the drivers mainly includes

increasing competition for water by different sector, increasing
demand of irrigation to produce more food for ever growing
populations, increasing interest on production and efficient use of
water resources.

The scope of benchmarking activity is determined by the

objectives and scale pursued in finding the best management
practices. In any systems, the major items for
benchmarking would be (1) inputs; (2) processes; (3) outputs; and
 126

(4) impacts

In measuring performance the interest would be in the

efficiency inputs are converted to outputs, efficiency with which
the processes converts inputs to outputs and the impacts of the
inputs and output to the environment.
The three domains that are of interest in the irrigation sector are:-

1. Service delivery - It covers adequacy of irrigation delivery system

and efficient use of resources (Finance) to provide this service.

2. Productive efficiency - measures the efficiency with which

irrigated agriculture uses water resources in the production of crops.

3. Environmental performance- measures the impacts of irrigated

agriculture on land and water resources.

Benchmarking, if done properly and correctly, will bring

improvement in the level of performance of irrigation projects. By
using appropriate performance indicators (about 20) of
benchmarking, it is possible not only to improve the water use
efficiency and financial viability of the system but also ensure
adoption of best management practices in the environmental
sustainability and the irrigated agriculture system.

Benchmarking would ultimately help appropriate intervention

and in formulation and implementation of policies for
improvement of projects. With little restructuring/ reorientation
of organization and data collection/ processing exercise and
without involving any additional resource, it should be possible
to include benchmarking as a regular future activities of irrigation
project.

4. Water Audit
Improving the performance of an irrigation system could
result in improved agricultural productivity for meeting the demand
of the growing population of the country. It is also useful to
determine causes of low performance so that further deterioration
of existing systems and improvements in future design of new
systems could be suitably addressed. Water audit is the most
effective tool for water management. Through audit, steps
needed to be taken to identify, quantify and reduce water use and
losses due to theft, unauthorized or illegal withdrawals from the
systems and the cost of such losses to the utility. Water audits
 127

trace water use from its point of entry into the facility/system to its
discharge into the confluence point. The audit also
identifies and quantifies unaccountable water losses, leaks at
each point of use within and around the facility. Comprehensive
water audit gives a detailed profile of the distribution system and
water users, thereby facilitating easier and effective
management of the resources with improved reliability. It helps
in correct diagnosis of the problems faced in order to suggest
optimum solutions. It is also an effective tool for realistic
understanding and assessment of the present performance
level and efficiency of the service and the adaptability of the
system for future expansion & rectification of faults during
modernization. Elements of water audit include a record of
the amount of water produced (total water supply), water
delivered to metered users, water delivered to unmetered users,
water loss and suggested measures to address water loss
(through leakages and other unaccounted for water losses). Water
audit may be introduced as a regular activity in the irrigation
projects for

4.8 SUGGESTIONS FOR PRIVATE SECTOR/NGOS

The suggestions of NGOs for implementing PIM are as follows:-

Centrality of community based organization – the farmers’

organization should be at the centre of planning budgeting,
implementation and management of canal transfer to them. A
portion of the water charges collected varying between 20% and
50% needs to be retained by them for efficient management and
maintenance of the system.

ii) Equity - it is of critical significant at all stages and suitable

mechanism/safeguards need to be incorporated in the
management of farmers organizations so as to ensure
participation of the disadvantage users i.e. tail enders. This
principle has to be built in the training and monitoring evaluation of
the performance of the organizations.

iii) Decentralization – for efficient functioning of PIM there is a

need of decentralization of the authority so that farmers’
organization could exercise powers of canal officers in removing
encroachment, stopping water supply to defaulters, sanction
estimate of repair works etc.
 128

iv) Facilitating Agencies – they have crucial role in

mediating between the farmers organizations and Government
officials to improve the prevalent practices. NGOs can play an
important role.

v) Monitoring and evaluation – a participatory,

outcome/impact oriented and user focused, monitoring and
evaluation system for concurrent feedback and also to
undertake mid-course corrections.

vi) Training and software support – training and software is an

important aspect and State Government have to develop strategy
to ensure that competent training organization provide training
to key functionaries in the farmers organization and
Irrigation Department in each phase of PIM implementation.

vii) Organizational restructuring of Government agencies –

there is a need for setting up of a national council of PIM with
Secretary (WR) as chairman and reputed and highly respected
leaders well versed in the requirement of promoting PIM to work as
Vice- Chairman, besides representation of senior officers of State
Government who have demonstrated their commitment to PIM.
WALMIs/IMTIs etc. can take a lead role in this direction.

Capability building for efficient functioning of the

institutions command area/water resources department and
WUAs at various levels will require extensive training and expert
guidelines from time to time. The institutions will have to have the
personnel manning these institutions will have to have on-call
approach to such facilities. For these purpose academic
research intuition will have to be roped in and focused
institutions created since the numbers of WUA's and
departmental personnel will be large even for a relatively
medium size irrigation project of say 4,000 hectares
command.

There are good amount of international experience in this

area which need to be studied and tailored to local conditions
while bearing in mind that the units are to function as a part of
the overall basin management.
 129

Conclusion
Almost each of the major irrigation projects comes with
its own set of unique conditions. While the above
recommendations are general in nature, specific solutions will
have to evolve in each command which will require a specific
approach. The States need to take up such studies and come up
with viable proposals, for which adequate amount have to be
provided.

4.9 QUESTIONS

1) Explain the need for institutional reforms of major and medium

irrigation projects.
2) Discuss the different levels of institutional reforms.
3) Write an explanatory note on participatory Irrigation
Management.
4) Discuss the Role of NGO’s / private sector for implementing
Participatory Irrigation Management.



™™™™
 130

Module 3

5
AGRARIAN REFORMS

Unit Structure

5.0 Objectives
5.1 Introduction
5.2 Policy Objectives for Structural Reorganization
5.3 Meaning of Land tenure and Land Reforms
5.4 Agrarian Structure on the Eve of Independence
5.5 Progress of Land Reforms in India
5.6 Summary
5.7 Questions

5.0 OBJECTIVES

x To understand agrarian reforms in Post Independent India

x To study policy objectives for structural reorganization
x To study meaning of land tenure and land reforms
x To understand agrarian structure on the eve of independence

5.1 INTRODUCTION

Agrarian Reforms in Post Independent India

At the time of Independence, India inherited a semi-feudal

agrarian structure. The ownership and control of land was highly
concentrated in a relatively few landlords and intermediaries whose
main interest was to extract maximum rent from tenants. Often
tenants of land under intermediary and landlord control sublet their
lands in smaller plots thus smaller holdings increased. After paying
high rent, these cultivators had neither resources nor knowledge for
increasing agricultural production.

With increasing pressure on land the operating land base of

many cultivators was further reduced. Often cultivators were shifted
from one plot to another according to the whims of superior holders.
 131

Land was divided into small fragments, each owned or leased by

cultivators whose objective was subsistence. Together then, the
size and distribution of land holdings, cultivation practices and
product sharing, operated concertedly to hold down farm income.
Over time, a large number of farms became disincentive ridden due
to small size. Many cultivators forced to supplement their farm
income by working as hired labourers. Independent India thus
emerged with serious imbalance in land-man relationship among
the three principal groups in the agricultural sector, the proprietors,
working cultivators, and labourers.

5.2 POLICY OBJECTIVES FOR STRUCTURAL

REORGANIZATION

Following Independence, land reform and the abolition of

intermediaries was considered an essential prerequisite for
increasing agricultural production and for establishing an egalitarian
society. Each of India’s Five Year Plans since 1951 had set forth a
policy for land reform. The land reform programs were built around
three major types of land reform measures: abolition of
intermediary tenures, regulation of size of land holdings and
settlement and regulation of tenancy. As a result of these
programs, it was hoped that a different set of rights and duties
would emerge in which freedom of each interest would be regulated
and some interests considered harmful for agricultural progress
would be eliminated.

Land policy as laid down in the First Five Year Plan can be
viewed from two angles: (i) conception of different interests in land,
and (ii) the effect of man-land relationship on agricultural
production. It was conceived that the freedom with which
intermediaries transacted their business had an adverse effect on
agricultural production. The First Plan, therefore, set out to regulate
the interests of intermediaries, large owners, small and middle
owners, tenants at will and landless workers. The Plan recognized
the pattern of land occupancy and cultivation as a fundamental
issue of national development.

The Second Five Year Plan stated aimed at the abolition of

intermediaries and protection given to tenants intended to give the
tiller of the soil his rightful place in the agrarian system and by
reducing or eliminating the burden he has borne in the past to
provide him with fuller incentives for increasing agricultural
production. Another objective was to bring the tenant into direct
 132

relation with the State and to put an end to the tenant-landlord

nexus to establish a stable rural economy. Complementary to these
objectives were the policies of land ceilings, consolidation of
holdings and encouragement of co-operative joint farming.

The central thesis behind the abolition of intermediaries was

that ownership of land be clearly identified with management and
operation of land. The owner himself should operate and manage
the farm business.

Ceiling on land holdings were designed to offset the extremely

uneven distribution of agricultural land. The policy implications of
this measure were:

(i) to meet the land hunger of working cultivators,

(ii) to reduce disparity in agricultural incomes, in ownership and

in use of land,

(iii) to increase employment opportunity in the rural sector.

At the same time, consolidation of land holdings was

advocated to consolidate the scattered holdings of individual
cultivators to form a single tract susceptible to more efficient
management.

While ceiling on land holdings and consolidation of plots

were planned to increase the land base of the working cultivators, it
was argued that reforms through structural changes could be
secured only when the actual tillers of the soil were given a fair
share of the fruits of their labour. This called for an overall change
in the tenurial conditions of cultivators. Tenancy reforms were
launched to confirm the rights of occupancy of tenants, secure their
possession of tenanted land and also regulate rents on leased land.

There exists a very large number of very small holdings

which constituted one of the most difficult problems in agricultural
reorganization. The possibility of cooperative farming could
overcome these difficulties. If these smaller holdings were grouped
into larger units and farmed cooperatively, then the advantage of
large scale organization would become available. Larger financial
resources for agricultural development could be provided and the
volume of employment increased.

The net effect of all these reforms was presumed to loosen

the rigidly satisfied rural society so that each cultivator in
 133

accordance with his capability could find an opportunity to advance.

The owner was envisaged to become the manager as well as
operator of his holdings.

Impact of structural reorganization:

Land policy in the First Five Year plan was thus formulated
without sufficient knowledge about the size and distribution of land
holdings in the rural sector. A considerable volume of data was
collected for the first time in the Eighth Round (1954) of the
National sample Survey (NSS) for size and distribution of land
holdings. However the draft report was only submitted to the union
government in January 1960, nearly six years later. It, therefore, did
not serve the purpose of planners to assess the magnitude of the
problem involved in structural reorganization.

Defects in policy planning became conspicuous in the

implementation stage of the land reform program. Legal,
administrative and other factors became principal bottlenecks.
Policy makers failed to take into account the importance of the time
dimension for the success of these reforms. A go-slow program of
implementation failed to make effective impact upon many working
cultivators.

Under the Indian Constitution, land reform is a state subject.

Apart from the broad principles directly bearing on the distribution
of land resources, tenancy regulations are under the control of the
several states. Consequently, while the main features of the reform
legislation in different states are practically identical, there is a wide
difference in the scope of the work actually undertaken. As a result
tenancy problem was concentrated in certain states and were not
as important in other states.

As the result of a series of investigations and personal

observations, it is generally conceded that the reforms are not
complete. For example, while rents may be limited by law to one-
fourth of the crop in a given State, this law is not enforced in many
cases. Furthermore, land ownership can be divided among the
members of a joint family so that each member can own his legal
share of the land with the result that the total family holding is
several times above the legal limit. The large number of evictions,
many justified on the grounds of a reform provision which
encouraged the right of land resumption for self-cultivation., and the
so-called voluntary surrender of land which were especially
 134

prevalent during the 1950s gave visible evidence that security of

tenure is not an accepted fact of life in India.

Under the conditions prevailing before the introduction of the

seed-fertilizer technology, some observers have argued that the
weaknesses in tenancy, rent control, etc., have not been important
constraints on production. However, the problems of land tenancy
and ownership have acquired special significance with the
technological advances in agriculture. Land cultivated on tenancy
or rented arrangements can enable the cultivator to enlarge the
scale of his operations to economically justify mechanism and his
own water supply. However, the increased productivity of the high-
yielding varieties (HYVs) has also led to a trend of rising rents, or in
the absence of income from this source, the reclaiming of land for
owner cultivation. As a result, both the returns from, and the
security of, rented and leased lands are apparently decreasing.

A cultivator who does not have security of tenure or who

must pay a high proportion of output in rents is less likely to invest
in land improvements, adopt HYVs or use inputs up to the optimal
economic amounts. Therefore, tenants are likely to suffer a relative
decline in income compared to owners, as the modern technology
becomes more widely spread.

5.3 MEANING OF LAND TENURE AND LAND

REFORMS

‘Land Tenure’ refers to the system of land ownership and

management. The various features that distinguish a land tenure
system from the others relate to the following: (a) Who owns the
land; (b) Who cultivate the land; and (c) Who is responsible for
paying the land revenue to the Government. On this basis, there
are three different systems of land tenure, viz.

(1) the Zamindari system,

(2) Mahalwari system,
(3) Ryotwari system.
(1) The Zamindari system or the Landlord-Tenant system: In this
system the ownership of land is separated from the managerial and
laboring function. At one extreme, the landlord is simply the
provider of land and the tenant provides all the management and
labour. The landlord gets pre-determined share of the produce. The
landlord is responsible for the payment of land revenue to the
 135

State; the actual tiller does not come into contact with the State, the
landlord acts as an intermediary. This system tends to breed a
range of inefficiencies and inequities which create pressures for
radical reform.

(2) Mahalwari system or Communal system of farming: under

this system the ownership of land is maintained by a collective
body, usually the village serves as a unit of management, land is
distributed among the individual peasants, revenue is collected
from them, the responsibility of paying revenue to the State rests
with the village. An experience with the system has also shown that
this tends to degenerate and encourage absentee landlordism.

(3) Ryotwari or Owner-Cultivator system: Under this system, the

bulk of the rights of use and control of land are held by the family
which provides the primary labour force on the farm. The owner-
cultivator, also known as peasant-proprietor, is responsible directly
to the State and pays land revenue and other dues on it.

Of these systems, the last one, the peasant-proprietor

system is economically the most efficient and socially the most just.
Any welfare State would be induced to raise such an institutional
agricultural framework that fulfils these two conditions. Any steps or
policy changes induced by the Government to bring about these
changes in the land ownership system are known as land reforms.
Thus, it would be seen that the land reforms are the instruments to
bring about improvements in the institutional framework of land.

Nature and significance of Land Reforms:

In a broad sense, land reforms refer to all kinds of policy
induced changes relating to the ownership, tenancy and
management of land. Although the primary objective of land
reforms may be to bring about a system of land ownership which is
socially just and economically efficient, i.e. a system in which land
belongs to the tiller, these may includes such other measures as
have a bearing on the condition in which the tenants work, or the
size of holdings, etc.
The significance of land reforms anywhere arises from the
defects in the prevalent agrarian structure. In the context of India, it
will be proper to have a look at the agrarian structure that obtained
on the eve of Independence with a view to determine the
significance of the reform policy as part of the overall strategy of
agrarian reconstruction and growth.
 136

5.4 AGRARIAN STRUCTURE ON THE EVE OF

INDEPENDENCE

Various interests in land on the eve of Independence fell into four

classes:

1. Cultivating Holders: these may be classified into two

categories, viz., (a) owners and (b) tenants. If the owner
cultivates the land himself, there is no other person holding an
interest in his land above or below him and the State. As
against this, tenant-holders does not have any ownership rights
on land. They may more appropriately be described as
‘occupancy tenants’ to distinguish them from the ‘tenant-at-will’.
They have no direct relation with the State, but there is a chain
of intermediaries.

2. Intermediaries: these are either non-cultivating owners of land

or non-cultivating occupancy tenants.

3. Tenants-at-will: he cultivates the land and bears the cost of

cultivation. He may or may not have any security of tenure.
Invariably his interest is not permanent and heritable.

4. Agricultural labourer: these constitute the mass of

unemployed and underemployed landless population in village;
very few of them are able to secure permanent employment.
They are at the bottom of the socio-economic ladder of the rural
community.

The agrarian structure in the pre-Independence period was

woven around these varied interests. It presented decadent
semi-feudal order with wide inequalities and multifarious
exploitation of the mass of cultivators. There was a high degree
of concentration of land ownership at the top.

The type of agrarian structure, acts as a powerful obstacle to

economic development in three ways:

1. The tenant has little incentive to increase his output since a

large share accrues to the landowner who incurs no cost.

2. A very small margin is left with actual cultivator; and this may be
quite insufficient to provide for capital investment on the land.

3. Tenants secure no benefits of working with better equipment or

with better seeds.
 137

In short, under this type of agrarian structure landlords and

intermediaries grow rich and continue to flourish, the State is
deprived of its share of legitimate increase in revenue and the
cultivator-tenants live a hand-to-mouth existence.

Objectives of Land Reforms in India:

In India the land reforms program has remained one of the major
policies for rural development ever since the inception of the
planning process. The main objectives are as follows:

1. Restructuring of agrarian relations to achieve egalitarian social

structure;
2. Elimination of exploitation in land relations;
3. Actualisation of the goal of “land to the tiller”
4. Improvement of socio-economic conditions of the rural poor by
widening their land base;
5. Increasing agricultural production and productivity;
6. Facilitating land base development or rural poor;
7. Infusion of a greater measure of equality in local institutions.

5.5 PROGRESS OF LAND REFORMS IN INDIA

The land reform program in India, during the last five decades has
been pushed through three different methods:

1. Voluntary adoption facilitated by incentives provided by the

State: e.g. co-operative farming and consolidation of holdings;

2. Voluntary adoption supplemented by statutory compulsion made

possible by the enactment of legislation as in the case of
consolidation of holdings;

3. Compulsion exercised through different legislative measures as

with the abolition of intermediaries, tenancy reforms, ceilings on
holdings, etc.

(A) Abolition of the Zamindari system:

The Zamindari system manifested absentee landlordism at

its worst and was largely responsible for the continuously
deteriorating conditions of tenant-farmers. The landlords became
merely rent receivers and did nothing for increasing the productivity
of land held by their tenants. The pressure of population led to a
 138

gradual extension of cultivation a greater demand for land. As a

result, a large army of intermediaries between the State and the
actual tiller cropped up. This also made it possible for the landlords
to extort high rents from tenants.

Immediately after Independence, a strong voice was raised

against these vested interests in land. As a result, a high priority
was given to the abolition of the Zamindari system. Accordingly,
every State enacted its own legislation for the abolition of
intermediary interests. Among the States of India, Uttar Pradesh
(U.P.), led the way by enacting U.P. Zamindari Abolition and Land
Reforms Act in 1950. By 1952, necessary legislations had been
enacted in all the States.

The abolition of statutory landlordism covering a variety of

intermediary tenure has now more or less been accomplished
bringing nearly 20 million cultivators into direct contact with the
State. A considerable area of culturable wasteland and private
forests belonging to the intermediaries have been vested in the
State. This has facilitated the distribution of 57.7 lakh hectares to
landless agriculturists.

(B) Tenancy Reform Legislation:

The major aspects incorporated in the tenancy legislation in

different States can be identified as regulation of rents, security of
tenure, and the right of ownership.

It would not be incorrect to say that barring some backward

regions and tribal areas where the poor are too poor to resist,
tenancy relations today are less exploitative than they were in the
pre-Independence period.

(C) Land Rights of women:

Historically, land reform has excluded women. But in some

second-generation land reform movements in India, women raised
the demand for land to be allotted in their names. Women’s
ownership of land becomes necessary condition for adequate use
of credit and necessary flexibility in management of farm resources.

(D) Ceilings on Land Holdings:

It means the fixing of the maximum size of holding that an

individual cultivator or a household may possess. Beyond this
maximum size all land belonging to the landlords is taken over by
 139

the Government to be redistributed among the landless labourers.

The basic objective of such a measure is to reduce wide disparities
of income and wealth found in the agrarian structure.

Benefits of Fixation of Ceiling on Land Holdings:

1. Equitable distribution of land: In a densely populated country

like India, land is a scarce. A system of ceiling is a sort of
rationing of land. It seeks equitable distribution of the scarce
land.

2. Equal distribution of income: Being land is the only asset,

increasing pressure on land leads to tensions among the
various groups of the agrarian economy. To reduce these
tensions it is essential to distribute the land equitably among the
different sections of society.

3. To increase employment: There is virtual absence of

employment opportunities outside agriculture. So it is necessary
that the big lands should be redistributed among the landless
labourers, to whom it may provide source of sustenance and
livelihood.

4. To increase agricultural productivity: Redistribution of land suits

India’s labour-surplus economy. By and large these farmers will
be using family labour and therefore, will not be deterred by the
market wage-rate in employing workers. So largest possible
employment and maximum possible production is possible
through redistribution of land to small farmers.

5. Promotes co-operative farming: A policy of ceiling can be used

to promote cooperative farming, as also inculcate the spirit of
cooperation in other areas of agriculture. Surplus land can be
distributed on the condition that the beneficiaries form
themselves into cooperatives. In this way advantage of large
farming can be realised.

Adverse effects of Ceilings of land holdings:

1. After redistribution of land each one will get a small piece of

land. These small cultivators do not have adequate resources to
make any investment in land to produce more. It will adversely
affect the agricultural production.

2. A policy of ceiling on land holdings will lead to the break-up of

big farms and will, therefore, involve the loss of the advantages
 140

of large scale farming, resulting in lowering of production and

raising of costs.

It is true that under a policy of ceiling and redistribution of

surplus land, there will emerge a large number of small farms. But
the owners of small farms can pool their land for purposes of
cultivation or can take land on lease from others. They can thus
reap the benefits of large scale farming.

It is also argued that small farming is economically unsound.

It has been established that advantages of large scale operations in
agriculture are limited. The experiences of several countries shows
that the per hectare output in small farms is larger than in big farms.
For example, Japan where farms are small in size. About 94
percent of farms are less than two hectares and as much as 77
percent of the total land is under these small farms. But the
average output of these farms is very high. The average production
of rice per hectare is over 6,300 k.g., whereas in U.S.A., where the
average size of farm is 123 hectares, the average production per
hectare is over 5,500 k.g. In the same way there is small farming in
Taiwan. The upper limit of farms in Taiwan is 2.8 hectares and the
techniques of production are highly labour-intensive. Here, too,
productivity of land is very high. In India also farm management
surveys have established the fact that big farms are not superior to
small farms. Generally, it has been observes that productivity in big
farms is less than that in small ones, and as the size of farm
increases, the productivity of land decreases.

The reason for high productivity in respect of small farms is

obvious. In such farms it is family labour, and not wage labour, that
is employed. Now, the family labour is employed till the point where
the marginal productivity i.e., additional production due to additional
labour, falls to zero. This means that production is maximized
because the use of labour is carried to the point where no more
additions can be made to the total volume of production. As against
this, in big capitalist farms, labour (since it is employed on wages)
will be engaged only up to the point where marginal productivity
becomes equal to the wage rate. This means that the land, if
worked beyond this level of marginal productivity (equal to wages)
can add more to total production. Since the logic of large scale
farming does not permit it, land will not be worked beyond this
point. Hence, productivity on small farms is higher.
 141

3. It is argued that small farmers consume a large proportion of

their incomes and that the marginal propensity to consumer is
higher. Therefore it is difficult for them to save any reasonable
amount and equally difficult to sell a large proportion in the
market, i.e. marketable surplus is less in case of small farms.

4. Small farms will have an unfavourable impact on the supply of

raw materials to industries. Small farmers are more concern
with the production of food for their own consumption.
Production of raw materials generally requires larger inputs
which are not within the means of small farmers and are
possible only on big farms.

(E) Consolidation of Holdings: A major cause of low agricultural

productivity is the fragmentation and sub-division of holdings,
resulting in uneconomic holdings. The average size of holding can
be raised through consolidation of holdings. Legislation to prompt
consolidation of holdings has been enacted in different States after
Independence where agrarian reforms had already been
undertaken.. experience has shown that the States have been too
eager to hasten enactment of such measures, but barring three or
four of them, there was little interest shown in their implementation.
While separate organizations were set up for this work in Punjab,
Haryana and Uttar Pradesh and the entire area of these States was
covered by plans of consolidation, the work was done by normal
agencies of revenue administration in other States while varying
degrees of intensity. It has been recommended in the recent plans
that consolidation should be made compulsory in the command of
the large irrigation projects.

(F) Land records: correct and up-to-date land records are an

essential condition for effective implementation of land reform
program. It is also necessary to ensure smooth flow of credit and
agricultural inputs to landholders. States are increasingly paying
attention to this vital aspect of the program. Land records are now
being computerized, throughout the country, although the progress
is slow.

5.5.1 Impact of Land reforms: Broad features of the Emerging

Agrarian Structure:

The emerging agrarian structure reveals the existence of

three distinct sectors of Indian agriculture, coexisting but also
contending with one another.
 142

1. The first sector is the developed sector of modern entrepreneur

farming by rich peasants.

2. The second sector comprises the area under self-cultivation by

medium, small and marginal farmers.

3. The third sector is composed of the vast area of land under

cultivation by share-croppers and various kinds of tenants and
sub-tenants having no proprietary rights in land, no security of
tenure, no share in the various aids and inputs distributed by the
State or institutional agencies. It is this third sector which is the
placed in the agrarian economy and is still subject to various
forms of semi-feudal exploitation such as rack-renting, usury,
economic bondage and caste and social oppression.

5.5.2 Causes for poor performance of Land Reforms in India:

1. Lack of political will: Enactment of progressive measures of

land reforms and their efficient implementation call for hard
political decisions and an effective political support, direction
and control. Considering the character of the political power
structure obtaining in the country it was only natural that the
required political will was not forthcoming. The political bosses
and the powers-that-be resorted to what can be called ‘land
grabbing’. The political will assured that the land reforms failed.

2. Absence of pressure from below: The beneficiaries of land

reforms, particularly share-croppers and agricultural labourers,
are weighed down by crippling social and economic disabilities.
Except in a few scattered and localized pockets, practically all
over the country the poor peasants and agricultural workers are
passive, unoragnised and inarticulate. In the circumstances, it is
small wonder that there has been no insistent pressure from
below, a prerequisite for the effective implementation of land
reform laws.

3. Administrative Organisation – Inadequate Policy Instrument:

In all States, the responsibility for the implementation of
measures of land reforms rests with the revenue administration.
The implementation of land reforms is only one among its many
functions. Traditionally, high priority is given to the maintenance
of public order, collection of land revenue and other regulatory
functions. Land reforms do not, get the required attention.
 143

4. Land hurdles: The land reform laws were defective in many

ways. Legislations relating to the land reforms were full of
loopholes. Some were deliberately built-in, while some were the
result of poor drafting. Practically, in every State protracted
litigation has delayed and often frustrated the implementation of
land reform laws.

5. Absence of correct updated land records: A program that

aims at the redistribution of income and wealth in the rural areas
cannot succeed unless the beneficiaries can produce evidence
of their rights. The position regarding records of tenancies,
particularly in the matter of entries relating to the rights of share-
croppers, is not satisfactory anywhere in the country, and no
records exist in some areas. The main reasons for the
unsatisfactory state of affairs are as following:

a) In some areas, where cadastral survey have been out-of-

date for a long time, resurveys have not taken place;
b) Some areas have never been cadastrally surveyed;
c) In some cases no machinery of any kind has existed for
maintaining village records;
d) In some areas (such as zamindari areas) the machinery
which keeps records is private;
e) Even where records are kept by Government revenue
officials there is no uniform system;
f) Even official records may not be correct.
The errors would be of two kinds with reference to their
origin: a) Bona fide errors arising out of law on the part of the
recorder; b) Deliberate wrong recording from mala fide
motives.

6. Some weak spots in the program: The program of land

reforms have been viewed so far in isolation from the
mainstream of economic development. The main ingredients of
the program like the abolition of intermediary tenures, tenancy
reform and land ceilings on agricultural holdings were treated as
disjointed program and sought to be implemented as such. The
lack of financial support has been the weakness of land reforms
right from the beginning. No separate allocation of funds was
made in the Five-Year Plans for financing land reforms.
 144

The most serious criticism of the land reforms program in India

has been that it has lacked adequate direction and
determination. It was weak as the rich farmers are politically
strong in India, whereas the peasant movement is rather weak.
Since, ownership of land is a source of power in rural India, land
reforms remain a major issue for bringing about socio-economic
equality in rural India.

5.6 SUMMARY

1. Following Independence, land reform and the abolition of

intermediaries was considered an essential prerequisite for
increasing agricultural production and for establishing an
egalitarian society. Each of India’s Five Year Plans since 1951
had set forth a policy for land reform.

2. The land reform programs were built around three major types
of land reform measures: abolition of intermediary tenures,
regulation of size of land holdings and settlement and regulation
of tenancy. As a result of these programs, it was hoped that a
different set of rights and duties would emerge in which freedom
of each interest would be regulated and some interests
considered harmful for agricultural progress would be
eliminated.

5.7 QUESTIONS

1) Explain the policy objectives for structural reorganization of

agrarian reforms :
2) Explain the progress of land reforms in India
3) Discuss the causes of poor performance of land reforms in
India.

™™™™
 145

6
AGRARIAN REFORMS LEGISLATIONS

Unit Structure

6.0 Objectives
6.1 Land Ceiling Acts
6.2 Agrarian Reforms and Peasant Movements in India
6.3 Abolition of Intermediaries Acts
6.4 Land to the Tiller Act of Maharashtra
6.5 Summary
6.6 Questions

6.0 OBJECTIVES

x To study meaning, benefits, implementation and failure of Land

Ceiling Act in India
x To study agrarian reforms and peasant movements in India
x To study reasons, process and effects of Abolition of
Intermediaries Act
x To study Land to the Tiller Act of Maharashtra

6.1 LAND CEILING ACTS

Meaning of ceiling on land holdings: It means fixing

maximum size of land holding that an individual can own. Land over
and above the ceiling limit, called surplus land. If individuals/family
own more than the ceiling limit, the surplus land is taken away (with
or without paying compensation to original owner). This surplus
land is then i) distributed among small farmers, tenants, landless
labourers or ii) handed over to village panchayat or iii) given to
cooperative farming societies.

6.1.1 Aims and Objectives of land ceiling act:

1. Directive Principles of State Policy Article 38 seeks to

minimize the inequalities of income, status, facilities and
 146

opportunities. Land ceiling minimizes inequality in the land

ownership and thus reduces inequality of income.

2. Directive Principles of State Policy Article 39 wants to ensure

that the operation of economic system does not result in the
concentration of wealth. In a village, land means wealth, hence land
ceiling is necessary to prevent concentration of wealth in the hands
of few.

3. Land ceiling (and subsequent distribution) act aims to provide

self employment opportunities to landless agricultural labourers.

4. If there is no ceiling, rich farmers will buy all the land of entire
village. But since they can not cultivate all the land by themselves
they will lease it to small farmers (tenants). Small farmers (tenants)
does not have any motivation to work harder because he doesn’t
own the land and he has to give 30-50-70% of the produce to the
rich farmers as rent which leads to exploitation.

5. So, after abolishing zamindari, if State governments had not

implemented land ceiling, then rich farmers would have become the
new de-facto zamindars in modern India.

6.1.2 Land Ceilings in India

We will discuss Land Ceilings in India in two phases:

(A) From Independence to 1972

(B) After 1972

(A) Ceiling Phase 1: Freedom to 1972:

Just before Independence in 1946, All India Kisan Sabha

demanded a maximum limit of land ownership of 25 acres per
landholder. In 1947, after Independendence, Economic Program
Committee headed by Pandit Nehru, recommended, ‘The maximum
size of holdings should be fixed. The surplus land over such a
maximum should be acquired and placed at the disposal of the
village’. In 1949, Congress Agrarian Reforms Committee, chaired
by J. C. Kumarappa recommended a ceiling on landholding which
was to be three times the size of an economic holding. An
economic holding was defined as that which would give a
reasonable standard of living to the cultivator and provide full
employment to a family of normal size and at least to a pair of
bullocks. In the First Five Tear Plan it was decided that there
should be an upper limit to the amount of land that an individual
 147

may hold. Exact upper limit was to be fixed by each State, having
regard to its own agrarian history and present problems. In 1957,
National Development Council (NDC) adopted a decision to
complete the imposition of ceilings by the end of 1960. In 1959,
Nagpur session of Congress passed resolution that all States
should complete land ceiling by 1959 and surplus land should be
given to Panchayats and cooperatives of Landless labourers.

Salient features of Land ceiling during this phase:

1. States were given freedom to fix land ceiling based on soil

conditions, irrigation facilities, agrarian history of the region etc.

2. States had to conduct census of landholdings and classify

agricultural land into two parts:

a) Land held by Tenants (i.e. after zamindari abolition, these

tenants who had become virtual owners of the land: In this
case States had to make law, that will enable Tenant to take
over this land with “patta” (i.e. document showing
possession) and subject to maximum land ceiling in acres
i.e. surplus land from tenant will be taken away.

b) Land held by landowner himself: In this case owners could

keep part of this land for his personal cultivation (subject to
maximum land ceiling in acres) and State will give remaining
surplus land to those agricultural labourers, with or without
paying compensation to the original land owner.

Reasons for failure of Land Ceiling during 1947 to 1972:

1. No distribution : By the end of 1961 most States passed Land

Ceiling Acts. By the end of 1970 not a single acre was declared
surplus in large States like Bihar, Mysore, Kerala, Orissa, and
Rajasthan. In Andhra Pradesh, a mere 1400 acres was declared
surplus but no land was distributed. By the end of 1970 in
overall India only 2.4 million acre declared surplus. Barely 50%
of that surplus land was redistributed among landless.

2. Family v/s Individual: Initially, States imposed the land ceiling

on individual and not on family. So big farmers transferred their
land to sons, daughters, wives, relatives (sometimes even non-
existent/dead family member) to avoid crossing the ceiling.
Many States provided extra ceiling if family exceeded five
members. Example, Andhra Pradesh had allowing 6 to 72 acres
(depending on the nature of land) per extra member of the
 148

family. In these days in absence of family planning, large sized

families very few families crossed the land ceiling. Thus land
ceiling definition itself defeated the noble purpose of land
distribution.

3. Land ceiling too high: During this era, more than 70% of the
landholdings were below 5 acres. Yet the ceilings were fixed too
high. So very few people crossed the land ceiling. Hardly any
surplus land taken away.

State Land ceiling

Andhra Pradesh 27-312 (depending on land quality)
Assam 50 acres
Kerala 15 to 37 acres
Punjab 30 to 60 acres
West Bengal 25 acres
Maharashtra 18 to 126 acres

4. Exempted land categories: Second Five Year Plan

recommended following categories of land be exempted from
ceiling laws:

a) Tea, coffee and rubber plantations, orchards,

b) Specialized farms engaged in cattle breeding, dairying, wool
raising, etc.
c) Sugarcane farms operated by sugar factories,
d) Efficiently managed farms on which heavy investments had
been made,
e) Land belonging to charitable trusts.
The intention was to promote capitalist or progressive
farming foundation for the future Green Revolution but on the part
implementation it resulted into negative due to following reasons:

a) Efficiently managed farm was vaguely defined. So many

farmers evaded the ceiling by simply getting themselves
declared efficient.

b) Tamilnadu exempted land held by cooperatives from land

ceiling act. So, Landlords transferring their lands to bogus
cooperatives.
 149

c) Many rich farmers set up bogus charitable trusts in connivance

with State officials, then transferred land to charitable trust and
avoided ceiling.

5. Delay in Law making: State governments took lot of time to pass

the land legislation. This gave big farmers enough time to sell
their excess lands, or to transfer it to their relatives and even
make benami transfers. Landowners evicted tenants and
resume cultivation by themselves (on paper) claiming they had
shifted to efficient farming. But in reality they just hired
sharecroppers/landless labourers to do all the work. Thus, by
the time the ceiling legislations were in place, there were barely
any holders left above the ceiling and consequently little surplus
land became available for redistribution. Third Five Year Plan
also admitted this limitation.

(B) Second stage: 1972 onwards:

In 1972, Union government gave following guidelines to States:

1. New ceiling

Type of land Ceiling in acres

Double-cropped perennially 10-18
irrigated land
Single cropped land 27
Inferior dry land 54

2. Land ceiling will be applied to family and not on individuals.

3. While distributing surplus land, first priority to landless

agricultural workers, particularly SC/ST.

4. Land owner will be compensated for his surplus land but this
compensation will be fixed below market price.

5. Mechanized farms, land belonging to private trusts etc. should

not be given exemption from land ceiling.

After these guidelines, most States revised their land ceiling

acts- except some north-eastern States and Goa which had no
ceiling laws. But rich farmers continued to evade the ceiling by filing
court cases on filmsy grounds. In Andhra Pradesh alone 500,000
pending cases pertaining to land ceiling were filed.
 150

Since rich farmers continued to evade land ceiling by filmsy

court cases, the Union government came up with 34th Constitutional
amendment in 1974. The amendment put most of the revised
ceiling laws in the Ninth Schedule of the Constitution so that they
could not be challenged in the courts on constitutional grounds.

Some progress in surplus land being redistributed, but overall

results were still far from satisfactory. In early 1980s 2 million acres
land redistributed whereas in 1985 4 million acres land was
redistributed.

Land Ceiling: Problems/limitations/obstacles

(A) Land reform delayed is land reform denied: The States took
four to nine tears to formulate the proposals, discuss them in the
assembly and finally passed them. This lengthy time period was
enough for the intermediaries to prepare for the eventual
implementation of the Land Ceiling Act. They registered
surplus/excess land under relatives names and or even fictitious
persons, manipulating land records and reclassifying land under
different heads.

(B) Hardly any redistribution: overall, the land has been declared
surplus and distributed among landless which is less than 2
percent of the total cultivated land.

(C) Lack of auxiliary support: More than 6 million hectares of

wastelands were distributed among the landless. But States did
not give any assistance to transform the wasteland to make it fit
for cultivation. Many a times, even after a landless get land, he
does not get credit easily to buy seeds, fertilizers. So he leases
his land to a bigger farmer and himself migrates to city in search
of jobs or works as labourer in someone else’s farm.

(D) Lack of political mobilization: After Abolition of Zamindari, the

superior tenants acquired a higher social status. Their economic
strength also increased because of green revolution.
Subsequently these landowners wielded great authority in rural
India and bitterly opposed to a ceiling on agricultural holdings.
They are also able to have their way because political parties
made no serious efforts to mobilize small/marginal farmers or
landless labourers to enlist their support in favour of ceiling and
other land reforms.
 151

(E) Lack of administrative will: Mere passing a law is insufficient.

It must be implemented with full vigor and efficiency. During
1960-1970, the small/marginal farmers or Landless labourers
are not organized politically. 73rd amendment for Panchayat Raj
is not even passed yet. So, there was no pressure/compulsion
on district tehsil level officials to perform efficiently. They were
corrupt and inefficient as ever.

(F) FYP did not give direction: First Five Year Plan identified
small and uneconomic holdings as the root cause of many
difficulties in the way of agricultural development. But still did
not pay much attention to land ceiling. First Plan did not want to
disturb the big farmers or land owners who were crucial to
increase agricultural growth. Second Plan gave the concept of
exempted categories of land and therefore this exemption was
misused. During Third and Fourth Plans experienced war,
famine, food insecurity, fiscal deficit etc. So they had very little
to say on the issue of land reforms in general and land ceiling in
particular. During Fifth Plan (1974-1979) there was an
emergency, where land ceiling reform did not figure in priorities.
6th Plan onwards, the focus shift to poverty removal, self
employment, watershed etc. and land ceiling became as
obsolete to five year planning.

(G)Land fragmentation leading to low GDP: Between 1985-

1992, number of beneficiaries increased more than the increase
in area distributed where new beneficiaries received very tiny
plots. These small farmers could have stopped uneconomic
farming, and picked up some financially rewarding non-agro job
e.g. factory worker, rickshaw driver etc. Land ceiling being one
of the reason why majority of population continues to depend on
agriculture.

(H) Post LPG: Changed priorities: Due to New Economic Policy in

1991 i.e. Liberalization, Privatization and Globalization, today
government is more focused on industrial sector and the service
sector growth. Land reform, land distribution doesn’t form
priority.

Land ceilings: Benefits/ advantages:

(A) States with political will: in favour of land ceiling showed great
progress Example, Jammu and Kashmir where Land ceiling
laws fully implemented. West Bengal had less than 3% of
cultivate land in India. Yet more than 25% of the total surplus
 152

land that was distributed throughout India, belonged to West

Bengal.

(B) Production increased: Equal distribution of land will encourage

intensive cultivation resulting in increased agricultural
production. Some farm management studies conducted in India
testified that small farms yielded more production per hectare. It
is so because family members themselves cultivate small farms.

(C) Employment increased: Landless labourer gets employment

only during sowing and harvesting season but now he given
land ownership where he is 24/7 self employed farmer.

(D) Social justice: In a rural economy, whoever controls land,

controls the power. Land ceiling reduced this power inequality
among villagers. It promoted spirit of cooperation among
villagers.

6.2 AGRARIAN REFORMS AND PEASANT

MOVEMENTS IN INDIA

Agrarian movements in contemporary India may be

broadly classified into two main categories. The first type of
movements is those of the poor, the marginal or small peasants.
These movements voice the demands related to their economic
condition. The second type of movements is of more prosperous
peasants, those who produce a considerable surplus within the
rural economy. The first category of movements directed against
the extraction of the Zamindars and other forms of intermediaries.
The second category of movement has arisen in recent years in the
Green revolution areas such as in western Uttar Pradesh, Haryana,
Punjab or south-western Maharashtra or in the far south such as
Karnataka or Tamil Nadu.

6.2.1 The movement of the Rural Poor in the Post-Colonial

India:

In Independent India it has been the Left, parliamentary as

well as non-parliamentary who have been the main organizers of
the peasants. Mobilization has taken place on different issues like
increase in agricultural wages, land to the tiller, etc. and the
principal target has been the rural rich on whose mercy the
landless labourers and the marginal peasants depend. Established
Communists accepted the parliamentary form of struggle. As the
Congress governments adopted land reforms in various States, the
 153

Communist Party of India (CPI) focused its attention on the

implementation part of the program.

Both the mainstream Communist parties, the CPI and

CPI (M) have formed peasant organisations like the Kisan Sabhas
and organization of agricultural labourers for mobilizing the
concerned sections and have achieved limited success in Kerala,
West Bengal, and Tripura and in some other States. Similarly, the
CPI (M-L) is active in Bihar and has formed its peasant front, the
Bihar Pradesh Kisan Sabha (BPKS) which is active in many of the
districts of Bihar including those districts which are now in the new
State of Jharkhand, organizing the rural poor and also the middle
peasants by taking up issues which affect them. The non-
parliamentary Left, for e.g. the Marxist Coordination Committee
(MCC) or the People War Group (PWG), has been mobilizing the
rural poor in States like Andhra Pradesh, Bihar, Jharkhand, Orissa
and Punjab and using violence as a strategy to address the
question of the rural poor. Hence the Communists in the country
had met with limited success in the countryside.

The Naxalbari Peasant Uprising: that occurred in the

northern part of West Bengal is the last of the major uprisings India
has witnessed. It took place in post-colonial India and was led by a
faction of the CPI (M). The two most prominent leaders of the CPI
(M) who disagreed with the official position of the party and led the
movement were Karu Sanyal and Charu Mazumdar. It erupted in
the foothills of the eastern Himalayas in West Bengal, in a place
called Naxalbari falling within the subdivision of Siliguri in Darjiling
district. It is in Naxalbari, Kharibari and Phansidewa, the three
police station areas where the movement took a militant turn. The
region use within it, is different from that of the whole of West
Bengal because within it, there exists numerous tea plantations and
a large proportion of tribal population. Tea plantations have
developed along the lines of the plantation economy whereas the
tribal population in this region includes the Santhals, Rajbansis,
Oraons, Mundas and a small number of Terrai Gurkhas. It is
because of the combination of these two factors that the whole
region has a history of land disputes in West Bengal. The landless
peasants in this region had since long claimed that their land were
being encroached by the tea estates and also by the rich peasants.
Thus, it is because of the peculiarity, the Nxalbari area had
witnessed a number of peasant disputes lad mainly by an
indegneous peasant leadership and not by the outside middle class
leaders.
 154

The agrarian revolt arose in the month of April 1967 after

the formation of the new government in West Bengal in which the
CPI (M) was a major partner. The movement continued till June in
full swing in the whole Siliguri subdivision. Kanu Sanyal, the leader
of the movement specified ten great tasks, which included inter alia,
land which was not owned and tilled by the peasant themselves
was to be redistributed, peasants were to burn all legal deeds and
documents, unequal agreements between the moneylenders and
the peasants were to be declared null and void, hoarded rice were
to be confiscated by the peasants and distributed among the
peasants, all jotedars to be tried and sentenced to death etc. He
urged the peasants to arm themselves with traditional weapons.

The high point of the movement was reached in the

month of May. Forcible occupations by the peasants took place and
according to government sources there were around 60 cases of
forcible occupations., looting of rice and paddy and intimidation and
assaults. The leaders of the movement claimed that around 90
percent of the peasants in the Siliguri subdivision supported the
movement. The movement came to a halt, when, under central
government pressure, the West Bengal police entered the region
and swept the area. The movement spread to other areas of the
State and elsewhere in Bihar and Andhra Pradesh later in the form
of the Naxalite movement. Thus, the Naxalbari peasant uprising
had far reaching consequences in the Independent India.

6.2.2 The Movements of the Rural Rich: Farmer’s Movements

in Contemporary India:

In this part we will discuss the two prominent movements

of the rural rich, one led by the Bhartiya Kisan Union (BKU) in
western Uttar Pradesh, Punjab, Haryana and the Shetkari
Sangathan (SS) which represents primarily the interests of the
sugarcane, cotton, tobacco, grape and onion grown in south-west
Maharashtra though it also has its base in Gujrat. There are other
organizations and movements in the country as well like Karnataka
Rajya Raitha Sangha Movement led by Nanjundaswamy in
Karnataka and Vivasayigal Sangam Movement led by
Narayanswamy Naidu in Tamil Nadu, the Khedut movement in
south of Gujrat. But in recent years, the BKU movement led by
Mahedra Singh Tikait and the movement by the SS led by Sharad
Joshi has drawn more national attention because of their militancy
and spread.
 155

1. Bharatiya Kisan Union (BKU):

Let us first discuss the nature of rural economy in the

west Uttar Pradesh and in the States of Punjab and Haryana that
forms the backbone of the movement. This region is highly
prosperous because of the massive capitalist investment in
agriculture. Apart from foodgrains, sugarcane is the principal crop
that is produced. A section of the peasantry having land in these
States has been transformed into a class of capitalist farmers who
produce much more than what their family consumes and hence
the surplus is sold in the market. They own capital assets like
tractors, thrashers, pump sets etc. and hire agricultural labourers
for the purpose of cultivation since their family labour is not
sufficient.

The BKU was originally fromed on august 13, 1978 in

Haryana under the guidance of Charan Singh, the undisputed
peasant leader of North India. The death of Charan Singh in 1987
created a vacuum among the peasants in North India and this was
filled up by Mahendra Singh Tikait. He attempted to convert the
organization into a militant one after the Shamli agitation in April,
1987 in Muzzafarnagar district. In this agitation the BKU raised
demands against rise in power tariff and erratic supply of electricity
that was so crucial for the farmers of western Uttar Pradesh. The
concessions which the BKU was able to secure increased the
prestige of the BKU and its leader, Mahendra Singh Tikait and soon
after that a large number rich peasants from several districts joined
the organization. After the Shamli agitation, two more agitations
solidified the support base of the BKU and brought the BKU into
national prominence. The two agitations were the Dharna in Meerut
and Delhi in 1988. The agitations were long and militant in nature
and received widespread support. The Meerut Dharna continued
for 25 days and was impressive and peaceful. The main demands
of the movements were similar to the demands of the other
agitations of the prosperous farmers in the country. The demands
centred around, electricity, remunerative prices, low import costs
and the inclusion of BKU representatives on various committees
appointed by the government for fixation of prices. Since then the
BKU has successfully spearheaded the farmers movement in north
India under the leadership of Mahedra Singh Tikait.

2. Shetkari Sangathana (SS):

Sharad Joshi’s Shetkari Sanghatana has its origin in the

late 1970s when, in October 1979, it opened an office in Chakan,
Maharashtra. It primarily represents the interests of the farmers
who cultivate cotton, onions, tobacco, grapes and sugarcane in
rural Maharashtra. The SS and Sharad Joshi rose to national
prominence with the rasta rook (block road) agitation in 1980 when
 156

tens and thousands of farmers in the State of Maharashtra blocked

important roads connecting Bombay and other cities and the most
important issue, which the SS raised, was the issue of low prices of
sugarcane and cotton and demanded that the prices of these
products be raised. The movement was successful because it was
able to secure some rise in the prices of the commodities.

Sharad Joshi again sought to address the plight of the

farmers with the Nipani agitation in april 1981. The movement’s
support, however, started declining till the mid 1980s due to the fact
that though the leadership announced a number of agitations, it did
not launch any serious one. In the early 1980s, Sharad Joshi
entered the Gujrat scene. Since then the SS is associated with the
farmer’s movement in Gujrat. His novel contribution in Gujrat lay in
his emphasis that the Farmer’s movement cannot succeed unless
and until the agricultural labourers and poor peasants are
associated with the movement. With this emphasis, he was able to
entice the rural poor within the Khedut’s movement or farmer’s
movement. In 1985 the SS took a very pragmatic decision in
Maharashtra of supporting opposition political parties and started
closely working with the other organizations and people who were
associated with the rural sector. This paid some dividends and it is
due to this its support base broadened. The next agitation that it
organised was of January1987 over cotton prices. Since then the
farmer’s movement in Maharashtra has matured and gained
prominence. But in recent years, there has been a considerable
decline in the support base of the SS largely due to the fact that it
has failed to launch any serious agitation in the 1990s and also
because of Joshi’s blatant support to the liberalization of the
economy.

An analysis of the peasants and farmer’s movements in

the contemporary India reveals that although both forms of
mobilization and movements are prevalent, the first is mainly led by
the mass organizations of the Left and other political parties and
the second is being led by the well to do prosperous peasant
organizations though it attracts even the marginal and poor
peasants in different regions. The movements of the rich, however,
have acquired more prominence because of its militancy and
prolonged agitations in recent years whereas the first one suffers
from lack of militancy. In fact the Left, that had led agrarian
agitations till the late 1960s has not led any serious movement
since the last thirty years. This is largely due to the fact that serious
class struggle is not in the immediate agenda of the established
 157

Left parties. The non-parliamentary Left, however, is exceptional in

this regard but it enjoyed only a limited rural base. The increase in
militancy of the rich farmers has been mainly because of their
location in the social structure, which gives them the ability to
sustain movements more than the poor or the small peasants.

6.3 ABOLITION OF INTERMEDIARIES ACTS

Land reforms aims at redistributing ownership holding

from the viewpoint of social justice, and reorganizing operational
holdings from the view point of optimum utilization of land. It aims at
providing security of tenure, fixation of rents, conferment of
ownership, etc. The entire concept of land reforms aims at the
abolition of intermediaries and bringing the actual cultivator in direct
contact with the state.

Intermediaries during the British regime: Three categories

of land tenure systems (Zamindari, Mahalwari and Ryotwari) were
prevailing. Under the Zamindari system, which was introduced by
Lord Cornwallis in 1793 in Bengal, land was held by one person or
at the most by a few joint owners who were responsible for the
payment of land revenue. Under the Zamindari tenure these
revenue collectors were raised to the status of landowners.

The Zamindari settlements were of two types – i)

Permanent settlement with fixed land revenue in perpetuity. Ii)
Under temporary settlement land revenue was assessed for a
period ranging between 20 and 40 years and was subject to
revision. Between the state and the actual tiller, there grew an
intermediary who was interested in land only to the extent of
extraction of exorbitant rent. So Zamindars symbolized oppression
and tyranny and the agriculture was degraded to subsistence
farming.

Under the Mahalwari tenure, the village lands were held

jointly by the village communities, the members of which were
jointly and severally responsible for the payment of land revenue.
The system was first introduced in Agra and Oudh and latter on in
Punjab. Here the village lumberyard collected revenue for which he
received panchortra, i.e. 5 percent as commission.

Under the Ryotwari tenure the individual holder was

directly responsible to the state for the payment of land revenue.
This form of tenure, first started in Madras in 1972, was prevalent in
Bombay, Bihar and Central India. The ryot was at liberty to enjoy
 158

permanent right over land and sub-let it so long as he paid the

assessment of land revenue.

6.3.1 Reasons behind the Abolition of Intermediaries:

1. Before Independence the Indian rural economy and polity had

been dominated by some big landowners. They could acquire
lands by paying a very small amount of money to the British
government.

2. In addition to that, an intermediate class was also developed by

the British government to simplify their tax collecting system.
The people of this class had no direct connection with land and
agriculture, but they could capture land easily and this has no
limit. So the small and marginal farmers were exploited and
forced to transfer land to the big landlords. As a result of this,
rate of employment decreased and so was productivity.

3. The sharecroppers had been exploited by both the

intermediaries and the big landlords. So they lost their interest
to work completely.

4. After independence when the Government of India started

agrarian reform, the main issue was the abolition of
intermediaries. Otherwise redistribution of lands would have
been extremely difficult for the Government.

6.3.2 Process of the abolition:

Out of nine States in Part ‘A’ six viz. Madras, Bihar, Orissa,
Uttar Pradesh, Assam and Madhya Pradesh have brought
forward the necessary

Legislations for abolition of this system, while Bengal is

considering a pilot scheme for Sunderban areas as a preclude
to full-fledged reform. Bombay which is mainly a Ryotwari area
has abolished a number of decrepit tenures like Mehwari,
Taluqdari, Khali, Maleki and Narwadari, etc. By enacting the
Bombay Tenancy and Agricultural Lands Act 1948, Bombay has
paved the way for gradual dismemberment of large estates. The
same Act with due modification has been adopted in Hyderabad
and Saurashtra.

Among Part ‘B’ States, Madhya Bharat and Hyderabad have

taken steps to pass legislation for abolishing Zamindari and
Jagirdari tenures. In States like Mysore, Travancore-Cochin,
 159

Rajsthan, Patiala and east Punjab States Union, Saurashtra and

the Punjab ad hoc Committees have been appointed to go into
the matter in full detail. Some of these Committees have
submitted their reports and governments are considering their
recommendations.

In U.P. the legislation affects about 2 million land holders and 42

million acres. In Madras Zamindari and Inam estates extend
over 14 million acres. In Hyderabad the Jagir area comprises
about one-third of the total area of the State. The Madhya
Bharat legislation similarly effects one lakhs of Zamindars and
the Istmurardars of Ajmer hold about half of the lands.

By virtue of these Acts, the management of these estates vests

in the government which may appoint managers or entrust the
same to the Collectors. The existing tenants will enjoy rights of
occupancy so long as they continue to pay rent to government
and to this extent they will enjoy security of tenure. In some
States, the assessment will be revised on Ryotwari estates. The
out-going proprietors are required to hand over all records and
papers concerning these lands to governments. There are
provisions in U.P., M.P., Bihar and Orissa to entrust the
collection of land revenue and management of village common
lands to Panchayats and Gaon Sabhas.

Under the Indian Constitution, governments are required to pay

compensation to the dispossessed whenever properties are
compulsorily acquired.

6.3.3 Effects:

1. Government expenditure in the agricultural sector has

escalated due to the compensation that have to be given for the
loss of land brought about by the imposition of ceiling.

2. Many intermediaries were not in a position to start a new way of

income. So the government had to arrange pension scheme for
them which was again a huge burden.

3. Despite the bad effects, due to the abolition of the intermediate

classes not only more than 20 million farmers in India had been
connected directly with the government but also tee tax revenue
from the rural area increased.

4. The financial security of the farmers improved and as a result of

that, productivity and rate of employment also increased. But
 160

this measure had no effect on the numerous sub tenants of

India.

6.4 LAND TO THE TILLER ACT OF MAHARASHTRA

Zamindari and Ryotwari were two main settlement systems in India.

Zamindari:- Under Zamindari system, the land was held by a

person who was responsible for the payment of land revenue.
Zamindari were employed by the Mughals to collect taxes from
peasants. The practice was continued under British rule. Zamindar
could acquire the land mostly free of charge from the government
during the British rule. They were renting the land to the cultivators.
This land system created a class of intermediary between the State
and the actual tillers of the soil.

Ryotwari:- Ryot means cultivator or peasant and Ryotwari means a

system of revenue assessment and collection in which the
government officials dealt with the actual cultivator and not with an
intermediary.

In years 1803 and 1814 Marathas defeated by British, with

the result Western India was joined in Bombay province. Small
kingdom of nearby area were also merged in Bombay Province for
one or other reasons. Bombay Province thus formed became quite
sizable. This region was under influenced of Ryotwari system. It
was decided at time to continue existing land revenue system.

Although under the Ryotwari system no intermediaries were

recognized, during the course of time under this system also
influential Ryots emerged as big landholders and rented land to
peasant. Thus, new class of intermediaries had emerged.

These intermediaries had no interest in land management

and improvement. There was no limit on collections of rent from the
actual cultivators. In view of the above circumstances to abolish
intermediary between government and tiller, the policy was framed
for “Land to the tillers”. The Section 32 of the above act provides
compulsory transfer of ownership rights of tenanted lands to the
tenants from 1st April 1957 which is known as the “Tiller’s Day”.

There is complete sale and purchase on the tiller’s day. The

title of landlord passes immediately to the tenant on the tiller’s day.
 161

Fixing the price of land:

After the Tiller’s day under section 32G, Tribunal shall call
tenant-purchaser and landlord to fixed the price of land. Where
tenants fails to appear or unwilling to purchase the land, tribunal
shall declare that

The tenant is not willing to purchase the land and that the
purchase is ineffective. If no such declaration is made by the
Tribunal, tenant’s right to purchase the land remains intact. The
land not purchased by tenant will be taken over by government for
allotting same to the persons of the priority list Purchase price shall
be six times rent of the land in case of permanent tenant and shall
not be more than two hundred times of assessment in case of other
tenants. After payment of purchase price, the tribunal shall issues a
certificate of purchase. The so issue shall be conclusive evidence
of purchase.

Restriction on transfer of land purchased or sold under

section 43 of the act:-

Lands purchased by the tenant under the provision of the act

are not allowed to transfer land without permission of collector.

Transfer to non agriculturist barred under section 63:- No

sale, gifts, exchange or lease of any land shall be valid in favour of
person who is not an agriculturist. However collector may grant
permission for transfer under certain circumstances.

6.5 SUMMARY

1. Ceiling on land holdings: It means fixing maximum size of land

holding that an individual can own. Land over and above the
ceiling limit, called surplus land. If individuals/family own more
than the ceiling limit, the surplus land is taken away (with or
without paying compensation to original owner). This surplus
land is then i) distributed among small farmers, tenants, landless
labourers or ii) handed over to village panchayat or iii) given to
cooperative farming societies.

2. Agrarian movements in contemporary India may be broadly

classified into two main categories. The first type of movements
is those of the poor, the marginal or small peasants. These
movements voice the demands related to their economic
 162

condition. The second type of movements is of more prosperous

peasants, those who produce a considerable surplus within the
rural economy. The first category of movements directed against
the extraction of the Zamindars and other forms of
intermediaries. The second category of movement has arisen in
recent years in the Green revolution areas such as in western
Uttar Pradesh, Haryana, Punjab or south-western Maharashtra
or in the far south such as Karnataka or Tamil Nadu.

3. Land reforms aims at redistributing ownership holding from the

viewpoint of social justice, and reorganizing operational holdings
from the view point of optimum utilization of land. It aims at
providing security of tenure, fixation of rents, conferment of
ownership, etc. The entire concept of land reforms aims at the
abolition of intermediaries and bringing the actual cultivator in
direct contact with the state.

4. These intermediaries had no interest in land management and

improvement. There was no limit on collections of rent from the
actual cultivators. In view of the above circumstances to abolish
intermediary between government and tiller, the policy was
framed for “Land to the tillers”. The Section 32 of the above act
provides compulsory transfer of ownership rights of tenanted
lands to the tenants from 1st April 1957 which is known as the
“Tiller’s Day”.

6.6 QUESTIONS

1) Explain the evolution of Land Ceiling Act in India.

2) Explain the role of peasant movent in agrarian reforms in India.
3) Write a note on Abolition of Intermediaries Act in India.
4) Explain the impact of the Land to the Tiller Act of Maharashtra.

™™™™
 163

Module 4

7
AGRICULTURAL GROWTH AND RURAL
DEVELOPMENT
Unit Structure :

7.0 Objectives
7.1 Role of Agriculture in Provision of Food and Nutritional
Security in Developing Economies
7.2 Trends in Agricultural Employment and Real wages
7.3 Inter - Class and Gender based Income Disparities &
Poverty
7.4 Wages across Social Groups
7.5 Questions

7.0 OBJECTIVES

x To study role of agriculture in provision of Food and nutritional

security in developing economies.
x To understand and study the trends in agricultural employment
and real wages.
x To study the Inter-class and gender based income disparities.
x To study wages across social groups.

7.1 ROLE OF AGRICULTURE IN PROVISION OF FOOD

AND NUTRITIONAL SECURITY IN DEVELOPING
ECONOMIES

Food security is an immediate and future priority for all

countries worldwide. Since the food crisis erupted in 2008, a large
number of global and regional food security initiatives have been
launched or strengthened in response. While these developments
are welcome, improving policy and implementation coherence is
essential to ensure programs have the desired impacts.

Returning farmers to the centre of policy decisions is

fundamental to sustainable development. Governments,
businesses, scientists and civil society groups must focus attention
on the source of our food security. Women farmers should become
specially targeted recipients because of their vital roles in the
 164

agricultural workforce, household food procurement and

preparation, and family unit support. Productivity levels in most
developing countries have to be raised exponentially while
considering environmental sustainability. Policies encouraging
investment in developing countries’ agricultural sectors should be
supported. Governments should invest in their agricultural sectors
and devise long-term agricultural development strategies
supporting the development of local agricultural markets and
farmers’ ability to answer market demands. Local production should
also be stimulated by providing farmers with the technology, the
knowledge and the adequate financial services they need.

A) Role of Agriculture
Food security is not only about the quantity of food which we
consume; it is also about the quality and diversity of that food as
well. Continued focus on improving agricultural productivity is an
important precondition to realising food security goals, including
nutrition security. While food security has been placed back high on
the political agenda since the food price crisis of 2008, the issue of
nutrition insecurity affects one billion people’s health and is related
to the deaths of almost 10 million people each year.

Malnutrition, often called the “hidden hunger”, can lead on to

life-threatening illnesses. Either caused by a lack of protein
(protein-energy malnutrition) or micronutrients such as iodine,
vitamin A and iron (micronutrient deficiency), malnutrition weakens
immune systems, exacerbates the effect of childhood diseases
such as measles, malaria, pneumonia and diarrhoea, and can
permanently impair long-term physical and cognitive development.

Agriculture can play an important role in addressing nutrition

security. Farming First calls for policymakers and development
practitioners to support the following three recommendations:

1. Increased productivity through the use of improved agronomic

practices, including conservation tillage and crop rotation, which
can halt and even reverse the process of soil degradation, helps to
prevent nutrient depletion of soils and protect yields. Minimum
tillage helps to conserve soil structure, keeping nutrients within the
soil rather than being washed away by rainwater into rivers and
streams. The selective use of herbicides helps farmers control
weeds and prevent pre- and post-harvest losses, especially for
delicate, nutrient-rich fruits and vegetables.

2. Biofortified foods are bred to have higher amounts of

micronutrients and can help provide essential vitamins and
minerals. For instance, Golden Rice contains higher amounts of
beta-carotene and iron, with potential benefits for 250 million
 165

children who risk blindness due to vitamin A deficiency and 1.4

billion women who suffer from anaemia due to iron deficiency.

3. Micronutrient-enriched fertilizers improves soil fertility, helping to

support higher yields of more nutritious food. Poor soil quality is a
significant factor that leads to micronutrient deficiencies in humans
– if the soil is not rich in all the necessary nutrients, food products
will not contain the necessary nutritional balance.

Yet whilst the cost-effectiveness and efficacy of malnutrition

interventions through agriculture have been clearly demonstrated,
these activities have yet to be deployed at scale and in tandem with
each otherFood security is about not only the quantity of food which
we consume; it is also about the quality and diversity of that food as
well. Improving agricultural productivity to ensure that all these of
these goals are achieved should be a priority of the world’s
leaders.While food security has been placed back high on the
political agenda in recent years, the related but separate issue of
nutrition insecurity contributes to the deaths of almost 10 million
people each year and affects one billion people’s health. .

Traditionally, nutrition security has been viewed as the realm

of health professionals. Yet the nutrition challenge cannot be solved
solely by the health sector: farmers are the first nutrient providers
and the entire agri-food chain has a vital role to play. Continued
focus on improving agricultural productivity is an important
prerequisite to realising food security goals, including nutrition
security.

From increasing the availability of total calories, to specific

measures on nutrient deficiencies, agriculture can play an important
role in addressing nutrition security.

Biofortified foods are bred to have higher amounts of

micronutrients and can help provide essential vitamins and
minerals. One example is Golden Rice which contains higher
amounts of beta-carotene, with potential benefits for 250 million
children who risk blindness due to vitamin A deficiency. Similarly,
rice with higher amounts of iron could offer significant benefits to
1.4 billion women who suffer from anaemia.

Improved agronomic practices can also help. Crop rotation is a

good practice to improve productivity but it also encourages food
diversity. A rotation of legume, cereal, and oilseed crops has
benefits to populations in terms of range of nutrients. Conservation
tillage can halt and even reverse the process of soil degradation,
helping to prevent nutrient depletion of soils and protect yields.
 166

Once food is produced, though, there are still many

challenges to get it into people’s hands. In 2010, FAO estimated
that poorly developed systems for handling, storage, packaging,
transportation, and marketing of agricultural products in developing
countries results in post-harvest losses ranging from 15% to a
staggering 50%. Investment in food infrastructure and handling
could reduce losses and improve food safety. Developed countries
also face losses due to food waste from harvest, through delivery to
food services, and in households. Waste is worst in fresh fruits and
vegetables which deliver vital nutrients to humans around the
globe.
Nutrition is the foundation for health and development, upon
which all the Millennium Development Goals (MDGs) depend. Yet
whilst the cost-effectiveness and efficacy of malnutrition
interventions through agriculture have been clearly demonstrated,
these activities have yet to be deployed at scale and in tandem with
each other.

Farming First encourages policy makers to support the SUN

initiative and encourage the adoption and implementation of
relevant nutrition strategies at country levels.
These recommendations can help improve health, boost
livelihoods, and address the impacts of -suclimate change,
especially in rural areas in developing economies.

B) Food Self sufficiency and Food security in India:

The Indian planners, right from the beginning, realised the
need to attain self-sufficiency in foodgrains as one of the important
goals of planning. the Government of India under Prime minister
Indira Gandhi introduced seed-water-fertiiser policy popularlyknown
as the Green Revolution. This policy brought a revolution in food
production in India and dispensed with foodgrains import
altogether. India achieved self sufficiency in food-grains by the year
1976 and since then, Indian imports of cereals have remained
negligible.
Progress on foodgrains front reveals the following:
1. Between 1950-51 and 2011-2012 foodgrains production had
increased rom 51 million tonnes to 257 million tonnes more than
four-fold increase in the production of food grains.
2. The various components of cereal production indicate that
whereas cereals accounted for 84 percent in foodgrains in 1950-51,
their share has increased to 93.4 per cent in 2011-12, the share of
pulses, however,has declined from 16 per cent to just 6.6 per cent
during the same period.
Within cereals, the share of the two superior cereals-rice and
wheat which was only 53 per cent in 1950-51 had improved to 77
 167

per cent in 2011-2012. During the same period,the share of coarse

cereals had declined from 30 per cent to 7.1 per cent.
Self sufficieny at National level: Ninth Plan (1997-2002)
discussed the problem of food security at the National level and at
the household level. The Planning Commission states: " An
approach to national food security, which relies largely on domestic
production of food needed for consumption as well as for buffer
stocks, can be described as a strategy of self-sufficieny. "
Food security at the Local level: At the household level, food
security implies having physical and economic access to food
articles that are adequate in terms of quantity, quality and
affordability. To help the poor sections, the government introduced
the Public Distribution System (PDS) and adopted dual price
mechanism.
Food security and Nutrition: During the last 50 years, there
has been substantial reduction in moderate and severe under-
nutrition in children and improvement in nutritional status of all
segments of population. Milder forms of chronic energy deficiency
still persists in many parts of the country; serious malnutrtion and
even widespread starvation among children and the aged has
become common in tribal belts in Maharashtra and Orissa,
essentially because there is no purchasing power.

Prevention of Chronc Energy Deficiency:

1. Applied Nutrtion Project (ANP) introduced in 1963 was itended to
promote production of protcted food such as vegetables and fruits
and ensure their consumption by pregnant and nursing moters and
children.

2. Special Nutrition Programme(SNP) was started in 1970 with the

objective of providing 500 k cal and 25 grams of protein to
expectant and nursing mothers and 300 K Cal and 10 grams of
protein to children six days in a week.
Integrated Child Development Services Scheme (ICDS) :
was started in 1975 intended to provide food supplementation to
children and pregant/nursing women. The ICDS programme as of
1996, covers 4200 blocks with 5.92 lakh anganwadis in the country.
The number of beneficiaries shot up to 18.5 million children and 3.7
million mothers in 1996.
Mid-day Meal Programme: was introduced for children
between ages of 2-14 attending balwadis/schools at the expense of
Rs. 0.44 to 0.90 per beneficiary. The programme does not cover
poor children not attendig school. This programme has been
renamed as Nutritional Support to Primary Education and
implemented in 1975 to universalize primary eduction. By 2003-04,
the programe covered nearly 10.6 crore children. While the mid-day
 168

meal programme has been largely successful in TamilNadu,

Karnataka and other South Indian states, it was a failure in most
North Indian states.

7.2 TRENDS in AGRICULTURAL EMPLOYMENT and

REAL WAGES

Rural employment and wages are the important factors

which influence the livelihood status of rural households.
Employment pattern in the developing countries has revealed that
development of alternative employment opportunities in the rural
non-farm sector is a necessity for productive farm employment of
labour force under the rapid growth of population.
Employment Pattern in Rural India:
The employment pattern and structural transformation of
rural India have been shown in the table below. The rural
employment was classified into two categories, viz. farm and non-
farm employment. It is clear from the table that India's rural
population is primarily employed in the Farm sector. Structural
transformation i.e. movement of labour from Farm to non-Farm
sector in India is slow, though the percentage share of farm sector
is continuously declined since 1980s. But it still provided
employment to about 60 percent of male and about 80 percent of
female workers. The reduction in dependency on farm sector
employment was higher for male workers, indicating that female
workers were more dependent on agricultural sector.

Table 7.1 Trends in rural employment: 1987-88 to 2009-10

Employment sector Male workers Female workers

1987 - 1999 - 2009 - 1987 - 1999 2009 -
88 00 10 88 - 00 10
Farm 74.7 71.3 62.5 82.6 84.0 78.8
No-farm
a. Manufacturing 7.7 7.3 7.1 7.5 7.7 7.6
b. Trade, hotel & restaurant 5.3 6.8 8.2 2.4 2.3 3.1
c. Construction 2.7 4.5 11.4 3.2 1.2 4.2
d. Transport, storage & 2.1 3.2 4.2 0.1 0.1 0.3
communication
e. Mining & quarrying 0.7 0.6 0.8 0.5 0.4 0.3
f. Other services 6.8 6.3 5.8 3.7 4.3 5.7
Sub-total (a to f) 25.3 28.7 37.5 17.4 16.0 21.2
Source: Compiled from various NSSO reports
 169

Across the non-farm sector, manufacturing accounted for the

highest share of ale non-farm employment i.e. 7.7 percentage
share in 1987-88.However, its share slightly decline over time and it
reached 7 percent in 2009-10. On the other hand, the female
worker's dependence on maufacturing sector has been high and
their share gradually increased from 7.5 percent in 1987-88 to 7.6
percent i 2009-10. overal, not much change has been observed n
the manufacturing sector's share i rural non-farm employment over
this period. Trade, hotel and restaurant sector occupied the second
postion in rural no-farm employment for male workers. The
percentage share of employment in this sector has marginally
increased for male workers. On the other hand, it was not an
attracting employment sector for female workers, who occupied
only two to three percent share throughout these periods.

The construction sector has grown amongst non-farm

employment during these periods for amle workers It was ranked
third in 1987-88 and subsequently it occupied top position in 2009-
10 with 11.4 percent share. This sector has absorbed most of the
male labour force migrated from agriculture. Whereas the
dependency of female workers on this sector declined during this
period, but increased in 2009-10. The percentage share of
transport, storage and communication services sector was doubled
during the study period from two percent to four percent for male
workers. Mining and querrying sector provided employment to less
than one percent of workers throughout the period. The
improvement in farm labour productivity due to technological
developments and increased mechanization could be the major
factors which forced the movement of labour from farm to non-farm
sector.

Trends in agricultural wages

The rural employment pattern shows that agriculture
continues to be the key sector for determining the livelihood status
of rural households in India. The agricultural growth decides the
development of all other sectors. The real wage rates of three
major occupations in the rural areas for the period 2002-03 to 2011-
12 have been depicted in the following diagram. The wage rate was
the highest for masons followed by carpenters and agricultural
labourers. The movement in the real wages for these occupations
was almost parallel over these years. The wage rates gradually
increased for masons and agricultural labours and were almost
constant for carpenters. On the average, a mason was paid Rs.221
per day in 2003 and it increased to Rs. 250 per day in 2012. On the
other hand, a carpenter's wages hovered around Rs.200 per day
during this period. The wages for an agricultural labour were though
the lowest, recorded the highest wage increase of Rs. 41 per day
from Rs. 137 in 2002-03 per day to Rs. 178 per day in 2011-12.
 170

Figure 7.1 : Trends in rural real wages at all India level

It is observed form the above explanation that although a

growth is seen in non-farm employment in rural India, it is rather
weak in terms of its share in rural employment. The agricultural
sector continues to be the largest employer of rural work force and
it provided employment to about 60 percent of the male workers
and about 80 percent of the female workers in 2009-10. The trend
in real wage rate has shown that agricultural wages grown faster
than the non-farm wages.

7.3 INTER-CLASS AND GENDER BASED INCOME

DISPARITIES AND POVERTY

TRENDS IN RURAL URBAN INCOME DISPARITY

The New Economic Policy initiated during the early 1990s
and involving liberalization and globalization of the domestic
economy, was supposed to enhance the potential of investment
opportunities and a substantial increase in the income and earnings
of workers. However, several studies provide ample evidence that
despite a modest overall performance by the Indian economy
during the past one and a half decades, the extent to which
economic progress has translated into increased labour earnings
and, consequently, poverty reduction, has been rather
disappointing. Much of this concern arises in relation to the rural
workforce, which accounts for 75 per cent of the total workforce in
India. Accordingly, slow growth in labour earnings is one of the
major reasons for the slower decline in poverty, particularly in the
rural areas in the late 1990s and early 2000s.

Trends in real daily wages/earnings

The distinguishing feature of labour market duality in India
can be located in the wage structure of the workers. The dichotomy
in the wage structure is brought out here first in terms of casual-
 171

regular and sectoral wages. Rural-urban dualism is the most

overriding characteristic across all the segments.

Regular and casual wages

The following table presents prevailing daily earning/wage
rates for the last two decades for regular and casual workers both
in rural and urban areas at current and constant (1993-94) prices.
Firstly, It is observed that urban workers received a higher wage
rate than their rural counterparts both in the regular and casual
segments of the labour market. In constant terms, the average daily
wage rate of regular workers during 2004-05 was closed to Rs 96 in
urban areas as against roughly Rs 74 in rural areas. The respective
wage rate during 1983 was approximately Rs 59 and Rs 39.
Therefore, it appears that rural regular workers obtain less by one-
fourth of what their urban counterparts received. This trend is
visible over the entire period under consideration and continued to
remain so for multiple reasons. Urban regular workers are typically
better educated and, hence, possess skills that fetch them higher
returns compared to rural workers. Better and more varied
opportunities are usually created and available in urban areas,
which, in turn, yield higher returns for the regular workers. Such
jobs are not only rare in rural areas, but also less lucrative, given
the poor infrastructure in such areas.

Table 7.2 Average daily wages (Rs.) of regular and casual

workers (15-99 years)

1983 1993-94 1999-2000 2004-05

At current prices
Regular
Rural 17.24 55.12 125.31 133.81
Urban 24.90 75.77 165.05 193.73
Casual
Rural 6.76 20.54 40.23 48.89
Urban 9.51 28.77 57.98 68.68
At constant (1993-94) prices
Regular
Rural 38.80 55.12 77.47 74.01
Urban 58.94 75.77 99.73 96.12
Casual
Rural 15.21 20.54 24.87 27.04
Urban 22.51 28.77 35.03 34.08
 172

A comparison of wage rates among casual workers vis-à-vis

regular wage rates reveals that casual workers, both in rural and
urban areas, receive wage rates that are a little above one-third of
what the regular workforce is paid. The regular-casual wage
differential widened sharply during the postliberalization period as
compared to the pre-reform period. Between 1999-2000 and 2004-
05, the gap has reduced, but only due to a decline in regular
wages, rather than any significant increase in the casual wage
rates.

Figure 7.2

Gender wage differentials

In the following table, we will discuss the gender wahe
differentials in rural areas.

The Table shows that female regular workers not only receive
lower wages, but that the differential is quite stark, roughly 40 per
cent less in rural areas for regular workers during 2004-05. The
gender differential of regular wages has increased in rural areas.
The differential among rural casual workers remained almost
constant between 1983 and 2004-05. As far as gender differential
among regular wage workers is concerned, in rural areas the wage
differential, which remained not so high at 30 per cent during 1983,
has shot up to 40 per cent in 2004-05. On the whole, the gender
differential in wages seem to have largely declined, implying a
higher wage growth for female workers as compared to male
workers over the years.
 173

Table 7.3 : Annual growth rates (%) of rural casual daily wages in
farm and non-farm sectors

Sectors 1983 1993-94 1999-2000 2004-05

Males
Regular
Rural 17.89 58.48 127.32 144.93
Casual
Rural 7.80 23.18 45.48 55.03
Females
Regular
Rural 12.81 34.89 78.61 85.53
Casual
Rural 4.89 15.33 29.39 34.94
Females / Males
Regular
Rural 0.72 0.60 0.62 0.59
Casual
Rural 0.63 0.66 0.65 0.63

The decline in the growth rates of agricultural wages during

the post-liberalization years has been higher for female workers
than for male workers. The ratio of rural agriculture to non-
agriculture wages for male workers remained constant at around
0.70 throughout the period under consideration, but for female
workers, it declined from 0.91 in 1983 to 0.75 in 2004-05. In fact,
the increase in female nonfarm wages has been steeper than male
non-farm wages during the mid-1990s, leading to a higher
agriculture-non-agriculture wage differential for female workers.
The gender differential in farm and non-farm wage rates, and the
annual growth therein, is clearly reflected in the respective female
to male ratios of daily wages. While the female to male ratio of daily
wages in agriculture has remained constant at around 0.70 over the
years, the ratio in non-agriculture has increased, indicating
declining gender differentials in this sector. Further, although the
ratio of wages is less than one for all the three points of time in
agriculture as well as non-agriculture, the ratios of annual growth is
invariably more than one for all the segments.

The higher wage growth for women workers, in the post-

liberalization period can be roughly accounted for by the following
 174

important factors. One, before the 1990s, women's wages were

highly suppressed. During the 1990s, though women's wages were
still lower than those of men, the wage growth was higher for
women workers. Two, during the 1990s, most of the subsidiary
status women workers were observed to be withdrawing from the
labour market. This led to increased average wages for women
workers as most principal status workers are better paid than
subsidiary status workers. Three, the increasing participation of
women in education in general, and higher education in particular,
has led to better placement of women workers in the labour market
at least as compared to their status during the 1980s and earlier
periods. In some sectors, women workers have outperformed men
workers and even displaced men workers, particularly in the
organized sector.

Agriculture and non- agriculture casual wages in rural India

Rural casual labour constitutes the single largest segment of
the total workforce in India. Among rural casual labourers,
agricultural labourers occupy a predominant position. Due to this,
the rural agricultural wage rate is considered one of the most robust
indicators of economic well-being, not only of agricultural labourers,
but also the overall rural population. However, agricultural wages
have not only been persistently lower than non-agricultural wages,
the rate of increase in the former has lagged the later.

Figure 7.3

The following diagram explains that non-farm wages and

their annual growth were higher than agricultural wages during the
period from 1983 to 1993-94, and this difference has only widened
during the period from 1993-94 to 2004-05. In fact, the higher rates
of increase in the growth rates of casual wages during 1993-94-
1999-2000 (as discussed in the above paragraphs) are contributed
 175

to significantly by higher increase in the growth of non-agriculture

wages; the growth of farm wages has decelerated during the entire
post-reform period in comparison to the pre-reform period .

Among the various reasons for higher rise in real wages of

non-agriculture activities are enhanced labour productivity, public
interventions through employment generation programmes, and
better implementation of the Minimum Wages Act. In contrast, the
agriculture sector continues to be overcrowded, leading to low
labour productivity and poor implementation of the Minimum Wages
Act. All these led to a lower growth in real wages in agriculture
during the post-reform years (1993-94 to 2004-05) as compared to
that during the pre-reform period.

7.4 WAGES ACROSS SOCIAL GROUPS

Daily wages/earnings show a wide range of variations

across workers from different social groups. In general, workers
from the lower social strata receive lower wages than their upper
strata counterparts. Apart from the low educational achievements of
workers from the lower social groups, various other kinds of social
discrimination operate in tandem in the labour market, leading to
lower than prevailing wage payments to them. The following table
presents the rural-urban distribution in wages of casual and regular
workers across scheduled castes (SCs), scheduled tribes (STs),
and Others.

Wages paid to SCs and STs are significantly lower than the
wages paid to the Other categories. Wage differentials across
social groups are more pronounced for regular workers than for
casual workers and for male workers than for female workers. This
is because majority of the casual workers come from the lower
social groups, viz., the SCs and STs, so the average daily wage
across social groups shows little difference across social groups.
This differential is still lower in the case of female workers because,
in India, women from the upper castes do not usually work as
casual wage labour. Within male workers, other social groups
receive distinctly higher wages than the SCs and STs.

Among the regular workers, the highest wage differential is

reported among rural women. In the rural areas, there is a
qualitative difference between employment qualities of women from
Other categories, on the one hand, and women from SCs and STs,
on the other. Most of the women workers from SCs and STs work
as either attached labour with big landlords or in menial jobs with
big contractors. These workers are counted as regular workers
though they get lower wages than even daily casual workers.
Sharma et al. (2002) find that in rural Bihar, the daily wages of
attached women labourers in agriculture is approximately 75 per
 176

cent of the prevailing wage rates. In contrast, women from other

categories are generally engaged in government jobs with much
higher wage levels. STs in regular employment earn much better
than SCs, both in rural and urban areas.

7.5 QUESTIONS

1) Explain the role of agriculture in provision of food and nutritional

security in developing economies.
2) Explain the Food & nutritional security in India.
3) Discuss the trends in agricultural employment in India.
4) Discuss the trends in agricultural real wages.
5) Explain the trends in Rural-Urban in come disparity.
6) Write a note on gender wage differentials in India.

™™™™
 177

Module 5

8
INCENTIVES AND DISINCENTIVES FOR
GROWTH
Unit Structure :

8.0 Objectives
8.1 Development and Evaluation of Research and Extension
systems
8.2 Financial Sector Reforms and Rural Credit
8.3 Problems of Rural Credit in India
8.4 Microfinance
8.5 Self help Groups
8.6 NGOs
8.7 Agricultural subsidies in India
8.8 Comprehensive Crop Insurance Scheme, 1985
8.9 Questions

8.0 OBJECTIVES

x To study agricultural research and extension systems in India

x To study financial sector reforms and rural credit.
x To study the problems of rural credit in India
x To understand the Role of Microfinance, Self Help Group and
NGO’s in Rural Credit.
x To study Agricultural Pricing in India
x To study Agricultural Subsidies in India
x To study various agricultural insurance schemes.

8.1 DEVELOPMENT AND EVALUATION OF

RESEARCH AND EXTENSION SYSTEMS

India has one of the largest and institutionally most complex

agricultural research systems in the world. The agricultural
research system in India includes some 27,500 scientists and more
than one lakh supporting staff actively engaged in agricultural
research, which makes it probably the largest research system in
the world. In the present research system, Indian Council of
 178

Agricultural Research (ICAR) is an apex body at the national level

that supports research and extension activities to evolve effective
Transfer of Technology (TOT) models. The State Agricultural
Universities also contemplates to develop extension models
suitable to take up transfer of technology besides implementing the
models evolved by ICAR system. After independence, agricultural
research was given much emphasis which in turn led to increased
agricultural production and near self-sufficiency in food grains in the
country. The National Academy of Agricultural Research
Management is yet another exclusive institution under ICAR to
conduct research and training in agricultural research management.

A) OTHER ORGANIZATIONS INVOLVED IN AGRICULTURAL

RESEARCH
• General universities, about 23 of which are involved in
agricultural research,
• Scientific organizations such as the Council of Scientific and
Industrial Research, the Bhabha Atomic Research Centre,
• Government departments such as the Department of Science
and Technology, the Department of Biotechnology,
• Private and voluntary organizations,
• Scientific Societies
PROJECT FOR INTENSIFICATION OF REGIONAL RESEARCH
ON COTTON, OILSEEDS AND MILLETS (PIRRCOM)
With the initiatives for agricultural research development,
there was a need to coordinate the research on various crops,
especially cotton, oilseeds and millets. Moreover, a need was felt to
conduct the research work in different agroclimatic regions of the
country. The first coordinated research work on regional basis was
initiated in 1956 in the form of a joint venture by ICAR and the
Indian Central Commodity Committees on Oilseeds and Cotton.
Eventually, seventeen centers were established across the country
to perform research on cotton, castor, groundnut, taramira, jowar,
bajra etc. The research programme for each region was prepared
by a regional coordination committee headed by the Agriculture
Commissioner of India, and approved by the respective commodity
committees. A regional research station composed of full-fledged
sections of plant breeding and genetics, agronomy, agricultural
chemistry and soil science, plant pathology and entomology.

REORGANIZATION OF ICAR
In 1963, the Ministry of Food and Agriculture appointed the
Agricultural Review Team headed by Dr. Marion W. parker of
USDA (United States Department of Agriculture), to scrutinize the
organization of agricultural research in India. The team submitted
its report in March, 1964 and based on the recommendation of the
 179

team, ICAR was reorganized in the year 1966. ICAR was made an
entirely autonomous organization. The Governing Body of ICAR
was reorganized to make it primarily a body of scientists and
agriculturists. Institutes like Indian Agricultural Research Institute,
National Dairy Research Institute and Indian Veterinary Institute
were made National Institutes. Eventually, a policy was made
suggesting that an agricultural scientist would be appointed as the
chief executive of ICAR with the designation of Director General.
Accordingly, Dr. B.P. Pal was appointed as the first Director
General of ICAR in May 1965.

The objectives of the ICAR may be briefly summarized as follows:

(1) To promote, guide and coordinated agricultural and veterinary

research and education throughout India;
(2) To train research workers by offering scholarships;
(3) To serve as a clearing house of information in regard to
research and to advise on agricultural and veterinary matters
generally; and
(4) To undertake the publication of scientific papers, monographs,
etc.

DEVELOPMENT OF AGRICULTURAL UNIVERSITIES

The very fact that in 1948, there were only seventeen
agricultural colleges in the country shows that before
independence, higher education in agriculture was almost ignored.
These agricultural colleges were under the control of Director,
Department of Agriculture of the respective states.

However, colleges for animal husbandry, governed by the

Director, Animal Husbandry of the concerned states were separate
from those for agriculture. Research and extension were the
responsibility of the agriculture and the animal husbandry
departments of the states. In 1955, the first Joint Indo-American
Team was set up. The team suggested the founding of rural
universities in each of the states in India.

In the year 1959, the second Joint Indo-American Team was

set up. The team submitted its report in 1960. The team suggested
that the Agricultural Universities should be autonomous; should
consist of colleges of agriculture like veterinary, animal husbandry,
home science, technology and basic sciences under them; should
have inter-disciplinary teaching programmes; and should integrate
teaching research extension. By the year 1961, there were
demands from many states for agricultural universities and the
Government of India accepted the organization of a few more
agricultural universities during the Third Five Year Plan.
 180

During the period of the Fourth Five Year Plan between the
years 1960- 65, seven agricultural universities were established in
U.P., Orissa, Rajasthan, Punjab, Andhra Pradesh, Madhya
Pradesh and Karnataka. The United States Agency for International
Development (USAID) contributed significantly to the development
of agricultural universities through the Land-Grant Universities of
U.S.A. USAID provided assistance in the form of training of Indian
scientists in the U.S.A., stationing of the U.S. scientists for teaching
and research in Indian agriculture universities. One of the important
schema came when the Education Commission (1964-66), headed
by Dr. D.S. Kothari, recommended that all aspects of agricultural
research should be the function of agricultural universities.
Consequently, the responsibility for research was entrusted from
State Department of Agriculture to agricultural universities.
However, this change was not consistently implemented in every
state. The Review Committee on Agriculture Universities (1977-78),
headed by Dr. M.S. Randhawa, made many useful
recommendations for the development of agricultural universities. It
noted that the quality of leadership and the financial support from
the state were crucial factors in the development of agricultural
universities. The committee suggested, among other things, that
the Director General, ICAR, and Chairman, University Grants
Commission, should be members of the selection committee that
appoints Vice- Chancellors for agricultural universities. Under
National Agricultural Research System, State Agricultural
Universities (SAUs) are major cohorts in growth & development of
Agricultural Research and Education.

The following critical research gaps were identified in the

Eleventh Plan:
x Integrating methods of traditional and modern biology giving
attention to both yield and quality aspects.
x An orientation of public sector research in hybrid development
with commercial viability has to be reintroduced on a mission
mode at least in crops like pigeon pea, soybean, and mustard.
x Indigenous plant types that inherently possess genes
responsible for higher nutritive value (more protein,
micronutrients, etc.) need to be identified and used for enriching
nutrients in rainfed crops.
x A major research thrust is warranted in areas of balanced and
site-specific nutrient supply and efficient water management
strategies.
x Integrated Pest Management (IPM) needs greater emphasis.
x In horticulture, the research agenda needs to emphasize survey
of indigenous biodiversity for resistance to various biotic and
 181

abiotic stresses for improvement in production, productivity, and

quality of produce.
x In livestock, there is an urgent need to reorient research and
assess the genetic potential of indigenous breeds. Intensive
research work needs to be undertaken for genetic identification
of traits of excellence in Indian breeds.
x With large quantities of animal products now being produced,
research on process technologies, value addition, packaging,
storage, transportation, and marketing should receive high
priority. In the absence of a proper slaughter regime, there is
considerable wastage and an effective package of practices for
management of slaughterage needs to be evolved.
x To conclude, it can be stated that although agriculture has been
playing the most vital role in Indian economy, not much
emphasis has been given to the of agricultural research in India.

B) AGRICULTURAL EXTENSION SYSTEMS IN INDIA

The crucial role the agricultural sector play from the

perspective of ensuring food security of its large population, the
Union Government play a major role in formulating policies that has
direct bearing on the growth of agricultural sector. The Union
Government mainly provides road map through its policies,
programmes and budgetary support to the sector. The programmes
conceived at national level are mainly implemented by the states’
through its development departments. Besides, states also
formulate region specific development programmes.

The first planned attempt started with the launching of

Community Development Programme in 1952, followed by the
National Extension Service in 1953. These programs were able to
educate responsive farmers to take up improved methods of
farming across the country. The other important Area-Based
Special Programmes were; Intensive Agricultural District
Programme (IADP, 1960), Intensive Agriculture Area Programme
(IAAP, 1964) and High Yielding Varieties Programme (HYVP,1966)
besides Farmers Training Centers (1967) to train farmers on high
yielding varieties and improved methods of farming to back up the
above programs. The cumulative effect of these programs resulted
in increased productivity, which made way to usher in ‘Green
Revolution' in Indian agriculture during late 1970s.

However, these programs widened gap between resource

rich and resource poor farmers. In order to enable resource poor
farmers to take benefit of improved farm technology, many client-
based programs were introduced. The most important ones being;
Small Farmers Development Agency (SFDA, 1969), Marginal
 182

Farmers and Agricultural Labourers Programme (MFAL, 1969),

District Rural Development Agency/Society (DRDA, 1976),
Integrated Rural Development Programme (IRDP, 1978) and Lab to
Land Programme sponsored by ICAR (LLP, 1979). Although, these
programs were able to improve the socio-economic conditions of
beneficiaries, they were isolated in a given time and implemented in
a phased manner.

By the middle of 1980s it was observed that extension

services in the developing countries were suffering from a number
of weaknesses, including the dissipation of extension workers’
energies on low priority tasks; the lack of single as well as clear line
of command; and low level of agricultural knowledge and skill
among field level functionaries. As a means of reforming and
strengthening the extension service, a reorganized agricultural
extension system known as ‘Training and Visit’ (T & V) system was
introduced in the country.

Training and Visit System

This system was introduced in India in 1974 with the World
Bank assistance. The system aimed to achieve change in
production technologies of farmers through professional assistance
for the contact farmers from well trained extension personnel on
agricultural research and supported by supply, service and
marketing facilities which were earlier lacking in National Extension
Service.

Broad Based Extension System (BBES)

In the BBE : (a) the role of subject matter specialists was
amplified and they were invited to formulate messages suitable to
their land based activities (agriculture, sericulture, animal
husbandry, horticulture, Human resource development, creating
agriculture infrastructure etc.), (b) village extension workers had full
time job by offering messages during lean season also, and (c) the
concept of broad based education laid emphasis on formulating
and delivering composite messages to the farmers to meet the
needs of their full agricultural environment.

District Level Agriculture Technology Management Agency

(ATMA) Model:

ATMA extension mechanism/model was firstly implemented

in Andhra Pradesh, Bihar, Himachal Pradesh, Jharkand,
Maharastra, Orissa and Punjab covering 4 districts in each state
during 1998 under the guidance of National Institute of Agricultural
Extension Management (MANAGE), Hyderabad. The evaluation
report of Indian Institute of Management (IIM) Lucknow revealed
that the ATMA’s extension approaches have been proving to be
 183

very promising in execution of the reforms and thus the progress

was extended to other states.

Every district has to prepare the Strategic Research and

Extension Plan (SREP) for implementing ATMA in respective
districts. The SREP is prepared through participatory
methodologies such as Participatory Appraisal Techniques
involving all the stake holders and farmers. The SREP contains
detailed analysis of all the information on existing farming systems
in the district and research-extension gaps required to be filled up.
It also prioritizes the research-extension strategies within the
district. ATMA is a more comprehensive farmer centric bottom-up
approach extension program which is in operation in all the districts
of the country.

Initiatives of ICAR
The Indian Council of Agricultural Research (ICAR) took up
number of extension programmes over the years. The first
programme was National Demonstration Scheme (1964) initiated
during 1964-65 to demonstrate the production potentiality of major
crops 1975 to identify technological as well as socio-economic
constraints and to formulate and implement the problem solving
technology modules on area/watershed/ target group basis in
operational area. Lab-to-Land programme was launched during
1979 to transfer low cost technologies in agriculture and allied
enterprises. As part of technology mission on oilseeds and pulses,
the council started

Frontline demonstration in 1990-91. Institution –Village

Linkage Programme was launched during 1995 which was funded
under National Agricultural Technology Project (NATP) during
1998-2004. Under innovation technology demonstration component
of NATP, the ICAR established Agriculture-Technology Information
Centre (ATIC) in State Agricultural Universities to work as single
window support system linking the various units of research
institution with intermediary users and farmers in decision making
and problem solving exercise through availability of technology
inputs, products, information and advisory services under one roof.
Since 2006-07, ICAR is implementing National Agricultural
Innovation Project (NAIP), in a consortium mode.

State Agricultural Universities (SAUs)

The type of extension activities undertaken by SAUs vary
from state to state. The UAS Bangalore is undertaking transfer of
technologies to farmers and others through Krishi Vigyan Kendras,
Extension Education Units, Farmers Training Institute, Bakery
Training Unit, Staff Training Unit, Agriculture Technology
Information Centre by organizing diversified extension educational
activities viz., farm trials, demonstration, meetings, discussion,
 184

conventions, training programme, farmers field school, field days,

krishi mela, exhibition, agricultural campaign, educational tours,
exposure visits, diagnostics visits , farm advisory services etc. The
SAUs publish agriculture literature (books, package of practices,
booklets, folders, and leaflets) in local languages for dissemination
of agricultural technologies to the farmers and extension personnel.
Expert Centres and Village Resources Centres are established in
collaboration with Indian Space Research Organisation (ISRO) for
interaction of farmers with experts on a variety of agricultural
information. Mobile message services and Kissan Call Centre
(established at ATIC) as well as KVKs are providing timely
information to the farming community regarding agricultural
technologies, weather data and market information.

Conclusion :
The present extension systems appear to be inadequate to
address the challenges faced by the farmers in the context of
changing agricultural scenario. There is very little penetration of
extension system below the taluka level. The major reason being
lack of grassroot level extension functionaries to work at
panchayats or village level. The visibility of viable decentralized,
democratic, farmer centric, demand driven, vibrant and participatory
institutional mechanism have to be ensured at the lowest cutting
edge administrative level (Panchayat level institutions) to cater to
the needs of the farming community.

8.2 FINANCIAL SECTOR REFORMS AND RURAL

CREDIT

The Indian financial system has come far away from the
days of nationalisation. The Narsimham Committee constituted in
1991 laid the foundation for the reformation of the Indian financial
sector. It felt the significance of enhancing the efficiency and
viability of the financial sector. As the international standards
became prevalent, banks had to give up their traditional operational
methods of directed credit, directed investments and fixed interest
rates, all of which led to deterioration in the quality of loan
portfolios, inadequacy of capital and the erosion of profitability.

Financial sector reforms have provided the necessary

platform for the Indian banks to operate on the basis of operational
flexibility and functional autonomy. The reforms also brought about
structural changes in the financial sector and succeeded in easing
external constraints on its operation, i.e. reduction in CRR and SLR
reserves, capital adequacy norms, restructuring and recapitulating
 185

banks and enhancing the comitive element in the market throuh the
entry of new banks.

The reformms also include increase in the number of banks

due to the entry of new private and foreign banks, increase in the
transparency of the banks balance sheets through the introduction
of prudential norms and increase in the role of the market
forcesdue to the deregulated interest rates. Finacial sector reforms
included:

(i) Measures for liberalization, like dismantling the complex system

of interest rate controls, eliminating prior approval of the Reserve
Bank of India for large loans, and reducing the statutory
requirements to invest in government securities;

(ii) Measures designed to increase financial soundness, like

introducing capital adequacy requirements and other prudential
norms for banks and strengthening banking supervision

(iii) Measures for increasing competition like more liberal licensing

of private banks and freer expansion by foreign banks. These steps
have produced some positive outcomes.

A) BANKING REFORMS and RURAL CREDIT

Rural banking was a neglected subject before nationalization

of banks. Significant reforms have taken place in the area of rural
banking with the introduction of the lead bank scheme,
establishment of regional rural banks and potential linked plans of
NABARD etc. All these reforms both in terms of credit will evolve
with a view to redress some specific problems that were being
faced in the area of rural finance.

Evolution of Commercial Banks in Rural Area The foundation for

building a broad base of agricultural credit structure was laid by the
Report of the All-India Rural Credit Survey (AIRCS) of 1954. The
provision of cultivator credit in 1951-52 was less than 1% for
commercial banks. In the report it was observed that agricultural
credit fell short of the right quantity, was not of the right type, did
not fit the right purpose and often failed to go to the right people.
With a view to give an impetus to commercial banks, particularly, in
the sphere of investment credit, the nationalization of the Imperial
Bank of India and its redesignation as the State Bank of India (SBI)
was recommended. From the position prevalent in 1951-52,
commercial banks came a long way with a substantial spread of
 186

32,224 branches in rural and semi-urban areas comprising 68% of

their total outlets as on 31 March 1991. The outstanding deposits of
such branches at Rs.67,855 crore as on the same date constituted
around 35% of their total deposits, while loans outstanding at Rs.
43,797 crore comprised 36% of outstanding credit. The agricultural
advances of the commercial banking system aggregated Rs.
16,687 crore and constituted 14% of total advances in March 1991.
The rural and semi-urban branches of commercial banks covered
17.6 crore deposit accounts while the number of loan accounts
serviced aggregated 3.7 crore.

Growth during 1991-92 to 2003-04 The period since 1991-92 has

seen a fairly rapid expansion of credit to agriculture. Available data
indicate that the flow of credit to agriculture by commercial banks
and RRBs taken together increased to Rs. 60,022 crore in 2003-04.
This implies a compounded annual growth rate of 22.2%. In fact, as
compared with commercial banks (including RRBs), the flow of
credit from the cooperative sector was much slower through this
period. The compounded annual growth rate of credit for agriculture
from cooperative institutions was only 13.7%. Further, the
proportion of agriculture credit to total credit came down because of
the rapid growth in nonagriculture credit.

The Government took some major initiatives during the

period to boost agriculture production and productivity through
enhanced credit flow and by way of building agricultural
infrastructure, particularly irrigation and connectivity in rural areas.
Special Agricultural Credit Plan (SACP) was introduced by RBI for
Public Sector Commercial Banks in 1994-95. Credit growth for
agriculture and allied sectors under this caption reflected a CAGR
of 36.45% during 2001-02 to 2005-06. SACP has since been
extended to Private Sector Commercial Banks from 2005-06. The
SHG – Bank Linkage Programme was started as a pilot project by
NABARD in 1992. It led to the evolution of a set of RBI approved
guidelines to banks to enable SHGs to transact with banks. Initially
there was slow progress in the programme up to 1999 as only
32,995 groups were credit linked during the period 1992 to 1999.
Since then the programme has been growing rapidly and the
cumulative number of SHGs financed increased from 4.61 lakhs on
31 March 2002 to 10.73 lakhs on 31 March 2004 and further to
29.25 lakh groups as on 31 March 2007. Rural Infrastructure
Development Fund (RIDF) was set-up in NABARD by GoI during
1995-96 with an initial corpus of Rs.2000 crore, to accelerate the
completion of on-going projects of rural infrastructure. Banks which
did not fulfill the priority sector credit requirement and agriculture
 187

credit mandate were required to contribute to this Fund. The fund

has been strengthened every year with additional allocations in the
Union Budget. A large number of irrigation and rural connectivity
projects could get completed under RIDF. RBI scaled down its
contribution to the Rural Credit funds with NABARD to a token
amount of Rs.1 crore per annum since 1993-94. However to enable
NABARD to have reasonably strong leverage for accessing market
funds, the share capital of 54NABARD was strengthened and
increased to Rs.2000 crore (paid up) from Rs.100 crore at the time
of its formation in 1982. Contributions to enhanced share capital
have come from GoI and RBI. By prudent funds management, the
institution has also built a strong base of reserves and has been
using it in its business operations judiciously to keep lending rates
to rural financial institutions at significantly lower than market costs.

Targets for rural / semi-urban branches Currently, there are

33,478 commercial bank branches in rural and semi-urban centres
in the country. Out of these, there are about 12,340 branches in the
rural and semi urban areas of the Central, Eastern and North-
Eastern Regions, where the majority of the financially excluded
population live. It is understood that each branch of Grameen Bank
in Bangladesh services at least 4,000-5,000 borrowers, with 6-7
field officers per branch. Given the existing staff strength, it should
be possible for commercial banks (including RRBs) to provide
access to credit to at least 250 hitherto excluded households per
annum at each of their existing rural and semi-urban branches. For
this, banks will have to strengthen their staff and use a variety of
delivery mechanisms.

In several districts, the population per branch office is much

higher than the national average, particularly in rural and semi
urban areas. The list of such districts has already been circulated
by RBI among banks. The DLCCs in these districts may identify
centres for opening branches by commercial banks and RRBs. in
the next three years. For the North-Eastern Region, the financial
sector plan has already identified such centres and branch
expansion plan as laid out therein may be implemented. SLBC may
monitor the branch expansion plan for each State. Promoting
Rural Entrepreneurship : Commercial banks may consider setting
up institutions like farmer training centres and Rural Development
and Self Employment Training Institutes (RUDSETI) for developing
skills among farmers / rural entrepreneurs for effectively managing
the assets financed.
 188

The state banks of India and its associates were 14006 in

2005, but this increased to 16731 in 2009. Regional rural banks
were 14763 in 2005 but this increase to 14776 in the year 2006,
14812 in year 2007, 15029 in year 2008 and 15384 in the year
2009. This change in regional rural banks reflects upward trends
since 2005 to 2009. It means the period of 2005-2009 reflects that
there is a rural development in context of the Financial Sectors
reforms in India.

Progress of Micro finance programme;

Microfinance institutions are mainly two types of models,

SHG-Bank model and the MFI-bank linkage model. The former
model involves financing for SHGs which are small, informal and
homogeneous groups. After its formation, the group regularly
collects a fixed amount of thrift from each member. With this
amount, it starts lending to members for petty consumption needs.
The working fund grows with time and the group can approach
Microfinance Institutions (MFIs) for credit. The MFI-bank linkage
model involves financing people via MFI.

Micro Finance Bill, 2011 : following the recommendations made

by the Malegam Committee, the government has prepared the
Micro Finance Bill, 2011. The main features of the bill are as
follows:

x RBI will regulate the microfinance sector.

x Every entity , except banks, engaged in micro finance will

have to register with RBI

x RBI may specify margin requirements and other norms for

MFIs.

x Sate advisory councils to be set up to give states a say in

policy making.

x Systematically important MFIs to register as companies

under the Companies Act.

x MFIs will need to create a reserve fund out of their net profit.

x All mergers and acquisitions in the MFI sector will have to be

approved by the RBI.

The Reserve Bank of India (RBI) on December 2, 2011 formally

brought micro finance institutions (MFIs) under its direct regulation
 189

by classifying these as a new category of non-banking financial

company (NBFC).

The RBI has allowed micro finance institutions to raise funds via
external commercial borrowings (ECBs) up to $10 million or
equivalent during a financial year for permitted end uses under the
automatic route.

Conclusion:

The Financial Sector has been successful in improving the

health and efficiency of Financial Sector in India but they have
failed in achieving growth with equity. Privatization and
globalization have also introduced excessive competition (domestic
as well as foreign) before Indian public sector banks which has
created an unstable banking environment. The public sector banks
must create strategic alliance with the rural regional banks to open
up rural branches and increased use of technology for improved
products and services for the same. Banks must also strengthen
their credit delivery systems for Rural India. Today, finance and
banking systems are very strong. Since the financial reforms of
1991, there have been significant favourable changes in India’s
highly regulated Financial Sector. The financial reforms have had a
moderately positive impact on reducing the concentration of the
Financial Sector (at the lower end) and improving performance.

8.3 PROBLEMS OF RURAL CREDIT IN INDIA

Evaluation of Rural Credit in India : Problems and Measures

1. Insufficiency:
In spite of expansion of rural credit structure, the volume of
rural credit in the country is still insufficient as compared to its
growing requirement arising out of increase in prices of agricultural
inputs.

2. Inadequate Amount of Sanction:

The amount of loan sanctioned to the farmers by the
agencies is also very much inadequate for meeting their different
aspects of agricultural operations. Considering the amount of loan
sanctioned as inadequate and insignificant, the farmers often divert
such loan for unproductive purposes and thereby dilute the very
purpose of such loan.
 190

3. Lesser Attention of Poor Farmers:

Rural credit agencies and its schemes have failed to meet
the needs of the small and marginal farmers. Thus, lesser attention
has been given to the credit needs of the needy farmers.

4. Growing Over-dues:
The recovery of agricultural advances to various institutions
is also not at all satisfactory. In 1997-98, the recovery of agricultural
advances of commercial banks, co-operative banks and regional
rural banks were 63 per cent, 66 per cent and 57 per cent
respectively. Such growing over-dues has also been resulted from
poor repaying capacity of farmers. As a result of that, the credit
agencies are becoming wary of granting loan to farmers.

5. Inadequate Institutional Coverage:

In India, the institutional credit arrangement continues to be
inadequate as compared to its growing needs. The development of
co-operative credit institutions like Primary agricultural credit
societies, land development banks, commercial banks and regional
rural banks, have failed to cover the entire rural farmers of the
country.

6. Red Tapism:
Institutional agricultural-credit is subjected to red-tapism.
Credit institutions are still adopting cumbersome rules and
formalities for advancing loan to farmers which ultimately force the
farmers to depend more on costly non-institutional sources of
credit.

Measures Taken to Improve Credit Flow to Agriculture:

In order to improve the flow of credit to agriculture, the
Government has introduced the following measures in 1998-99:
(i) Procedural simplification for credit delivery has been made (as
per R.V. Gupta Committee Report) through rationalization of
internal returns of banks.
(ii) More powers have been delegated to branch managers to
raise the credit flow to agriculture.
(iii) Introduction of composite cash credit limit to farmers,
introduction of new loan products with saving components,
cash disbursement of loans, dispensation of no due certificate
and discretion to banks on matters relating to margin security
requirements for agricultural loans above Rs. 10,000.
(iv) Introduction of at least one specialized agricultural bank in
each state to cater to the needs of high tech.
(v) Introduction of cash credit facility.
 191

(vi) Insuring Kisan Credit cards to farmers to draw cash for their
production needs on the basis of the model scheme prepared
by NABARD.
(vii) The Government has made arrangement for hassle free
settlement of disputed cases of over dues.
(viii) To augment Rural Infrastructural Development Fund (RIDF)
with a corpus of Rs. 10,000 crore with NABARD to finance
rural infrastructure development projects by states.
Thus, the flow of institutional credit for agriculture and allied
activities which was Rs. 31,956 crore in 1997-98 is estimated to
have increased to Rs. 64,000 crore in 2001-02. The total credit now
from all agencies is projected to reach the level of Rs. 82,073 crore
by 2002-03. The total credit now to agriculture during the period
1997-2002 is likely to be of the order of Rs. 2,33,700 crore which is
close to the Ninth Plan projection of Rs. 2,29,750 crore.

For the Tenth Plan period (2002-07) the credit flow into
agriculture and allied activities from all banking agencies is
projected at Rs. 7,36,570 crore, which is more than three times the
credit flow during the Ninth Plan.

Farm Credit Package:

The Government of India announced the “Farm credit
package” in June 2004 which aimed at doubling the flow of
institutional credit for agriculture in the ensuing three years.
Accordingly, the credit to the farm sector got doubled during two
years, i.e., from Rs. 86,981 crore in 2003-04 to Rs. 1,80,486 crore
in 2005-06, as against the stipulated time period of three years. The
credit flow continued to increase at Rs. 2,29,400 crore in 2006-07
and then to Rs, 2,64.455 crore in 2008-09.

Farm Loan Waiver Scheme, 2008-09 and Farmers’ Debt Relief

Fund:
The Government of India, in its budget 2008-09, has
introduced a complete debt waiver scheme for small and marginal
farmers to the extent of Rs. 50,000 crore of loans overdue from
commercial banks, RRBs and cooperative credit institutions as on
31st December, 2007 and a onetime debt relief scheme at the rate
of 25 per cent for large farmers to the extent of Rs. 10,000 crore.

Initially, the Government was silent over the matter that how
this big amount of loan waiver will be financed. Later on, on March
27, 2008, the Government decided to setup a Farmers’ Debt Relief
Fund (FDRF) with an initial corpus of Rs. 10,000 crore to implement
the farm loan waiver scheme announced in the budget to help
about four crore peasants.
 192

The government will initially provide Rs. 10,000 crore to the

Fund, which has been earmarked in the supplementary demands
for grants for 2007-08. This fund would be augmented by another
Rs. 50,314 crore in the next four years to compensate the banks
and other lending institutions on account of losses resulting from
farm loan waiver scheme.

This loan waiver scheme will be implemented by June 30.

This debt waiver and debt relief scheme will benefit 3 crore small
and marginal farmer and 2 crore other farmers.

Again on May 23, 2008, the government brought large

farmers in the ambit of its farm loan waiver scheme by expending
the package by nearly 20 per cent to Rs. 71,680 crore. Under the
modified scheme, all farmers, including big ones, in 237 identified
districts will get a deft relief of 25 per cent of the outstanding
amount or Rs. 20,000 whichever is higher. The scheme will benefit
over four crore small, marginal and other large farmers and will cost
the exchequer a total of Rs. 71,680 crore.

In addition to Rs. 10,000 crore that has been earmarked in

2007-08 for funding the scheme, the government will provide Rs.
15,000 crore each in 2008-09 and 2009-10, Rs. 12.000 crore in
2010- 11 and Rs. 8,314 crore in 2011-12. It has also been stressed
that “Upon being granted the debt waiver or signing an agreement
for debt relief under the One Time Settlement (OTS), the farmer
would be entitled to fresh loans from their banks.”

As per the scheme, all farm loans disbursed by banks and

co-operatives up to March 31, 2007 to an estimated three crore
small and marginal farmers will be waived. Here marginal farmers
are defined under the scheme as those holding up to one hectare
of land, while small farmers are those who have 1 to 2 hectare
under their possession.

Under the OTS scheme for the farmers, they will get a
rebate of 25 per cent on their farm loan if they pay the balance 75
per cent of their outstanding loan. About 3.68 crore farmers have
been benefitted from this debt waiver and debt relief scheme
involving debt waiver and debt relief of Rs. 65,318 crore.

Criticism:
However, the farm loan waiver scheme has also been questioned
on various grounds:

(i) The full waiver of loan only applies to losses taken by farmers
from commercial bank’s, RRBs and cooperatives owning 2
hectares (5 acres) or less but completely ignores the distress of
other farmers who have taken loan from private money lenders;
 193

(ii) This 2 hectare ceiling is reasonable for fertile irrigated land but
the same is again unreasonable for un-irrigated low quality land
with small yields such as the “suicide belt” of Vidarbha in
Saurashtra, Andhra’s, Rayalaseema or south Karnataka;

(iii) Such bonanza or doling out money will also discourage bank-
finance on the part of bank and similarly may raise expectation of
future waiver of such loan and more so the banks will also try to
increase, “risk premium” that is built into its loan system.

(iv) The scheme is also criticized on the ground that instead of

doling out such a big account of fund, it would have been better to
utilize this fund for developing permanent infrastructures for small
and marginal farmers to make it much more productive.

It has been observed that our past experience of such loan

waiver policy did not give much relief to the poor farmers. Thus it is
felt that the country’s agriculture policy needs to be redressed
thoroughly through rational principle rather than doling out of huge
amount of money with uncertain prospect, raising the increasing
burden on the tax payer and also raising fiscal deficit of the future
governments.

8.4 MICROFINANCE

It is generally been observed that the poor people do not

have access to bank loans. Private money lenders charge a very
high interest rates. This makes it difficult for poor people to access
funds for starting small income generation activities like sewing,
buying buffalo, etc. Micro credit caters the need of people for small
loans. Microfinance includes support services along with the loan
component. Microfinance therefore, opens up channels for thrift,
market assistance, technical assistance, capacity building,
insurance, social and cultural programmes.

Some notable success stories of Microfinance are Unit Desa

Programme of the Bank Rakyat, Indonesia, The Bank for
Agriculture and Agricultural Co-operatives (BAAC), Thiland, the
Grameen Bank of Bangladesh. In India, SEWA (in Gujrat),
MYRADA (in Karnataka), PRADAN (in Bihar and Tamil Nadu) are
some of the success stories.

Microfinance institutions are mainly following two types of

models, SHG-bank model and the MFI-bank linkage model. The
former model involves financing for SHGs which are small, informal
and homogeneous groups. After its formation, the group regularly
collects a fixed amount of thrift from each member. With this
amount, it starts lending to members for petty consumption needs.
Scarce resources and more demand for credit compel the group to
 194

make appropriate decisions. The working fund grows with time and
the group can approach Microfinance institutions (MFIs) for credit.
The MFI- bank linkage model involves financing people via MFI.

Experiments with microfinance have demonstrated following

advantages:

i) Group lending drastically cuts down transaction costs.

ii) It cuts down on borrower’s costs like collateral registration,
transportation costs.
iii) Group lending by entailing a joint liability reduces the risk of
default and also does away with the requirements of physical
collateral which the poor are often unable to provide.

Impact of Microfinance:
i) Micro credit programs and institutions have been successful in
reaching their target groups of poor more effectively than the
state-led programs and institutions. However, even these have
not been free of the ‘exclusion problem’ in targeting.
ii) These have generated a positive change in the income of the
beneficiaries, but this change has been only marginal.
iii) These have generated a positive impact on the number of days
of family employment. However, their performance in the
generation of wage employment has been poor.
iv) There has been any discernible contribution to the improvement
of skills and technology adopted by the beneficiaries.

Issues related to Microfinance:

i) Issue related to rate of interest: that is charged from the
borrowers. Questions have been asked how high interest rates
can be justified if profit margins are also high. If the high interest
rates are warranted by the risky nature of business, the high
profit margins do not support the argument of risk.
ii) Issue of multiple lending: large aggressive MFIs have earned
the hostility of the state administration by seeking to entice
members of SHGs which came under a state-sponsored
microfinance programme. Multiple lending is the bone of
microfinance movement and is rampant. Leading MFIs which
have already formed the Micro-finance Institutions Network
have to roll back multiple lending.
iii) Issue of group guarantee: Microfinance has to get out of the
group guarantee format, as the path- breaking Grameen Bank
of Bangladesh has done. Group guarantee has enabled MFIs to
achieve a nearby perfect recovery rate, allowing them to flaunt a
level of distressed assets which is far lower than that of
 195

commercial banks. But that too undercuts the defense of high

interest rates.

The Reserve Bank of India (RBI) on December 2, 2011 formally

brought micro finance institutions under its direct regulation by
classifying these as a new category of non-banking financial
company.

8.5 SELF HELP GROUPS

In 1987, NABARD made an attempt to search for alternative

mechanism to improve the access of the poor for financial services
in a cost effective and sustainable manner. Later on with the
needed back up policy support from the Reserve Bank and the
Central Government, the SHG-Bank linkage program was launched
by NABARD as a ‘Pilot Project’ in February 1992. Micro credit has
worked largely through SHGs in general and women groups in
particular. The SHG is a small group of 10 to 20 persons belonging
to similar socio-economic characteristics, residing in same locality.
It provides a group approach to the micro-credit program. Along
with implementing the micro-finance programs, SHGs take up many
other important social issues like sanitation, health care, family
planning, literacy, management of common resources, etc. SHGs
take loans from banks/ voluntary agencies/ self-help promoting
institutions to meet the needs of the farmwomen. The SHG itself
with the help of the NGO makes assessment of individual credit
needs of its members and submits to the bank for sanction of
collective loans in its name. The entire loan amount disbursed to
the SHG is refinanced by NABARD to the financing banks.

The process of SHG formation could be divided into different

phases or stages as follows:

1. Group formation at grass-roots level. Our society members

are linked by various common bonds like caste, sub-caste,
community, blood relation, etc. This natural group is called
“affinity Groups”.
2. Group stabilization through thrift and credit activity amongst
the members and building their group corpus. The group takes
up internal loaning to the members. They save regularly.
3. Micro-credit Revolving fund sanctioned as cash credit limit by
bank.
4. Micro-enterprises development – This phase would include
entrepreneurship development as well as skill development
training of the members of the group to enable them to
successfully implement the chosen activities.
 196

Generally, a SHG consists of 10 to 20 persons. However, in

case of deserts, hills and areas with scattered population and
disabled persons, this number may be 5-20 under following
conditions:
1. Generally, all members of the group should belong to BPL.
2. The group shall not consist of more than one member from the
same family, a person should not be a member of more than
one group.
3. The group should organize a regular meeting weekly or
fortnightly or monthly.
4. The group should build their corpus through corpus fund which
should be used to advance loans to the members through a
participating decision making process.
5. The group should able to fix repayment schedules, fix
appropriate rate of interest for then loans advances and closely
monitor the repayment of the loan installment from the loanees.
6. The group should maintain simple ledger records such as
minutes book, attendance register, loan ledger, general ledger,
cash book, bank passbook and individual passbooks.
7. 50 percent of the groups formed in each block should be
exclusively for the women.

Though development policies and performances have created a

positive impact on the SHG in the society, they are facing many
problems and difficulties in making groups and lending financial
support from banks and financial institutions as follows:
1. Most members of the SHG are illiterate and innocent. They
have no knowledge about the SHG.
2. Lack of integrated approach in micro-policies in tackling its
issues.
3. The existing communication channels do not reach to the BPL
members of the society.
4. Lack of cooperative structure in the state.

8.6 NGOs

The National Bank for Agricultural and Rural Development

(NABARD) plays an important role in promoting and facilitating
bank linkages. Whereas the role of networking and coordinating the
activities of all the players in the field is play by NGOs. They act as
facilitators in purveying bank credit to SHGs. NGOs have played a
major role in effecting SHG-bank linkages. Relationship banking is
the result of NGO-bank interface to leverage funds for SHGs.
 197

NGOs have achieved significant success as promoters (helping

and enabling SHGs to access bank credit) and not as providers
(direct purveyors of credit).

For the economic development programmes, apex

institutions like NABARD/SIDBI/IDBI and major commercial banks
like SBI, PNB, etc. have schemes to support NGOs in their
development efforts to facilitate supply of credit to the ultimate
beneficiaries. The above banks by way of grants and/or interest
free loans normally give such financial support.
SIDBI/IFCI/NABARD also provide grants for setting up revolving
funds by NGOs from which grants are given initially to SHGs for the
purpose of 0n-lendings to their members for consumption, Income
generation activities. IDBI/SIDBI assists NGOs mainly to utilize their
services and reach for creation of self-employment and wage
employment opportunities in the economic upliftment of poor
community specially to poor women.

The innovative and participatory approaches adopted by NGOs are:

1. More action oriented: NGOS are able to undertake need-based
activities because they undertake studies relating to situation
and needs of the people. Most of the NGOs focus on the
important problems that the poor and marginalizes community
such as women, dalits and adivasis face in the locality.
2. Flexible in methods and practices: NGOs exhibit a high degree
of flexibility in their functioning, methods and practices as they
tend to be local and small.
3. More focused in development work: NGOs development tends
to be more focused as it is their principle goal. The ‘goal
confusion’ is one of the important contributing factors for the
limited success of the government initiated programmes in
India.
4. Relative independence: As their governing boards are
autonomous and their development activities are primarily
meant for the target groups, the methods and practices adopted
in foundation and implementation of NGO development
programmes, selection of the target groups, provision of
services, etc. are relatively independent of the local power
structures.

Weaknesses of NGO movement:

1. Spatial limitation: There is the spatial dimension determined by
the definition of target group which is determined by a number
of factors such as the amount of finance available. The physical
characteristics of the project, the organizational size and
structure of the NGO etc. Not all poor or marginalized groups
will be covered within the territorial location.
 198

2. Inability to reach the poorest : The ability of these programmes

to provide credit to the poorest was limited.
3. Lack of good governance and transparency: the large, influential
and well-funded NGOs may not be able to concentrate
resources in regions and sectors that are most important foe
national development. Services delivery is taking place in the
already better-off region while the poorer states are left out.

The NGOs who are being seen as important partners have

limitation in numbers and suffer from weak institutional capacities.
These structures need capital and other promotional funds as well
as trained manpower. Grants provided by the donors are often
earmarked for specific projects and rarely covers the overall
requirements of the NGOs.

The NGO’s are increasingly pursuing the financial

intermediation as one of the effective tools in meeting their social
agenda. In this context, the governments, both at the centre and
the states have an equally important role to play in creating
conducive policy environment for the growth of these NGOs as
future micro finance institutions.

Agricultural Price Policy in India

Agricultural Price Policy in India is being used for stimulating
growth and promoting equity since the mid-1960s. It has moved
through two distinct phases during the last five decades. In 1965,
the Agricultural Price commission ( Commission on Agricultural
Costs and Prices CACP) was set up.
Functions of the CACP:
• To advise on the price policy of agricultural commodities,
particularly paddy, rice, wheat, jowar, bajra, maize, gram and
other pulses, sugarcane, oilseeds, cotton and jute with due
regard to the interests of the producer and the consumer.
• To recommend from time to time, in respect of different
commodities, measures necessary to make the price policy
effective.
• To examine, where necessary, the prevailing method and
cost of marketing of agricultural commodities in different
regions, suggest measures to reduce costs of marketing and
recommend fair price margins for different stages of
marketing.
• To advise on any problems relating to agricultural prices and
production theta my be referred to it by the Government from
time to time.
 199

Objectives of the Integrated Price Policy:

• Minimizing seasonal fluctuations in prices.
• Ensuring a fair deal to the producer.
• Providing incentive to the producer to step up production.
• Ensuring an adequate supply of food grains to consumers at
fair prices.
• Ensuring supply of raw materials to industries at reasonable
prices.
• Maintaining parity between agricultural prices of
manufactured goods which enter into the cost of agricultural
production and into the consumption of the agriculturalists.
• Implementation of co-operative development plans.

Constituents of the Policy:ingsy

1. Announcement of Minimum Support Prices (MPS) for major
foodgrains -

Minimum Support Price (MSP) is a form of market

intervention by the Government of India to insure agricultural
producers against any sharp fall in farm prices. The minimum
support prices are announced by the Government of India at the
beginning of the sowing season for certain crops on the basis of the
recommendations of the Commission for Agricultural Costs and
Prices (CACP). MSP is price fixed by Government of India to
protect the producer - farmers - against excessive fall in price
during bumper production years. The major objectives are to
support the farmers from distress sales and to procure food grains
for public distribution. In case the market price for the commodity
falls below the announced minimum price due to bumper
production and glut in the market, government agencies purchase
the entire quantity offered by the farmers at the announced
minimum price.
Minimum support prices are currently announced for 24
commodities including seven cereals (paddy, wheat, barley, jowar,
bajra, maize and ragi); five pulses (gram, arhar/tur, moong, urad
and lentil); eight oilseeds (groundnut, rapeseed/mustard, toria,
soyabean, sunflower seed, sesamum, safflower seed and
nigerseed); copra, raw cotton, raw jute and virginia flu cured (VFC)
tobacco.
A pilot project under the Direct Payment Deficiency System
(DPDS) for paying MSP guarantee for the cotton farmers has been
initiated at Hinganghat taluka of Maharashtra in 2015. Under this
system, the farmers will directly get the amount which is the
difference between the Minimum Support Price (MSP) and the
market price, should the market price fall below the MSP. For
 200

availing of the benefit, farmers would have to present proof of

cotton sold at Agriculture Produce Market Committee yards, plus
other papers such as ownership document, yield estimation and
other details. If the pilot is successful, the DPDS would be rolled out
in all cotton growing regions, as per the present decision. DPDS is
essentially a mode of direct benefit transfer to cotton farmers.

2. Procurement at MSP
Farmers are made aware of the procurement operations by
way of advertisements like displaying banners, pamphlets,
announcement for procurement and specification in print and
electronic media. Some States have taken steps to pre-register
farmers for ensuring procurement from them through a software
system. Keeping in view the procurement potential areas,
procurement centres for MSP operations are opened by
Government agencies, both Food Corporation of India (FCI) and
State Government, after mutual consultations.
• Procurement centres are opened by respective State Govt.
Agencies/ FCI taking into account the production,
marketable surplus, convenience of farmers and availability
of other logistics / infrastructure such as storage and
transportation etc. Large number of temporary purchase
centres in addition to the existing Mandis and
depots/godowns are also established at key points for the
convenience of the farmers.
• The Govt. agencies also engage Co-operative Societies and
Self Help Group which work as aggregators of produce from
farmers and bring the produce to purchase centres being
operated in particular locations/areas and increase outreach
of MSP operations to small and marginal farmers.
• Co-operative societies/Self Help Groups are engaged in
many States like Bihar, Chhattisgarh, Odisha, Maharashtra,
Karnataka, Jharkhand and Rajasthan. Whereas, in some
states like Punjab and Haryana, the Government of India
has permitted the State Governments to engage Arhatiyas
for procurement of foodgrains from the farmers on payment
of commission. These steps have been taken by
Government of India so that Govt. agencies can procure
maximum foodgrains directly from farmers by expanding out-
reach of MSP benefit to farmers.
Food Corporation of India (FCI) is the designated central
nodal agency for price support operations for cereals, pulses and
oilseeds. Cotton Corporation of India (CCI) is the central nodal
agency for undertaking price support operations for Cotton.
 201

3. Market Intervention Scheme

Similar to MSP, there is a Market Intervention Scheme
(MIS), which is implemented on the request of State Governments
for procurement of perishable and horticultural commodities in the
event of fall in market prices. The Scheme is implemented when
there is at least 10% increase in production or 10% decrease in the
ruling rates over the previous normal year. Proposal of MIS is
approved on the specific request of State/UT Government, if the
State/UT Government is ready to bear 50% loss (25% in case of
North-Eastern States), if any, incurred on its implementation. Under
MIS, funds are not allocated to the States. Instead, central share of
losses as per the guidelines of MIS is released to the State
Governments/UTs, for which MIS has been approved based on
specific proposals received from them.

4. Price Supports Scheme (PSS)

The Cooperation implements the PSS for procurement of oil
seeds, pulses and cotton, through NAFED which is the Central
nodal agency, at the Minimum Support Price (MSP) declared by the
government. NAFED undertakes procurement as and when prices
fall below the MSP. Procurement under PSS is continued till prices
stabilize at or above the MSP. Losses, if any incurred by NAFED in
undertaking MSP operations are reimbursed by the central
Government. Profit, if any, earned in undertaking MSP operations is
credited to the central government.

Shortcomings:
1. Limited coverage: Prices of only agricultural commodities are
fixed by the government.
2. Less remunerative prices: the policy has failed to provide
remunerative prices for agro-products. Price fixed under MSP
was remunerative only in rice.
3. Failed to achieve price stability: In the year 2008-09, agricultural
price index went up by 9.46% and thus affecting poor sections
of society. It has failed in it's objective.
4. Ineffective PDS: Strong PDS is required for providing food grain
to poor section. But in India, sufficient quantity is not being
provided.
5. Less number of regulated markets: In India compare to
requirement regulated markets are less in number.
 202

8.7 AGRICULTURAL SUBSIDIES IN INDIA

Government of India play vital role in the development of

agriculture sector. Some of the cited reasons for vital role are self-
sufficiency, employment creation, support to small-scale producers
for adopting modern technologies and inputs, reduction of price
instability and improvement of the income of farm households. This
vital role can take a number of forms such as import-export policies
and domestic policies like price support programmes, direct
payments, and input subsidies to influence the cost and availability
of farm inputs like credit, fertilizers, seeds, irrigation water, etc. Of
all the domestic support instruments in agriculture, input subsidies
and product price support are the most common. Input subsidies
can bring economic benefits to society. Inputs like fertilizers,
irrigation water and electricity have a significant share in agricultural
subsidies in India and fertilizer subsidy has attracted much attention
of policymakers, and researchers.

Kinds of subsidies in India :

(1) Input Subsidies:

Subsidies can be granted through distribution of inputs at
prices that are less than the standard market price for these inputs.
The magnitude of subsidies will therefore be equal to the difference
between the two prices for per unit of input distributed.

(a) Fertiliser Subsidy:

Distribution of cheap chemical or non-chemical fertilisers
among the farmers. It amounts to the difference between price paid
to manufacturer of fertilisers (domestic or foreign) and price,
received from farmers.

In some cases this kind of subsidies are granted through

lifting the tariff on the import of fertilisers, which otherwise would
have been imposed.

(b) Irrigation Subsidy:

Subsidies to the farmers which the government bears on
account of providing proper irrigation facilities. Irrigation subsidy is
the difference between operating and maintenance cost of irrigation
infrastructure in the state and irrigation charges recovered from
farmers. This may work through provisions of public goods such as
canals, dams which the government constructs and charges low
prices or no prices at all for their use from the farmers. It may also
be through cheap private irrigation equipment such as pump sets.
 203

(c) Power Subsidy:

The electricity subsidies imply that the government charges
low rates for the electricity supplied to the farmers. 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.

The State Electricity Boards (SEBs) either generate the power

themselves or purchase it from other producers such as NTPC and
other SEBs. Power subsidy “acts as an incentive to farmers to
invest in pump sets, bore-wells, etc.

(d) Seed Subsidies:

High yielding seeds can be provided by the government at
low prices. The research and 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.

(e) Credit Subsidy:

It is the difference between interest charged from farmers,
and actual cost of providing credit, plus other costs such as write-
offs bad loans. 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.
The difference between the two prices is the per unit subsidy
granted to the farmers by the government. The price at which the
government buys crops from the farmers is called the procurement
price. Such procurement by the government also has a long run
impact. It encourages the farmers to grow crops which are regularly
procured.

(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.
 204

(4) 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. Subsides provided to encourage exports are referred as
export subsidies.

WTO Agreement on Agriculture and subsidies:

In the WTO Agreement on Agriculture (AoA), the approach
adopted has been to encourage gradual reduction of trade
distorting subsidies. The AoA specifically dealt with : (i) providing
market access, (ii) regulating domestic support.

b) Market access: The AoA requires tariffication of all NTBs, and a

reduction in those tariffs by an average of 36 percent for
developed countries and 24 percent by UDCs. Developed
countries have 6 years to bring about these reductions, while
developing countries have 10 years.

c) Export subsidies: have to be reduced by 36 percent in

budgetary terms and 21 percent in subsidies volumes over a six
year period. The developing countries have been given lower
reduction targets of 24 and 14 percent respectively and a longer
period of 10 years.

d) Domestic support: A distinction has been made between

subsidies that distort trade and those that do not. Only the trade
distorting subsidies have to be reduced, if they are above the
permissible level. The following has been exempted from this
provision:

x Green Box Subsidies with no, or minimally trade distorting,

effect has been put in this box. These are the subject to any
reduction commitments. It includes all government service
programmes.
x Blue Box : It contains those subsidies whose continuation is
subject to a limitation on production.
x White Box : It includes such subsidy practices in developing
countries as investment subsidies, agricultural input
subsidies available to low income or resource poor farmers
and measures to encourage diversification from growing
illicit narcotic crops.

All other domestic support measures are subject to reduction

commitment.
 205

Implications of AoA for India: In India, QRs on agricultural

imports imposed for BOP considerations have been removed and
these imports are placed in the OG list. In order to provide
adequate protection to domestic producers in case of a surge in
exports, India can raise the tariffs within the bound ceilings.

India can take suitable measures under WTO Agreement on

safeguards if there is a serious injury to domestic producers due to
surge in imports or if there is any such threat.

India’s domestic support to agriculture is well below the limit

of 10 percent of the value of agricultural produce and therefore
India is not required to make any reduction in it at present. The
subsidies given for PDS are basically the consumer subsidies and
are exempt from WTO discipline. India’s system of MSP as also the
provision of input subsidies to agriculture are not constrained by the
Agreement. Moreover, the agricultural developmental schemes can
also be continued under AoA.

8.8 COMPREHENSIVE CROP INSURANCE SCHEME,

1985

Indian agriculture is highly susceptible to natural calamities

such as drought, flood, etc. Therefore it is necessary to protect the
farmers from these risks and ensure their credit eligibility from the
next season. To serve this purpose, the Government introduced a
Comprehensive Crop Insurance Scheme throughout the country
from Kharif 1985 covering major cereal crops, oilseeds and pulses.
Farmers availing of crop loans from cooperative credit institutions,
commercial banks including RRBs were covered under this
scheme. The sum insured equal to crop loan disbursed subject to a
maximum of Rs.10,000 per farmer. The premium charged was at
the rate of 2 percent for rice, wheat and millets and 1 percent for
pulses and oilseeds.

The Comprehensive Insurance Scheme (CIS) covered 15

states and 2 Union territories. The participation in the scheme was
voluntary and States were free to opt for the scheme. Around 5
million farmers and between 8 to 9 million hectares were annually
covered by the crop insurance scheme.

If the actual average yield in any area covered by the

scheme fell short of the guaranteed yield, the farmers were entitled
to an indemnity on compensation to the extent of shortfall in yield.
The General Insurance Corporation of India (GIC) administered the
scheme on behalf of the Ministry of Agriculture, Government of
India.
 206

Since the inception of the scheme in 1985, about 65 million

farmers were covered upto Rabi 1997-98 season. The total amount
of claims paid was Rs.1,623crores as against a premium collection
of only Rs.313 crores. The scheme was thus unviable. The losses
incurred were met by the Government and the concerned State
Government in the ratio 2:1.

A major drawback of the scheme could be seen from the fact

that out of the all-India claims of Rs.1,623 crores, Gujarat State
alone received Rs.792 crores for one single crop viz., groundnut –
i.e. about 49 percent of total claims between 1985 to 1997-98. The
scheme was scrapped in 1997.

The Government of India introduced an experimental crop

insurance scheme during 1997-98 covering non-loanee small and
marginal farmers growing specified crops in selected districts. The
premium was totally subsidized. Both premium and claims were
shared by Central and State Governments in the ratio of 4:1. The
scheme could be implemented only in 14 districts of 5 States and
only 5 lakh farmers were covered for a sum of Rs.172 crores. The
premium collected was about Rs.3 crores and the claims amounted
to Rs.40 crores. The Government discontinued the scheme in
1997-98 itself.

National AgriculturalInsurance Scheme, (NAIS):

The Government of India experimented with a
comprehension crop insurance scheme which failed. The
Government then introduced in 1999-2000 a new scheme titled
“National Agricultural Insurance Scheme” or “Rashtriya Krishi Bima
Yojana”. The new scheme envisages coverage of all food crops
(cereals and pulses), oilseeds, horticultural and commercial crops.
It covers all farmers (botheloanees and non loanees) under the
scheme. The premium rates vary from 1.5 percent to 3.5 percent of
sum assured for food crops. In the case of horticultural and
commercial crops, actuarial rates are charged. Small and marginal
farmers are entitled to a subsidy of 50 percent of the premium
charged – the subsidy is shared equally between the Centre and
the States. The subsidy is to be phased out over a period of five
years.

The new scheme operates on the basis of:

(a) Area approach – defined areas for each notified crop for
widespread calamities and
(b) On individual basis – for localized calamities such as hailstorm,
landslide, cyclone and floods.

Under the scheme, each State is required to reach the level

of Gram Panchayat as the unit of insurance in a maximum period of
 207

3 years. The GIC is currently implementing the scheme but the

Government has plans to set up an exclusive organization for
implementation of the new scheme.

During 2011-12 nearly 16.7 million farmers were covered

and the sum insured was Rs.33,998crores and the insurance
charges were Rs.1004 crores as on January 2012. At present, the
scheme is being implemented by 25 States and 2 Union territories.
The Government has set up the “Agriculture Insurance Co.
of India (in December 2002) with capital participation of GIC, the
four public general insurance companies and NABARD.

Weather Based Crop Insurance:

The Union Budget 2007-08 announced one more insurance
scheme for farmers – viz., the Weather Based Insurance Scheme
(WBCIS). The scheme was implemented in some selected areas of
Karnataka on a pilot basis. The WBCIS intends to provide
insurance protection to farmers against adverse incidence, such as
deficit and excess rainfall which would impact adversely crop
production. The premium is kept low and the scheme is
implemented by the Agricultural Insurance Company of India Ltd.
The scheme is being extended to other areas also and private
insurance like ICICI-Lombard are also included.

The Pilot Modified NAIS (MNAIS):

Keeping in view the limitations/shortcomings of the existing
scheme, the Government has approved the Modified NAIS for
implementation on pilot basis in 50 districts from Rabi 2010-11
season. The major improvements made in the MNAIS are: actuarial
premium with subsidy in premium in different rates, i.e. 40 percent
to 75 percent depending upon the slab, provided to farmers, all
claims liability on the insurer, uit area of insurance reduced to
village panchayat level for major crops, indemnity for
prevented/sowing/planting risk and for post harvest losses due to
cyclone, payment up to 25 percent advance of likely claims as
immediate relief, more proficient basis for calculation of threshold
yield, minimum indemnity level of 70 percent instead of 60 percent,
and private-sector insurers with adequate infrastructure allowed (at
present, ICICI-Lombard, IFFCO-Tokio and Cholamandalam-MS.
Only upfront premium subsidy is shared by the Central and State
Governments on 50:50 basis and claims are the liability notified the
areas for implementation of the scheme during Rabi 2010-11. It is
expected that the scheme will be notified by 14-15 States.
 208

Comparison between National Agricultural Insurance Scheme

(NAIS) and Weather Based Crop Insurance Scheme (WBCIS)

Sr. National Agricultural Weather Based Crop

No Insurance Scheme (NAIS) Insurance Scheme (WBCIS)
1. Practically all risks Parametric weather related
covered(drought, excess risks like rainfall, frost, heat
rainfall, flood, hail, pest (temperature, humidity etc.)
infestation, are covered. However, these
etc.) parametric weather
parameters appear to account
for majority of crop
losses
2. Easy-to-design if historical Technical challenges in
yield data upto 10 years’ is designing weather indices
available and also correlating weather
indices with yield losses.
Needs upto 25 years’
historical weather data
3. High basis risk [difference Basis risk with regard to
between the yield of the weather could be high for
Area(Block / Tehsil) and the rainfall and moderate for
individual farmers] others like frost, heat,
humidity etc.

4. Objectivity and transparency Objectivity and transparency

is relatively less is relatively high
5. Quality losses are beyond Quality losses to some extent
consideration gets reflected through
weather index Agriculture
Insurance Company of India
Limited (AIC)
6. High loss assessment costs No loss assessment costs
(crop cutting experiments)

7. Delays in claims settlement Faster claims settlement

8. Government’s financial Government’s financial
liabilities are open ended, as liabilities could be budgeted
it supports the claims subsidy up-front and close ended,
as it supports the premium
subsidy
 209

LIVESTOCK INSURANCE

As a proverb in the Horn of Africa goes: If the animal dies,

then people will die too. Mostly people in rural areas rely on
livestock for their nutritional well being, for social standing, for
financial security, for draft power, for dung for fuel and fertilizer, and
for skins for myriad purposes. Despite new developments in animal
nutrition, breeding, husbandry practices, reproduction and animal
health over last 50 years, there are still annual losses of animals
due to parasitic and infectious diseases, from inadequate feed and
water supplies, climatic stresses, poor husbandry practices and
poor policies.

The Livestock Insurance Scheme, a centrally sponsored

scheme, which was implemented on a pilot basis during 2005-06
and 2006-07 of the 10th Five Year Plan and 2007-08 of the 11th
Five Year Plan in 100 selected districts. The scheme is being
implemented on a regular basis from 2008-09 in 100 newly
selected districts of the country. Under the scheme, the crossbred
and high yielding cattle and buffaloes are being insured at
maximum of their current market price. The premium of the
insurance is subsidized to the tune of 50%. The entire cost of the
subsidy is being borne by the Central Government. The benefit of
subsidy is being provided to a maximum of 2 animals per
beneficiary for a policy of maximum of three years. The scheme is
being implemented in all states except Goa through the State
Livestock Development Boards of respective states. The scheme is
proposed to be extended to 100 old districts covered during pilot
period and more species of livestock including indigenous cattle,
yak & mithun.

The Livestock Insurance Scheme has been formulated with

the twin objective of providing protection mechanism to the farmers
and cattle rearers against any eventual loss of their animals due to
death and to demonstrate the benefit of the insurance of livestock
to the people and popularize it with the ultimate goal of attaining
qualitative improvement in livestock and their products.

Implementing Agency: Department of Animal Husbandry,

Dairying & Fisheries is implementing the Centrally Sponsored
Scheme of National Project for Cattle and Buffalo Breeding
(NPCBB) with the objective of bringing about genetic up-gradation
of cattle and buffaloes by artificial insemination as well as
acquisition of proven indigenous animals. NPCBB is implemented
through State Implementing Agencies (SIAs) like State Livestock
Development Boards. In order to bring about synergy between
NPCBB and Livestock Insurance, the latter scheme will also be
implemented through the SIAs. Almost all the states have opted for
NPCBB. In states which are not implementing NPCBB or where
 210

there are no SIAs, the livestock insurance scheme will be

implemented through the State Animal Husbandry Departments.

Executive Authority :The Chief Executive Officer of the State

Livestock Development Board will also be the executive authority
for this scheme. In those states where no such Boards are in place,
the Director, Department of Animal Husbandry will be the Executive
Authority of the scheme. The CEO will have to get the scheme
implemented in various districts through the senior most officer of
the Animal Husbandry Department in the district; the necessary
instructions for this purpose will have to be issued by the State
Government. The Central funds for premium subsidy, payment of
honorarium to the Veterinary Practitioners, awareness creation
through Panchayats etc. will be placed with the S.I.A. As Executive
Authority of the scheme, the Chief Executive Officers will be
responsible for execution, and monitoring of the scheme.

Selection of Insurance Companies: In order to get the maximum

benefit in terms of competitive premium rates, easier procedures of
issue of policy and settlement of claims, Chief Executive Officer will
be empowered to decide upon the Insurance company(s) and the
terms and conditions. The entire cost of premium on account of the
risk coverage other than death of the animal has to be borne by the
beneficiaries. Under no circumstances, the rate of premium should
exceed 4.5% for annual policies and 12% for three year policies.
Normally, a single insurance company should be entrusted for
insurance with the work in a district. However, for the purposes of
encouraging competition and popularizing the scheme more than
one insurance company may be allowed to operate in a district, if
other terms and conditions are remaining same. Default in
settlement of claim or any types of deficiency in services on part of
Insurance Companies could be brought to the notice of the
Insurance Regulatory and Development Authority which is a nodal
authority in the country in this regard.

Involvement of Veterinary practitioners: The active involvement

of the veterinary practitioners at the village level is required for the
successful implementation of the scheme. They are to be
associated with the work of identification and examination of the
animals to be covered under the scheme, determination of their
market price, tagging of the insured animals and finally issuing
veterinary certificates as and when a claim is made. Besides, being
in touch with the farmers and cattle-rearers, they may also help in
promoting and popularizing the scheme.

In 2010-11 Rs.20.12 crore has been released up to December

2010 and 20.63 lakh animals have been insured from 2006-07 and
2009-10.
 211

8.9 QUESTIONS

1) Evaluate Agriculture research and extension systems in India.

2) Explain the banking sector reforms in providing rural credit in
post liberalization period.
3) Discuss the problems of rural credit in India.
4) Explain the role of microfinance institution in Rural Credit.
5) Write a note on SHG-Bank linkage programme.
6) Explain the role of NGO’s in rural credit.
7) Critically examine Agricultural Price Policy in India.
8) Explain different kinds of Agricultural Subsidies in India.
9) Write a note on agricultural insurance in India.

™™™™
 212

9
INFRASTRUCTURAL DEVELOPMENT
(INCLUDING MARKETING) FOR
AGRICULTURE
Unit Structure :

9.0 Objectives
9.1 Introduction
9.2 Agricultural Marketing in India
9.3 Questions

9.0 OBJECTIVES

x To study various categories of agricultural infrastructure.

x To study agricultural marketing in India.

9.1 INTRODUCTION

Rural infrastructure is a sine qua non for significantly

improving the quality of human life and phenomenally accelerating
the process of agricultural development. Infrastructure projects,
however, involve huge initial capital investments, long gestation
periods, high incremental capital output ratio, high risk, and low rate
of returns on investments. Rural infrastructure has direct and strong
relationship with farmers̏ access to institutional finance and
markets, and increasing crop yields, thereby promoting agricultural
growth. Agricultural infrastructure has the potential to transform the
existing traditional agriculture or subsistence farming into a most
modern, commercial and dynamic farming system in India.

Agricultural infrastructure primarily includes wide range of

public services that facilitate production, procurement, processing,
preservation and trade. Agricultural infrastructure can be grouped
under following broad based categories.

i) Input based infrastructure: Seed, Fertilizer, Pesticides, Farm

equipment and machinery etc.
ii) Resource based infrastructure: Water/irrigation, Farm
power/energy
 213

iii) Physical infrastructure: Road connectivity, Transport,

storage, processing, preservation, etc
iv) Institutional infrastructure: Agricultural research, extension &
education technology, information & communication
services, financial services, marketing, etc.
Improved infrastructure leads to expansion of markets,
economies of scale and improvement in factor market operations. It
also opens up the rural economy to greater competition from
outside. This may take the form of cheaper products from lower-
cost sources of supply or new or improved products that may
displace some locally produced items. The majority of studies
recognize that infrastructure investment has a strong impact on
rural incomes and especially on small holders.

The studies to examine the relationship between

infrastructure and agricultural output showed that Punjab, which
has the highest index of infrastructure also has the highest yield of
food grains and value of agricultural production per hectare. Tamil
Nadu and Haryana, which have the second and third highest index
of infrastructure have third and second highest yield per hectare of
food grains. Rajasthan and Madhya Pradesh, which have a very
low index of infrastructure also have low yield of food grains and
total value of agricultural production per hectare.

A) Government’s Initiatives: India has been well endowed with

natural, physical and biological resources, such as land, water,
labor, livestock, fisheries, forestry, vegetation, climate, solar, wind
energy etc. With the aid of science, technology and capital the
country has not exploited even 25% of its potential for agricultural
development. With a view to developing agriculture, after
independence, the Government of India over a period of time
created following organizational, institutional and physical
infrastructure.

a) Community development blocks and national extension service;

rural financial institutions, panchayati raj [local bodies]
institutions; district rural development agencies; district
industries centers, national rural road development agency;
khadi & village industries commission/boards; sericulture/
coir/handloom/handicraft boards; rural electrification
corporation; central water commission and groundwater boards;
b) Agricultural research, extension and education institutes;
farmers training centers and kishi vigyan kendras [Agricultural
Science Centers];
 214

c) Seeds, fertilizers, pesticides and farm machinery manufacturing

units; developing irrigation potential,
d) Processing, preservation, storage, roads, transport and
marketing facilities
Government of India’s effort more particularly since 1969 to
create extensive banking infrastructure, comprising 13,500
branches of District central cooperative banks supported by
109,924 Primary Agricultural Credit Societies at village level,
31,645 and 3,751 rural and semi-urban branches of 27 public and
22 private sector banks respectively and 14,500 branches of 96
regional rural banks, facilitated rural households easy and reliable
access to agricultural credit and helped them raise country̏s farm
output. Provision of credit by banks for production, processing,
storage, transport and marketing including export trade has inspired
farmers with medium and large-holdings to mechanize,
commercialize and modernize agriculture.

India between 1950-51 and 1995-96 increased irrigated area to

70.25 million hectares, produced 11.703 million tons of fertilizers,
established 6836 regulated wholesale markets, generated 380
billion kwh power, constructed 28,84,000 km of roads and added
2.221 million commercial vehicles, which modestly improved farm
productivity and output and the process continues.

The importance of rural infrastructure in important sectors

like irrigation, roads, bridges etc. was well recognized particularly in
the context of the urgency for stepping up agricultural growth rate at
4.5% in the 9th Five Year Plan. While provision of adequate rural
infrastructure in India where 70% of the population lives in villages
and nearly two-thirds of the work force derives its livelihood from
agriculture assumes critical importance, lack of financial resources,
inter alia, with the State Governments, which are primarily
responsible for its creation, development and maintenance is
significantly the constraining factor. It was observed that many of
the infrastructure projects were found languishing for want of
adequate financial resources on one hand and on the other the
commercial banks, which has a mandate to provide 18% of the net
bank credit to agriculture were not able to meet their commitments.
The Government of India, therefore, created a Fund, by way of
deposits out of the shortfall in commercial bank’s lending for
agriculture, as “ Rural Infrastructure Development Fund”[RIDF] to
be operated and managed by NABARD. Thus, since 1995-96 the
public & private sector commercial banks have been the most
important additional source of finance for State Governments, on
liberal terms including lower rate of interest, in their efforts to create
rural infrastructure.
 215

The RIDF was set up in the NABARD with an initial corpus of

Rs.20 billion in terms of an announcement made in the Union
Budget for the year 1995-96 [RIDF-I]. From 1996-97[RIDF-II], the
Fund is also used to take up new rural infrastructure projects, in
addition to completion of old projects. Presently, RIDF is funding
following activities covering almost all components of rural
infrastructure.

i) Rural roads, bridges, drinking water supply, primary school

buildings; primary health centers; village haats, flood
protection, citizen information centers under Information
Technology

ii) Market yards, cold storages, fishing jetties, fisheries, forest

development, watershed development, soil conservation,
rainwater harvesting, forest management

iii) Mini-hydel and system improvement projects

Eligible activities along with loan amount, interest rate and

repayment period under RIDF are as under :

a) Agriculture & Allied Sectors for which the RIDF loans @ 95% of
project cost are issued to all States for projects related to
irrigation, soil conservation, flood protection, watershed,
drainage, reclamation of water- logged area, market yard,
godown, storage, warehousing, marketing infrastructure, cold
storage, plantation & horticulture, forest development, grading &
certifying mechanism, testing laboratories, fishing harbor, jetties,
riverine fisheries, animal husbandry, modern abattoir, mini hydel
projects, village knowledge centers, infrastructure for
Information Technology, desalination plants in coastal areas.

b) Social Sector for which the RIDF loans @ 85% of project cost
are issued to all States, except hilly States of Himachal
Pradesh, Jammu & Kashmir, Uttrakhand, and North Eastern
States including Sikkim @ 90% of project cost for projects
related to drinking water, public health centers, infrastructure for
rural education institutions including construction of toilet blocks
in existing schools, Pay & Use toilets in rural areas, construction
of Anganwadi centers, setting up khadi & village industries, rural
industries etc.

c) For construction of rural roads and rural bridges under Union

Government’s Rural Connectivity program for which RIDF loan
@ 80% of project cost to all States, except hilly States of
Himachal Pradesh, Jammu & Kashmir, Uttarakhand and North
Eastern States including Sikkim 90% 0f project costs.
 216

d) The lending rate on loans continues to be 0.5% above the Bank

Rate prevailing at the time of sanction of loan [6.5% in 2008-09].
Loans are secured by means of irrevocable letters of authority
[mandate] executed by State Governments registered with RBI
and Time Promissory Notes. Each drawal under sanctioned
projects is considered as a separate loan repayable in five equal
installments over seven years, indicating moratorium of two
years. The Government from 1999-00 allowed lending to Gram
Panchayats, SHGs and other eligible organizations for
implementing village level infrastructure projects.

The phasing of projects is done as per the requirements of

the States and ranged from three to four years with an extra year
for projects to hilly States.

Pursuant to the announcement made in the Union Budget for

the year 2007-08, RIDF-XIII trenche was set up with NABARD with
a corpus of Rs.120 billion along with a special window with a
corpus of Rs.40 billion for the rural roads component of the Bharat
Nirman Program, with contributions from domestic banks which had
not achieved their target in lending to the priority sector and/or
agriculture as on the last reporting Friday of March 2007.

Public-Private Partnership: The State Governments alone

cannot bridge the significant gap in rural infrastructure in view of
their limited resources and organizational structure. In order to
leverage private resources and its implementing capacity for rural
infrastructure development, NABARD entered into Memorandum of
Agreement [MoA] with Infrastructure Leasing &Financial Services
[IL&FS] to develop products & services and fine-tune the design of
innovative delivery mechanism. The MoA between NABARD and
IL&FS would include design, engineering, financing, procurement,
constructions, improvement, operation and maintenance on Build,
Operate and Transfer and any other appropriate forms of Public-
Private-Partnership with defined roles for the parties, including
project development and management of public system projects
financed by NABARD, partly or wholly, under IRDF or otherwise.

Road Connectivity in India:

World Bank study [1997] estimated that 15% of the

agricultural produce is lost between the farm gate and the
consumer because of poor roads and inappropriate storage
facilities alone, adversely influencing the income of farmers.

Rural road increases the diffusion of agricultural technology

by improving access to markets, enhances more efficient allocation
 217

of resources, reduces the transaction costs as well as helps the

farmers to realize better input and output prices. Improved road
infrastructure also increases the transport facility through which the
rural farm households are able to get better health care, education
and credit facility. Rural-urban linkages are developed through road
development, which also helps strengthening the backward and
forward linkages in agricultural sector. Better road connectivity
opens up employment avenues outside the village that improves
the living conditions of the poor, reduces the marginal costs of
agricultural production through lower transaction costs that has the
potential to increase both producer and consumer surpluses which
eventually have a positive impact in reducing rural poverty.

The agriculturally backward eastern States have the poor

status of rural roads as compared to economically progressive
States of Punjab, Haryana, Gujarat, Maharashtra, Kerala, and
Tamil Nadu. The financing of roads is plagued with a plethora of
problems like, shortage of funds, non-utilization of available funds,
overlapping of various financing schemes, regional imbalances in
fund allocation etc.

Despite India’s strong economic growth in recent years,

longstanding inadequacies persist. One such challenge is poor
rural road connectivity, with over 40% of India’s population
remaining outside the rural road network. The benefits of linking
India’s villages with a good road network are enormous and
substantial public investments are obviously worthwhile. In addition
to employment generation, such a road link yields socio-economic
benefits like reduction in prices of agricultural and consumer
products, access to markets, public transport, employment
opportunities, and better education and healthcare facilities. A
study by the World Bank makes the point that the retail prices of
low value/bulk commodities are generally 10% higher in
unconnected villages than in those with road access. The most
important benefit, however, relates to poverty reduction. A 2007
study by the International Food Policy Research Institute,
Washington found that investing in roads had the greatest impact
on reducing rural poverty, performing consistently better than
investments in agricultural research and development, and
education.

Prime Minister’s Gram Sadak Yojana: There is a close link

between Rural Connectivity and Growth, Employment, Education
and Health care. A nation-wide network of All-weather roads in the
rural areas is a critical link for progress. With a view to redressing
 218

the situation Government launched on 25th December 2000 Prime

Minister’s Gram Sadak Yojana [PMGSY] to provide All-weather
access to unconnected Habitations. The PMGSY is to provide
connectivity by way of an All-weather road, to the eligible
unconnected Habitations in the rural areas in such a way that all
unconnected Habitations with a population of 1000 persons and
above can be covered in three years [2000-03] and all unconnected
Habitations with a population of 500 persons and above by the end
of the 10th Plan period [2007]. In respect of the Hill States [North-
East, Sikkim, Himachal Pradesh, J&K, Uttarakhand] and the Desert
areas [as identified in the Desert Development program] as well as
the Tribal areas, the objective would be to connect Habitations with
a population of 250 persons and above. About 160,000 Habitations
were to be covered under this program, with an anticipated
investment of Rs.600 billion. This program is entirely funded by the
Government of India. The States carryout the planning and
execution of road works.

India’s efforts to improve rural road connectivity, which

gained a fresh impetus with the implementation of the PMGSY
need to be substantially stepped up. The task, however, is
immense. According to the Planning Commission̏s Working Group
on Rural Roads for the Eleventh Five Year Plan [2007-12], there
are over 3,30,000 rural habitations with no road connection. The
PMGSY, which has since 2005-06 a part of Bharat Nirman Program
aimed at improving rural road infrastructure between 2005 and
2009.It initially proposed to give road connection to 66,802 eligible
habitations but subsequently scaled down the target to 59,536
habitations. The achievements, however, have fallen short of the
target, with the coverage limited to 35% up to 2008. The second
component of the plan, which is to upgrade 190,000 kilometers of
rural roads, also fell short of the target. As financial resources are a
major constraint, the Planning Commission̏s suggestion to look for
alternative financing models, including a public-private-partnership
at the local level, for instance, with sugar mills, merits serious
consideration. However, the Government should continue to play
the lead role in improving rural connectivity, which is vital for the
economic and social inclusion of a Significant part of rural India.
Up to March 2009, a total length of 214,281.45 km of road works
has been completed.

B) Irrigation: According to the 9th Five Year Plan [1997-2002], the

ultimate irrigation potential has been assessed at 140 million
hectares, which includes 59 million hectares from major and
medium irrigation projects and 81 million hectares from minor
irrigation projects. The latter includes 17 million hectares from
 219

surface water minor irrigation schemes and 64 million hectares

from groundwater resources.

The exploitable potential is 21.4 million hectares that is

about 37% of irrigation potential from major and medium irrigation
projects. Of this 13.4 million hectares are locked up in a large
number of projects in the pipeline. Another serious problem relates
to underutilization of irrigation potential already created because of
lack of field channels, other minor investments etc.

Total irrigation potential created under all types of irrigation

structures was 94 million hectares till the end of ninth five-year plan
[2002], which increased to 102.8 million hectares up to the end of
10th five- year plan [2007].

C) Use of improved Seeds: Improvement in crop yield, which is

key to long-term & sustained agricultural growth, depends
significantly, among other factors, on the use of standard quality
seeds of high yielding varieties of crops and their timely availability.
Besides, high yielding seeds should be developed through
continuing research process, such as application of bio-technology
& irradiation technology. The seed development program in India
includes the participation of Central and State Governments, the
Indian Council of Agricultural Research, State Agricultural
Universities, the cooperative and private sectors. There are 15
State Seed Corporations besides two national level corporations,
namely National Seed Corporation and State Farms Corporation of
India. The Ministry of Agriculture is implementing the Central sector
Development and Strengthening of Infrastructure Facilities for
Production and Distribution of Quality Seeds Scheme. The aim of
the scheme is to make quality seeds of various crops available to
farmers on time and at affordable price. The major thrusts under
the scheme being under implementation from 2005-06 are on
improving the quality of seeds & to enhance seed replacement rate,
boosting seed production in the private sector and helping public
sector seed companies to contribute to enhancing seed production.
During 2008-09, 52 seed infrastructure development proposals
were sanctioned for boosting seed production in the private sector.
Despite such a good infrastructure network in India, more than four-
fifths [80%] of the farmers rely on farm-saved seeds leading to a
low seed replacement rate.

Judicious Use of Fertilizers & Pesticides: The consumption of

fertilizers in terms of nutrients per hectare has increased from 105.5
kg in 2005-06 to 128.6 kg in 2008-09. However, improving the
productivity of soils still remains a challenge. This requires
increased application of major & minor nutrients in appropriate
proportion, based on soil analysis. A new scheme, the National
Project on Management of Soil Health & Fertility has been
 220

introduced in 2008-09 with a view to establishing 500 new Soil

Testing Laboratories [STLs] and 250 Mobile Soil Testing
Laboratories [MSTLs] and strengthening of the existing State STLs
for nutrient analysis. In order to ensure adequate availability of
fertilizers of standard quality to farmers to regulate trade, quality
and distribution, fertilizers have been declared an essential
commodity as per Fertilizer Control Order 1985. To encourage
balanced use of fertilizers a new concept of customized fertilizers
has been introduced. These fertilizers are soil specific and crop
specific.

Infrastructure Deficient States - Following States have been

predominantly deficient in infrastructure, particularly gross irrigated
area, road density, electricity and Posts & Telegraph.

Gross Irrigated Area: Maharashtra, Madhya Pradesh, Kerala,

Orissa, & Assam
Road Density: Madhya Pradesh, Rajasthan & Uttar Pradesh
Electricity: Assam, Orissa, Bihar, Rajasthan, Uttar Pradesh, West
Bengal, Meghalaya
Posts & Telegraph: Arunachal Pradesh, Bihar, Rajasthan, Uttar
Pradesh & Meghalaya

Food Processing: Problems of processing industries continue

since Food Processing Ministry was established in 1988 and
despite committees and two Groups of Ministers were set up in last
five years. About 40% of farm produce in the country is wasted due
to inappropriate storage, lack of primary processing facilities and
inefficient procurement.

The new model Agricultural Produce Marketing Committee

[APMC] Act enacted in 2007, allows the setting up of private
markets and direct purchase centers where farmers can sell their
produce directly to industry at remunerative prices. They can also
enter into contract with corporate houses to grow the required crop
in return for a good price. However, out of 28 States only 15 States
have adopted the model law and its implementation is tardy. States
like Bihar do not have the APMC Act at all.

India needs additional 10 million tons operational cold

storage facilities. Warehousing Development and Regulation Bill,
2007 was supposed to encourage companies to provide
warehousing facilities through larger private investments but
inability to sort out problems prevents establishment of modern
warehouses. Regulatory hurdles experienced under the prevailing
Essential Commodities Act, needs to be removed as it hinders
transportation of a range of specified products across their
 221

respective State borders. This increases the logistics costs of

small-scale players, who cannot afford to set up their own cold
storages.

D) Comprehensive Program: Efforts so far made in the last six

decades, since independence, have been piecemeal and a fraction
of the total needs. Government launched in 2005-06 Bharat Nirman
program for building rural infrastructure and providing basic
amenities in rural areas focusing on six components, namely rural
housing, irrigation potential, drinking water, rural roads,
electrification and rural telephony. It is no doubt an important
initiative for reducing the gap between rural and urban areas and
improving the quality of life of people in rural areas but it cannot
address comprehensively the total rural infrastructure needs as
envisioned by rural households. Achievements under these
programs are as under.

1. Under the Rural Electrification Program 69,963 villages have

been electrified and8.88 million Below Poverty Line households
have been given connections up to 15 January 2010

2. Under the Water Supply scheme, number of habitations

provided drinking water were 54,589 among uncovered
habitations, 383,106 were among slipped-back habitations &
752,827 among quality affected habitations as on 23 December
2009.

3. Under Rural Sanitation Program since 1999 over 60.1 million

toilets have been provided to rural households under the Total
Sanitation Campaign. A significant achievement has been the
construction of 937,000 school toilets and 295,000 Anganwadi
toilets. The number of households being provided with toilets
annually has increased from 621,000 in 2002-03 to 11.5 million
in 2008-09. From 1 April to 22 December 2009 more than 6.2
million toilets were provided to rural households. The cumulative
coverage is 61% as against 21.9% rural households having
access to latrines as per Census 2001 data.

4. Under the Rural Housing scheme, 7,176,000 houses were

constructed during 2005 to 2009.

9.2 AGRICULTURAL MARKETING IN INDIA

In a developing country like India, marketing infrastructures

play a pivotal role in fostering and sustaining the tempo of rural and
economic development. Though the role of infrastructure is the key
 222

element of any development programme yet their role in distribution

and marketing is the supreme.

Marketing infrastructure includes all those facilities and

amenities needed for the smooth conduct of marketing in the
economy. The existence of adequate marketing infrastructure are
important not only for the performance of various marketing
functions and expansion of the size of the markets but also for the
transfer of appropriate price signals leading to improved marketing
efficiency.

India’s growth both as agriculturally and horticultural

advanced country may get derailed if various marketing
infrastructural constraints are not removed. Many of the regions of
the country still suffer from the existence of infrastructural
problems.

(A) AGRICULTURAL PRODUCE MARKETS:

Actual buying and selling of agricultural commodities takes

place in market yards, sub-yards and rural markets/ haats spread
throughout the country. Agricultural produce regulated markets
have been playing a major role in the smooth distribution of
foodgrains, oilseeds, fiber crops and fruits and vegetables to meet
the supply and demand needs of the farmers, traders, processors
and consumers of the State. The research studies revealed that
farmers on an average gets 8 to 10 per cent higher price and higher
share in the consumer’s rupee by selling their produce in the
regulated markets compared to rural, village and unregulated
wholesale markets.
There are 7157 agricultural produce regulated markets in the
country by the end of March 2010. There is uneven spread of these
regulated markets in the districts of the state. The average area
served by each regulated market also varied considerably among
the states of India. It varies from 103 Sq.Km per market in Punjab,
129 in West Bengal, 156 in Haryana, 305 in Andhra Pradesh, 347
in Assam, 350 in Mahrashtra, 383 in Karnataka and 394 in Uttar
Pradesh. The states like Arunachal Pradesh, Himachal Pradesh,
Meghalyaya, Sikkim, and Uttaranachal were among those where
average area served by each market was more than one thousand
sq.km.

Based on the recommendation of National Commission on

Agriculture there should be one market for 80 sq. km of area.
 223

Accordingly there is a deficit of 34679 markets and need to promote

more markets in various states.

The share of specialized markets like fruits and vegetables

Vegetables wholesale regulated markets. Their availability is not
even one per thousand-sq. km. Area. Even the horticulture States
which accounts for nearly 20 per cent of fruits and vegetables
production does not have even one regulated market per 00’ sq. km
area. Further the markets, which have been exclusively developed
for handling of fruits and vegetables, do not have sufficient facilities
for handling the total produce available in the area.

Most of the regulated markets at present still awfully lacks

facilities for handling produce as less space for auction platform,
inadequate number of shops and godowns in the premises etc. and
hence reduces the effective participation of traders. Absence of
storage godowns at market level further perpetuates the problems
of traders in general and continuous movement of goods in
particular.

Various State government recently initiated a process of

direct marketing by producers to the consumers in the country by
initiating the concept of Apni Mandi ( Punjab), Rythu Bazar (
Andhra Pradesh), Uzahaver Shandies (T.N.) and Shetkoori bazers
in Maharashtra. But these markets have been promoted so far only
at the State headquarter and some district headquarters adjoining
to the state.

A rural periodic market/ haats is the first contact point for

producer – sellers for en-cashing his agricultural produce and
income. There are about 27,294 rural periodic markets in the
country. The minimum necessary infrastructural facilities do not
exist in these rural periodic markets.

Besides above after market reform initiatives for alternative

marketing methods have also been taken. License for Direct
Marketing has been granted in Maharashtra to M/S Aditya Birla
Retail Ltd, Ruch Soya Industries, M/s Tina Oils, etc & in Gujarat to
Borsad Agro Marketing Pvt. Ltd., Reliance Agri Products
Distribution Pvt. Ltd., Reliance Fresh, etc. In Madhya Pradesh and
Rajasthan to ITC e-choupal. In Uttar Pradesh to Haryali Kisan
Bazar

Similarly license for Electronic Spot Exchange has also been

granted to National Spot Exchange Ltd. (NSEL), NCDEX Spot
 224

Exchange Ltd. (NSPOT) and National Agriculture Produce

Marketing Company of India Ltd. (NAPMC). Today such facilities
are available in the states of Maharashtra, Karnataka, Gujarat,
Rajasthan, Bihar, Orissa and Madhya Pradesh for trading
commodities e.g. cotton, caster seeds, maize, deshi chana, guar,
betel nut, etc.

License for Contract Farming has also been extended in the

state of Maharashtra to NDDB-ION Exchange, EECOFARMS,
MAHYCO- MAHINDRA, Jain Irrigation, Hindustan Liver Ltd.etc &
Punjab- Nijjer Agro Foods Ltd; United Breweries Ltd; Satnam
Overseas, Tata Chemicals Ltd, etc. In Tamil Nadu to Apachi Cotton
and in Andhra Pradesh to Venkey’s Hatchery.

(B) STORAGE INFRASTRUCTURES:

This capital-intensive marketing infrastructure is necessary

for carrying the agricultural produce from production seasons to
consuming periods. Lack of inadequate scientific storage facilities
cause heavy losses to farmers in terms of huge wastage of quantity
and quality of crops in general and of fruits and vegetables in
particular. Seasonal fluctuations in prices are aggravated in the
absence of these facilities. To have storage facilities in the country,
the Agricultural Produce (Development and Warehousing)
Corporation Act was enacted in 1956. The State Governments also
enacted the warehousing Acts during July 1957 to August 1958.
The scheme of Warehousing, Rural Godowns and Cold storage's
have been initiated in public, cooperative and private sectors in the
country to meet the storage needs of the producers in different
areas. The progress made in this regard is as follows:
(i) The total storage capacity available at the end of 2010 of CWC,
SWC, and FCI is about 75 million tonnes. It is estimated that
about 25 million tones of grains are stored in the form of CAP
(covered & plinth).
(ii) The Rural Godowns under NCRG Scheme initiated in 1979
have constructed rural godowns of 15 million tonnes.capacity.
(iii) Under the Gramen Bhandaran Yojana of GOI, about 67 M.T.
capacities have been created in the country up to March 2010.

Keeping in view the agricultural production in the

country, the available storage facilities/ capacities are short
looking. Looking at the production trends and assuming 70
percent as marketed surplus, a storage capacity of 150 MT is
needed.
 225

(C) TRANSPORT AND COMMUNICATION INFRASTRUCTURE:

A well-developed and efficient system of transportation helps
in the expansion of markets, reduces the transport time and costs
of transportation of the commodities. Majority of the agricultural
produce, producer of the tribal areas and perishable farm products
are still confined to village markets for sale of their produce for want
of surfaced roads and sufficient means of transportation.

The road density per 00' sq. km. of area in the country is
much below the recommendations of Shillong plan (1981) of 32.5-
km. road per 100-sq. km. area. Though India, have one of the
largest road network of 3.314 million km, consisting of National
Highways, Expressways (70548 Km), State Highways (1.28 Lakh
Km), Major District Roads, Other District Roads (4.70 Lakh Km).
The percentage of Single Lane/ Intermediate lane 20,849 km
(30%), Double lane 37,646 km (53%) And Four Lane/Six
lane/Eight Lane 12,053 km (17%). The lack of double lane roads
has a negative effect on the speed of transport means. Road
transport needs to be regulated for better energy efficiency, less
pollution and enhanced road safety.

Railway wagons are also used for transportation of

agricultural commodities from wholesale markets to consumption
centers. Railway route length in the country is not sufficient and
electrified track is not even bare minimum. The existing rail facilities
in the country are highly inadequate. Rail lines even do not connect
some of the districts in the country. The air cargo facilities are also
available in limited number of States. Existing air cargo facilities are
in poor condition and much below the international standards.
Besides above telephone is also used as means of
communication for marketing of produce in India. Number of mobile
enable services is addressing the information needs of the
stakeholders to some extent. The dissemination of market
information on price, arrival and other related information is
provided at low cost and wider coverage. In the field of agricultural
marketing presently mobile services are provided by IFFCO, Airtel,
Reuters, ITC and MS Swaminathan Research Foundation. The
Communication Technology has taken a big leap forward and
received the national recognition as the key driver for development
and growth.
(C) PROCESSING INFRASTRUCTURE:

Processing function adds value to the products and

enhances the income of the farmers in addition to generation of
employment in the economy. A number of agro- processing units
for processing of different agricultural products have been
 226

established in the country in recent past with the increasing

consumer demand for processed products. The processing
capacity of the existing units has also been enhanced. Huge post -
harvest losses of fruits and vegetables is there in absence of the
processing units. Presently only 2.3 per cent of total production of
fruits and vegetables is being processed in the country. Though the
country offers vast potential for establishing agro-processing units
like for oilseeds, foodgrains and sugarcane, yet their availability in
the number of State is almost negligible.
(D) CLEANING, GRADING AND PACKAGING
INFRASTRUCTURE:
To help the consumers by supplying good quality products at
reasonable prices and to help the producer – farmers in realizing
the remunerative prices of their produce and also for smooth
conduct of trade transactions by adopting a common trade
language, grading and standardization of agricultural commodities
is a necessary step and of pivotal importance to attain efficient
marketing. Grading and standardization of commodities also helps
in collection and dissemination of accurate market information,
cooperatively pooling of produce, adoption of group marketing
system, prevention of health hazards on account of adulteration by
harmful products and also creates quality consciousness among
the masses of the country. Under The Agricultural Produce
(Grading and Marketing) Act,1937, the grade standard has been
notified for 184 agricultural commodities so far. The commodities
graded under this act bear AGMARK label on the products, which is
an indication of purity and of quality goods. The AGMARK grading
is done both for internal consumption and or for export.

There is a need to create facilities for cleaning, grading and

packaging at primary level and also in the villages from where
produce is brought for sale. In the absence of such facilities at the
village, the kind of congestion and pollution mounts at the market
yard level.

Besides this to enhance the quality of agricultural produce,

956 laboratories have been established for undertaking analysis of
check / sample research and training of sponsored chemists. Such
facilities are complete absent in all the NE states, Sikkim and Goa.
On examination of information of Laboratory in relation to produce it
has been observed that their availability is much below the all India
average in the states of West Bengal, Andhra Pradesh, Bihar,
Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya Pradesh,
Orissa, Punjab, Tamil Nadu and Uttaranchal.
 227

(E) FOOD PARKS AND PACK HOUSES IN SPECIALIZED

GROWING REGIONS:
India is second largest producer of fruits & vegetables. With
a view to tap export markets and catering to the need of bulk
buyers, mechanical graded and packed house are required in the
horticulture growing areas. Certain activities like cleaning, washing,
grading, packaging, refrigerated transportation etc. are to
undertaken in conformity to international trade. To address these
problems, APEDA a implemented a scheme for catering Export
Oriented Agri- Zones. Under the scheme so far about 111 grading
and pack houses has been established so far to answer the need of
export markets.
Besides these, food parks have also been established in the
country with a view to give exposure to farmer – producer. Though
56 food parks have been established in the country, yet their
availability is confined to only 20 states.

(F) MARKET INFORMATION SYSTEM (MIS):

Farmers need information to aid them in planning their
operations right from the time they plant these seeds until the
produce posses the hands in the market. Market information helps
the farmers in comparing the prices offered by different firms in
different markets and also in the selection of alternative outlets
available. The MIS reduces business risks of farmer - sellers and
traders. There are 435 MIS centers in the country. Wholesale
prices of important agricultural commodities from selected markets
are collected daily by these centers and are transmitted to Head
office for further transmission to TV and AIR stations.

(G) MARKETING EDUCATION AND TRAINING:

There is increasing need to provide market education and
training to the farmer – producers, traders, marketing personnel,
policy makers etc. on a continuous basis based on regular research
studies. These improves know how and decision taking power of
the farmers as to when, where and in what form to sell the produce.
The Directorate of Marketing & Inspection, State Agricultural
Marketing Board, State Marketing Department, Agricultural
University and National Institute of Agricultural Marketing are
engaged for helping the farmers and market functionaries in these
areas.

(H) MARKETING INSTITUTIONAL INFRASTRUCTURE:

Following marketing institutions have been created in the country

during the last 60 years:
 228

(I) Public Sector Marketing Organizations:

(b) Food Corporation of India (FCI)
(c) Cotton Corporation of India (CCI)
(d) Jute Corporation of India (JCI)
(e) State Trading Corporation (STC)
(f) Commodity Boards – Tea, Coffee, Cardamom, Rubber,
Tobacco, Spices, Areca nut, Horticultural Crops, Dairy
Products (NDDB)
(g) Directorate of Marketing and Inspection (DMI)
(h) Agricultural Produce Market Committees (APMCs)
(i) State Agricultural Marketing Boards (SAMBs)
(j) Council of State Agricultural Marketing Boards (COSAMB)
(k) Commission for Agricultural Costs and Prices (CACP)
(l) Commodities Export Councils
(m)Agricultural and Processed Products Export Development
Authority (APEDA)
(II) Cooperative Marketing Institutions
(a) Primary, Central and State level Marketing Societies,
Unions, and Federations.
(b) Special Commodities Marketing Societies (Sugarcane,
Cotton, Oilseeds, Milk etc.)
(c) Processing Societies
x Cotton Processing and Ginning Societies
x Oilseeds Processing Societies
x Fruits and Vegetables Preservation Societies
x Sugarcane Crushing Societies
x Milk Processing and Chilling Societies; etc.
(d) National Agricultural Cooperative Marketing Federation
(NAFED)
(e) National Cooperative Development Corporation (NCDC)
(f) Tribal Cooperative Marketing Federation (TRIFED)

9.3 QUESTIONS

1) Explain the role of different categories of agricultural

infrastructure in India.
2) Write an explanatory note on Road connectivity in India.
3) Discuss the importance of agricultural marketing infrastructure
in India.

™™™™
 229

Module - 6

10
POLITICAL ECONOMY OF INDIAN
AGRICULTURE
Unit Structure :

10.0 Objectives
10.1 Introduction - Modes of Production
10.2 Market Interlocking
10.3 Forced Commerce and Methods of Surplus Extraction
10.4 Modes of Surplus Extraction
10.5 Questions

10.0 OBJECTIVES

x To study modes of production to Indian - agriculture.

x To study the concept of market inter locking.
x To study the theory of forced commerce.
x To study the methods and modes of surplus extraction.

10.1 INTRODUCTION - MODES OF PRODUCTION

Political Economy was the original term used for

studying production and trade, and their relations with law, custom,
and government, as well as with the distribution of national
income and wealth. Political economy originated in moral
philosophy. It was developed in the 18th century as the study of the
economies of states, or polities. In the late 19th century, the
term economics came to replace political economy, coinciding with
the publication of an influential textbook by Alfred Marshall in 1890.

Today, political economy, where it is not used as a synonym

for economics, may refer to very different things, including
Marxian analysis, applied public-choice approaches emanating
from the Chicago school and the Virginia school, or simply the
advice given by economists to the government or public on
general economic policy or on specific proposals. A rapidly growing
 230

mainstream literature from the 1970s has expanded beyond the

model of economic policy in which planners maximize utility of a
representative individual toward examining how political forces
affect the choice of economic policies, especially as
to distributional conflicts and political institutions. It is available as
an area of study in certain colleges and universities.

Originally, political economy meant the study of the

conditions under which production or consumption within limited
parameters was organized in nation-states. In that way, political
economy expanded the emphasis of economics, which comes from
the Greek oikos (meaning "home") and nomos (meaning "law" or
"order"); thus political economy was meant to express the laws of
production of wealth at the state level, just as economics was the
ordering of the home. The French physiocrats, Adam Smith, David
Ricardo, and German philosopher and social theorist Karl
Marx were some of the exponents of political economy.

Current Approaches
In its contemporary meaning, political economy refers to
different, but related, approaches to studying economic and related
behaviours, ranging from the combination of economics with other
fields to the use of different, fundamental assumptions that
challenge earlier economic assumptions:

Political economy most commonly refers to interdisciplinary

studies drawing upon economics, sociology, and political science in
explaining how political institutions, the political environment, and
the economic system—capitalist, socialist, or mixed—influence
each other. The Journal of Economic Literature classification
codes associate political economy with three sub-areas: the role of
government and/or power relationships in resource allocation for
each type of economic system, international political economy,
which studies the economic impacts of international relations,and
economic models of political processes. The last area, derived
from public choice theory and dating from the 1960s, models
voters, politicians, and bureaucrats as behaving in mainly self-
interested ways, in contrast to a view, ascribed to earlier
economists, of government officials trying to maximize
individual utilities from some kind of social welfare function. An
early and continuing focus of that research program is what came
to be called constitutional political economy.

The study and use of how economic theory and methods

influences political ideology. Political economy is the interplay
between economics, law and politics, and how institutions develop
in different social and economic systems, such as capitalism,
socialism and communism. Political economy analyses how public
policy is created and implemented. Because various individuals and
 231

groups have different interests in how a country or economy is to

develop, political economy as a discipline is a complex field,
covering a broad array of potentially competing interests. Political
economy also involves the use of game theory, since groups
competing for finite resources and power must determine which
courses of action will give the most beneficial results, and what the
probability of those results being reached are.

Modes of Production In Indian Agriculture

In the writings of Karl Marx and the Marxist theory of historical

materialism, a mode of production (in German: Produktionsweise,
meaning 'the way of producing') is a specific combination of:

1. Productive forces: these include human labour power and

available knowledge given the level of technology in the means
of production (e.g. tools, equipment, buildings and technologies,
materials, and improved land).

2. Social and technical relations of production: these include the

property, power, and control relations governing society's
productive assets (often codified in law, cooperative work
relations, and forms of association), relations between people
and the objects of their work, and the relations between social
classes.

Marx regarded productive ability and participation in social

relations as two essential characteristics of human beings and that
the particular modality of these relations in capitalist production are
inherently in conflict with the increasing development of human
productive capacities.

It will be helpful to begin by considering briefly the on-going

debate over trends in the “mode of production” in the Indian rural
economy. The discussion has attempted to evaluate the changes
in agricultural production and agrarian society in the subcontinent in
terms of the well-known European historical-economic development
articulated by Marx and Engels, describing the historical transitions
between primitive communism, the so-called slave mode of
production, feudalism, capitalism and finally, socialism. In light of
the preceding discussion, the debate raises questions of whether
commercialization and capital intensification in Indian agriculture
constitute a transformation to agrarian capitalism from feudalism;
what feudalism thereby means in the Indian context (regardless of
whether the question is answered positively or negatively); whether
Indian agriculture is better described in terms of some hybrid of
capitalism and feudalism, or an altogether exceptional mode of
production; what the nature of class formation is in Indian
agriculture; what generally the impacts of colonialism and
 232

imperialism have been on Indian agriculture; how state formation

has historically functioned in relation to agrarian political-economy.

Following Hamza Alavi (1981), a mode of production refers to the

logical and mutual coordination of the following:
a) A determinate type of ownership of means of production
b) A determinate form of appropriation of economic surplus
c) A determinate degree of development of the division of labour
d) A determinate level of development of productive forces.

A mode of production refers to the structure of dialectic

between social relations of production and economic forces of
production, which need not and often, do not correspond in a one-
to-one fashion. Mode of production can be distinguished from the
concept of "social formation," which names a particular,
geographically and temporally bounded society, its specific political-
economic organization and cultural features. Social formation is a
descriptive concept. Mode of production naturally includes social
formations, but is an analytical concept. As such mode of
production does not correspond to otherwise designate historical
epochs. The feudal mode of production does not refer simply to the
medieval period, the capitalist mode to the colonial or post colonial
period, etc., but one or several modes of production may be evident
in any particular geo-historical situation. The discussion on the
mode of production has tended to focus empirically on the post-
Independence period. Of course there is no reason not to extend
the empirical consideration into the past as well.

A. Bhaduri (1973) argues in a seminal article that the mode of

agricultural production in India can rightly be called feudal (or semi-
feudal) as long as the following characteristics are widely
evidenced:
1) Extensive, non-legalized sharecropping
2) Perpetual indebtedness of small tenants
3) A rural “ruling” class acting both as landowners and creditors
to small tenants (i.e. landlords investing in usury, financier-
brokers investing in land)
4) Small tenants having incomplete access to the market forced
into involuntary exchange through the peculiar organization
of these “markets.”

It is well to consider these characteristics point by point.

Sharecropping, legal and non-legal, and both registered and
unregistered tenancy are widely associated with feudal economic
formations because they constitute systemic insecurity for
cultivators. They entail, Bhaduri argues, the constant possibility of
eviction, and also the extreme personalization of landlord economic
power over tenants. The claim for the possibility of eviction
depends to some extent on the collection of information on actual
 233

evictions, but the threat of eviction is not necessarily quantifiable, or

if it is, as during the period of widespread agrarian reform, must be
measured inversely. Neither threat of eviction nor tenancy (rent
payment) can themselves be considered exclusively feudal: both
eviction and for-profit land rental have accompanied the so-called
green revolution and even for-profit sharecropping is reported.
Personalization of relations, sometimes in the form of political
coercion, sometimes in the form of terror, does seem to accompany
what can be called feudal forms.

Perpetual indebtedness cannot be considered exclusively

feudal. Perpetual indebtedness is rightly considered a condition of
unfreedom in so far as it means the inexorable dependence of the
cultivating classes on the rural ruling class (which include large and
middle farmers cultivating with hired labour, large and middle
farmers leasing out to tenants, large and middle farmers leasing in
land, large and middle farmers who personally participate in
cultivation and who do not, and moneylenders and traders) for
subsistence. Indebtedness becomes unfreedom when basic
survival for the majority of actual workers is tied into a whole
complex of economic and super-structural relations of
dependence. Moreover, chronic indebtedness may occur
systemically with or without wage-labour, either if wages are
sufficiently chronically low, and/or if rent either in labour, cash or
kind is sufficiently high, and in either case if the need for
consumption credit is ineliminable.

Bhaduri's third and fourth criteria, the collapsing of

landowners and moneylenders, and involuntary exchange resulting
from incomplete access to markets—are essentially statements of
interlinkage. These form the most important part of his explication.
Bhaduri asserts that the feudal or semi-feudal landowner "exploits
the tenant through his traditional right of land as well as through
usury and the economic basis of semi-feudalism is the combined
operation of these two modes of exploitation.” This is to say that
throughout the year tenants are typically dependent on the
landowner for advances to pay landless labourers, and tenant and
labourer alike are dependent on the landowner for consumption
loans for food, clothes, medicine, family emergencies and special
expenditures like marriages. At the end of the crop season, the
advances are deducted from the tenant's or sharecropper's keep,
which may leave the tenant/sharecropper as little as 12%-15% of
the total output. This does not include payment on back loans at
exorbitant rates of interest. Cultivators in such conditions survive
only by taking additional, often larger loans, and in this way the
cycle of permanent indebtedness from chronic poverty replicates
itself. The efficient cause of the cycle is the necessity that the
tenant lease in land from the same individual to whom he is
 234

permanently indebted—or if not the same individual, the same

small group of individuals.

What Bhaduri calls involuntary exchange also follows from a

land-credit interlinkage? Because of the constant compulsion to
settle past debt, the cultivator produces principally for landowners
and moneylenders, who offer depressed prices against the debt
outstanding. Cultivators do not produce crops for sale as
commodities on an open market, except to the extent that they can
maintain some leverage against the forced, often early sale to
landlord-creditors. Subsistence farming is ensured by the
personalization of markets for indebted cultivators' crops and the
fragmentation of access to open markets (the impediments to large,
regional rural markets may be literal: roads and transport may be
kept deliberately inadequate if the political power of one or several
landlords is great enough). The lack of access to better organized
money markets (banks, cooperatives, etc.) and those markets' clear
preferences for large-scale investment in entrepreneurial farming
over subsistence agriculture, certify the small cultivator's
vulnerability to usury and to distress sale of crops (i.e. selling
early). In short, what Bhaduri wishes to call a feudal mode of
production is characterized by a linkage of credit, labour and prices,
such that the cultivator unremittingly earns lower wages, receives
lower prices, and/or pays higher rent—against debt which is
perpetual because it primarily covers consumption costs. The
cultivators' loss in income though lower wages, lower prices or
higher rent, or a combination, "more than outweigh[s] the gain
from...productivity." Low productivity often results, but not
necessarily. As Bhaduri and Patnaik (1971) pointedly note, the
level of productivity may be of secondary importance to rate of
return on the existing system. Higher productivity by capital
intensification may be less than income from usury. It is necessary
to view the development of capital intensification of agriculture not
in terms of a meta-historical destiny, but in terms of the real
considerations entertained by the very persons who would elect to
change. The system that Bhaduri describes as feudal has the
advantages of securing control of labour and political efficacy for its
elite, and these are not to be considered insignificant.

Rudra (1978) offers an expanded set of essential

characteristics of a feudal mode of production in response to the
well-known Kautsky-Lenin Laws of Development of Capitalism in
Agriculture. These include the law of increasing returns—large
farms are more productive than small; differentiation of the
peasantry—land is increasingly concentrated into fewer and fewer
hands and as a result there is an increase in the agricultural
proletariat; decline in sharecropping; production for market rather
than for subsistence. The following are Rudra's criteria:
 235

a) Extra economic coercion by landlords, including both political

control and direct physical intimidation
b) Direct control of the means of production by the primary
producer, i.e. the non-reduction of labour to a commodity
bought and employed by capital along with other forces of
production
c) Petty and localized production, i.e. production for local
consumption rather than for trans-regional, in some cases
regional and possibly standardized markets
d) Production for use rather than for exchange, i.e. non- or
minimally commodified production (commodities
representing principally a heightened exchange value);
e) Labour or kind as opposed to money rent; in much shorthand
feudalism, monetization is taken as the decisive index of
capitalization—for the problems with this view, see below
f) Low rate of technological progress, sometimes characterized
as an extra-economic or cultural adversity to technology or
preference for labour-oriented production
g) Landlords and/or moneylenders using rent for personal
consumption rather than productive investment in land.

Against Kautsky-Lenin, Rudra notes first that capitalism may

generally be characterized by a disappearance of petty production,
but some kinds of mechanical improvements are scale-neutral,
such that small capital-intensive farms may be sustainable by
scale-neutral capital inputs. Correspondingly, land values may
increase while average farmsize does not. Insofar as there is a
concentration of capital without a concentration of landholding, i.e.
the persistent fragmentation of landholdings, and rigidity of the land
market restricts the accumulation of land—productivity may still
increase due to the input of certain productive capital technologies.
Size productivity cannot straightforwardly be measured simply by
surface area of land owned, but must measure the value of land
possessed. Second, as noted above, tenancy and sharecropping
may be adaptive. Moreover, while rent payments may be
burdensome for subsistence farmers, they may be profitable for
capitalist farmers who find renting-in land more attractive than
purchasing land from small or large landowners. Tenancy may
likewise "adapt" to spatial particularities, replacing compulsion and
coercion with written contracts. Finally, Rudra asserts that cashrent
payment by capitalist farmers (“reverse tenancy”) may not result in
capital accumulation for small rentier-farmers, or a rise in their
standard of living above the subsistence level. Capitalist farmers
may themselves do a business in credit, so that usury may assume
an aggressive, monetized form, and indices of monetization may
not indicate a reduction of economic distress. Indeed, Rudra
 236

argues, the prevalence of moneylending is not a straightforward

index of feudalism insofar as loans may be taken for capitalist
production as well as for consumption, and so need not result in
perpetual indebtedness.

Clearly to attribute any characteristics to a "feudal," "semi-feudal

or "pre-capitalist" mode of production is to claim that they appear
exclusive of developments otherwise associated with capitalist
agricultural production, particularly decline in tenancy, increase in
market rather than subsistence production, monetization, increase
in large farms following capital accumulation, and increased social
differentiation (i.e. increased land concentration and increased
numbers of agricultural labourers). For Rudra, only his condition c),
the necessity of petty and localized production under feudalism,
analytically accords with Kautsky and Lenin, who assert capitalist
agriculture necessarily to be oriented toward the market rather than
toward the cultivator's self-consumption. Rudra argues, in short,
that tenancy, cash rent, non-concentration (even fragmentation) of
holdings, usufruct and usury are compatible with, and occur within
capitalist development. Rudra is loath to call an economy in which
capitalist elements survive and indeed flourish, "feudal."

While it is true that these characteristics may separately or

together materialize in capitalist production, that is may be
assimilated into capitalist production, Rudra does not answer the
implications of the systemic interlocking of these elements as a
function of the destitution of labour—as elucidated both by Bhaduri
and by his most vocal critic, Usha Patnaik. Rudra's argument is of
a specious type. It is rather like saying that because a hammer can
be used as a toothpick it is not essentially a hammer. Rudra does
not challenge the fundamental interlinkage of labour, credit,
commodity that sustains economic vulnerability and class
differential. Instead he articulates alternative, capitalist,
applications for it. Nor does he recognize that his applications are
formalist in nature, and represent a disaggregate, distended
capitalism. Rudra's emoluments would exist as features of
capitalism only in the context of their non-capitalist application. His
exceptions to prove the rule.

Rudra's oversights reach their limit when he argues the following:

It seems to us that the one common denominator among the
essential and characteristic features of feudalism which have been
recognized by different scholars is the extra-economic coercion that
it involves. 'A typical expression of such coercion would lie in the
landlord possessing the legal power to compel him to work for him
gratis or to serve him in many other ways, curtailing thereby his
individual liberty.' This presumably means that Rudra understands
his condition c), petty/localized production, to occur as a result not
of economic constraints on primary producers but political-judicial
 237

coercion, physical threat or patron-client relations. He does not

treat the interlinkage of artificially low wages and prices due to the
tying-together of credit, labour, land and commodities markets as a
form of coercion. As such he does not explain how or why it should
be treated as extra-economic—when it seems precisely economic.
Nor does he offer any argument for why interlinkage should be
viewed as in any primary way extra-economic because it may be
accommodated by modes of production specified as distinct social-
relationally and otherwise. In Rudra’s contribution are the seeds of
an insight that the mode of production in Indian agriculture is not
neatly predicted by the historical material dialectic patterned by
Marxists for the west. From this insight Rudra concludes, however,
that modes of production are idealities superimposed upon spatially
and temporally specific relations of production which are
admixtures: landlords sometimes pay wages, sometimes receive
ground rent; exploitation is sometimes visited upon the landless
and landpoor by landlords, sometimes by capitalists, sometimes by
rich peasants. In Rudra’s view, we can describe only the relations
of production in the Marxist dialectic between productive forces and
relations. As such we can neither pattern the past nor predict the
future but only describe spatial and temporal particularities with
greater or lesser accuracy.

Rudra errs perhaps in not recognizing interlinkage, which he

explicitly describes in his 1978 article co-authored with
PranabBardhan, as fundamentally a condition of coercion of any
kind. Beyond that he errs in representing it as essentially extra-
economic in character. It is, precisely economic: it constitutes a
traditional economic status quo into which capitalist elements may
be introduced and assimilated, or May perhaps struggle to
overcome. This is not to say that the interlinking of markets may
not occur by means of personal coercion by stronger over weaker
parties, assuming a super-structural dimension. The existence of
super-structural (political, ideological) support for interlinkage was
never at issue. However, it is imperative to remember that this
support is supporting something—an economic structure of debt-
compulsion which operates by its own force.

Against Rudra, Patnaik (1971, 1976), after Daniel Thorner,

emphasizes the ground rent “barrier" as the critical element in the
transition from feudal to capitalist modes of production. Patnaik
argues that ground rent constitutes an impediment to profitability
which capital intensification and/or capitalist relations must
surmount. The profitability of the traditional (what Bhaduri calls
feudal) mode of production is precisely its success in controlling
labour to frustrate the formation of a free proletariat. The traditional
mode operates by maximizing destitution, particularly by
maintaining endemic underemployment (“a vast underemployed
reserve army”) to ensure bare subsistence income. The traditional
 238

landowner may employ wage-labour, but does not do so for profit—

rather uses wage-payment to bind the cultivator into the pattern of
dependence already established. It must be stressed that the
traditional mode of production is neither a relic nor a failure of
economic rationality. In Patnaik’s words (1971), “The choice
between operating with hired labour and leasing out to tenants may
represent for such landowners a purely contingent, reversible
decision taken on the basis of current circumstances—e.g. the
comparative terms on which labourers and tenants are available in
that locality.” This is to say that wage-labour is a necessary but not
a sufficient condition of capitalist production. By itself it is not an
indicator of the mode of production, but requires a determination of
its use. Likewise production for the market is only a necessary
condition: commercialization is not by itself an indicator of the
absence of vulnerability-based production if, for example, it is
generated by family labour.

For Patnaik, the fact that capitalist elements exist and thrive
within traditional modes of labour-expropriation, with or without
decisively replacing them, is no basis for concluding that those
traditional modes of production are not essentially feudal. As
Patnaik (1971) rightly observes, with Rudra (1978), Banaji (1972),
Alavi (1975, 1981), the operative characteristic of capitalism is not
merely the appropriation of surplus value, but the accumulation and
reinvestment of that surplus on an ever-expanding scale. Pre-
capitalist methods of surplus use do not involve capital investment
and intensification, but rather moneylending, letting-out of land to
tenants, and trade. The rent barrier thus might be better termed the
non-capital investment barrier, or the destitute-labour barrier,
because its profitability depends on the sedulous debt of primary
producers under the weight of hunger-rent obligations, consumption
and production loans, artificially low prices obtained, and pervasive
underemployment. In short, what Patnaik calls the rent barrier is
better termed an interlinkage barrier, dependent as it is on the
pauperization of the cultivators. Insofar as feudalism describes a
mode of labour control based on the economic and perhaps socio-
political obligations of cultivators to the demands of a surplus-
appropriating class of intermediaries, the traditional mode of
production in India can rightly be called feudal.

This appellation is only a matter of convenience, given not to pro-

crusteanize Indian agrarian forms into western categories, but to
expand those very categories. At this point it is important, following
Marx (1980) and Byers (1985), to note that feudalism as it existed
in Europe was transformed into capitalism not simply out of its own
internal dynamics, including land enclosures, migrations to towns,
formation of an urban proletariat (free labour) from guild control,
etc. The critical element of an ever-expanding market was
provided by the opening of overseas trade which developed
 239

colonial possessions and eventually, imperial possessions.

Political control of overseas territories meant not only market
expansion, but also the wholesale drain of wealth and natural
resources from countries around the world to Europe, providing an
indispensible capital base for new capitalist operations. In short,
capitalism developed hand in hand with colonialism, and as such
developed not merely as a European phenomenon, but as a global
phenomenon.

The rise of capitalism-colonialism as a global phenomenon

means that changes in the mode of production in colonized
countries likewise must be analyzed globally. David Washbrook
(1990, 1994) has pioneered studies of the shifts in Indian
agriculture under the impact of colonialism. Broadly, the
penetration and eventually domination of Indian trade by the
European trading companies, with the attendant political struggles
and attainment of supremacy by the British, destroyed the thriving
pre-colonial manufacturing activity. By the early nineteenth
century, a massive migration of labour back to the countryside was
underway, along with the emmigration of more than a million Indian
labourers to south-east Asia, Africa, and the Caribbean as
indentured servants. At the same time, as noted in the in the
foregoing discussion, the colonial government radically hardened
the agrarian structure in forming their alliances with the classes of
sub-infeudated intermediaries in the Permanent Settlements.
Though the British did not introduce rack-renting and
subinfeudation into the agrarian situation, they manipulated
production toward the imperial market and destroyed subsistence in
food production in India. The South, by the end of the century, saw
a steady decline in yields of jowar (millet), the staple grain of the
majority of the population, and a corresponding rise in prices.
Perhaps the worst legacy of the colonial regime (and among the
least studied) was the virtually constant presence of famine in one
or another part of the colonial dominion from the mid-nineteenth
through the mid-twentieth centuries, amidst the increasing drain of
revenue. Revenue drain was foundational not only to the
extravagance of the colonial government itself, but to industrial
development in Britain and especially to the financing of the
imperial armies and the Empire’s martial demands. The cumulative
result in India was casualization of wages from increases in
consumption loans, deficient supplies of basic goods, and the
proliferation of a hungry, landless peasantry. In short, colonialism
effected a feudalization of India. Capital intensification in
agriculture in the form of an overall increase in wage-labour simply
aggravated the coercive power of economic interlinkages and
reinforced extra-economic coercion by calcifying the rural class
differentiation. Whether this feudalization amounted to a
refeudalization or a genitive feudalization is in certain respects
immaterial. The point is that the development of capitalism in
 240

Europe (particularly Britain) and the relative capitalization of

agriculture and manufacturing in India during the colonial period
buttressed material interlinkages which are rightly called feudal.

Certain scholars (Banaji 1972, Alavi 1975,P. Chattopadhyay

1972) have proposed the notion of a “colonial mode of production,”
by which imperial capital disarticulates the internal economy of the
colony and integrates the disarticulated segments into the
metropolitan economy. The colonial mode represents an effort to
specify the nature of capital intensification during the colonial
period—to account for the external source of investment and the
appropriation of surplus not just by local or regional elites, but the
exportation of that surplus to Europe and other parts of the British
Empire. Thus Alavi offers the following comparative view of modes
of production: Structural Conditions of Various Modes of
Production(Source: Alavi 1981)

Feudal Mode of Capitalist Mode of Peripheral

Production (FMP) Production (CMP) Capitalism
1.Unfree labour; 1.“Free” labour (a) free 1.As in Capitalist
Direct Producer in of feudal obligations, mode of production
possession of means (b) dispossessed,
of production (Land, separation of Producer
Working Capital etc.) from of means of
production
2.Extra- Economic 2.Economic “coercion” 2.As in Capitalist
compulsion for of the dispossessed mode of production
Extraction of surplus producer
3.Localized structure 3.Separation of 3.Specific Colonial
of Power, Fusion of economic power from Structure
Economic (Class) & political (state) power;
Political power at the creation of bourgeois
point of production- a state & bourgeois law
necessary condition
of coercive
extraction of surplus
4.Self-sufficient 4.Generalised 5.Specific Colonial
localized economy commodity production Structure
supplemented by ( production primary for
simple circulation of sale; labour power itself
commodities a commodity)
5.Simple 5.Exrtended 5Specific Colonial
reproduction where reproduction of capital Structure
surplus is largely & rise in organic
consumed composition of capital
 241

Alavi’s scheme may be taken as clear and relatively

comprehensive. He avoids the common problem of equating
capitalization with monetization and wage-labour by speaking
rather of the freedom of labour from the direct possession of the
means of production—such that labourers earning a wage but not
alienated from the means of production are still considered feudal.
He correctly separates economic from extra-economic coercion, but
would also be right to call the extraction of surplus in the feudal
mode economic. He emphasizes that the capitalist mode involves
more than just the expansion of a localized power structure to a
Trans-local structure, but the creation of a bourgeois state with
metropolitan and peripheral (various colonial) forms. Likewise, the
expansion of the economy from self-sufficient localized production
to generalized commodity production precisely involves the
alienation-cum- commodification of labour within particular
peripheral forms. In some sense this might also be understood as
the overcoming of the personalization of production articulated by
Bhaduri. Finally, Alavi includes Patnaik’s point (following Lenin) on
production for static versus ever-expanding markets, again within
particular colonial forms.

While Alavi’s contextualization of capitalist production in India in

terms of the prerogatives of imperial capital is doubtless necessary,
Alavi may not be contextualizing enough. Are the characteristics of
the feudal and capitalist modes of production uniquely functions of
colonialism?

Although Marx never explicitly took up the analytical tool of the

mode of production, he did ascribe to India what he termed the
Asiatic mode of production, which he took to operate in conjunction
with what the British colonial historians, particularly Alexander Dow
(1770, 1772), called Oriental Despotism. These theories, criticized
roundly for their faulty empirical foundations, posited an all-
powerful, despotic Oriental potentate who creamed agricultural
surplus off the peasantry through an effective bureaucratic
machinery; the absence of private property in land; self-sufficient,
isolated village communities, politically autonomous except for the
revenue collection activity; a state-monopolized irrigation system;
the absence of important urban centers and of trade; and a king
invested with powers of divine. While Marx, who never visited India
himself, was wrong in asserting the absence of private property, the
undifferentiation and self-sufficiency of villages, the absence of
cities, the unchallenged supremacy of the Emperor and singular
effectiveness of the Mughal bureaucratic machinery, nonetheless
certain corollaries of his assertions remain valuable. Most
important of these, as IrfanHabib points out (1985), is the
recognition that agrarian subjection in the Mughal state did not
proceed along the lines of European serfdom. Rather the village
community was the object of subjection. This is not to say that
 242

collective subjection was not accompanied by individual subjection

in various forms—by village strongmen who exercised political
control, lent money, hired labourers, etc., and by internal divisions
of jati (such that certain jatis formed the bulk of the landless
population)—but that even individual subjection proceeded by way
of the individual’s position in a collective schema.

In so far as surplus appropriation either by the state

(through the jagirdars) or hereditary claimants (zamindars) was
successful, and insofar as state and hereditary claimants to
agricultural surplus were relatively cohesive as against the claims
of the primary producers themselves, rent payment and tax
collection coincided in the Mughal dominions. Of course, the
payment of rent/tax to superiors, whether zamindari or jagirdari,
constituted a major burden on primary producers, and may be
taken as the fundamental class differential, beyond which caste
stratification and landlessness constituted additional burdens.
Although jagirdars and zamindars did make separate and at times
competing demands on agricultural surplus, together they formed
an appropriative class of intermediary assesses which could, and
did, convert the surplus into commodity production and circulation
both inside and outside the village under the aegis of the state, or
perhaps more precisely, the particular spatial-temporal coalition of
ruling elements.The state, then, should be considered not just in
terms of centralized political control, but in terms of a centralized
fiscal structure. This fiscal structure supported both the
immiseration of primary agricultural producers (which facilitated
both jagirdari and zamindari surplus extraction) and extensive
commodity circulation (which was accompanied by extensive
banking and insurance operations, and the growth of urban centers
specializing in the manufacture of commodities for distant
markets). Although commodity production was directly dependent
on state-sponsored agrarian exploitation, i.e. effectively centralized
fiscal control, this exploitation did not destroy the self-sufficiency of
the local economy. Indeed as Habib shows (1982), there was
practically no change (either up or down) in the yield of food grains
per unit of area for Agra and Delhi between 1540-45 and 1870.

Habib notes that centralized control was not always

effective, in that the insecurity of jagirdari holdings increased fiscal
pressure on the primary cultivators (jagirdars extracting as much as
possible), which led sometimes to agrarian revolts. During
breakdowns of imperial power, zamindars commonly reasserted
their authority, becoming more “feudal” in character. Habib claims
that this increase in local power stands in contradistinction to
Europe, which saw in the breakdown of feudal power in the
countryside the development of a regime of private landowners and
a rent-paying free peasantry. Out of the contradictions of this
system grew the expansion of commerce, the universalization of
 243

petty production, and eventually the growth of nation-states and

capitalism. This development, he says, did not occur in India until
the second half of the nineteenth century, and then only as a result
of colonial rule. What remains unclear in his explanation is just how
the rent-paying primary producers in Europe were "freed" from
direct control over the forces of production to form a rural and then
urban proletariat, but rent/tax paying primary producers in India
continued to be obligated to the surplus-appropriating classes.
Why, in other words, did landless British cultivators and British
tenants not depend (if indeed they did not) on credit from their
former feudal overlords in such a way as to prevent their capital
accumulation? Why, on the other hand, did not Indian rent-paying
landless cultivators and tenants transform themselves into a free,
petty commodity producing class?

Some answers may lie, as already suggested, in the parallel

developments of colonialism and capitalism. Broadly, the British
peasantry did not develop into a proletariat until the development of
an international market and an influx of bootied capital from
overseas. A proletariat in Britain did not develop, that is, based
simply on itself as a market for its own goods. On the other hand,
TapanRaychaudhuri (1982) argues that a sizeable middle-income
group—including the lower ranks of the bureaucracy, professionals,
holders of rent-free tenures, etc.—constituted a proportionately
large internal market for comfort and luxury goods during the
Mughal period. The grossly inequitable distribution of surplus “both
inhibited and stimulated” its demand, such that it did not develop
into an economy of scale, and at the same time was sufficient to
prevent the accumulation of surplus either by primary agricultural
producers or artisans (which often overlapped in the countryside)
and thus its transformation into productive capital. While there is
evidence of a vast market for basic commodities, long-distance
trade in luxury goods provided the most lucrative markets. Such
markets were sufficiently liquid to support a certain amount of
commercialization, but were not ever-expanding as would have
been necessary for the development of a full-scale capitalism. As a
result, both Indian agriculture and manufacturing remained labour-
intensive, and necessary divisions of labour did not seed
awareness of workers as “free” proletarians, but rather proliferated
jatis.

As such, the reasons why the Indian domestic market did not
become a market for Indian manufacturing but did become one for
European manufacturing cannot simply be the arrival of European
trading companies and their usurpation of markets, though such
competition was undoubtedly significant. Rather, to the extent that
petty manufacturing was not commercialized, standardized or
centralized, but was dispersed, local and family based, it was, like
agricultural production, immiseration-based, and so proved a
 244

“barrier” to state-merchant-landed interests. It is not, as

Raychaudhuri claims, that Indian manufacturing or agricultural
production could not develop past a “hoarding” mentality, but that
the conversion of savings into productive investment was simply
not sufficiently profitable. For state and local elites, surplus
appropriation from the land, savings and investment in luxury good
production was lucrative enough. Such a productive-investment
barrier can rightly be considered an indicator of interlinkage. Class
exploitation in the Mughal period was sufficiently effective both in
agricultural production and manufacturing to prevent the growth of
mass purchasing power, so that the production of food and petty
commodities was minimally but basically satisfied, without need for
mass productive investment by the coalition of state-merchant-
landed interests.

The Mughal system of generalized, minimal self-sufficiency in

food and commodities based essentially on peasant-artisan self-
exploitation was undone during the colonial period by the colonial
government’s destruction of Indian manufacturing, the forced
importation of basic commodities which precipitated a slow exodus
from the towns to the countryside, and the consequent
overabundance of rural labour. The economic hardships unleashed
and legitimated by the Permanent Settlements further caused an
overall decline in agricultural productivity, hence vulnerability to
ecological crises and the widespread incidence of famine.
Interlinkage made the Mughal political-economy vulnerable to the
colonial threat, and the British secured their markets and their rural
power base by destroying the Mughal equilibrium—not by breaking
interlinkage apart (thus precipitating proletarianization), but by
tightening it.

If interlinkage characterized the Mughal political-economy, it was

also present, we can gather, in medieval south India. Alaev (1982)
stresses the importance of the landless population, which
constituted as much as 25% of the total agricultural population, as
well as the non-expansion of agricultural productivity (in fact the
overall decline) despite the widespread availability of unoccupied
lands. R. S. Sharma’s study (1985) of the inscriptional and literary
evidence of state sanctioned land grant charters establishing
usufructory and taxation rights, and of various classes of
subtenants and leaseholders—suggests that hierarchical control
over land and large-scale sub-infeudation existed in the north at
least from the eighth century onwards. Sharma believes that the
beneficiaries of such titles generally were able to make their
economic claims and administrative powers sufficiently
comprehensive to convert their rights into possessions. In this way
they controlled agricultural production by the efficacy of their
appropriation of surplus, and so controlled labour. He suggests
that such intermediaries did not constitute such a burden on
 245

primary producers to impede agricultural production. Likewise he

maintains that the agrarian base was strong enough to support
state expenses—priests, military, etc. It is perhaps difficult to
ascertain, but it seems possible that the Mughal structure of
interlinkage may have inherited much from preceding systems.

10.2 MARKET INTERLOCKING

During the 1980s, ‘the market’, or the ‘free market’ became

the key catchword of international development discourse and took
on virtually magical qualities as a developmental panacea. In the
world of ideas, it was an intellectual juggernaut given political
force(and therefore intellectual credibility) not only by the
dominance of neo-liberalism in the key metropolitan countries
(notably ‘Reaganomics’ and ‘Thatcherism’), but also by the notion
of ‘market socialism’ in the former (and, in the case of China, still)
state socialist countries. As a powerful ideological slogan it had to
rely only partly on its intellectual and practical plausibility.

Fortunately, some of the ideological dust seems to be

settling in the early 1990s and the time is ripe fora basic
reconsideration of both the concept and the reality of markets.
Much of the intellectual and practical case for the beneficial
economic consequences of markets is now widely accepted across
the political spectrum. Now we need to take our understanding of
markets one step further. At the conceptual level, it is important to
move analysis away from an overly abstract, simplified and
ideologically loaded conception of markets which, when fed into
policy, can have damaging results.

To do this, it is necessary to go beyond the rarefied

categories of conventional economic analysis: through innovation
within economics itself and the introduction of ideas from other
disciplines, ideally fused or overlapping in a cross-disciplinary
fashion. At the empirical level, an effort to ‘deconstruct’ the market
is all the more pressing in a new global politico-economic context in
which the old polarity between ‘centrally planned’ and ‘market
economies’ has been replaced by a situation in which, while only
‘market economies’ are on offer, it is becoming increasingly clear
that there is a wide range of variation between market economies.
Today, we talk about the differences between Japanese and
Western capitalist market economies; in future we will have to talk
with much more precision about afar wider variety of market
economies which differ in fundamental ways (Korean capitalism,
Chinese capitalism, Brazilian capitalism). If the neo-classically
derived paradigm of ‘the market’ was inadequate in the past in
elucidating the dynamics of real markets, so much more in the
future as the range of systematic diversity increases. The kind of
analysis presented in this chapter represents merely one
 246

component of a much wider intellectual and practical dissatisfaction

with the conventional paradigm of the market and its practical
effects in the industrialized, industrializing and Third Worlds.

A Political analysis of markets

The abstract conception of the market deriving from neo-

classical economics overrides variations in real markets which are
very important for considering and tackling practical problems of
development. It also abstracts from social, political and institutional
aspects of real markets which cannot be dismissed as ‘exogenous’
factors but are inherent, and indeed may be essential,
characteristics of the functioning of markets in the real world. In
particular, conventional economic analysis of markets by and large
ignores or marginalizes the presence of power which is a glaringly
visible characteristic of real markets and a political analysis of
markets is needed to reveal the manifold ways in which power and
power relations influence the structure and operation of real
markets. Using a power-based notion of the ‘political’, one can
classify the politics of markets into atleast four major forms: the
politics of state involvement; the politics of market organization; the
politics of market structure; and the politics of social
embeddedness.

First, we need to be more clear about the notion of power.

The concept is much discussed and contested. Much of the
discussion tends to revolve around what could be called a
behavioural and a structural view of power. The first concentrates
on power mainly in dyadic relationships between two agents;
superior power is reflected in the ability of agent A to influence the
calculations and behaviour of agent B to the effect that agent B
chooses to do something which he/she otherwise would not have
done (with the implication that B is somehow worse off as a
consequence). If one views a market as made up of a myriad of
individual exchanges, this micro-level notion of power is essential
for understanding the specific dynamics of each exchange event.
However, the behavioural notion of power has severe limitations.

It tends to take the initial endowments of power resources of

each as given and is not concerned to inquire whence they came,
preferring to focus on the mechanics whereby power is exercised.
However, each real market is a patterned set of social relations with
its own specific constellation of power; if the power relation involved
in a micro-level market exchange is to be understood, therefore, it
must be situated in the context of a structural analysis of this wider
system. The power-patterning of markets affects an agent’s choice
by determining the boundaries of available choices, influencing the
operational calculus of the chooser and shaping the relative
attractiveness of various choices. A combination of behavioural and
 247

structural analysis also allows us to capture the dynamics of the

operation of power within markets as a systemic process in which
agents market their own market history, as it were, though not
within circumstances of their own choosing. Just a spectacles are
usually preferable to monocles for good vision, the behavioural and
the structural conceptions of power are both essential to
understanding power in markets.

If we incorporate this idea of power within our understanding

of markets, their characteristic economic features embody political
processes of conflict and cooperation and political relations of
domination and subordination. From this viewpoint, therefore,
market man or woman is less interested in’ bartering and trucking’
or making rational choices in response to given signals and more
interested in seeking to protect, consolidate or extend their power
within the market. For example, Victor Keegan(The Guardian, 9
June, 1991), commenting on an OECD report warning about the
escalating dangers of oligopoly in the industrialized world, notes
wryly that ‘The natural state of the sentient capitalist is one of
unqualified monopoly, with qualified monopoly as decidedly
second-best, but often the condition to which competition and
regulation reduce him’.

This notion of the market as an arena of power struggle

between competing interests is conveyed well by Alan Cawson who
notes (1988) that: ‘The real world of trade politics is a far cry from
the notion of competition as an impersonal mechanism for
allocating resources, and much closer to the idea of economics as
war pursued by peaceful means’. Here Cawson is drawing explicitly
on an intellectual tradition deriving from Max Weber who made a
similar analysis of prices and money:

“Money prices are the product of conflicts of interest and of

compromises; they thus result from power constellations. Money is
not a mere ‘voucher for unspecified utilities’, which could be altered
at will without any fundamental effect on the character of the price
system as a struggle of man against man. ‘Money’ is, rather,
primarily a weapon in this struggle; money prices are instruments of
calculation only as estimated quantifications of relative chances in
this struggle of interests:”

Weber is referring here to the specific instrumentalities of

economic power. However, power is a protean phenomenon and
power resources in markets are many and various. The analysis
has involved four dimensions of market power – the state,
association, economic assets and socio-cultural status. Each of
these constitutes the basis for a specific form of market politics.
The substance of market politics is characteristically about a
number of issues: about the position of an agent or agents in
 248

relation to others within a market and their differential ability to

extract resources through exchanges with other market
participants; about the rules of the game and the nature of market
institutions; and about the boundaries of the market (for example,
with the public sector or the household). Participants in the politics
of a specific market may involve both actors in that market, actors
in other markets with intersecting exchanges and interests, and in
other social spheres, such as the family or the state.

1. The politics of state involvement

This is the most familiar arena of market politics since it is

commonly discussed under the rubric of the state-market paradigm.
Our analysis differs from the latter in two respects. First, the
conventional state-market paradigm predisposes us to think in
dichotomous terms of two distinct spheres: on the one side, there is
the realm of politics which has to do with the state and other
institutions making up the system of formal public politics; on the
other side, there is the realm of economics in which economic
agents of diverse kinds produce, exchange and distribute through
the modality of markets. In the real world, of course, the realms of
state and market, public political and economic systems, are
densely and inextricably intertwined. Second, rather than separate
realms of politics and economics as the state-market paradigm
does, we regard both the state/public political system and the
economy as matrices of politics – from this perspective, ‘economic’
events and processes are not ‘outside politics’ or ‘non-political’ but
themselves embody diverse forms of politics.

State involvement in markets takes two common forms. The

first is when the state, usually through one of its specific institutional
components, is a direct participant in a market direct control
overproduction, accumulation or exchange (for example, industrial
parastatals or state farms, state banks, agricultural marketing
boards). State enterprises may play a monopolistic role in the
provision of key industrial inputs to downstream private firms,
notably energy and basic raw materials such as steel and coal. The
state may play a crucial role in a variety of markets: for example, as
contractor for the services of private defence and
telecommunications industries in Western European nations or in
the purchase of agricultural produce in many developing countries.
In the latter case, the work of Jonathan Barker (1989) and Robert
Bates (1981) has been particularly valuable in tracing the political
dynamics of interactions between state agencies and peasant
producers in the context of African agricultural markets. Bates, for
example, analyzed African agricultural markets as political arenas
characterized by specific constellations of conflicting political actors
and interests and showed how these political dynamics led to
 249

consequences which were economically deleterious but, from the

point of view of state actors at least, political rational.

The second dimension of state involvement in markets is

that of regulation, a phenomenon which has several layers of
market penetration. The first layer is the relatively superficial one of
parametric policy intervention by the government of the day to
facilitate market operations, correct market distortions, and achieve
social or developmental goals and the like. At a deeper level, the
state’s involvement is pervasive; it is the source of a complex
network of institutionalized arrangements which permeate markets
and influence the way they operate: for example, the legal definition
of property rights, licensing laws, standardization of weights and
measures, creation and validation of money and the regulation of
contracts. At an even deeper level, state power saturates market
exchange in invisible ways, an imminent quality which is redolent of
Michel Foucault’s ‘capillary’ notion of power which acts to
‘permeate, characterize and constitute the social body’. For
example, in the context of a highly developed consumer market
characterized by a dense network of state regulation built up coral-
like over a long period, a simple transaction such as buying a bar of
chocolate is saturated by state power, which may regulate hours of
sale, precise measurement or description of contents, the
positioning of chocolate on the counter and its proximity to other
goods, the environmental soundness of its wrapping, the price paid
and the nature and value of the money used to pay for it, and so on
(and this is disregarding other provisions regarding its production
and distribution).

The nature and degree of this institutionalized saturation by

state power is intellectually important for classifying different types
of markets and measuring their degree of ‘maturity’ and practically
important in conditioning their operational effectiveness. This
‘institutional patterning’ of markets by state power needs more
investigation since one of the features of the development of
markets seems to be that this role is increasingly transferred from
more traditional social institutions such as kinship, religion or
locality (which we discuss under the heading of ʌ4) to the modern
state, a process of historical ‘re-embedding’.

2. The politics of market organization

This is a form of power and politics internal to the market,

whereby participants in the market act to alter the operation of the
market to favour their own interests and enhance their capacity to
pursue them. They may do this among themselves or in
cooperation/conflict with actors outside their specific market (in the
state or in other markets). To the extent that their action results in
the creation of established rules of the game or institutionalized
 250

practices within the market, this form of politics can result in what
might be called ‘endogenous regulation’. At its roots, this
represents an attempt to achieve ‘organizational transcendence’ of
the market through various forms of collective action.

From a Weberian perspective, this can be seen in terms of

two concomitant and competing processes: social closure or
usurpation. Successful social closure undertaken through the
collective action of market participants results in the establishment
of conditions which protect or extend the market position of those
actors, often at the expense of other groups within the market.
Usurpation represents a counter-attack by threatened or
subordinated actors, such as workers or consumers, to improve
their power within the market (these notions are discussed in depth
by Parkin 1979). As Cawson (1988) remarks, these ‘social bonds
which develop out of self-interest between ‘competitors’ … are not
an aberration from the free market but define the essence of the
exercise of power in the market’.

The exercise of associational power takes a number of

commonly observable forms, of which three are particularly
important: formal association, network and hierarchy.

Formal association provides much of the substance of the

politics of ‘civil society’ and takes a wide variety of forms, e.g.
business associations, commodity cartels, trade unions, consumer
groups and professional associations. For example, highly skilled
professionals provide classic examples of occupational groups
which feel themselves threatened by a potentially fully-functioning
competitive market and organize to evade or transcend it. Their
strategy is based on what is called ‘credentialism’(which is a major
symptom of the ‘diploma disease’) which gives rise to
institutionalized mechanisms operating to define and protect their
privileged position in the market and to limit the claims of
other(actual or potential) market participants. Obvious cases which
spring to mind are the medical and legal professions.

This phenomenon raises interesting questions about the role

played by the formal associations of ‘civil society within the market.
Current political discourse tends to regard civil society as a ‘good
thing’, particularly as a bulwark for freedom and autonomy in the
face of potential state Leviathans. But what about its role in relation
to the market? Opinion is much more divided on this issue. Some
argue that the exercise of associational power has a negative
economic or developmental effect since it creates unearned rents
and thereby distorts the ‘proper’ operation of markets; others argue
that such organizations may have many positive effects, for
example in amassing and distributing information, setting and
 251

monitoring standards, and providing mechanisms for arbitration or

sanctions. This needs more thought and investigation.

Networks take a variety of forms, the basic idea being that of

informal coordination and cooperation between market participants,
individuals or firms, who are ostensibly competitors in the market.
Powell (1990), who has documented the importance of networks in
the craft, construction, publishing film and recording industries in
the United States, calls this ‘patterned exchange’ which ‘looks more
like a marriage than a one-night stand but there is no marriage
licence, no common household, no pooling of assets’. The network
is a distinctive, semi-institutionalized form of interaction which
counteracts the workings of a competitive market. Examples would
include collaborative ventures between firms, or agreements about
market share or price based on reciprocity, trust and mutual
dependence. Industrial economists have identified networks as a
crucial ingredient in the success of local industrial regions in
Western Europe, notably the cases of Baden-Württemberg in
Germany and Emilia Romagna in Italy. Students of East Asian
business systems have also documented the crucial importance of
networks in coordinating activity between firms in Japan (in fact,
Kumon 1992has called Japan a ‘network society’) and between
business and government in China. Incurrent discourse on
industrial development, the economic role of networks is regarded
as positive, not least because they have been identified as one
component of a number of highly successful economic experiences
in Western Europe and East Asia. As in the case of formal
associations, however, networks could well function as ways of
amassing unproductive rent as ‘conspiracies against the public’, so
the phenomenon needs more investigation before any form of
policy prescription can be advanced with confidence.

Hierarchy: According to Oliver Williamson (1975), to

describe the most fundamental form of social closure within the
market, the firm. In Williamson’s view, the firm, and the hierarchy
which it embodies, should be seen as an attempt to internalize
transactions and resource flows that might otherwise be conducted
in a more costly fashion in the market; it is the substitution of the
visible handof the manager for the invisible hand of the market. In
other words, firms are ‘islands of planned coordination in the sea of
market relations’. While Williamson does not incorporate power into
his analysis, the firm is in fact acting as a ‘governance structure’
and as such is a node of power and a rich field of micro-politics – of
authority, control, cooperation and domination. From a power
perspective, the firm can be seen as a kind of ‘combat unit’
designed for battle in the market; hierarchical controls operate
internally to maintain the discipline necessary to carry on the
market struggle, competitive or otherwise, in ways which are
economically advantageous to the firm’s owners, private or
 252

otherwise (in the Marxist tradition this involves the extraction of

surplus value). The firms expands and contracts, and changes its
‘foreign policy’ and internal organization in response to changing
conditions in the market. As recent discussion of the rise of‘ post-
Fordism’ in the industrialized countries has suggested, the
relationship between the micro-politics of markets at the firm level
and the politics and economics of markets at macro levels is
interactive and highly dynamic.

3 The politics of market structure

This is a conception of markets as a structure of power

relations between agents with differential control over market-
relevant material and mental assets. At the micro level, participants
come to specific markets with unequal endowments in terms of
resources (Sen’s notions of capabilities and entitlements; 1984). At
the macro level, this results in widely different market structures
characterized by more or less equal or unequal power; each
specific structure of power conditions the way markets operate at
the macro-level, shapes the character of exchange relations
between individual market participants and influences their relative
returns from exchange. As Bardhan points out ‘power may be
centrally involved in causing the existing pattern (and in defining the
existing parameters) of trade in the first place’. This idea is also
present in Bhaduri’s idea of ‘forced commerce’ wherein ‘the “market
mechanism” is … better understood not in terms of its allocative
efficiency, but as the mechanism for extraction of surplus by one
class from another … the function of exchange is not to “clear” the
market in some cases, but simply to gain advantage to one party at
the cost of another’; he talks about the ‘class efficiency’ of markets.

Conventional economic analysis, through its work on

monopoly, oligopoly and ‘market power’, and more recently game
theoretical work on bargaining within markets, has made some
limited contribution to understanding this process. In the context of
agricultural markets, the work by Indian economists on ‘fused’ or
‘interlocking’ markets involving ‘triadic power relations’ (Bhaduri
1986 and Bharadwaj 1974,) has analyzed the ways in which the
interlocking markets for credit, product, leasing, labour, processing
and transportation in rural contexts serves to give certain
strategically situated groups an ability to dominate transactions with
other market actors and benefit from unequal exchange. As a
means to track these locations of strategic control, the method of
tracing filières is useful in that it identifies the chain of exchange
from production through various links in marketing, processing and
circulation. Afilière map helps one to pinpoint precise locations of
profit and accumulation (Barker1989) has argued that trade is a
more favourable location than production for accumulation in
agricultural markets in Africa) and thereby identify precise points at
 253

which privileged positions can form and, more generally, relations

between super- and subordinate classes of strata can coalesce.

The above models of ‘fused’ and ‘interlocking’ markets

are limited in their application because they have emerged from
and been applied to relatively undeveloped agrarian markets still in
transition from pre-capitalist systems of economic exchange.
However, recent work in the Marxian tradition on more advanced
markets in the industrialized countries has attempted to
demonstrate how asymmetrical power relations exert influence, and
domination and exploitation take place, in markets which are
operating in ways more closely approximating the standard model
of a competitive market. For example John Roemer (1982) has
argued that ‘capitalist exploitation’ takes place within a context of
‘free’, ‘voluntary’ competitive exchange by virtue of unequal
ownership of property. In their theory of ‘contested exchange’,
Samuel Bowles and Herb Gintis (1990) have attempted to establish
‘new micro-foundations for political economy, one that illuminates
rather than obscures the exercise of power’. There is also work on
international exchange by David Evans when he argues that
‘systematic consideration of class, inequality and power can be
brought to bear on trade and development issues without loss of
analytical rigour’.

From the point of view of a strict economist, this last

methodological point is important since one of the usual arguments
against the incorporation of power into economic analysis is that it
cannot be done rigorously. However, conventional analyses of
monopoly and game-theoretical approaches have far more
potential for incorporating a rigorous analysis of power than they
have so far demonstrated. The triadic power relations characteristic
of interlocked markets have been modelled formally by
Subramanian and it has been suggested that the methodology of
neo-classical economics can provide a precise and empirically
testable measure of power by extending the theory of monopoly.
One is tempted to conclude that it is really a question of whether or
not economists are willing to put their minds to it. A ‘power
theoretic’ and a ‘choice theoretic’ approach seem logically
inextricable and empirically necessary. Take the prisoners’
dilemma, for instance – the dilemma lies not merely in the fact that
their choices have sub-optimal outcomes, but also in the fact that
they are prisoners in the first place.

4 The politics of social ‘embeddedness’

This idea is drawn from (but goes beyond) Karl Polanyi’s

notion (1957) of markets ‘as embedded’ in wider social values and
institutions. It implies that other principles of social organization
permeate markets and shape their structure and dynamics. It also
 254

implies that the motives of market actors cannot be reduced to

mere considerations of maximising self-interest and making profit.
The latter sentiment is echoed in de Gregori’s exasperated remark
(1979) that ‘the economic man in the market place of conventional
economics is an individual without culture and therefore without
existence’. Much recent analysis, for example, has emphasized the
crucial importance of trust and moral conceptions such as fairness
or duty in regulating exchange between actors in a wide variety of
markets in more ‘traditional’ and more ‘modern’ contexts.

The notion of embeddedness opens up a vast area of

interaction between markets and social processes, uniting the
terrain of economics with the traditional concerns of
anthropologists, sociologists and psychologists: kinship systems,
cultural values, religious beliefs and institutions, social
differentiation based on gender, ethnicity and race, and so on. With
the effect on the operation of markets of the power relations which
may themselves be embedded in these social beliefs and
institutions. One example is the impact of gender on the role of
women within markets –both materially through the influence of the
gender division of labour in the economy at large and attitudinally
through the influence of gender ideologies inherent in established
cultural or religious beliefs. These social factors often operate to
subordinate women by restricting their access to markets, limiting
the resources they can use in market exchange, defining rules of
the market game which are prejudicial to their interests and
distributing them invidiously between markets. From this point of
view, markets are one social arena in which the pervasive power
game between male and female interests is played out. Similar
analyses could deal, for instance, with the role of race in the
operation of markets in South Africa, or the role of religion in the
operation of markets in Iran.

Concluding remarks

At the analytical level, It is convinced that real markets are

social amalgams interacting with and pervaded by the state and
society at large, and political entities permeated by power relations
of diverse kinds. Though we have described the political nature of
markets in terms of four separate categories, there are, of course,
complexes ‘boundary exchanges’ between them.

But does the political analysis of markets have any practical

value for the world of development in which analysis exists for the
purposes of action? In relation to successful policy intervention, it
should caution against operating with too starveling or utopian a
conception of ‘the market’ or the ‘free market’ and sensitise policy-
makers to the structural and institutional diversity of real markets
and the complex political processes which shape and underpin
 255

them. Any one-sided and/or economistic definition of market

‘distortion’, for example, runs the risk of coming up with simplistic
policy conclusions which mis-specify the problem and
underestimate the possibilities of change. It not only faces the
familiar problem that, even where markets may be working ‘well’,
they may have unacceptable welfare consequences, for example
by increasing the vulnerability of the poor to market fluctuations. It
also faces awkward questions about the existence of apparently
highly successful markets which are systematically ‘distorted’ in
ways analyzed above. There is here an important range of
questions about how variations in the power structuring of specific
markets affects the developmental outcomes. This goes beyond the
usual questions about the nature and extent of state regulation to
include the ‘endogenous’ regulation of markets: for example, the
pervasiveness of networks in Japanese or Italian industrial markets;
the function of industry/trade associations in improving their
members’ ability to compete in international markets; or the role of
professional organisations in regulating skilled-labour markets. The
problems for investigation here are why some of these forms of
markets organization are developmentally beneficial and some not,
and how the former can be encouraged and the latter discouraged
through policy.

Moreover, the manipulation (and in the Eastern European

case, the creation of ex nihilo) of markets through policy
intervention would seem to require far more than the application of
analytical blancmange mould derived from conventional economics:
knowledge of context and variation, and of the complex social,
political and institutional dimensions of real markets. As at the
outset, variations in markets partly reflect a wider differentiation
between market systems, between forms of capitalism, which offers
a range of alternative institutional incarnations of markets. (For an
example of this range of options in the context of current Chinese
financial reforms, see Bowles and White 1993.) This variation does
not bedevil analysis because these variations and processes can
be classified and analyzed systematically, ideally through inter-
disciplinary Endeavour.

10.3 FORCED COMMERCE AND METHODS OF

SURPLUS EXTRACTION

Modes of extraction in Indian agrarian systems have always

been deeply intertwined with the hegemonic ideology of patriarchal
caste-feudalism. The peculiarity of backwardness in the Indian
context flows from the extremely slow changing nature of agrarian
stratification - itself a manifestation of the class-caste overlap. Thus
the deliberate manipulation of institutions to establish/retain
hegemony by certain castes in the agrarian system is not possible
 256

without the dominant groups being simultaneously the ruling

agrarian classes.
Bhaduri's (1983, 1991, and 1997) seminal work on forced
commerce and the concept of class efficiency in backward
agriculture provides me with the theoretical framework for studying
agrarian stagnation or dynamism in Indian agriculture. The Bhaduri
model of forced commerce explained the working of the debt
mechanism in backward agriculture under conditions of semi-
feudalism. The landlord was also the moneylender (in the model of
semi-feudalism) and the reason for debt was consumption loans.
From a later work by Bhaduri (1997) which sums up this condition
of backward agriculture.

"The model of semi-feudalism was constructed (Bhaduri,

1973) to show why the incentive to invest in land improvement may
he weak in situations where the semi-feudal landlord is also the
moneylender to his tenants. Low productivity of land in traditional
agriculture resulting in low income-share for the tenant keeps him
perpetually dependent on his landlord for regular consumption
loans."

The theory of forced commerce show show primitive

accumulation in historically specific forms relies on "market forces"
or the debt mechanism for accumulation in backward agriculture.
The direct/personalized mode of extraction is symptomatic of such
a form of forced commerce. Indian agriculture today is structured by
capitalist principles with an ever increasing magnitude of market
forces. The generalized mode of extraction captures this specificity
of capitalist accumulation. In this chapter, we study the role of
markets to see the specificities of the generalized mode of
extraction in agrarian systems. We shall construct a simple model
(based on Goodwin's (1967)model of Class Struggle) of the
generalized mode of extraction to illustrate the following issues -
persistence of interlink ages and under-pricing, insufficient
accumulation and depressed labour shares in backward agrarian
systems. Finally, we come to the question of agrarian dynamism
and backwardness.

Mechanisms of Debt

The primary data shows the various aspects of debt-

dependence which prevails in backward agrarian systems at
present. In the section which follows, briefly look at the pattern of
indebtedness today in Jharkhand, Madhya Pradesh and
Chhattisgarh. The primary survey reveals that most dalits, adivasis
and OBCs have higher proportions of indebtedness.
 257

Table 10.1: Pattern of indebtedness

The following tables (10.2 and 10.3) give the distribution of the
credit by source and purpose.

Table 10.2: Percentage distribution of credit by various

sources

Table 10.3: Percentage distribution of credit by various

purposes

Almost two thirds of the loans taken come from non-

institutional sources. The loan provided by moneylenders
accounted for the same percentage as institutional sources.
Institutional sources account for 50% of the loans in Chhattisgarh.
Chhattisgarh also has the highest average debt. Further
segregation of the data reveals that the high value loans in
Chhattisgarh is coming from institutional sources. In states (like
Jharkhand and Madhya Pradesh) the average loan is considerably
lower and further segregation shows that it is mainly in the control
 258

of the moneylenders. In Jharkhand and Madhya Pradesh,

almost50% of the respondents reported taking loan from the money
lender. Looking at the source of loan by caste reveals that the
general category of households and the dalit households (mostly in
Andhra Pradesh) depend more on institutional sources while the
adivasis and OBCs had to turn to the money lender. Dalits in other
states were mostly dependant on the moneylenders in most places.
In both Jharkhand and Madhya Pradesh, the absence of
institutional sources has led to high dependence on moneylenders
and shopkeepers in these states. SHGs (e.g. in Chattisgarh) are
also an important source of credit; however most of these loans are
low value loans.

Majority of the high value loans taken from the institutional

sources are for land and building purchases. However, only 2% of
households in Jharkhand have taken loans for buying land. Further
caste disaggregation reveals that it is primarily dalits who have
taken loan to buy land. The severity of hunger in the case of
Jharkhand shows up in the data as it is primarily consumption loan
for day to day needs including food that have led to indebtedness.
This is coupled with the fact that a weak Public Distribution System
(in Jharkhand) reinforces the dependence of vulnerable families on
the shopkeepers and moneylenders for even basic food
requirements. This pattern is true for most dalit and adivasis
households who take loans for subsistence compared to the
general caste households. The lack of access to subsidized public
health in Jharkhand also explains why a high percentage of
households reported taking loans for medical purposes.

The pattern of indebtedness reveals that the second most

important purpose of taking loan was for marriage and ceremonies.
Given sanskritisation, it is not surprising that it is mostly the general
or upper castes who continue to take loans for this purpose to show
off their status even if it means large loans. Very few households
reported taking loan for educational purposes but of the few who
did it were mainly dalit and adivasi households. The historical
denial of access to education for these castes till recently along
with the lack of provisioning of such facilities in these districts by
the state is probably the sole reason for taking such loans.

The prevalence of usury on these loans varied a great deal

with the maximum being 42%per annum. The method of usury was
prevalent mainly amongst the shopkeepers and moneylenders who
charged 'interest' monthly and in case of non-payment also
compounded it monthly. This system (especially in Jharkhand and
Chattisgarh) is still tightly controlled by the moneylenders with the
illiterate villagers not owning any piece of paper showing the
amount of either principal borrowed or the rate of interest charged.
A lot of respondents also did not have any idea of how much they
 259

have actually paid. Depending on the power of the moneylender the

debt continues or is considered repaid. A common complaint
especially in remote areas was that despite having paid the interest
and principal, the moneylender continued to show them large
amounts of debt and sometimes had even taken away cattle and
land. All India debt and Investment Survey reveals that proportion
of non-institutional debt in rural areas have gone up from 9.8%
in1991 to 15.5% in 2001. A large proportion of this debt is from
moneylenders. This is confirmed by the primary data.

Inter linkages (between various markets) and the central role

of usury has always been apeculiar feature in backward agrarian
systems. The neoclassical theories of contracts orthat of markets
can not quite capture the specificities of backward agriculture. But
capitalist penetration in Indian agrarian systems at present is
almost all pervasive even though the theoretical framework that
legitimizes capitalism (specifically the neo classical school) is
unable to correctly characterize the workings of such systems.

Capitalist restructuring in backward agrarian systems works

through two mechanisms. One mechanism operates through
perpetual debt-dependence as a mechanism of control over the
peasantry, especially small peasants. Default in such situations
leads to land alienation. The method of forced commerce relies on
such a mechanism. The other mechanism is best described by the
classical Marxist argument of reserve army of labour-capitalist
restructuring of the labour process by depressing wages. The aim
of the method of forced commerce is to control marketing of
products and thus operates in the sphere of exchange. The wage
mechanism aims at control of the labour process in production and
thus lies in the sphere of production. Surplus extraction and its
realization involve both these mechanisms.

The Bhaduri model of semi-feudalism is a description of the

direct/personalized mode of extraction. The semi-feudal landlord
extracts product rent (share cropping arrangement)from the tenant
and also provides consumption loans. The process of control
involves the landlord inducing default so that there is a perpetual
debt dependence which ties the debtor to the landlord. His income
consists of rent from property (land) and usury. The generalized
modes of extraction visualize autonomous extractors. This gives
rise to different extractive shares which results in separate accruals
– income accrual due to (property) rent and income accrual due to
debt.

In the discussion on unfree labour, It is argued that there has

been an emergence of a coercive class of people in backward
agrarian systems - the contractor and the trader-lender. The trader-
lender emerges due to increasing commercial exploitation; the
 260

contractor emerges due to more capitalist exploitation. The control

of the product market is a necessity for the trader-lender while for
the contractor it is unfree labour (workers get lower than minimum
wages).Thus debt repayment or wage is the flexible variable
causing fluctuations. Let see what happens if we have different
extractors.

Generalized Modes of Extraction with Autonomous Extractors

The generalized mode of extraction with autonomous
extractors helps in discerning the general mechanisms of surplus
extraction in agrarian systems. To keep the model tractable and
simple, let’s assume that labour L and capital K produce an output
X (like paddy). Given that we are looking at autonomous extractors
we see the income accrual from property (ground rent) and the
income accrual from the debt mechanism separately. Thus we can
write the income accrual from Property as ɮ X 2ɮAlso,
the in come DFFUXDO IURP 'HEW Ȝ. X; Ȝ7KXV DXWRQRPRXV
extractors have different extraction shares depending on their
economic power, hence ɮ DQG Ȝ. The Bhaduri model had the
landlord as moneylender who in terms of our model would mean
that ɮ DQG Ȝ went to the landlord alone. Given the complex
production relations of backward agrarian systems this may not
always be the case and hence we are looking at them separately.
Now we can assume that the share received by a small peasant in
terms of the output is denoted as u = (1- ɮ-Ȝ).x and w if he is
landless. The share workers get depends on the various extractive
shares which the landlord or the moneylender extracts. Thus
ɮ(extraction from property) and Ȝ (extraction through debt)
determines the labour share. One thing stands out from this
equation, i.e. the higher is the extraction through property or debt
the lower is the share of that comes to the worker.

In the context of the present discussion if the share of

workers increases (say due to good harvest) then the moneylender
demands more in form of repayment. This can be interpreted as
repayment of outstanding stock of debt in better times*. Repayment
of outstanding debt reduces the share of workers. When times are
not so good (say bad harvest) the moneylender relaxes the
repayment amount which leads to an increase in the workers share.
We have described the deliberate mechanisms of perpetual
indebtedness which operate with different classes of extractors.
Thus deliberate manipulation of shares can best be studied through
the notion of class efficiency**which will lead us to the question of
productivity.

Class Efficiency and Productivity in Agriculture

We modify slightly the Bhaduri model and assume that the
pool of "potentially" investible share in our generalized mode of
extraction model then becomes Z = ɮ X +Ȝ.X, income due to
 261

property (rent) and debt. In case of the Bhaduri model (landlord and
moneylender was the same) this was Z =ɮ X.

So, income accrual due to property (rent) and usury is

dZ = ɮG;ȜG;;Gɮ;GȜ

*The repayment due to outstanding stock of debt is not present in

the Bhaduri model.

** Bhaduri (1997) defines class efficiency of institutions (e.g.

interlinked markets or interlocked transactions) in backward
agrarian systems as follows: "An institutional arrangement is class
efficient if the more powerful class can maintain a higher income in
its favour, despite lower productive efficiency of the system.
Productive efficiency (including rules of Pareto efficiency) may be
violated deliberately if it helps in manipulating sufficiently the
distribution of income in favour of the more powerful class."

We can say that ɮȜ)dX may constitute the part which increases
income due to increase in production, i.e. productive investment
and Gɮ+ dȜ) X as the unproductive investment which keeps output
unchanged. The matrix below presents the various possibilities.

We can see that if the rates of extraction increase then it has

an inverse effect on productivity. What is more important is that Gɮ
and dȜ. depend on the economic power of the different class of
extractors. Hence we see that agrarian classes could deliberately
try and maintain higher rates of extraction and this is class-efficient
(Bhaduri definition).

Interlocked transactions in rural markets throw up skewed

economic power relations which might help different classes to
manipulate them more easily. The result of this on productivity can
be negative as we have tried explaining through the matrix.
Agrarian ruling classes can and do deliberately manipulate
institutions and production relations to suit their class interest,
which crucially links the question of power to productivity.

Power assumes the central role in studying the presence of

interlocked transactions in labour, land, credit and product markets
in backward agrarian systems. It has been outlined that how the
dominant agrarian castes are also the ruling classes in backward
 262

agrarian systems. We have used the model of autonomous

extractors to understand the complexity of power in agrarian
systems. Thus for example different kinds of lenders accept
different kinds of collateral in backward agrarian systems.

Moreover there is empirical evidence which suggests that

the impact of different collaterals might result in some sort of sorting
behaviour by type of collateral. We can expect such sorting
behaviour to emerge even more strongly in a system where
personalized extraction of surplus is replaced or existing side by
side with generalized extraction of surplus value, which then affects
productivity and hence agrarian dynamism.

A peculiar feature of backward agrarian structure is

interlocked nature of transaction swhich can be traced to the
complex relations of power among dominant groups/ classes. In the
following section, we study inter linkages and the question of power
in backward agrarian systems. In terms of the model this would
mean looking at who or what determines ɮ(extraction from
property) and Ȝ(extraction through debt).

Inter linkages and Power: A detailed look into how ɮ and Ȝ

work.

Hegemony of dominant groups or classes in backward

agrarian systems has a crucial role to play in the persistence of
unfreedom. The extent of unfreedom can be gauged from the
prevalence even today of under-priced collaterals (land, labour, and
other assets) and inter linkaged markets (land, labour, product,
credit) that prevails in backward agrarian systems in this country.
Typically in backward agrarian systems we still find under-pricing of
collateral to be the major device for extraction. The collateral can
be land, future labour services, future harvest, other assets (like
livestock, gold, silver, utensils etc.). The under-pricing of collateral
assumes crucial significance if we are to understand unfreedom.
Two questions regarding under-pricing of collateral becomes
important a] what is the personal valuation of the collateral to the
lender, which will lead us to a clearer picture as to what is extracted
and b] more importantly what is the class efficiency that occurs
thereof, i.e. who benefits from this extraction.

General classifications of the different collaterals that can be

offered are
1. Immovable assets like land, house
2. Part of produce
3. Labour
 263

The next question that we turn to is that who gets to decide the
following:
1. Price of collateral. (E.g. land as collateral. The fact remains that
the poor (mostly depressed castes) also have the worst 'quality'
of land. Hence the under-pricing of their land occurs with a
higher probability).
2. Interest rates
3. Wages for women, dalits, and adivasis etc. caste defined labour.

The dominant classes ability to influence various markets in

backward agrarian systems is a direct indicator of the higher
economic power wielded by such groups. Usury for example
(between a landless dalit agricultural labourer and a sahukar) would
let the sahukar (moneylender) extract a higher return from the
debtor and in effect under-price the collateral (here labour). Thus if
the debt servicing 'contract' is such that the debtor has to work for
the sahukar to repay the amount of loan then the sahukar definitely
would extract as much labour of the debtor as possible. Historically
this method would lead to ruination of indebted families resulting in
bonded labour (debt bondage). Sometimes the mahajan can also
give loan but would undervalue the collateral (say family assets like
gold, house, land, and livestock). In this the less marketable the
collateral the more will it be undervalued by the method of usury.
The less marketable nature of collaterals that can be offered in
backward agrarian systems itself is a result of the specific nature of
the market that prevails. The Bhaduri model of forced commerce
outlines precisely this type of relations in backward agriculture. The
semi-feudal landlord in Bhaduri's model could use the method of
usury by giving consumption loans to tenants for subsistence and
then extract exorbitant sums as repayment (often resulting in land
being seized for failure to repay). This power of the semi-feudal
landlord stemmed from the fact that he was also the source of
credit to his tenants. Thus the labour market and the land market as
well as the market for credit and products could be influenced by
him. The twin roles played by the under-pricing of collateral and
usurious interest rates in turn continue to affect the process of
capitalist accumulation in backward agrarian systems.

The model of forced commerce characterizes capitalist

accumulation through expansion of market forces. The element of
force would change with the specificities of capitalist accumulation.
The mechanism of debt which works in food crop growing areas
would be somewhat different from those growing crops for
commercial use. What we are terming newer forms of forced
commerce is precisely to do with the latter kind. Where demands of
the capitalist system forces farmers to grow commercial crops. The
debt mechanism that comes into being is fundamentally of a
different kind. Instead of hunger/subsistence loans (primarily
 264

consumption loans but could be production loans also) which were

characteristic of the agrarian systems studied by theorists before,
the reasons for loan now could be different, e.g. higher loans for
working capital.

The uncertainty of commercial agriculture in backward

agrarian systems is intrinsic to newer forms of forced commerce.
This newer form is studied in a comparative approach to outline the
differences with the older form. Specifically we look at debt
dependence in agrarian systems which are 'forced' to grow cash
crops and are thus prone to the uncertainties of the market even
more. The growing numbers of farmers' suicides in cash crop
growing regions form the backdrop of my approach to what is
termed newer forms of forced commerce. Advance cash loans for
working capital instead of consumption loans for subsistence are a
typical example of newer forms of forced commerce. The role of
uncertainty in this newer form provides an insight into the working
of capitalism in backward agrarian systems.

There are two kinds of loans to be considered consumption loans

and production loans:

a] Consumption loans for subsistence, rituals (food deprivation

linked to caste status as well as spending on rituals which follow a
caste logic). Default on loan means would mean that assets are
confiscated or bondage.

b] Production loans (more prevalent in cash crop areas and do not

necessarily follow a caste logic). It is in these areas that the
question of uncertainty in agriculture show signs of a newer form of

forced commerce.

Further loan inelasticity linked to backward area credit

market is marked sometimes by demographic isolation (remote
areas according to the state). Basu (1983) has termed this as
isolation. Isolation can occur due to absence of most state provided
amenities like infrastructure (roads, irrigation, electricity etc.) which
make the agrarian system cut off from the larger markets. There is
more demand for cash today alongside a more iniquitous
distribution of money balance in such isolated areas. It is the power
of the lender to influence decisions in backward interlinked markets
says credit and labour, or labour and product, or say land and credit
and labour that makes the vice tighter.

Different agrarian systems in the country have their own

patterns of debt relations. E.g. in areas under the jajmani system
under-pricing are generally combined with consumption loans. This
is a typical labour tying method in backward agriculture. Patriarchal
 265

caste feudalism plays a crucial role in these kinds of areas. Thus

areas under semi-feudalism (Bhaduri) generally had landlords who
were also the moneylenders and grew food crops mostly. Under-
pricing of collateral especially labour as necessary condition for
usury in backward agrarian systems.

The kind of 'contract' underlying the process of under-pricing

with production loans is fundamentally different from the older form.
Here the burden of uncertainty (say cotton growers in Maharashtra
and global prices for the same) is transferred on to the borrower in
the following way. Trader-lenders offer a forward contract of seeds
in return for part of the produce as repayment obligations. The price
of say Bt cotton seeds is higher than traditional varieties. Now Bt.
Seeds manage to at best reduce crop damage and this is claimed
as an increase in yield hence higher prices. Now the farmer takes
higher value loans for working capital which makes the total debt
for production purposes higher than traditionally. Thus a single bad
harvest or global prices crashing can lead to ruination. Not only is
the farmer who uses Bt on his fields exposed to such uncertainty.
The other plots around his plot are susceptible to heavy bollworm
attack (Bt seeds are supposed to resist bollworms) if they do not
use Bt seeds. This is a specific case of what is termed
newer/modern forma of forced commerce. Also the trader-lender
manages to extract through usury (depending on his economic
power) a larger part of the produce if the harvest is good. This he
manages to do because the farmers do not access to 'good prices
'for a variety of reasons discussed before. Thus the trader-lender
operates by inter locking transactions for the borrower in both the
credit and product market.

Comparison between Traditional and Newer Forms of Forced

Commerce,

Loan taken depends on interest rate i and price of collateral

p. So the loan function can be written as

This is similar to the loan function used in Bhaduri and Basu.

The assumption about the loan function leaves out uncertainty.
Given the uncertainty of agriculture, call it good harvest (good rains,
good prices) or bad harvest the amount that can be paid back is
affected. Bt first we see what affects the amount of loan without
uncertainty.

Let, the proportion of debt defaulted be‘d’. The amount of

debt defaulted depends on the interest rate i, the amount of loan
taken L. Higher the interest rate the higher is the proportion that
 266

can be defaulted. The same can be true for the amount of loan.
Hence we can write di>O; d L>O.

Also the type of collateral that the person can offer would in
turn affect the amount of loan and hence the proportion of default.
Not just collateral but marketable collateral provides more access to
loans for the borrower. Here we take landholding j to be a surrogate
for collaterals that can be offered (This is too simplistic an
assumption since there is no market for all pieces of land but we
hold on to it for the time being). Thus we can look at indebtedness
among differentiated peasantry and not use farmers as a
homogenous category of the peasantry. Say j=1, 2,3,4,5
corresponds to a five fold classification of the peasantry - landless =
1, poor peasants = 2, middle peasants = 3, rich peasants = 4 and
landlords = 5. So higher class means more loans and hence may
result in more proportion of default. We can write dj>O.

Now we introduce uncertainty in agriculture, i.e. the

proportion defaulted would differ depending on uncertainty. Hence
the loan demanded would be different for different periods. We
capture this in the following way. There are let’s say two states
state E1 (good harvest) and state E2 (bad harvest). While this
binary is an oversimplification but we can have a continuum of in
between states. This would complicate the model and reduce the
analytical focus. Hence we stick to these two states. So we can
have one of the four situations in two immediate time periods: good
year followed by good year, good year followed by bad, bad
followed by bad and bad followed by good. The advantage of using
this simplistic framework is because it gives us a realistic notion of
the fluctuation of the amount of loan demanded in agriculture. So in
a good year the proportion of default would be less. i.e. d Good<d
Bad.

So the default function reads as d = d (i, L, j, Ek), where k is the

state good, bad..[2]

Uncertainty that is a feature of capitalist restructuring of

agriculture (especially seen in as which have cash crops) affects
the amount of loan repaid or unpaid debt taken by small and poor
peasants. We construct a simple frame for comparison between
traditional and modern forms of forced commerce.

The underlying assumption is dM» dTi.e. Modern debt

consists of fixed plus working capital and is higher in value than
traditional debt. The possibilities outlined in the frame above are as
follows: in traditional forced commerce the borrower takes loan for
consumption and escapes (i.e. repays the amount) if it is a good
year. In modern forced commerce higher share means repayment
of past debts especially due to outstanding stock of debt. Therefore
 267

higher working capital acquires a certain justification because of

higher productivity (yield increase). These in turn generate 'success
stories" of genetically modified seeds which given the informational
dispersion prevalent in Indian agrarian systems spreads far and
wide. But suppose the crops fail in the first year, then the farmer
has to risk taking on higher loan for next year to pay back that
much. Then if bad state occurs again (say rainfall fails) again the
farmer faces ruination. This is because with such loans the costs
are sunk but output (or global prices for commercial crops) remains
uncertain and every year working capital cost increases. The spate
of farmer's suicides in Vidharbha can probably be traced to such
newer form of forced commerce.
The modes of extraction approach thus allow for a
classification of the extractors by the kind of control over debt
relations that they exert. In other words the agricultural-lender and
the trader-lender would exert different pressures on the agrarian
systems. The manipulation of institutions in these particular cases
would depend on the power that these different classes have. The
accepted feature of agricultural backwardness is low levels of
accumulation or insufficient accumulation. This leads us back to the
question of productive investment versus unproductive investment
in backward agrarian systems.
Agrarian Dynamism and Backwardness
Different modes of extraction thus help us in understanding
the lack of agrarian dynamism or backwardness. The resistances to
change in our agrarian systems seem to stem from the complex
class relations which prevail in them. A major thrust of this chapter
has been to show that the ruling classes might be the significant
barrier to agrarian dynamism. The relentless manipulation of
institutions to suit class interest maybe the most important reason
for backwardness. In other words low levels of productivity can be
explained in our case to be a direct result of the antagonisms
embedded in relations of production, not only between the exploiter
and the exploited but also between the different class of exploiters.
Also this framework can take us into analysing the agrarian system
where the landlords are not the only ones making investment
decisions, there is a significant role played by the moneylender.
Whether the moneylender is a trader-lender or a agricultural-lender
will then influence agrarian dynamism and we can see the effect in
a bit more detail though this approach.

The newer forms of forced commerce that is outlined in this

chapter reveals the changing role of the state although implicitly.
Issues in agrarian stagnation and dynamism dealt specifically with
the role of markets and social groups in analysing class relations.
However the process of capitalist accumulation and its effect on
backward agrarian systems is heavily dependent on the role of the
 268

state. The agrarian relations which in turn affect stagnation are

altered or preserved by the state. The different tenurial systems to
the different kinds of crops were all a result of state intervention. In
the context of backwardness in Indian agrarian systems, the
colonial state played a defining role. The fundamental alteration of
property rights to the various institutions in agrarian systems of this
country was a result of colonization.

10.4 MODES OF SURPLUS EXTRACTION

A “mode of surplus extraction” refers to the specific way in

which unpaid labour is extracted from the producers and
appropriated by the dominant classes. In advanced capitalist
economies such as the United States, the employer-employee
relationship (the wage-labour / capital relation) forms the single
most important mode of surplus extraction although in the
neoliberal period unequal exchange between larger and smaller
capitalists via sub-contracting has assumed renewed importance.
In contrast, developing economies such as India are characterized
by a much greater variety of modes.
Broadly speaking we may distinguish between three
principal modes: wage-labour, unpaid work, and unequal
exchange. In the first case surplus is pumped out of direct
producers by ensuring that workers produce greater value than is
returned to them in the form of wages. In the second case, one vital
to both peasant production and artisanal production, the labour of
women and children is extracted in return for direct subsistence. In
the third case, the surplus produced in small-scale production, even
if it be first appropriated by the direct producer, is eventually
transferred from the producer to the merchant capitalist or from a
small producer to a large producer (in the case of sub-
contracting).Below we consider some specific institutional ways in
which surplus extraction is achieved in the informal economy.

I. Piece wages
The NSSO does not gather data on whether wages paid in
the informal sector are piece -wages or time-wages but we know
from several case-studies that piece wages are still widely
prevalent in small-scale manufacturing. In the Gujarat ceramic
study cited earlier 88% of informal units and 47.5% of formal units
followed the piece-rate system. In a 1991 survey of 365 handicraft
artisan units, 96% paid piece-wages.
Marx (1992) notes the salient features of piece-wages:

1. The quality of the labour is here controlled by the work itself,

which must be of average perfection if the piece-price is to be
paid in full. Piece-wages become, from this point of view, the
 269

most fruitful source of reductions of wages and capitalistic

cheating…They furnish to the capitalist an exact measure for
the intensity of labour.

2. Further, Given piece-wage, it is naturally the personal interest of

the labourer to strain his labour-power as intensely as possible;
this enables the capitalist to raise more easily the normal
degree of intensity of labour. It is moreover now the personal
interest of the labourer to lengthen the working-day, since with it
his daily or weekly wages rise.

Thus piece wages achieve an increased rate of exploitation

via increasing intensity of labour and a lengthened working day
while at the same time they obviate the need for control by the
capitalist over the labour process. Since the quality and intensity of
the work are here controlled by the form of wage itself,
superintendence of labour becomes in great part superfluous.

Hence Marx’s conclusion “that piece-wage is the form of

wages most in harmony with the capitalist mode of production.”

The two types of putting-out relations described by Marx,

which give rise to a“ hierarchically organized system of exploitation
and oppression,” are still applicable to informal manufacturing in
India:

On the one hand, piece-wages facilitate the interposition of

parasites between the capitalist and the wage-labourer, the “sub-
letting of labour.” The gain of these middlemen comes entirely from
the difference between the labour-price which the capitalist pays,
and the part of that price which they actually allow to reach the
labourer.
On the other hand, piece-wage allows the capitalist to make
a contract for so much per piece with the head labourer-in
manufactures with the chief of some group, in mines with the
extractor of the coal, in the factory with the actual machine-worker
— at a price for which the head labourer himself undertakes the
enlisting and payment of his assistant work people. The exploitation
of the labourer by capital is here effected through the exploitation of
the labourer by the labourer.
Both the systems noted above are found in the Agra
footwear industry. For example, master artisans take responsibility
for an order, execute part of the work themselves and recruit
additional artisans as needed to fulfill the order, and merchants
directly put-out orders to artisans who work on their own-account,
with unpaid family labour to the deliver the product. In general“
exploitation of the labourer by the labourer” exactly characterizes
production relations in the informal economy.
 270

II. Unequal exchange

The issue of unequal exchange and the "exploitation" of

petty-producers and small capitalists by merchant capital is
ubiquitous in the literature on artisans. Yet few quantitative studies
exist on the aggregate amount of surplus that is siphoned off in this
fashion. Asymmetric market power needed for unequal exchange
exists because typically many artisans must compete for the
business of one or a few traders. An early 1990s survey of around
1500 self-employed handicraft producers found that around 50% of
the artisans obtained their raw materials from traders (who placed
the order) and around 90% handed over the finished product to
middlemen/traders. Knorringa (1999) provides institutional detail in
his study of the Agra shoe industry:

Because plenty of anonymous artisans must bargain with a

limited number of identifiable traders and because the small
quantities allow for easy, quick, and accurate inspection, the
margins for artisans are pushed down…Moreover with all their
working capital tied up in one production cycle, artisans in a direct
sales channel cannot postpone selling.

Traders, on the other hand, can wait for artisan profit

margins to decline. Further, traders also double as financiers
extending credit in the form of leather raw material. Since these
artisans are owners of their home-based production units and
working capital this is a typical example of hidden dependency of
self-employed artisans.

As mentioned earlier, depending on how prevalent such

situations are, they cast doubt on aggregate value-added numbers.
Since value-added is calculated simply by subtracting raw material
costs from total receipts unequal exchange, by increasing input
prices and decreasing output prices and thereby squeezing
margins, will result in low value-added estimates. Apart from
monopsonistic or monopolistic situations, extensive middlemen
networks also serve to reduce the price paid to the artisan per
piece. In Mexico’s garment industry, domestic women workers work
on piece wages using their own sewing machines.

In the Lucknow Chikan industry middlemen, also called

agents, perform the work of bringing cloth and other raw materials
to the embroider at her home and then carrying off the finished
product. Social norms around gender make producers accessible
only to men who are the women’s relatives and neighbours.

Agents locate, recruit, and control labour that is otherwise

inaccessible to the holder of capital. The agent is often a relative, or
at least a neighbour of the women he employs, family members
 271

usually having preference in the allocation of work. For the rest,

while agents do not control embroiderers by directly overseeing
their work, they do impose a rudimentary discipline upon them by
adjusting the flow of work according to the relative productivity of
each woman, and adjusting wages as a means of penalizing
deficient workers and rewarding good ones. In this way, agents
effectively release the mahajans from the need to intervene directly
in the labour process. Agents are paid by the traders/merchants per
piece and in turn pay the producer.

In Lucknow in 1990, prices started at around ten rupees for a

small child's kurta (shirt), rising to 60 rupees for a man's kurta,
simply embroidered. 'Women's salwar-kamiz (tunic-pants
ensembles) ranged in price from 40 to more than 100 rupees.
Finely embroidered items, as well as large pieces like saris and
tablecloths, cost several hundred rupees. Piece wages for
embroidery on these items were as low as a single rupee for kurta
embroidery in the village, five to fifteen rupees for salwar-kamiz
embroidery in town, and up to 100 rupees for top-ticket items. In
very rare circumstances, a highly skilled embroiderer might collect
more than 100rupees for a specially commissioned piece obtained
directly from the trader. At the other extreme, most women get their
work through agents, who take a substantial cut from the piece
wage, so that the women get no more than a fraction of a rupee for
embroidering the most commonly sold item, a kurta. As might be
expected, few embroiderers can afford to buy the products they
make. While male agents admit to taking at least 50 percent and
sometimes more of the piece wage for themselves, female agents
take less.

While one could make the case that given the technical
conditions of production, the middlemen perform an essential
function bringing together the components of the final commodity, it
should be noted that their compensation can be far in excess of the
labour they expend. Middlemen wages may thus be seen as cut of
the surplus rather than wages per se, being proportional not to the
labour expended but the scale of operation. This is analogous to
Adam Smith’s observation that profit of enterprise should not be
viewed as wages for supervision since profits are proportional not
to labour expended by the capitalist but rather to the stock of capital
employed.

A last point to note is that exchange relations manifested in

these terms of trade act in concert with production relations.
Production relations (including but not limited to asset ownership
patterns) determine market power. Market power and resulting
terms of trade determine current income. Income determines future
assets and production relations. It is important to emphasize this
dual nature because arguments that limit themselves to
 272

deteriorating terms of trade or non-competitive market structures

often do not question why the conditions of exchange are what they
are. Why are rates of return on capital reaching 30 or 40%
demanded from small producers? Perhaps because production is
fragmented and volumes of loans are small, or purchase volumes
are small, and transactions costs are large.

Relations of production thus underlie relations of exchange.

It is not only because intermediaries manipulate and monopolize
that we get unequal exchange, but rather production relations can
create the conditions for unequal exchange, which are exploited by
intermediaries. This is not news. In fact such an argument forms
the classical rationale for the formation of producer and peasant
cooperatives.

III. Labour Bondage

Das (2003) in Gujarat Ceramics and De Neve (2005) in

Tamil Nadu handlooms and power looms describe the practice of
“consumption advances” which are used to hold workers in
bondage. These advances (called “baki” in TN) can amount to as
much as one year’s worth of wages for the worker and binds him to
the employer until the loan is paid off, which may never happen.

Consumption advances were viewed in the modes of

production debate as a type of feudal or semi-feudal arrangement
which makes labour unfree. However the situation here is more
complex. It is true that these advances often function as a device to
retain skilled labour that reduces costs of replacement and training.
However the resulting “rigidity” in the size of the labour force is also
cited by employers as a problem during lean times or in dealing
with “problem” workers. Further, workers retain mobility by
transferring loans to new employers.

IV. Gender and Caste

Exploitation of unpaid domestic labour especially of women
and children is ubiquitous in household enterprises. In addition to
unpaid market work (to be distinguished from non-market work
performed by women), women’s paid work is often devalued as
well. The Lucknow Chikan industry provides an archetypal example
of surplus extraction achieved via devaluing of women’s paid work.
Women's embroidery, made in the home, is looked upon
with far less respect than the products of men, made in their
workshops. Chikan embroidery is thus not regarded seriously as an
occupation in spite of the fact that many families depend upon the
income they derive from it. In fact, it is customarily referred to by
mahajans as "free-time" work to fill in the hours between cooking,
cleaning, and caring for children. As an extension of women's
 273

unpaid household tasks, chikan is barely real work at all. Indeed,

some mahajans regard themselves as doing women a favour by
paying them to do leisure activities. As one put it, "They just sit
around and they get work, and they get money. All in their spare
time! I'm the one with all the headaches. "Another avenue for the
devaluing of productive work is via caste. Agra’s foot wear industry
offers a typical example of a caste-based division between artisans
who produce a commodity and traders/merchants who sell it.
Producers are chamars (an untouchable caste) while merchants
are upper-caste Hindus from Punjab. In general the “producer
castes” (artisans and peasants) are often shudras (OBCs) or dalits
(SCs) while the traders and other non-productive workers belong to
the forward castes. However, even in instances where employers
and workers belong to the same caste, this may strengthen rather
than undermine the regime of exploitation. For example
Engelshoven (1999) alludes to the Surat diamond cutting industry
where both employers and employees are Saurashtra Patels. While
the caste monopoly helps workers retain some job security, it also
make it difficult for them to challenge exploitation since community
bonds are supposed to trump class contradictions. As a result there
has been no strike in this industry.
Thus Gender and Caste hierarchies can serve to enhance
surplus extraction occurring via wage-labour or unequal exchange.
This highlights the importance of understanding how exploitation is
produced at the intersection of several hierarchies. The intention is
not to reduce Gender or Caste oppression to class exploitation, but
rather to elucidate how each of these may reinforce (and at times
undermine) the other.

10.5 QUESTIONS

1) Explain in detail the concept of modes of production.

2) Discuss structural condition of various modes of production.
3) Explain the difference between conventional economics
analysis of markets and a political analysis of market in the real
world.
4) Discuss in detail the meaning of forced commerce.
5) State the comparison between Traditional and Newer Forms of
forced commerce.
6) Discuss the institutional ways in which surplus extraction is
achieved in the informal economy.

™™™™
 274

11
LAW & PROPERTY RIGHTS

Unit Structure :

11.0 Objectives
11.1 Property Law
11.2 Foreign Direct Investment & Indian Agriculture
11.3 International Business and Multinational Corporations
11.4 Questions

11.0 OBJECTIVES

x To study property law and land rights.

x To study the relationship between foreign direct investment and
Indian agriculture.
x To study the role of international and multinational corporation in
Indian agriculture.

11.1 PROPERTY LAW

Property law is the area of law that governs the various

forms of ownership and tenancy in real property (land as distinct
from personal or movable possessions) and in personal property,
within the common law legal system. In the civil law system, there
is a division between movable and immovable property. Movable
property roughly corresponds to personal property, while
immovable property corresponds to real estate or real property, and
the associated rights and obligations thereon.

The concept, idea or philosophy of property underlies all

property law. In some jurisdictions, historically all property was
owned by the monarch and it devolved through feudal land
tenure or other feudal systems of loyalty and fealty. Though
the Napoleonic code was among the first government acts
of modern times to introduce the notion of absolute ownership
into statute, protection of personal property rights was present
in medieval Islamic law and jurisprudence, and in more feudalist
forms in the common law courts of medieval and early modern
England.
 275

Property Law
Generally, property is divided into two major areas: realty
and personality. Realty is land, whereas personality is
possessions—for instance, jewelry, money, furniture, or (formerly)
slaves. State laws regulate who may purchase property, who may
own it, and how it will be distributed upon the death of the owner or
owners. This premise applies unless the land is federal property, in
which case the federal government makes the determination.

Property laws have been important from the beginning of this

nation, especially since many new citizens did not or could not own
property in their countries of origin. Disagreement among the
colonies about continuing British legal traditions resulted in
differences in colonial laws—some colonies wanted to remain true
to British legal tradition, whereas others chose to abandon some or
all of the traditions. With its very structured property and inheritance
common-law tradition, Great Britain allowed women to file suit in
chancery courts, known as “equity courts.” The approach a colony
took on such an issue determined to a large extent the rights and
privileges that women living in that colony possessed.

Land law is the form of law that deals with

the rights to use, alienate, or exclude others from land. In many
jurisdictions, these kinds of property are referred to as real
estate or real property, as distinct from personal property. Land
use agreements, including renting, are an important intersection of
property and contract law. Encumbrance on the land rights of one,
such as an easement, may constitute the land rights of
another. Mineral rights and water rights are closely linked, and
often interrelated concepts. Land rights are such a basic form of
law that they develop even where there is no state to enforce them;
for example, the claim clubs of the American West were institutions
that arose organically to enforce the system of rules appurtenant to
mining. Squatting, the occupation of land without ownership, is a
globally ubiquitous.

National Sovereignty
Sovereignty, in common law jurisdictions, is often referred to
as absolute title, radical title, or allodial title. Nearly all of these
jurisdictions have a system of land registration, to record fee
simple interests, and a land claim process to resolve disputes.

Land Rights
Indigenous land rights are recognized by international law,
as well as the national legal systems of common law and civil
law countries. In common law jurisdictions, the land rights
of indigenous peoples are referred to as aboriginal title.
In customary law jurisdictions, customary land is the predominant
 276

form of land ownership. Land reform refers to government policies

that take and/or redistribute land, such as a land grant.

Land rights refer to the inalienable ability of individuals to

freely obtain, utilise, and possess land at their discretion, as long as
their activities on the land do not impede on other individuals’
rights. This is not to be confused with access to land, which allows
individuals the use of land in an economic sense (i.e. farming).
Instead, land rights address the ownership of land which provides
security and increases human capabilities. When a person only has
access to land, they are in constant threat of expulsion depending
on the choices of the land owner, which limits financial stability.

Land rights are an integral part of Land Laws, as they

socially enforce groups of individuals’ rights to own land in
concurrence with the land laws of a nation. Land Law addresses
the legal mandates set forth by a country in regards to land
ownership, while land rights refer to the social acceptance of land
ownership. Landesa takes the stance that although the law may
advocate for equal access to land, land rights in certain countries
and cultures may hinder a group’s right to actually own land. Laws
are important, but they must be backed up by cultural tradition and
social acceptance. Therefore, laws concerning land ownership and
land rights of a country must be in agreement.

Globally, there has been an increased focus on land rights,

as they are so pertinent to various aspects of development.
According to Wickeri and Kalhan, land ownership can be a critical
source of capital, financial security, food, water, shelter, and
resources. The UN Global Land Tool organisation has found that
rural landlessness is a strong predictor of poverty and hunger, and
negatively impacts Empowerment and the realisation of Human
rights. In order to home in on this critical problem of inadequate
land rights, The Millennium Development Goal 7D strives to
improve the lives of 100 million slum dwellers. This includes
increased land rights for impoverished people, which will ultimately
lead to a higher quality of life.

Although land rights are fundamental in achieving higher

standards of living, certain groups of individuals are consistently left
out of land ownership provisions. The law may provide access to
land, however, cultural barriers and poverty traps limit minority
groups’ ability to own land. In order to reach equality, these groups
must obtain adequate land rights that are both socially and legally
recognised.

Land Rights and Women

Several scholars argue that women’s lack of sufficient land
rights negatively affects their immediate families and the larger
 277

community, as well. With land ownership, women can develop an

income and allocate this income more fairly within the household. In
many parts of the world, women have access to land in order to
farm and cultivate the land; however, there are traditions and
cultural norms which bar women from inheriting or purchasing
land. This puts women in a place of dependence on their husbands,
brothers, or fathers for their livelihood and shelter. Should there be
an illness, domestic violence, or death in the family, women would
be left landless and unable to either grow crops for food, or rent
land for profit. Land ownership for women is a crucial form of
security and income, increasing Empowerment and decreasing
Poverty.

India
Kanakalatha Mukund makes the important point that
although women in India have the legal right to own land, very few
actually do as a result of the patriarchal practices which dominate
the nation. Up until recently, Indian women have been left out of
laws regarding the distribution of public land and were forced to rely
on the small possibility of obtaining private land from their
families. Inheritance laws which cater towards men are one of the
key issues behind inequality in land rights. According to Bina
Agarwal, land ownership defines social status and political power in
the household and in the village, shaping relationships and creating
family dynamics. Therefore, inheritance of land automatically puts
men above women both in the household, and in the community.
Without political pull in the village, and with limited bargaining
powers within the household, women lack the voice to advocate for
their own rights.

Another issue with land rights in India is that they leave

women completely dependent on the lives of their husbands. A
study by Bina Agarwal found that in West Bengal, prosperous
families turn destitute when the male head of the household dies,
as women are not permitted to take over their husband’s land. Also,
due to cultural tradition, the higher the status of the woman, the
less likely she is to have any developed skills that would be useful
in finding work. These women are forced to beg for food and shelter
once their husbands die because they have not been allowed to
gain work experience.

Land rights are critical for women in India due to the heavily
patriarchal society in which they live. Cultural perspectives play a
key role in the acceptance of equality within land ownership.
Women owning land ultimately benefits the household and society
as a whole.

The most recent advance towards equality in land rights in

India was the Hindu Succession Act of 2005. This act aimed to
 278

remove the gender discrimination which was present in the Hindu

Succession Act, 1956. In the new amendment, daughters and sons
have equal rights to obtain land from their parents. This act was
both a legally and socially important move for women’s rights to
land ownership. Not only did it legally mandate equality in land
succession, it also validated women’s roles as equals in society.

Pre 1978 Amendment ACT Article 19(1)(f)

Post 1978 Amendment Act Articles 31(a), 31(a), 31(a), 300 A

The Indian Constitution does not recognize property right as

a fundamental right. In the year 1977, the 44th amendment
eliminated the right to acquire, hold and dispose of property as a
fundamental right. However, in another part of the Constitution,
Article 300 (A) was inserted to affirm that no person shall be
deprived of his property save by authority of law. The result is that
the right to property as a fundamental right is now substituted as a
statutory right. The amendment expanded the power of the state to
appropriate property for social welfare purposes. In other words,
the amendment bestowed upon the Indian socialist state a licence
to indulge in what Fredric Bastiat termed legal plunder. This is one
of the classic examples when the law has been perverted in order
to make plunder look just and sacred to many consciences.

Indian experiences and conception of property and wealth

have a very different historical basis than that of western countries.
The fact the present system of property as we know arises out of
the peculiar developments in Europe in the 17th to 18thcentury and
therefore its experiences were universally not applicable. A still
more economic area in which the answer is both difficult and
important is the definition of property rights. The notion of property
as it has developed over centuries and it has embodies in our legal
codes, has become so much a part of us that we tend to take it for
granted, and fail to recognize the extent to which just what
constitutes property and what rights the ownership of property
confers are complex social creations rather than self evident
propositions. This also seems to be the hidden reason why the right
to property is suddenly much contested throughout India today and
why the state is coming up unexpectedly against huge resistance
from unexpected quarters in attempting to acquire land in India.
The action of the state to assert the Eminent Domain over
subsidiary claims on property and the clash which resulted there
from Singur, Nandigram and other parts of India is precisely a
manifestation of a clash of cultures. To put in Samuel Huntingtons
words, the ideas of the west of development and liberalization
propagated by the present ruling elite and the old Indic ideas which
shape the views of the majority of the people.
 279

The right to property under the Indian constitution tried to

approach the question of how to handle property and pressures
relating to it by trying to balance the right to property with the
right to compensation for its acquisition through an absolute
fundamental right to property and then balancing the same
with reasonable restrictions and adding a further fundamental
right o compensation in case the properties are acquired by
the state. This was exemplified by Article 19(1)(f) balanced by
Article 19(5) and the compensation article in Article 31. This was an
interesting development influenced by the British of the idea
Eminent Domain but overall it struck an interesting balance
whereby it recognized the power of the state to acquire property,
but for the first time in the history of India for a thousand years or
more, it recognized the individual’s right to property against the
state.

However, when the state realized that an absolute property

and the aspirations of the people were not the same the legislature
was subsequently forced to make the said right to property subject
to social welfare amid amendments to the constitution. Articles 31-
A, 31-B and 31-C are the indicators of the change and the counter
pressure of the state when it realized the inherent problems in
granting a clear western style absolute fundamental right to
property (even though it was balanced by reasonable restrictions in
the interest of the public), specially Article 31-C, which for the first
time brought out the social nature of property. It is another matter
that the said provisions were misused, and what we are discussing
today, but the abuse of the socialist state in India is not the scope
of the present article and the articles are considered on their face
value only.

Meaning of Property
The word property as used in Article 31 the Supreme Court
has said should be given liberal meaning and should be extended
to all those well recognized types of interest which have the insignia
or characteristic of property right. It includes both corporeal and
incorporeal right. It includes money, Contract, interest in property
e.g., interest of an allottee, licensees, mortgages or lessees of
property. The Mahantship of a Hindu Temple, and shareholders of
Interests in the company are recognizable interest in property. The
right to receive pension is property.

Supreme Court Approach to the Right to Property

The Supreme Courts approach to the right to property can be
divided into two phases:-
1. THE TIME TILL THE RIGHT TO PROPERTY WAS A
FUNDAMENTAL RIGHT (PRE 1978)
2. THE TIME AFTER THE CONVERSION OF RIGHT TO
PROPERTY AS A CONSTITUTIONAL RIGHT (POST 1978)
 280

Pre 1978 The Fundamental Right to Property

The Ninth Schedule was inserted in the constitution by the
Constitution (First Amendment) Act, 1951 along with two new
Articles 31 A& 31 B so as to make laws acquiring zamindaris
unchallengeable in the courts. Thirteen State Acts named in this
schedule were put beyond any challenge in courts for contravention
of fundamental rights. These steps were felt necessary to carry out
land reforms in accordance with the economic philosophy of the
state to distribute the land among the land workers, after taking
away such land from the land lords.

By the Fourth Amendment Act, 1955, Art 31 relating to right

to property was amended in several respects. The purpose of these
amendments related to the power of the state o compulsory
acquisition and requisitioning of private property. The amount of
compensation payable for this purpose was made unjustifiable to
overcome the effect of the Supreme Court judgment in the decision
of State of West Bengal v. Bella Banerjee. By the constitution
(Seventeenth Amendment) Act, 1964, article 31 A was amended
with respect to meaning of expression estate and the Ninth
Schedule was amended by including therein certain state
enactments.

During this period the Supreme Court was generally of the

view that land reforms need to be upheld even if they did strictly
clash against the right to property, though the Supreme Court was
itself skeptical about the way the government went about exercising
its administrative power in this regard. The Supreme Court was
insistent that the administrative discretion to appropriate or infringe
property rights should be in accordance with law and cannot be by
mere fact. The court however really clashed with the socialist
executive during the period of nationalization, when the court
admirably stood up for the right to property in however a limited
manner against the over reaches of the socialist state.

In this juncture the court in this Bank Nationalization case has

clearly pointed out the following two points:
a. The constitution guarantees the right to compensation which is
equivalent in money to the value of the property has been
compulsorily acquired. This is the basic guarantee. The law
must therefore provide compensation and for determining
compensation relevant principles must be specified: if the
principles are not relevant the ultimate value determined is not
compensation.

b. The constitution guarantees that the expropriate owner must be

given the value of his property (the reasonable compensation
for the loss of the property). That reasonable compensation
must not be illusionary and not reached by the application of an
 281

undertaking as a unit after awarding compensation for some

items which go to make up the undertaking and omitting
important items amounts to adopting an irrelevant principle in
the determination of the value of the undertaking and does not
furnish compensation to the expropriated owner.

Post 1978 : the Constitutional Right to Property

It was at this period the Supreme Court had gone out of its
way to hold against the right to property and the right to accumulate
wealth and also held that with regard to Article 39, the distribution
of material resources to better serve the common good and the
restriction on the concentration of wealth. The court however is also
responsible in toning down the excesses on the right to property
and wealth by the socialist state. During the period of Liberalization,
the Supreme Court has attempted to get back to reinterpret the
provisions which give protection to the right to property so as to
make the protection real and not illusory and dilute the claim of
distribution of wealth. However, this has been an incremental
approach and much more needs to be done to shift the balance
back to the original in the constitution. This means that the
acquisition of property is not merely temporal but to be accepted as
valid it must conform to spiritual guidelines as well as the Indian
conceptions recognize quite clearly that though property can be
enjoyed which has not been acquired strictly in terms of the law, it
cannot be called real property of the person concerned. Property
therefore is not merely an individual right but a construction and
part of social and spiritual order. The basis of conception of
property in the societies of India is not a rigid and clear demarcation
of claims belonging to an individual but is a sum total of societal
and individual claims all of which need not be based on clear
individual legal demarcation.

44th Amendment to the Constitution & the present scenario

The outburst against the Right to Property as a Fundamental
Right in Articles 19 (1) (f) and 31 started immediately after the
enforcement of the Constitution in 1950. Land reforms, zamindari
abolition laws, disputes relating to compensation, several rounds of
constitutional amendments, litigations and adjudications ultimately
culminated first in the insertion of the word socialist in the Preamble
by the 42nd Amendment in 1977 and later in the omission of the
Right to Property as a FR and its reincarnation as a bare
constitutional right in Article 300-A by the 44th Amendment in 1978.

Today, the times have changed radically. India is no more

seen through the eyes of only political leaders with a socialist bias.
It is India Shining seen through the corporate lenses of financial
giants like the Tatas, Ambanis and Mahindras, with an
unfathomable zeal for capitalism, money and markets. There is
 282

another angle. There is a scramble by industrialists and developers

for land all over the country for establishment of Special Economic
Zones. Violent protests by poor agriculturists have taken place to
defend their meager land-holdings against compulsory acquisition
by the State. In particular, the riots and killings in Singur,
Nandigram etc. in a State (of West Bengal) ruled by communists
has turned the wheel full circle. Socialism has become a bad word
and the Right to Property has become a necessity to assure and
assuage the feelings of the poor more than those of the rich. Soon
after the abolition of the Fundamental Right to property, in Bhim
Singh v. Union of India, the Supreme Court realized the worth of
the Right to Property as a Fundamental Right. In the absence of
this Fundamental Right to property, it took recourse to the other
Fundamental Right of Equality which is absolutely the concept of
Reasonableness under Article 14 for invalidating certain aspects of
the urban land ceiling legislation. Today, the need is felt to restore
the right to property as a Fundamental Right for protecting at least
the elementary and basic proprietary rights of the poor Indian
citizens against compulsory land acquisition. Very recently, the
Supreme Court, while disapproving the age-old Doctrine of Adverse
Possession, as against the rights of the real owner, observed that
The right to property is now considered to be not only a
constitutional right or statutory right but also a human right. Thus,
the trend is unmistakable. By 2050, if the Constitution of India is to
be credited with a sense of sensibility and flexibility in keeping with
the times, the bad word socialist inserted in the Preamble in 1977
shall stand omitted and the Right to Property shall stand
resurrected to its original position as a Fundamental Right.

Recent Approach by the Supreme Court

In a very recent PIL filed in the Supreme Court which was
still pending in the Hon’ble Court, it was held that the very purpose
for which the right to property relegated to a mere statutory right in
the late 1970s is not no longer relevant. It was argued by Harish
Salve, the learned counsel for the petitioners that:

The right to property is made a statutory right in 1978 to abolish

large land holdings with zamindars and rich and their distribution
among landless peasants;

Having achieved the very purpose behind the legislative action in

the late 1970s, the government should now initiate fresh measures
to put right to property back in the fundamental rights.

Earlier, the apex court in its famous KeshavanandanBharti

case of 1973 had first termed some basic and unalterable
parameters and features of the Indian state and its constitution like
the country's democratic form of government, as its basic structure,
which could not be changed at all even by constitutional
 283

amendment. But, in the judgment of the case, Justice H.R. Khanna

had made a passing observation to the effect that fundamental
rights accorded to the citizens' might not be a basic structure of the
Constitution. This had left the scope open for changing or diluting
the fundamental right of the citizens. Though later in 1975, while
adjudicating another famous lawsuit between erstwhile Prime
Minister Indira Gandhi and prominent political leader of his times
Raj Narain, Justice Khanna had tried to clarify that his observation
had been misconstrued. Despite that clarification, the Janata Party
government, under the advice of then law minister Shanti Bhushan,
had changed the Constitution, removing the right to property from
the list of fundamental rights.

11.2 FOREIGN DIRECT INVESTMENT & INDIAN

AGRICULTURE

FDI has been shown to play an important role in promoting

economic growth, raising a country's technological level, and
creating new employment in developing countries It has also been
shown that FDI works as a means of integrating developing
countries into the global market place and increasing the capital
available for investment, thus leading to increased economic
growth needed to reduce poverty and raise living standards.
According to the World Banks World Development Report, in 2000
over 1.1 billion people were subsisting on less than US$1 a day
and around 2.1 billion people on less than US$2 a day of whom
between two thirds to three-quarters live in rural areas. In. Sub-
Saharan Africa (SSA), where about 43 percent of its population is
living below the international poverty line, the incidence of poverty
is the highest among smallholder farmers residing in rural areas.
Thus, if the war on poverty is to be won, developing countries need
to place more emphasis on the agricultural sector. India, agriculture
is an important sector of the Indian economy and accounts for
almost 19% of Indian gross domestic products (GDP). Agriculture is
the main stay of the Indian economy as it forms the backbone of
rural India which inhabitants more than 70% of total Indian
population.

The Ministry of Agriculture, the Ministry of Rural

Infrastructure, and the Planning Commission of India are the main
governing bodies that define the future role of agriculture in India
and it aims at developing agricultural sector of India. No FDI,NRI,
OCB are allowed in the Indian Agriculture sector. Only in Tea
sector 100% FDI is allowed, including plantations of tea.

This requires Government of India approvals. Further, it

requires compulsory divestment of 26% equity in favour of the
Indian partner or Indian public within a maximum period of five
 284

years. This also requires approval from the concerned state

government in case of change in use of land for such activities. And
this holds true for any fresh investments in the above-mentioned
sector.

FDI in Indian agriculture sector and the latest developments

are as follows:
1. 100% foreign direct investment (FDI) allowed through the
automatic route covering horticulture, floriculture, development of
seeds, animal husbandry, pisciculture, aqua culture, cultivation of
vegetables, mushroom and services related to agro and allied
sectors.

2. Farm credit target of 225,000 crore for 2007-08 has been set
with an addition of 50 lakhs new farmers to the banking system.

3. 35 projects have been completed in 2006-07 and additional

irrigation potential of 900,000 hectares to be created and training of
farmers arranged.

4. A pilot programme for delivering subsidy directly to farmers has

been arranged.

5. Loan facilitation through Agricultural Insurance and NABARD has

also been facilitated.

6. Corpus of Rural Infrastructure Development Fund to be raised

FDI inflows to fertilizers industry in India:

The government of India has allowed foreign direct

investment in the fertilizers industry of the country. Foreign Direct
Investment (FDI) in fertilizers in India is allowed up to 100% under
the automatic route in India. The total amount of FDI Inflows to
Fertilizers industry in India was US$ 78.22 million between August
1991 and December 2005. The total percentage of FDI Inflows to
Fertilizers industry in India stood at 0.26% out of the total foreign
direct investment in the country during August 1991 to
December2005.Bayer Crop of Germany was given the approval in
2003, to invest 74 crores in Aventis Crop Science in India involved
in the production of fertilizers and pesticides. Through this
investment Bayer Crop increased its stake in Aventis Crop from
67.08 % to 100%. This made Aventis Crop a fully owned subsidiary
of Bayer Crop.
 285

Advantages of FDI Inflows to Fertilizers industry in India:

The various advantages of FDI Inflows to Fertilizers industry in

India are -
1. Growth and expansion of fertilizer industry in India.
2. Use of improved technology.
3. Better quality fertilizers that are more effective for agriculture.

FDI Inflows to Agricultural Machinery:

FDI inflows in the Indian agricultural machinery and the

subsequent development of the Indian agriculture sector is
predicted to have a significant positive impact on the 700-million
strong rural population, living in about 600,000 small villages of
India. Agriculture is an important sector of the Indian economy,
which accounted for almost 19% of India's GDP in the financial year
2006-2007. The total quantum of foreign direct investment in the
Indian agricultural machinery was US $ 135.50 million during the
period from August1991 to December 2005. The overall percentage
of such foreign direct inflow in the Indian agricultural industry was
0.43 of the total quantum of the FDI inflow during the same period.
FDI inflows into agricultural machinery of India have resulted in the
steady rise of the Indian agriculture industry in recent years. The
Indian agriculture sector enjoys 100% FDI through the automatic
route.

Important factors in FDI Inflows to Agricultural Machinery

Important aspects of the agrarian sector and rural sector in

India that have a positive impact on FDI Inflows to Agricultural
Machinery are

1. 100% foreign direct investment (FDI) allowed through the

automatic route covering horticulture, floriculture, development of
seeds, animal husbandry, sericulture, aqua culture, cultivation of
vegetables, mushroom and services related to agriculture and
sectors associated with it.

2. The target set for generating Farm credit for 2007-08 is 225,000
crores.
3. A pilot program for delivering subsidy directly to farmers to be
introduced.
4. Loan facilitation through Agricultural Insurance Institutions and
NABARD has also been extended.

5. Corpus of Rural Infrastructure Development Fund to be raised. 6.

66,800 habitations with population over 1000 is to be connected
with all weather roads.
 286

6. Construction of 1,46,000 Km of new rural roads have been

sanctioned

7. Investment to the tune of 1,74,000crores envisaged under

"Bharat Nirman".

Indian economy has been heavily geared towards the

service sector that contributes 56% of our GDP. The service
sector's contribution to the increase in GDP over the last 5 years
has been 63.9%. Having a high contribution from services is an
attribute that is characteristic of developed economies. China,
manufacturing accounts for a significant share of GDP, whereas in
India, manufacturing contributes a mere 23.1% of the GDP. India to
grow at an 8 to 10% economic growth rate our agricultural sector
has to expand. For that to happen there is a need for reforms in our
agricultural sector in the way which calls for agricultural produce to
be procured, stored and marketed, for huge investments in the
supply and distribution chain and the most importantly, for ushering
in competition in the supply and distribution chain where the farmer
decides whom to sell and at what price. The government can
always decide the ceiling price.

Also, India should open up its retail sector to foreign capital

and competition. Foreign retailers would bring with them the best
practices and investments in the supply and distribution chain and
at the same time open up linkages to the global markets for Indian
agricultural and dairy products. Modern retailers procure in bulk and
sell at low prices. They thrive on reducing the inefficiencies in the
supply chain bringing down the cost substantially for the consumers
and getting a better deal for the farmer.

The argument often given against FDI in retail is it will

severely affect mom and pop shops; they won't be able to survive
the competition. But we already have homegrown modern retailers
like Big Bazaar, Nilgiri's etc. who are thriving along with the
traditional kirana stores. So, in any case, we have modern retailers
in the market. The Indian retail market is very different from the
Western retail market. In India consumers like to make purchases
frequently and in small quantities. Instead of travelling to the large
retail stores far from their own place of residence, people still prefer
the convenience of the traditional neighborhood kirana store. More
over the kirana stores can buy from the cash and carry stores and
reduce their cost of procurement. Agriculture still accounts for 60%
of India's labour force and an improvement in the agriculture sector
would directly benefit them. Allowing 100 % FDI in retail would lead
to an agricultural and a dairy revolution in the country.
 287

The present policy with regard to FDI in agriculture and

plantation is as follows:

i) FDI up to 100% is permitted under the automatic route in the

under mentioned activities viz., floriculture, horticulture,
development of seeds, animal husbandry, sericulture,
aquaculture and cultivation of vegetables and mushrooms,
under controlled conditions and services related to agro and
allied sectors.
ii) FDI up to 100% with prior government approval is permitted in
tea plantation subject to the conditions of divestment of 26%
equity of the company in favour of an Indian partner / Indian
public within a period of five years; and prior approval of the
state government concerned in case of any future land use
change.
iii) Besides the above two, FDI is not allowed in any other
agricultural sector / activity.
iv) The government has announced 100 per cent Foreign Direct
Investment (FDI) in the agriculture sector including seeds,
plantation, horticulture and cultivation of vegetables. The
Department of Industrial Policy and Promotion (DIPP).According
to the circular by DIPP animal husbandry sericulture,
aquaculture under controlled conditions and services related to
agro and allied sectors have also been provided with 100 per
cent FDI along with the tea sector. The new rules will be
implemented from April 1, 2011. DIPP has imposed certain
conditions for companies dealing with growth of transgenic
seeds and vegetables. While dealing with genetically modified
seeds or planting material the company is expected to comply
with safety requirements in accordance with laws enacted under
the Environment (Protection) Act on the genetically modified
organisms; any import of genetically modified materials, if
required, shall be subject to the conditions laid down vide
Notifications issued under Foreign Trade (Development and
Regulation) Act,1992.

Further undertaking of business activities involving the use

of genetically engineered cells and material shall be subject to the
approvals from Genetic Engineering Approval Committee (GEAC)
and Review Committee on Genetic Manipulation (RCGM).The
circular also states the term "under controlled conditions''. As per
the defined term, the "under controlled conditions'' for the
categories of floriculture, horticulture, cultivation of vegetables and
mushrooms is the practice of cultivation wherein rainfall,
temperature, solar radiation, air humidity and culture medium are
controlled artificially. Control in these parameters may be affected
through protected cultivation under green houses, net houses, poly
 288

houses or any other improved infrastructure facilities where

microclimatic conditions are regulated anthropogenic ally.

In addition in case of animal husbandry, the term under

controlled conditions includes: rearing of animals under intensive
farming systems with stall-feeding. Intensive farming system will
require climate systems (ventilation, temperature/humidity
management), health care and nutrition, herd registering/pedigree
recording, use of machinery, waste management systems. Poultry
breeding farms and hatcheries where microclimate is controlled
through advanced technologies like incubators, ventilation systems
etc. In the case of pisciculture and aquaculture, it includes:
aquariums hatcheries where eggs are artificially fertilized and fry
are hatched and incubated in an enclosed environment with
artificial climate control.

Growth in agriculture and its productivity are considered

essential in achieving sustainable growth and significant reduction
in poverty in developing countries. Both developmental and
agricultural economists view productivity growth in the agricultural
sector as critical if agricultural output is to increase at a sufficiently
rapid rate to tackle poverty. In view of the declining culturable land
per capita, high production costs, combined with rapid population
growth and the resulting need for human settlement, and rising
urbanization, significant improvements are required in productivity
growth in agriculture in order to increase agricultural output through
technological innovations and efficiency. Limited development and
adoption of new production technologies essential for improving
productivity by the poor are mostly due to limited income and
sources of credit. FDI plays a significant role in increasing
productivity by offsetting the investment and technological gap. The
FDI Inflows to Agriculture Services are allowed up to 100% and
allowed through the automatic route covering horticulture,
floriculture, development of seeds, animal husbandry, sericulture,
aqua culture, cultivation of vegetables, mushroom and services
related to agro and allied sectors.

11.3 INTERNATIONAL BUSINESS AND

MULTINATIONAL CORPORATIONS

INTRODUCTION
In the second half of the twentieth century, international
business has become an important economic force. Today few, if
any, countries are economically self-sufficient. Even China, with its
vast human and natural resources, has not been able to remain
aloof from the world economy. In the United States, international
business touch people's lives daily. Common goods and services,
often identified with the United States, are, in fact, foreign owned.
 289

Examples include Burger King, Pillsbury, Scotty's hardware stores,

Shell and Citgo gasoline stations, Stouffer's frozen foods and
Carnation evaporated milk. So, what is international business? Who
engages in international business? What are the rules governing it
and who sets them? What are the major contemporary international
business issues? This guide will address these and other issues.

DEFINITION:
International business is business conducted in more than
one country. It is buying and selling goods and services in foreign
countries. Other international business activities include marketing,
manufacturing, mining, and farming. In sum, international business
is all the practices a business in a single country does, but at the
international level.

FRAMEWORK:
International business does not function in a vacuum. It
operates within the context of international and, sometimes,
regional rules and regulations set by appropriate governmental
organizations. Although each organization is distinct, some of their
common characteristics are fostering trade among member
countries, establishing common rules and regulations, promoting air
trade practices among members, and protecting members from
competition from non-member countries. Other organizations exist
to facilitate financial transactions among nations or the particular
interest of members, such as trade in a specific commodity. The
following are some international and regional organizations:

MAJOR INTERNATIONAL ORGANIZATIONS

x Bank for International Settlements (BIS)
x General Agreement on Tariffs and Trade (GATT)
x International Coffee Organization (ICO)
x International Financial Corporation (IFC)
x International Monetary Fund (IMF)
x Organization for Economic Cooperation and Development
(OECD)
x Organization of Petroleum Exporting Countries (OPEC)
x Paris Club
x UN Food and Agricultural Organization (FAO)
x Union of Banana Exporting Countries
x World Intellectual Property Organization (WIPO)
x World Bank
 290

MAJOR REGIONAL ORGANIZATIONS

x Andean Pact (Venezuela, Colombia, Ecuador, Peru, and
Bolivia)
x Caribbean Community (CARICOM)
x Central American Common Market (CACM)
x Commonwealth (UK and former members of the British Empire)
x European Union (EU)
x European Free Trade Association (EFTA)
x Group of Three (G-3) (Mexico, Venezuela, and Colombia)
x Organization for African Unity (OAU)
x Organization of American States (OAS)
x Southern Cone Common Market (MERCOSUR) (Argentina,
Brazil, Paraguay, and Uruguay)
x UN Economic Commission for Latin America (ECLA)

AGREEMENTS AFFECTING INTERNATIONAL BUSINESS

Besides international organizations which attempt to provide
a structure to international business activity, there are agreements
among or between countries to address specific business issues.
For example, the free trade agreement between Mexico and Chile
aims to eliminate bilateral trade barriers. The goal of the free trade
agreement among the Group of Three is to promote trade and
investment among Venezuela, Colombia, and Mexico. There are
scores of similar agreements, some between neighboring states,
such as the United States and Canada, and others between distant
states, such the one between the United States and Israel. Two
agreements, however, affect American consumers and
businessmen the most. They are the General Agreement on Tariffs
and Trade (GATT) and the North American Free Trade Agreement
(NAFTA).

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

The General Agreement on Tariffs and Trade (GATT) is an
organization based in Geneva, Switzerland. It was founded in 1947.
Most developed countries are members. Increasingly, less
developed countries are joining, for example several Central
American countries became members in the early 1990s. Although
membership is considered prestigious, it requires eliminating,
usually over a number of years, protectionist trade policies, often to
the detriment of long protected domestic industries. As was the
case in Mexico, this can be a painful process and can lead, at least
initially, to balance of payment deficits where none occurred before.
 291

GATT's purpose is to promote international free trade. It

does this mainly through trade negotiations conducted in "rounds"
which usually last several years. The most recent was the "Uruguay
Round", named for the country where the opening negotiating
session was held. The Uruguay Round focused on liberalizing trade
in services and agricultural products. The round almost collapsed
due to differences between the United States and France over
agricultural subsidies and French efforts to protect its domestic film
industry. After a last minute compromise, the round was concluded
in December 1993.

11.4 QUESTIONS

1) Explain the importance of land as depicted is the Property Law

in India.
2) Discuss the role of Foreign Direct investment in Indian
Agriculture.
3) Examine the policies with regard to FDI in agriculture.
4) Discuss the importance of international business organizations
and multinational corporations.

™™™™
 292

12
ISSUES RELATING TO GLOBALISATION
OF AGRICULTURAL TRADE
Unit Structure :

12.0 Objectives
12.1 Globalization’s effects on world agricultural trade
12.2 WTO and Indian Agriculture : Implications for Policy and
R&D
12.3 Questions

12.0 OBJECTIVES

x To study issues relating to effect of Globalization on world

agricultural trade.
x To study the impact of WTO agreements on Indian agriculture
and also study the policies related to research and
development.

12.1 GLOBALIZATION'S EFFECTS ON WORLD

AGRICULTURAL TRADE

Recent globalization has been characterized by a decline in

the costs of cross-border trade in farm and other products. It has
been driven primarily by the information and communication
technology revolution and—in the case of farm products—by
reductions in governmental distortions to agricultural production,
consumption and trade. Both have boosted economic growth and
reduced poverty globally, especially in Asia. The first but maybe not
the second of these drivers will continue in coming decades. World
food prices will depend also on whether (and if so by how much)
farm productivity growth continues to outpace demand growth and
to what extent diets in emerging economies move towards livestock
and horticultural products at the expense of staples. Demand in
turn will be driven not only by population and income growth, but
also by crude oil prices if they remain at current historically high
levels, since that will affect bio-fuel demand. Climate change
mitigation policies and adaptation, water market developments and
market access standards particularly for transgenic foods will add
to future production, price and trade uncertainties.
 293

1. Issues
One of the most striking features of economic development
is the relative decline in the agricultural sector in growing
economies. Also typical for countries with above-average
population density is a decline in their agricultural comparative
advantage as capital accumulation and industrialization proceed.
An export-led boom in another sector, or large prolonged inflows of
foreign aid, also weakens the international competitiveness of a
country's farm sector. Changes in consumption patterns (the slow
growth in consumption of farm products and, in middle-income
countries, the move away from grains and other staples and
towards livestock and horticultural products) also alter the net trade
situation of countries. However, whether that leads to a decline or a
rise in the overall food self-sufficiency in and net exports of total
agricultural products depends also on productivity growth in farming
relative to non-agricultural production, and in trends in government
assistance to farmers relative to producers of other tradables. In the
past, price-distorting policies have gradually changed from
disfavouring to favouring agriculture relative to other tradable
sectors as per capita incomes grow; globally, productivity growth
has been faster in the farm sector than in other sectors.

A further influence on agricultural trade has been the

acceleration of globalization over the past quarter-century. That has
been characterized by a rapid decline in the costs of cross-border
trade in farm and other products, driven by declines in the costs of
transporting bulky and perishable products long distances, the
information and communication technology (ICT) revolution and
major reductions in governmental distortions to agricultural trade.
Together, these developments have boosted economic growth and
reduced extreme poverty globally, and in the process altered global
agricultural production, consumption and hence trade patterns.

This Chapter first examines the key drivers of the above

developments over the past four or five decades and then draws on
that analysis and recent events to suggest likely drivers of—and
uncertainties associated with—global food and other agricultural
trade trends over the next four decades.

2. Key drivers of change since 1960

The first part of this section summarizes the structural
changes in global agricultural markets and trade since the 1960s.
The second part outlines one set of drivers, namely rapid
technological changes including those that have lowered trade
costs for farm products over the past quarter-century. The third part
summarizes reforms to agricultural and trade policies since the
1980s and economy-wide modelling results that suggest those
reforms have more than halved the global trade- and welfare-
reducing effects of price-distorting policies.
 294

(a) Structural changes in global agricultural markets

One of the most striking features of economic development
is the relative decline of the agricultural sector in growing
economies. Also typical for countries with a reasonably high
population density is a decline in their agricultural comparative
advantage as industrialization proceeds (or when another sector
such as mining, manufacturing or services enjoys an export-led
boom or there is a sustained inflow of foreign aid). There is a wide
dispersion across regions of the world in the importance of
agriculture in national GDP and employment, in endowments of
arable land and fresh water as well as capital per worker, in the
availability of modern farm and non-farm technologies that take
account of relative factor prices and hence in agricultural
comparative advantage. Appropriate indicators of agricultural
comparative advantage are difficult to assemble, because
government policies that distort food markets are so pervasive and
because of the range of technologies made available via adaptive
research and development (R&D) investments to suit different
relative factor scarcities. Thus, the sector's share of national
exports relative to the global average, or even net exports as a ratio
of exports plus imports of primary agricultural products (both shown
in table 1) for the key regions of the world), are rather poor
reflections of comparative advantage, and they also conceal much
intra-regional diversity.
View this table:
Table 12.1.
Resource endowments and agriculture's share of regional economy, 2000–2006. From World Bank
(2008) and (for employment) Sandriet al. (2007).n.a., not applicable.

net
agricul agriculture's agricul agric
ture's share (%) of ture's exports
arable fresh share employment share /(agric
land per water per GDP per (%) of (%) of X + M),
capita(ha), capita ('000 capita(US$), GDP, 1960– 2000– exports 2000–
2005 m3), 2005 2005 2006 1964 2004 , 2006 2004

world 0.22 6.8 6.6 3 59 44 8 0

HICs 0.36 9.6 31.1 2 17 3 8 0.04

developing
countries 0.20 6.3 1.6 10 70 35 11 n.a.

East Asia 0.11 5.0 1.4 12 80 60 8 í0.14

South
Asia 0.14 1.2 0.6 18 75 57 13 0.07

Eastern
Europe and
the CIS 0.57 11.5 3.2 7 n.a. 19 7 í0.06
 295

net
agricul agriculture's agricul agric
ture's share (%) of ture's exports
arable fresh share employment share /(agric
land per water per GDP per (%) of (%) of X + M),
capita(ha), capita ('000 capita(US$), GDP, 1960– 2000– exports 2000–
2005 m3), 2005 2005 2006 1964 2004 , 2006 2004

Middle
East and
North
Africa 0.18 0.8 3.5 12 n.a. n.a. 5 n.a.

sub-
Saharan
Africa 0.25 5.1 0.8 15 >80 56 n.a. 0.20

Latin
America
and the
Caribbean 0.27 24.5 4.1 6 48 19 17 0.51

A key determinant of agricultural comparative advantage

differences across countries is relative factor endowments, which
can change substantially as economies grow at varying rates.
Differing technologies also can have an influence on the supply
side of the market, and those differences can persist for long
periods if governments under-invest in agricultural R&D. As for
differences in tastes on the demand side, international diffusion
tends to ensure they are far less important than factor endowment
differences over the very long term. Nonetheless, changes in the
preferred mix of foods away from starchy staples and towards
livestock and horticultural products as consumers move from low-
income to high-income status can influence comparative
advantages within the farm sector.

The simplest model to capture the influence of changes in

relative factor endowments in a growing world economy is perhaps
that provided by Leamer (1987)
http://rstb.royalsocietypublishing.org/content/365/1554/3007.full - ref-24.
His model has just three productive factors: natural resources,
labour time and produced capital (human as well as physical,
where the human component is defined here to include not only
skills but also technologies available in each country). The higher a
country's endowment of natural resources relative to the other two
factors, when compared with the global average, the stronger its
comparative advantage in primary products. The latter can be
interpreted as food and agricultural products if the only natural
resources are agricultural land and water; but, if a country also has
resources that can be depleted through mining (e.g. minerals,
energy raw materials or natural forests), then changes in the
profitability of such mining also will affect agricultural comparative
advantages. Generally, a mining boom, or a sustained inflow of
foreign aid, would diminish a country's agricultural comparative
 296

advantage. However, if the boom was driven by a surge in the

international price of non-farm tradables (rather than supply driven
as with the discovery of a new reserve of minerals or a new mining
technology), and the product whose price rose has an agricultural
substitute, then producers of that farm product could also benefit—
as discussed in §3a with respect to bio-fuels.

Apart from occasional supply-driven mining booms,

sustainable economic growth is generally due to growth in
produced capital (including available technologies) per worker.
Some of any increment in produced capital may be used to expand
primary production, but mostly it is used in other sectors. This
tendency begins at an earlier stage of development, and thus, at a
lower national wage rate, the smaller a country's per-worker
endowment of land and other exploitable natural resources, and the
smaller its investment in new technologies for agriculture relative to
non-farm sectors. Thus, the ranking of countries according to their
agricultural comparative advantage is correlated with their
farmland/labour endowment ratio, while their capital intensity of
agricultural production is correlated with their produced
capital/labour endowment ratio. A crude index of the latter is
simply per capita GDP, reported for 2005 in table 1 along with
arable land and fresh water per capita.

Global agricultural trade has grown much slower than trade

in other products. Prior to the 1960s, farm products accounted for
more than 30 per cent of all merchandise trade globally, but since
the beginning of this century their share has averaged less than 9
per cent.

Since agriculture's share of global GDP has also fallen, a

more appropriate indicator of the changing extent to which
agriculture is globalized is the share of agricultural and food
production or consumption that is traded
internationally. Table 2 provides estimates of that for various
regions, based on a sample of 75 countries that account for all but
1/10 of the world's population and agricultural GDP. Those
numbers suggest that agriculture's tradability has increased
considerably since the 1960s, rising from about one-ninth to about
one-sixth of global production or consumption. However, a glance
at the regional data reveals that most of that change is due to
increased intra-European trade behind the EU's common external
trade barrier, apart from some growth (from low bases) since the
1970s in agricultural imports by Asia and Latin America.
 297

View this table:

Table 12.2
Export orientation, import dependence and self-sufficiency in global agricultural production, by
region,a 1961–2004 (per cent at undistorted prices). From Anderson (2009, ch. 1), compiled from
Anderson & Valenzuela (2008) using estimates of total agricultural production valued at
undistorted prices and the FAO's total agricultural trade value data for 65 countries that together
account for about 90% of the world's population and agricultural GDP.

1961–1964 1970–1974 1980–1984 1990–1994 2000–2004

exports as share of production
Africa 19 17 12 7 8
Asia 5 4 4 6 5
Latin America 24 27 16 16 27
Western Europe 13 16 27 37 43
USA and Canada 14 14 20 20 21

Australia and New Zealand 41 35 44 43 48

Japan 1 2 1 0 1
all countries 11 11 13 16 16
developing countries 8 8 7 8 8
HICs 14 15 22 26 29
imports as share of apparent consumption
Africa 2 2 5 4 4
Asia 4 4 8 16 14
Latin America 2 4 7 10 17
Western Europe 32 28 34 41 46
USA and Canada 4 4 5 9 12

Australia and New Zealand 3 2 3 5 6

Japan 23 24 24 26 27
all countries 11 10 12 19 18
developing countries 3 4 8 14 13
HICs 18 16 20 25 27
self-sufficiency ratio
Africa 120 117 107 104 105
Asia 102 100 96 89 91
Latin America 129 132 110 107 114
Western Europe 78 85 90 94 94
USA and Canada 111 112 119 114 111

Australia and New Zealand 165 151 174 170 183

Japan 78 78 77 74 74
all countries 100 101 101 96 98
developing countries 105 104 99 93 95
HICs 96 98 103 101 102
x a
Includes intra-EU trade.

Particularly striking is the decline in the extent to which

African agricultural production is exported, bringing down the
region's agricultural self-sufficiency from 120 per cent to 105 per
cent over the four decades to 2000–2004 (table2). It needs to be
 298

kept in mind, though, that this could be in part owing to the region's
changing comparative advantages rather than to trade taxes. Such
a change in comparative advantage could be because of a boom in
other sectors of African economies, for example due to the local
discovery, exploitation and exportation of mining products, or
because of the large sums of foreign aid flowing into the region,
either of which would strengthen a country's currency and thus
make its farmers less competitive in international markets. Another
possible explanation is the faster growth of farm relative to non-
farm productivity in the rest of the world, which is consistent with
the relatively slow growth in Africa's crop yields. Alston
(2009) found that land productivity growth between 1961 and 2005
increased only 2.19 per cent per year in Africa compared with 2.72
per cent in all developing countries, and they note that the lag in
farm labour productivity growth was even greater (0.76% for Africa
versus 1.93% per year for all developing countries). A third
possibility is that other regions have reduced their trade costs, or
their anti-agricultural and anti-trade policy biases, more than have
countries of sub-Saharan Africa in recent decades. The latter is
supported by recently compiled evidence on policy trends reported
in Anderson (2009).

(b) Technological changes and trade costs

In addition to governmental barriers to trade, there are
natural trade barriers caused by transport, information and
communication costs. Farm products are relatively bulky
commodities, making them costly to transport over long distances,
especially if they are perishable. Some of them are desired in fresh
form, a desire that can be satisfied only in season. Hence, food
prices can vary substantially across time and space for these
reasons.

If we define globalization as a decline in costs of doing

business across space, there has been, and continues to be, great
scope for farmers and food consumers to be beneficiaries of its
acceleration. When the relevant space includes national borders, a
key effect of such cost declines is to enhance the international
integration of markets. A standard indicator of such integration is
the trade-to-GDP ratio. Merchandise trade for centuries has grown
faster than output for all periods (other than between the two world
wars), and the gap has been larger in the 1990s than in any earlier
period since reliable data became available. According toMaddison
(2001) merchandise exports as a share of global GDP was only 1
per cent in 1820, 5 per cent in 1870 and 8 per cent in 1913 at 1990
prices. Between 1975–1979 and 2000–2004, however, the share of
all goods and services exports as a share of global GDP rose from
19 per cent to 26 per cent.
 299

The impacts of the drivers of globalization are not uniform

across countries, which is showing up in trade specialization data:
between 1980–1984 and 2000–2004, the share of non-food
manufactures in merchandise exports rose from just over one-
quarter to almost two-thirds for middle-income countries (and from
less than half to 90% for China), and the share of processed food
products in the value of food and agricultural exports over that
period rose from 54 per cent to 69 per cent for high-income
countries (HICs) and from 49 per cent to 67 per cent for Asia.

ICT revolution, aided by deregulation and privatization of

telecom markets in many countries, it has been lowering long-
distance communication costs The lowered cost of moving products
and people was dominated, in the middle half of the twentieth
century, by the falling cost of motor vehicle and aeroplane
transportation, thanks to mass production of such goods and
associated services. Ocean freight rates (helped by
containerization) and telephone charges also fell massively over
this period. Transport costs can be crudely captured by the extent
to which a product's Cost Insurance and Freight (c.i.f.) import price
at its destination port exceeds its Free On Board (f.o.b.) export
price at its port of origin. For US merchandise, that mark-up fell
from 10 per cent in the 1950s to 6 per cent in the 1990s. An
example for agriculture was the change from handling crop
products such as grains in bags to bulk for storage and for land and
water transportation, reducing substantially transport and storage
costs including post-harvest losses. The bag-to-bulk transformation
began in industrial countries following World War II and gradually
permeated middle-income countries such as Argentina and Brazil,
and it is now becoming more widespread in low-income countries
too. Other improvements, which need not show up as a reduction in
the f.o.b./c.i.f. price gap, are improved transport services such as
faster and more frequent schedules and controlled atmosphere
containers that allow perishables such as meats, milk products and
fresh fruit and vegetables to be transported longer distances by sea
or air.

A more recent phenomenon, beginning near the end of the

twentieth century, is digital—namely the enormously, especially the
cost of rapidly accessing and processing knowledge, information
and ideas from anywhere in the world. Science has been among
the beneficiaries of the digital revolution, spawning yet other
revolutions, such as in biotechnology and nanotechnology.

Foreign direct investment (FDI) liberalization sometimes has

been a complement to trade liberalization. Developing countries so
far are only minor players as hosts of FDI in processed food,
beverages and tobacco, however: in 2007, their inflow was less
than $3 billion, compared with an inflow of $46 billion into HICs.
 300

Flows of FDI into the primary agricultural sector were even less,
such that FDI accounted for less than 0.3 per cent of capital
formation in developing country agriculture compared with 13 per
cent for the overall economy of that country group.
Nonetheless, Reardon & Timmer (2007) argued that FDI has
facilitated the transformation of food value chains over the past two
decades, in particular via the expansion and merger/takeover
activity in supermarket retailing. In most HICs now, no more than
five firms account for the majority of sales, and in many of those
countries, the four top firms have more than two-thirds of sales.

Supermarkets have been spreading even faster in

developing countries than they did in HICs. This is having dramatic
effects further up the value chain. First-stage processors, food and
beverage manufacturers, and distributors are also becoming more
concentrated so as to better match the bargaining power of
supermarkets, although typically in narrowly focused industries
rather than across the board as in supermarket retailing. Their
actions are constrained too by the supermarkets' capacity to
develop their own brands and even their own processing and
distribution. In turn, these developments are altering dramatically
the way farmers are expected to supply those markets, with the
emphasis on timely delivery of uniformly high-quality products with
very specific attributes. According to Swinnen & Vandeplas (2009),
though, consumers and possibly even farmers in developing
countries are benefitting from the trade and investment
liberalization and ICT revolution that have stimulated these
changes, because of the fierce competition that ensues among
middlemen along the food value chain.

(c) Agricultural trade distortions and policy reforms

In addition to agricultural trade being affected by economic

growth and declining trade costs, it has been greatly affected by
distortionary government policies. Since the 1950s, world
agriculture has been characterized by the persistence of high
agricultural protection in developed countries, by anti-agricultural
and anti-trade policies of developing countries and by the tendency
for both sets of countries to use trade measures to stabilize their
domestic food market—thereby exacerbating price fluctuations in
the international marketplace. This disarray has not only been
highly inefficient but has also contributed to global inequality and
poverty (since the vast majority of the world's poorest households
depend directly or indirectly on farming for their livelihoods; The
situation worsened up to the mid-1980s, with agricultural protection
in Europe, North America and Japan peaking and international food
prices plummeting in 1986, thanks in large measure to an
agricultural export subsidy war between the US and the European
community. Meanwhile, many developing countries had been
 301

reducing farm incomes not only by heavily taxing agricultural

exports but also, albeit indirectly, by protecting manufacturers from
import competition and overvaluing the national currency.

This disarray in world agriculture meant that there was over-

production of farm products in HICs and under-production in more-
needy developing countries. It also meant there was less
international trade in farm products than would be the case under
free trade, thereby ‘thinning’ the market for these weather-
dependent products and thus making them more volatile. Using a
stochastic model of world food markets, one study estimates that
the coefficient of variation of international food prices in the 1980s
was three times greater than it would have been under free trade
and that the volume of international trade in grains, livestock
products and sugar was half what it could have been

During the past quarter-century, numerous developing

countries and HICs have begun to reform their agricultural price
and trade policies. This has contributed to the rise in the extent to
which farm products are traded internationally, noted above. Much
of this reform was undertaken unilaterally or as part of regional
trading arrangements, but some was also undertaken in response
to international pressures such as Uruguay Round stipulations,
commitments required for accession to the World Trade
Organization (WTO) and structural adjustment loan conditionality
by international financial institutions. Meanwhile, reforms in some
middle-income economies (most noticeably Korea) have ‘overshot’,
going from discouraging their farmers to protecting them from
import competition—which raises concerns that other emerging
economies may follow suit and pursue the same agricultural
protection growth path of more-advanced economies in earlier
stages of their economic development.

A recent World Bank research project developed a series of

indicators to measure the impact of those interventions and
subsequent policy developments on farmers' incentives. Its most
basic measure, the nominal rate of assistance (NRA) is the
percentage by which government policies have raised gross returns
to farmers above what they would be without the government's
intervention (or lowered them, if the NRA is negative). Farmers are
affected not just by prices of their own outputs but also (albeit
indirectly through changes to factor market prices and the
exchange rate) by the incentives offered to non-agricultural
producers. That is, it is relative prices and hence relative rates of
government assistance that affect producers' incentives, so a
relative rate of assistance (RRA) was also calculated.

The average NRA for developing countries conceals the fact

that the exporting and import-competing subsectors of agriculture
 302

have very different NRAs. The average NRA for exporters has been
negative throughout (going from í20% to í30% before coming
back up to almost zero in 2000–2004), the NRA for import-
competing farmers in developing countries has fluctuated between
20 per cent and 30 per cent (and even reached 40% in the years of
low prices in the mid-1980s). The anti-trade bias within agriculture
(the taxing of both exports and imports) has diminished for
developing countries since the mid-1980s, but the NRA gap
between the import-competing and export sub-sectors still
averages around 20 percentage points (and it has grown to 40
percentage points for HICs, although there even exporters have
enjoyed positive NRAs). The NRA for import-competing farmers in
developing countries has increased at virtually the same pace as
that in HICs, suggesting that growth in agricultural protection from
import competition is something that tends to begin at modest
levels of per capita income rather than being a phenomenon
exclusive to HICs.

To assess how far the world had come, and how far it still
has to go, in rectifying the disarray in world agriculture, Valenzuela
(2009) use the World Bank's global economy-wide model known as
Linkage to provide a combined retrospective and prospective
analysis. It quantifies the impacts both of past reforms and current
policies by comparing the effects of the recent World Bank project's
distortion estimates for the period 1980–1984 with those of 2004.
The findings from that economy-wide modelling study suggest that:

x Policy reforms from the early 1980s to the mid-2000s improved

global economic welfare by US$233 billion per year, and
removing all goods market distortions that remained in 2004
would add another US$168 billion per year (in 2004 US dollars)
implying, in terms of global welfare, that the world had moved
three-fifths of the way towards global free trade in goods over
that quarter-century.

x Developing economies benefitted proportionately more than

high-income economies (1.0% compared with 0.7% of national
income) from those past policy reforms and would gain nearly
twice as much as HICs if all countries were to complete that
reform process (an average increase of 0.9% compared with
0.5% for HICs).

x Of those prospective welfare gains from global goods trade

liberalization, 70 per cent would come from agriculture and food
policy reform, which is a striking result given that the shares of
agriculture and food in global GDP and global trade are only 3
per cent and 6 per cent, respectively.
 303

x If the policies distorting goods trade in 2004 were removed, the

share of global production of farm products that is exported
would rise from 8 per cent to 13 per cent (excluding intra-EU
trade), thereby reducing instability of prices and reducing the
quantities of those products traded.

x The developing countries' share of the world's primary

agricultural exports rose from 43 per cent to 55 per cent, and its
share of farm output from 58 per cent to 62 per cent, because of
the reforms since the early 1980s, and removing the remaining
goods market distortions would boost their export and output
shares even further, to 64 per cent and 65 per cent,
respectively.

x For developing countries as a group, net farm income (value

added in agriculture) is estimated to be 4.9 per cent higher than
it would have been without the reforms of the past quarter-
century, and if the farm price and trade policies remaining in
2004 were removed, then net farm incomes in developing
countries would rise a further 5.6 per cent, compared with just
1.9 per cent for non-agricultural value added.

3. Future Drivers and Uncertainties to 2050

With this as background, we are now able to consider the
likely drivers of changes in national agricultural comparative
advantages, trade costs and pertinent policies over the next four
decades and their associated uncertainties and impacts on global
farm trade. The list includes the following, each of which is
considered in turn in the rest of this section of the chapter:

x growth in population, incomes and farm productivity;

x crude oil price trends and fluctuations and their impact on bio-
fuel demand;
x trade costs, the supermarket revolution and related changes in
food value chains;
x developments in policies distorting agricultural incentives;
x climate changes and national and global policy responses;
x reforms to water institutions and policies; and
x changes in agricultural R&D investments in response to the
above.

(a) Population, income and productivity growth rates

The economic recession in the USA and Europe since 2007
has slowed global economic growth. How long the recovery will
take is uncertain because it depends on how quickly risk
perceptions abate, which depends in turn on on-going government
macroeconomic and trade policy responses. In that process of
readjustment, while long-term growth rates to 2050 may not be
greatly affected, currencies may be realigned in ways that have
 304

long-term effects on comparative advantages in farm products.

However, there is too much uncertainty surrounding such
possibilities at this stage to do more than simply note them.

One recent set of population and per capita income growth

projections to 2050 is summarized in table 12.3. Clearly, these
projections imply significant changes to the economic centres of
gravity of consumption in the global economy, given differing
income elasticities of demand for various products. They also affect
the supply side of each economy: population growth along with
demographic changes and labour–leisure choices influence the
growth of the workforce, and per capita income growth suggests an
expansion in the endowment of capital, whether it be in the form of
physical assets, workforce skills or new technologies.

View this table: Table 12.3.

Global population and GDP per capita by region, actual 2005 and
projected 2050.

real GDP per

population capita (2005 US$ real GDP per capita (% of
(billion) '000) global average)

2005 2050a 2005 2050 2005 2050

8.8
world 6.4 (9.1) 6.6 15.1 100 100
1.1
HICs 1.1 (1.2) 31.1 58.3 470 385
developing 7.7
countries 5.3 (7.9) 1.6 9.1 25 60
2.3
East Asia 1.9 (2.2) 1.4 12.8 21 84
2.3
South Asia 1.5 (2.3) 0.6 4.7 9 31

Eastern Europe 0.4

and CIS 0.4 (0.7) 3.2 23.6 49 156

Middle East and 0.6

North Africa 0.3 (0.6) 3.5 6.5 53 43
sub-Saharan 1.4
Africa 0.7 (1.7) 0.8 4.8 11 32

Latin America and 0.8

Caribbean 0.6 (0.7) 4.1 13.8 62 90
x a
Alternative population projections from the FAO are shown in parentheses (from
Fischer et al. 2009).

In economy-wide computable general equilibrium model

projections, it is common to represent physical capital assets and
human skills explicitly, but to incorporate new technologies simply
as shocks to total factor productivity (TFP; the number of units of
each input needed to produce a unit of output). The latter can be
determined endogenously if the modeller accepts projections of
growth in per capita income and in the various factors of
 305

production, but it is then a challenge to allocate that aggregate TFP

shock to different sectors and to different industries within those
sectors. Typically, the agricultural sector's TFP growth rate is
assumed to exceed that for the rest of the economy, based on
historical experience, so as to ensure the relative price of farm
products declines over time as in the second half of the twentieth
century. With the growth in international food prices over the 2003–
2008 periods, however, expectations about their future trend are
now less certain. Is that rise just due to a rundown of grain stocks
globally, or is it also because of the greater neglect of public
investment on agricultural R&D in recent decades. The possibilities
of technological catch-up by lagging regions through faster
international technology transfer also need to be considered (e.g.
via the Green Revolution for Africa initiative of the Gates and
Rockefeller Foundations, but also bearing in mind the apparent
recent surge in inflow of FDI in farming from countries relatively
poorly endowed with farm land and water; This suggests that more
than one set of assumptions about productivity growth is needed in
developing a family of baselines for projections of agricultural
productivity to 2050.

Also of more relevance to projections now than in the past

are assumptions about food consumption growth. Previously,
modellers have relied on past econometric evidence, suggesting
that price and income elasticities of demand for food decline
with per capita income, and earlier for lower-valued foods such as
staple grains and tubers than for livestock and horticultural
products. The latter switch will be especially important with the
rapid income growth in populous emerging economies such as
Brazil, China and India. However, consumer concerns for food
quality, food safety and the environment also need to be
considered, especially for HICs. Environmental concerns affect
things such as the disposal of packaging or the carbon footprint
associated with the transport of goods and hence a desire to ‘buy
local’ or at least to know of the country of origin. Increasing
numbers of consumers wish to know how products are produced
on-farm and processed, so as to assess whether they are causing
environmental damage or reducing animal welfare. The continuing
preference of some consumers to avoid foods containing
genetically modified organisms (GMOs) is a clear case in point.
This consumer concern has already led to significant government
barriers to trade based on production processes and to constraints
on domestic production. If that behaviour persists, models of
international trade need to differentiate between products that may
or do not contain GMOs. Now that traceability information along
with other attributes can be stored on barcodes, these and related
bio security concerns can be reflected in the demands that the
large supermarket chains place on their suppliers for information on
myriad attributes of products. This is adding to the need to
 306

incorporate greater agricultural product differentiation across

suppliers in trade models.

It could be argued that the above concerns of consumers are

confined to HICs, especially Western Europe and Japan, where the
quantity of food consumed is unlikely to grow rapidly over the next
four decades because of relatively low population and income
growth and low-income elasticities of demand for farm products
there. However, that would be to miss the point that high-income
consumers are willing to pay substantial premia for foods that are
perceived to be safer, of higher quality and produced with minimal
damage to the environment and animal welfare. They are thus
potentially highly profitable markets to which all farmers seek
access, including those in developing countries—notwithstanding
the disadvantage due to their higher carbon footprint insofar as
more transportation is probably required to get their produce to
those northern markets than is the case for local import-competing
farmers.

(b) Crude oil price trends: effect on bio-fuel demand

While the real price of crude oil spiked briefly in mid-2008 at

nearly three times its previous record, it provides no guidance as to
the long-term trend price of petroleum and other energy raw
materials. Spikes in the spot price can occur whenever there is a
sudden change in expectations (including about OPEC cartel
actions), given the low short-term price elasticities of demand and
supply for crude oil. Long-term trend prices, on the other hand, are
affected by government taxes and developments in known reserves
and in demand, which tend to change relatively slowly as
economies grow. Technological innovations in exploration and
exploitation have caused reserves to expand faster than demand,
so the world is apparently not running out of fossil fuels: according
to Smith( 2009) the ratio of reserves to annual production of crude
oil has grown from a multiple of 29 years in 1980 to 45 years in
2008, and if unconventional petroleum resources (heavy oil, oil
sands and oil shale) are included, that adds another 160 years of
available supplies at current consumption levels.

The capacity of petroleum prices to spike occasionally is not

unlike that for grains. As Wright (2009) pointed out, wheat, rice and
maize are highly substitutable in the global market for calories, and
when aggregate stocks decline to minimal feasible levels for trading
and processing, prices become highly sensitive to small shocks. By
the middle of the past decade, grain stocks-to-use ratios had
declined to their lowest levels for 25 years due to high-income
growth in emerging economies and de-stocking in China. When
there were then some crop failures plus a surge in demand
because of bio-fuel mandates and subsidies, grain prices started
 307

rising. The crude oil price spike in 2008 raised further the demand
for bio-fuels (as well as fuel and fertilizer input costs for farmers),
and a sequence of trade restrictions by key grain exporters,
beginning in the thin global rice market in the autumn of 2007, led
to panic buying.

The linkage between crude oil and food prices will remain
strong when petroleum prices exceed the threshold that makes bio-
fuel production privately profitable on a significant scale, as in
2005–2008. A continuation of bio-fuel subsidies and mandates will
make this co-movement in above-trend prices more common, as
will the development of new bio-fuel crop production technologies
that effectively lower the threshold oil price above which ethanol or
biodiesel production is profitable. The latter has considerable
potential over the next four decades, especially if private life
science companies view investments in bio-fuel crop R&D as more
profitable than R&D in politically sensitive GM food crops.

Mandates to include an increasing proportion of bio-fuels in

road transport fuel are now in place in most OECD countries and in
Brazil. The current targets in the EU mandate go through to 2020,
and those of the US to 2022. These policy measures, if they
continue and remain inflexible, will add a certain demand for bio-
fuel crops no matter what happens to fossil fuel and food prices.
This will not reduce the extent of any downward food price spike,
however, because bio-fuel production will be privately profitable
and so the mandates will tend to be redundant when grain and
oilseed prices are very low relative to fossil fuels prices. On the
other hand, mandates will exacerbate the extent of any upward
food price spike, because fuel retailers will be required to include in
their road fuel mix at least the mandated quantity of biofuel
regardless of its high cost.

(c) Trade costs, the supermarket revolution and related

changes in food value chains
The ICT revolution will continue to lower trade costs,
including for supermarkets as they search globally for the lowest-
cost suppliers of products with the attributes desired by their
customers. Such searching by supermarkets will increase also in
response to governments lowering the remaining barriers to FDI in
retailing and associated logistics services. This will more or less
offset the impact of any new carbon taxes or their equivalent on
transportation costs. The consequences of a continuing
supermarket revolution will spread right along the food value chain.
One is that first-stage processors, food and beverage
manufacturers, and distributors will become more concentrated so
as to better match the bargaining power of supermarkets. Even so,
supermarkets will exploit their capacity to develop their own brands
and even their own processing and distribution. In turn, these
 308

developments will alter dramatically the way farmers supply those

markets, with the emphasis on timely delivery of uniform-quality
products leading to more-efficient (possibly larger) farmers
displacing less-efficient ones and thereby raising agricultural
productivity growth. Insofar as large supermarkets in HICs source
also from farmers in other countries, their private standards will be
set with at least some consideration to the costs they impose on
foreign suppliers, and so may be less trade restricting than they
would be without that feature of globalization.

(d) Policies distorting agricultural incentives

The reasons why some countries have reformed their price-
distorting agricultural and trade policies more than others in recent
decades provide hints as to what to expect in coming decades. The
reasons are varied. Some countries reformed unilaterally,
apparently having become convinced that it is in their own national
interest to do so. China is the most dramatic and significant
example of the past three decades among developing countries,
and Australia and New Zealand among the HICs. Other developing
countries may have done so partly to secure bigger and better
loans from international financial institutions and then, having taken
that first step, they have continued the process, even if somewhat
intermittently. India is one example, but there are numerous other
examples in Africa and Latin America. And some countries have
reduced their agricultural subsidies and import barriers at least
partly in response to the General Agreement on Tariffs and Trade's
multilateral Uruguay Round Agreement on Agriculture and to
opportunities to form or expand regional integration agreements.
The EU is the most important example of committing to reductions
in farm protection, helped by its desire for otherwise costly
preferential trade agreements including its expansion eastwards.

The EU reforms suggest that growth in agricultural protection

can be slowed and even reversed if accompanied by re-
instrumentation away from price supports to decoupled measures
or more direct forms of farm income support—but the wealthiest
Western European countries (Norway and Switzerland), like Japan,
continue to resist external pressure to undertake major reform. The
stark example of Australia shows that one-off buyouts can bring
faster and even complete reform. In the USA, by contrast, most
subsidy cuts in the 1990s proved to be short lived and have since
been reversed, with one set of analysts seeing few signs of that
changing in the foreseeable future.

In the developing countries, where levels of agricultural

protection are generally below those in HICs, there are fewer signs
of a slowdown of the upward trend in protection from agricultural
import competition over the past half-century. Indeed, there are
numerous signs that the governments of developing countries want
 309

to keep open their options to raise agricultural NRAs in the future,

particularly via import restrictions. One indicator is the high tariff
bindings to which developing countries committed themselves
following the Uruguay Round, ). Another is the demand by many
developing countries to be allowed to maintain their rates of
agricultural protection from import competition for reasons of food
security, livelihood security and rural development. This view has
succeeded in bringing ‘special products’ and a ‘special safeguard
mechanism’ into the multilateral trading system's agricultural
negotiations, even though such policies would raise domestic food
prices in developing countries and thus may worsen poverty and
food security of the urban poor while exacerbating instability in
international markets for farm products.

If the WTO's Doha Development Agenda collapses, or if

Doha leads to only a weak agricultural agreement full of exceptions
for politically sensitive products and safeguards, the governments
of HICs may find it more difficult to ward off agricultural protection
lobbies. This would make it more likely that developing countries
choose an agricultural protection path. The potential cost of this
alternative counterfactual could be several times the estimated
benefit of a successful Doha agreement when the counterfactual is
assumed to be current policies. Regional and other preferential
trading arrangements may be able to reduce farm protection growth
somewhat, but the experiences with regional integration
arrangements to date are mixed.

(e) Climate change and policy responses

Effects of climate change on aggregate global agricultural
production and its location across countries and regions without
and with mitigation and adaptation are great unknowns, not least
because there are many possible government policy responses
unilaterally and multilaterally. Moreover, the uncertainties about
what policy instruments will be adopted by whom and when will be
spread over decades rather than just the next few years. Land use
undoubtedly will be affected non-trivially; carbon credits and
emissions trading will have unknown and possibly major effects
depending among other things on whether/how/when agriculture
and forestry are included in the schemes of various countries, as
will any border tax adjustments or other sanctions imposed on
imports from countries deemed to be not sharing the burden of
reducing greenhouse gases; bio-fuel mandates and subsidies and
emerging bio-fuel crop technologies are likely to increasingly affect
food markets, and even more so if carbon taxes or emission caps
raise the user price of fossil fuels; crop yield fluctuations will be
greater because of weather volatility and especially more extreme
weather events, leading to further triggers for trade policy
interventions aimed at stabilizing domestic food markets and so on.
 310

The literature on these and myriad other ways in which

agricultural markets are expected to be affected directly and
indirectly by climate change and associated policy and
technological responses are growing exponentially. Numerous
global economic modellers have begun analysing the possible
effects of some of the above influences on the international location
of agricultural production and trade in particular. One of the more
widely cited is Cline (2007), who predicted that by the 2080s, even
with carbon fertilization, agricultural output will be 8 per cent lower
in developing countries, 8 per cent higher in HICs and 3 per cent
lower globally. However, mitigation policies could have an adverse
effect on industrialization in developing countries and lead to their
agricultural sector in aggregate benefitting indirectly, although
different types of border tax adjustments by HICs would affect the
outcome non-trivially. It is clearly very difficult to discern what the
main influences are likely to be over the next four decades, let
alone to quantify the effects of even the most likely of them. This
underscores the need for sensitivity analysis around any baseline
scenario to 2050 that does not include any of the influences listed
in the previous paragraph.

(f) Reforms to water institutions and policies

Water is essential for growing food and critical for food
security, but in many parts of the world it has been one of the most-
abundant factors of production used in agriculture. Certainly, it is
not evenly spread across the world, and irrigation water property
rights and water markets are poorly developed in most countries.

With population growth and the increasing need for non-farm

uses of water, the urgency for policy reform in this area is growing,
especially outside temperate, well-watered areas such as Europe.
The experiences with reforms to date, such as in the USA and
Australia, indicate there will be much trial and error in policy design
and implementation and it will take many decades before water
markets are as efficient as farm land markets. This suggests that
irrigation water costs could well rise in coming decades but to
varying extents across the globe and in ways that could have non-
trivial impacts on the optimal location of certain water-intensive
crops.

(g) Agricultural research and development investments

Agricultural R&D investments have had a huge payoff. Yet
there has been a considerable slowdown in such investments over
the past two decades, and this may already be contributing to a
slowing of agricultural productivity growth. If that slowdown in
investment was in response to the low prices of food in international
markets in the mid-1980s, then the rise in those prices in recent
years, together with the newly perceived need for adaptive
research in response to climate change and increased water
 311

scarcity, may boost farm productivity growth over the next four
decades. Advances in biotechnology will help raise potential yields
in field trials and thus attainable yields in the best farms, but much
can also be gained by reducing the gap between those attainable
yields and average on-farm yields, particularly in developing
countries.

Part of the slowdown in traditionally measured gains from

agricultural research in recent decades may be due to research
being directed away from things such as maintaining and improving
yields and towards conservation of natural resources and the
environment. It is likely that climate change concerns will also lead
to some re-direction of R&D investment, to goals such as crop
tolerance to drought and other extreme weather events.

Another large dilemma for research administrators, both

public and private, is how much effort to direct to transgenic foods.
While there remains strong opposition by some consumers and
governments of large countries to GM food production and imports,
the returns from such research will be dampened, both absolutely
and relative to efforts to produce non-food GM crops (cotton, bio-
fuels and other industrial crops). R&D on the latter will reduce the
upward pressure that demands for those non-food crops would
otherwise put on food prices, but the anti-GM food stance will
continue to reduce the potential for biotechnology to lower food
prices in countries where GM food is discouraged or banned—with
major implications for bilateral trade flows since it effectively divides
the world food supplies into two separate markets.

Conclusions & Policy Implications

Recent globalization has been characterized by a decline in
the costs of cross-border trade in farm and other products. It has
been driven by the ICT revolution, declines in real transport costs
and—in the case of farm products—by reductions in governmental
distortions to agricultural incentives and trade. The first but maybe
not the second of these drivers will continue in coming decades.
World food prices will depend also on whether/by how much farm
productivity growth continues to outpace demand growth. Demand
in turn will be driven not only by population and income growth, but
also by crude oil prices if they remain at current historically high
levels, since that will affect the bio-fuel demand. Climate change
mitigation policies and adaptation, water market developments and
market access standards including for transgenic foods add to
future agricultural production, price and trade uncertainties.

The key issues that modellers need to grapple with in

projecting world agricultural markets to 2050—assuming they have
already dealt with simulating the macro-policy settings and the
evolving pattern of international capital flows and their effects on
 312

currency exchange rates and broad comparative advantages—are

what to assume about trends and fluctuations for each country and
hence globally in:
x price- and trade-distorting sectoral policies that alter farmer and
consumer incentives (which in turn depend on the outcome of
on-going Doha trade negotiations and any subsequent WTO
rounds and regional trading agreements);
x TFP growth on farms in GM-free and GM-tolerant country
settings;
x petroleum and related fossil fuel prices and their impact on bio-
fuel crop productivity growth; and
x Climate variables and policy responses to climate change,
including for water and bio-fuels.

Governments can do, and some already are doing, things to

reduce the uncertainties associated with the above issues. First,
WTO members are trying to conclude the Doha trade negotiations.
Trade opening can lead to more effective resource conservation,
improve global welfare and reduce inequality, poverty, malnutrition
and hunger. The signs are not promising for a very ambitious
outcome from Doha, however. It is even possible that exceptions
for ‘sensitive’ and ‘special’ agricultural products and a special
safeguard mechanism to protect developing countries from import
surges could discount heavily the value of any new commitments.
In that case, and perhaps even more so if WTO members fail to
reach a conclusion to the Doha round, agricultural protection
growth could resume in HICs and/or be emulated in developing
countries, with both country groups varying their protection rates in
an attempt to stabilize their domestic market—but at the expense of
destabilizing international food markets and thereby encouraging
even more countries to thus intervene at their national border.

Second, governments could commit to a more ambitious

programme of support for agricultural R&D investment, so as to
slow or reverse the decline since the 1990s in such investments.
Lags between R&D investments and farm productivity growth are
very long, but certainly results would show within the next four
decades. Governments yet to embrace the relatively new
agricultural biotechnologies could reassess their stance in the light
of (i) the experiences of countries that have accepted this
technology (as environmental effects have been mostly benign or
positive and no food safety issues are evident) and (ii) the higher
benefits from expanding such investments now that food price
levels are higher and climate changes are requiring farmer
adaptation.
 313

Finally, governments could make clear what their policy

responses will be to climate change. The difficulties associated with
this global issue make multilateral trade negotiations look easy, as
was clearly demonstrated by the difficulty in drafting a communiqué
at the end of the Copenhagen global conference on the issue in
December 2009.

12.2 WTO AND INDIAN AGRICULTURE:

IMPLICATIONS FOR POLICY AND R&D

Introduction
Agriculture will continue to remain at the centre stage of
socio-economic development in India. Notwithstanding its
outstanding performance in making the country self-sufficient in
food grains, deceleration of its performance beginning with mid-
nineties is of serious national concern. Two major developments
impacting Indian agriculture during nineties have been:
(1) the Agreement on Agriculture implemented from 1st
January, 1995 under WTO, and
(2) Emergence of highly volatile price regime thereafter.

Several recent studies, on the causes of poor performance of

agriculture, often relate to WTO agreement on agriculture and its
likely adverse implications against promise. It is also a fact that
WTO agreements are now a reality and these agreements can only
be modified. The global scenario in future is going to become more
competitive and the pressure for liberalization of domestic market
would also grow. In this context, India needs to follow two pronged
strategy. One, based on the post WTO experience of last 10 years
India should continue taking active part in negotiating agreement to
its advantage with sound arguments. This would require objective
understanding of the implications of the changed trade regime,
promoted and planned under the auspices of WTO.

Such an understanding is of critical importance to play an

effective role in future negotiations as well as to plan adequately for
designing our policies and economic activities including agricultural
R&D programmes which are basic to accelerated sustainable
agricultural development. Two, in order to effectively operate in the
WTO driven environment, the member countries need to devise
appropriate domestic policies and strategies. The crux of these
policies should be to identify weaknesses and strengths of
domestic produce vis-à-vis major competing players, and to
improve competitive attributes of our produce, involving production,
processing, marketing, trading practices and other processes from
the farm to the final destination. Upgradation of competitive
strength requires improvement in policies, infrastructure, institutions
and technology. Out of these, the major role lies in technology and
 314

its favourable interplay with institutions and policies. India’s

agricultural research system has stood several tests successfully in
the past and has helped the country to tide over formidable food
crises and other challenges.

To address WTO related challenges, research system

should know what is precisely needed from it. Specifically, some of
the questions that arise in this regard are:

(i) what is the nature of challenges in different enterprises,

products and locations that agricultural research system should
address to impart competitive strength to Indian agriculture
comprising dominantly small and marginal farmers;

(ii) what are the desirable attributes to make our products

competitive; and

(iii) what are the institutional and policy imperatives? Recognizing

the need to find answers to these questions, This chapter brings
out some of the critical views and recommendations of this dialogue
for larger public debate and policy action.

Uruguay Round Experience and Implementation

Agriculture was kept outside the purview of GATT till 1995.
However, UR has succeeded in bringing agriculture on the main
track of GATT and agriculture trade is now firmly within the
multilateral trading system. All the member countries of WTO are
committed to follow set of rules embodied in WTO Agreement on
Agriculture which covers: (i) domestic support, (ii) Market access
i.e., tariffs, and restrictions on imports and exports, and, (iii) export
subsidies.

The agreement sought reduction in trade distorting domestic

policies like price interventions and subsidies; reduction in export
subsidies; replacing quantitative restrictions on trade with tariffs and
reduction in tariffs to encourage more and freer trade. It was
projected that trade liberalization and implementation of AOA would
bring large benefits to the developing countries through improved
access to the developed countries’ markets, increased trade and
better pricing environment for tropical and other products of interest
to the developing countries.

The Uruguay Round AOA was first step towards the reforms
in agriculture trade. The Article XX of the Uruguay Round
agreement on agriculture required WTO members to review the
agreement after about five years, i.e. by the end of 1999 or
beginning of 2000, for continuing the reforms started with the
Uruguay Round. This provided opportunity to review the effect of
implementation of UR AOA, and, in the light of this experience,
 315

move further towards establishing free, fair, and market-oriented

agricultural trading system. Negotiations for the next Round of AOA
were started in March 2000 and have passed through several
phases. Presently, there is a complete stalemate as the WTO
members could not come to an agreement. The reason for the
delay and stalemate in concluding the new round is the sharp
differences among the members on various aspects of AOA.
Implementation of UR commitments has been a tough task for
several member countries and it has exposed vulnerability of
various segments of agriculture to global market forces.

In most of the cases expectations placed on UR AOA or

promises related to this did not materialize. The promise was that
trade liberalization and implementation of AOA would bring large
benefits to the developing countries through improved access to the
developed countries’ markets, increased trade and better pricing
environment for tropical and other products of interest to the
developing countries. However, there was a distinction between
reality and the promise. The biggest challenge to the developing
countries’ agriculture in the post WTO period was posed by
unprecedented and unforeseen decline in international agricultural
prices. The prices of cereals, fish, sugar, cotton and beverage
started declining after 1996 and reached historically almost the low
level during last 25 years around year 2000 (Table 1). Though there
is some recovery in the price cycle in the recent years, yet the
current level of prices of above mentioned commodities is 15 to 44
percent lower than the prices prevailing in the beginning of WTO.
Because of this decline in prices in post WTO period, developing
countries’ exports were badly hit and several countries like India
were taken aback by import influx of commodities, in which they
thought they had strong competitive edge. This caused adverse
impact on farmers’ income, employment and livelihood security.
Table 12.4 Export prices of primary agricultural commodities in post WTO
period, base 1995=100

The decline in international prices happened contrary to the

projections that implementation of WTO AOA would result in
reduction in subsidies and thus, increase in cost of production and
prices. Developed countries responded to decline in global
 316

agriculture prices by providing huge support to their farmers to

protect their incomes. However, the developing countries neither
had mechanism nor resources to protect their agriculture and
farmers against such adverse trading and pricing environment. As
per the Uruguay agreement, the developed countries were
committed to reduce base level of support (taken as average of
years 1986- 88) to agriculture by 10 percent by the year 2000. In
reality, OECD countries on the whole, and EU and USA in
particular, provided much higher level of subsidies to their farmers
during most of the post WTO period as compared to the already
very high base level.

Further, more than 60 percent of this support was in trade

distorting market price support. There is a feeling that the
developing countries did not bargain properly in the UR discussion,
while the developed countries secured the balance of AOA in their
favour. Besides being discriminatory, the agreement is said to be
ably manipulated by the developed countries to benefit their
agriculture at the cost of developing countries. Because of all these
reasons, the developing countries have turned highly conscious
and are very careful about the minute details of various provisions
of any future AOA. This has led to hardening of the positions,
particularly relating to the excessive support and export subsidies in
OECD countries, access to developed countries’ market, and
special and differential treatment.

12.5 Farm support in OECD countries before and after WTO

Post WTO Trade Regime: Lessons for India

Wide-ranging economic reforms introduced in India during
1991 boosted the agricultural trade (exports as well as imports),
and the net trade surplus in agriculture increased from $ 2 billion
during 1992-93 to $ 4.33 billion during 1995-96. The trade got a
fillip with WTO agreement during 1995, thereby resulting in the net
trade surplus reaching $ 6.8 billion in 1996-97. However, the
problems of downward trend in exports, increase in imports, sharp
year to year fluctuations in net trade, erosion of self-reliance, etc.,
 317

started soon thereafter, despite further liberalization of trade. These

trends raise questions about further liberalization of trade in general
and specific commodities in particular, and the implications of
present agreement including ongoing negotiations on AOA in WTO,
etc.

An analysis of the global trends after WTO indicates

unprecedented decline in the global prices of agricultural
commodities, severely hitting earnings from agricultural exports of
the countries. India too could not gain much from WTO and global
liberalization, though India generally performs better than the other
countries when the international price situation is favourable. As the
exports are becoming increasingly competitive, it is not possible to
promote exports without improving produce quality, efficiency and
cost reduction. From the analysis of the trade scene and suggested
future strategy by commodities, it is evident that: India is facing
challenges in traditional export items; the challenge is not
from the developed countries, but from the developing
countries; major import of vegetable oils are from the
developing countries (Malaysia and Indonesia); and India has
done well in export of high value products to the developed
countries.

Export of raw products like cotton, wheat, sugar, coffee and tea is
likely to become very competitive and India would be required to
relook into the benefit of promoting export of these commodities.
Export prospects are brighter with soybeans, oilseeds, oil meal and
cake, fruits and vegetables, and fruit preparations. Thus, high
export prospects are seen with high value products, horticultural
products, processed products, marine products and rice, provided
global competitiveness in costs and quality is maintained in
domestic production, marketing and supply.
 318

12.6 Post WTO trade scenario for major commodities and

implications for future negotiations and strategy

x Developed countries are not going to totally dismantle domestic

subsidies of different class in the near future. They will only
agree for marginal reduction. Hence, our competition in
exportable items has to reckon this reality in addition to the
market dynamics cross products. By and large, the market price
fluctuations in primary produce is far higher than in processed
products. Our competitiveness should incorporate this
component.

India has to learn lessons from these trends and other

experiences. The Agreement on Agriculture created an
environment of trade reforms and initiated trade liberalization in
agriculture. The other lessons include: (i) WTO seeks to remove the
barriers of “our own market” and “their own markets”, (ii) India need
not be extremely defensive and inward looking, as our agriculture
has demonstrated strength which needs to be appropriately used to
 319

compete in the global market, otherwise it will become a case of

missed opportunity, (iii) as a net exporting country, India stands to
gain from increase in international prices, which is possible only if
we relentlessly fight for reduction of domestic subsidies and support
and export subsidies in the developed countries (once this is done,
the possibility of import threat for our key export products like dairy,
wheat, cotton, sugar, etc. will disappear), (iv) import threat can be
surmounted by general provision of raising tariff to bound level and
of asking for special treatments / packages like S&D treatment,
sensitive product, etc. and (v) to comply with quality standards to
effectively compete in the global market, we must demand as a first
step that all countries should notify their quality requirements
clearly on WTO website.

Recent Round of Negotiations (13-18 December, 2005) at

Hong Kong
It reaffirmed the declarations and decisions adopted at Doha
as well as by the General Council in 2004 for full commitment to
give effect to them. There is a general realization that agriculture
remains the most distorted and difficult sector in the WTO. On trade
distorting domestic support, rationalization was attempted by
forming three bands with higher linear cuts in higher bands. The
other decisions included developing discipline to achieve effective
cuts in TDS (overall cut in TDS to be greater than the sum of
individual cuts), exempting developing country members with no
AMS commitments from reduction in de minimis and the overall cut
in trade distorting domestic support, review of green box criteria to
cover the interest of developing country members, parallel
elimination of all forms of export subsidies by 2013, elimination of
distorting trade practices of State Trading Enterprises, provision of
special products and special safeguard mechanism to the
developing member countries, elimination of export subsidies on
cotton by 2006, and duty-free and quota-free access to cotton
exports from LDC’s.

The broad lessons from the Hong Kong negotiations are:

x Single country has no power in negotiations but a group of
countries have.
x There is a need to reorient and reprioritize R&D according to the
global trends.
x Domestic reforms in Indian Agriculture should have been started
much earlier to improve competitiveness.
x Enabling policy and institutional mechanism to safeguard
agriculture under WTO Regime.

Intellectual Property Rights (IPR) Issues

The technology must focus on the poor marginal and small

farmers, who own nearly 80% of the farm holdings being less than
 320

2 ha. Several national Acts have been passed and amended, and
international treaties concluded over the years regarding IPR
related issues. The scope of IPR covers seed, agri-chemicals,
tools, input delivery, controlled systems, post-harvest agriculture,
food products, non-food products etc. Now, prior approval of
National Biodiversity Authority has been made mandatory for
seeking IPR on innovations using national bio-resources and
associated traditional Knowledge. Patenting is highly pervasive and
all embracing, including plants and animals, gene sequence, single
nucleotide sequences, etc. in the developed countries. The impact
of such patenting is likely to cripple research on the patented
biodiversity in the developing countries. Patenting has to go along
with the socio-economic development as well as standard of
science and technology development of a country. The patents
have to benefit the public, and the patented products should be
available to the public. While planning and protecting innovation, lot
of protection, maintenance of IPR, evaluation of IPR assets,
handling IPR infringements, full package vs. unitary package of
technology, etc. become critical issues to the institutions.

Technical Barriers to Trade (TBT) and Sanitary and Phyto-

sanitary (SPS) issues in
food sector

The main objective is to protect risks to human beings,

animals and plant life. The guiding principles should be
transparency and avoidance of arbitrary SPS standards. In the
negotiations, implementation issues are not adequately addressed.
These mainly include reasonable interval / longer time frame for the
developing countries to comply with other countries, new SPS
measures, review of agreement at frequent intervals, participation
of developing countries in setting SPS standards, technical and
financial assistance to establish mechanisms, follow-up
procedures, etc. The time framework for compliance for the
developing countries should be raised from the present 6 months to
12 months. Similarly, 60 days period to react to revisions is a quite
short for the developing countries. Equivalence is an important step
for smooth implementation, but it is arbitrary at the moment.
Equivalence issue should be a regular agenda in the SPS
Committee, and agreement should be reached on the recognition of
equivalence in accordance with the agreed procedure. There is lack
of experts/specialists and lawyers knowledgeable about
international law and science, and also non-availability of
technology. Major steps should be to review SPS agreement at
regular intervals, monitor the use of international standards, provide
technical assistance to needy member countries and address the
concerns of member countries in respect of special and differential
treatment, regionalization, specific trade concerns, use of adhoc
consultations, and to liaise with the Codex, OIE and IIPC.
 321

The technical barriers to trade (TBT) like labeling,

packaging, and specific nutritional attribute claims, are the other
measures to protect consumer interests, and these are not
restricted to food alone. In the US, there are about 26 TBTs, but no
significant progress has been made in the recent negotiation,
though at Doha it was decided to reduce and even eliminate TBTs.
The major constraints in meeting food safety standards compliance
include: poor raw material quality, costly laboratory tests, lack of
hygiene awareness, lack of product and process standards, delay
in cargo handling at the ports, etc. India may have to learn from
success stories of other developing countries like Thailand and
Malaysia, and soon gear up to address such issues.

State Level WTO issues

The states are important stakeholders in trade and therefore,
should be regularly consulted in trade policy matters. The
experience and views on trade were discussed with special
reference to Karnataka state, which has made a mark in the export
of silk products, Bangalore rose, onion, and Gherkins. The State,
however, faces the usual constraints of quality raw material
shortage, infrastructure bottlenecks, high interest rates for
agricultural investments, in addition to inadequate availability of
export finance, small and fragmented holdings, poor power supply,
inefficient Agricultural Produce Market Committees (APMCs), lack
of market intelligence, lack of international airports and good
seaports, and poor coordination with the Centre. The State has
developed clear-cut short-term, medium-term and long-term
strategies to enhance the export performance. Keeping these
strategies in view, the State has also outlined the specific initiatives
required for exporting its different agricultural products. Active
participation of the states in policy discussions at the Centre is
required. There is a need to establish a mandatory Nodal Agency
(WTO Cell) with a two tier structure, one at the apex level with the
Ministry of Agriculture, Government of India and another at each of
the State Headquarters linking the export houses of the State
withthe Agriculture Ministry. The other action points are:

x SWOT analysis and prioritization of targeted export

commodities
x Establishing Commodity Boards for the targeted export
commodities
x State canalization in niche commodities
x Establishing export processing zones
x Bringing the agriculture sector under Concurrent list
x Strengthening the required homework and other detailed
preparations both at Central and State level, before joining
the negotiations at WTO
 322

Response and Re-orientation of the R&D System

Response of R&D system to the changing trade scenario
over the years was slow and less comprehensive. Recent
experiences unequivocally suggest targeted approach to derive
benefit from WTO. For the re-orientation of R&D systems, following
features of our R&D system should be kept in view:
x Size and spread of National Agricultural Research System
(NARS)
x Inability to fully and effectively mainstream the demonstrated
benefits through externally aided projects like National
Agricultural Research Project (NARP), National Agricultural
Technology Project (NATP), Agricultural Human Resource
Development Project (AHRDP), etc.
x Poor research – extension – farmer-market – policy linkage
x State R&D system collapsing on account of sharp decline in
State financial support
x Lack of co-ordination between departments and ministries
dealing with agriculture both at the Centre and the State level
x Lack of effective public-private sector partnership

Suggested broad directions for the re-orientation are: (i) System

related efforts, and (ii) Programme related efforts. System related
efforts to retool and re-energize our NARS include wide range of
organization and management reforms covering human resource
development, providing further functional autonomy to our national
institutes, infusing greater co-ordination among all development
departments, research prioritization, monitoring and impact
assessment, IPR management, etc. These efforts will impart
efficiency and accountability. Programme (Science) related efforts
include priority attention to targeted export commodities, pursuing
research on production to consumption system, strengthening basic
and strategic research in frontiers of agricultural sciences, etc.

POLICY RECOMMENDATIONS

WTO is receiving the deepest indulgence of everyone, as it

is affecting the major sectors of Indian economy and agriculture in
particular now, and more intensively in the coming years. A major
concern growing with the increasing impact of WTO is, as to how
the small and marginal farmers’ who dominate the Indian
agriculture, depend heavily on agriculture for their livelihood, have
small marketable surplus and operate under heavy constraints to
be competitive in a subsidized agriculture production and trade
regime, could benefit from WTO. The concern more often swings to
the other side that the spreading tentacle of WTO with reduced
tariff regime and increased access to Indian market for the products
from subsidized agriculture could severally damage the agriculture
based livelihood of majority of Indian farmers. The challenge to
policy makers is how to protect Indian agriculture from the
 323

impending WTO threat, enhance the competitiveness of Indian

farming and make farming a viable and self sustaining enterprise to
improve and ensure livelihood security of the farmers. A strategy to
address this challenge shall necessarily involve re-orientation and
injection of market linked dynamism in Indian agricultural R&D,
strengthening of supportive institutions to serve the resource poor
farmers, and steering fast the change with appropriate policies and
trained humanware. The deliberations of the workshop suggested
the following policy initiatives and action points:
x India needs to devise appropriate domestic policies (extensive
domestic market
reforms, heavy investment in building and maintaining
infrastructure, etc.) to improve efficiency and competitiveness of
domestic produce.
x It should continue to play leadership role in negotiating
agreements with sound
analytical basis and support of other developing countries with
similar interest. A
dedicated group of about 100 experts, on full time basis, should
work on the WTO issues to provide analytical basis for
negotiations and to help in planning appropriate strategies to
strengthen Indian agriculture to face increasing trade
liberalization and globalization.
x Export of high value products, horticulture products, processed
products, marine
products and rice (details given in Table 1) should be promoted.
x India has to counter the challenges in the export of traditional
items from the
developing countries. In this regard, prioritization, enhancing
production and processing efficiency, marketing and transport
infrastructure, maintaining quality, stable supply etc. need
immediate attention.
x There is a need to go whole hog in reforming domestic market
as has been done by China. The constraints of multiplicity of
laws in agricultural marketing, processing, storage, transport
should be immediately addressed to impart simplicity, reduce
transaction costs and attract private investments in post harvest
management. Further, enforcement of Model APMC Act which
encourages direct marketing and contract farming should be
implemented in true spirit.
x There should be continuous insistence for reduction in
domestic and export subsidies in the developed countries.
Developing countries should put up a unified approach to
 324

ensure substantive reduction in subsides by the developed

countries.
x All countries should notify their quality requirements of
agricultural produce clearly on the WTO website.
x There is a need to assess the priorities of our national projects
including the R&D programmes, and to develop and maintain
the quality of infrastructure at the highest level. There should be
strict monitoring of the national projects to ensure expected
output as per the time schedule.
x Since IPR is becoming an important issue, a clear-cut policy on
IPR, its protection, maintenance, evaluation, handling of IPR
infringements, etc. should receive priority attention at the
Central, State and institutional levels.
x As regards SPS issues, India should demand reasonable
internal / long time frame to comply with other country’s new
SPS measures, review of agreement at frequent intervals,
providing technical and financial assistance to establish SPS
testing / certification mechanisms, correctly defining the
equivalence, capacity building for developing expertise in the
area, etc.
x A special campaign is required to create awareness for
appreciating quality aspects of farm produce among the farming
community, traders, consumers and exporters.
x India has to learn from the experience of other developing
countries like Thailand
and Malaysia regarding compliance to food safety standards.
x The Centre should consult states and receive their active
support for trade policy
formulation, WTO negotiation, etc.
x There is necessity to establish Export Processing Zones and
Commodity Boards for targeted commodities.
x Agriculture needs to be brought under the Concurrent list of the
Constitution.
x There should be a merger of several related departments like
irrigation, fertilizer,
food, agriculture, etc. for better coordination and synergy.
x Public investment in agriculture has to be raised, particularly in
R&D including
extension.
x The system related efforts towards re-orientation of R&D
system will include general moratorium on establishment of new
 325

institutions, development of first rate human resource through

quality agricultural education, need-based training in India and
abroad, coordination and convergence of all development
departmental efforts, harnessing ICT for rural development,
adequate funding of research programmes project based
funding / budgeting, rigorous monitoring and impact
assessment, strengthening social science skills, promoting
public-private sector partnership, building leadership skills,
reforms in financial and procurement management with full
decentralization, strengthening policy analysis and vision-
oriented market-led intelligence analysis skills, strengthening
agri-business development and IPR management, and
campaigning for better awareness and compliance in respect of
produce quality by the farmers, traders, exporters, importers
and the general public.
x The programme related efforts towards re-orientation of the
R&D system will include priority attention to targeted export
commodities particularly high value processed products,
strengthening basic strategic and anticipatory research at ICAR
and downstream research at SAUs where 4/5 of the scientists of
NARS work, agro-ecological targets and functioning rather than
national targets and functioning by the R&D system, profitability
besides productivity as indicator of success, linking production
with processing, marketing and consumption with focus on small
and marginal farmers and farm workers, establishment of quality
testing / referral labs, research on minimal non-renewable
natural resource use, developing high yielding varieties which
must combine high yields, high protein content and other
characteristics demanded by the importing countries such as
freedom from afla toxins.

Post WTO trade liberalization helped India to achieve small

increase in agricultural exports, whereas it resulted in sharp and
continuous increase in imports. This has adversely affected self
reliance in agriculture. The foremost reason for this adverse effect
is unprecedented decline in international prices, which in turn, was
caused by attempts by almost all the countries to push exports and
continuation of high level of domestic support and export subsidies
by OECD countries. As a net exporting country India stands to gain
from increase in international prices.

The last Ministerial meeting to discuss and finalize

modalities of WTO agreements was held from 13-18 December,
2005 in Hongkong. However, no consensus could be reached once
again, and the meeting ended up with a resolve to complete Doha
Work Programmes and to conclude negotiations successfully in
year 2006. Again, year 2006 is coming to an end and there is no
sight of any progress in the negotiations. Serious differences
persist between three main groups of WTO members, namely,
 326

developing countries led by G20, EU and USA on almost all the

issues like reduction in domestic support and export subsidies in
OECD countries, formula for tariff reduction and special and
differential treatment for developing countries in almost all the
commitments. Therefore, there is a stalemate which implies that
imbalances of UR agreement would continue. This stalemate has
given freedom to the developing countries not to further liberalize
their markets. On the other hand, the delay in concluding new
agreement is helping the developed countries in several ways. With
postponement of negotiations, the dates for implementing fresh
commitments to reduce domestic support and export subsidies are
automatically getting shifted to distant future.

Thus, countries like USA and EU, are free to follow trade distorting
policies in the absence of fresh commitments. For instance, the
offer of EU in year 2000 to phase out export subsidy in next 10
years and the consequent failure to reach any agreement in 2000,
provided EU, freedom to continue with these subsidies. Further, the
postponed negotiations, say in year 2007, equipped EU with better
bargaining position, as it can now offer to phase out same
subsidies in a much shorter periods and still have a better deal
compared to the offer in year 2000. While it is highly desirable to
eliminate export subsidies, phase out domestic support and have
separate set of commitments for developed and developing
countries, it is also important to recognize that the deadlock is not
helping anyone to achieve these goals. India and other developing
countries need to put pressure on the developed countries to have
some interim agreement to at least reduce domestic support and
export subsidies as per their initial offers.

12.3 QUESTIONS

1) Explain the various issues related to effects of Globalization on

world agricultural trade.
2) Discuss the impact of WTO agreements on Indian agriculture.


™™™™