Definition

Agriculture is the art and science of ploughing, cultivating soil and cultivating crops along with raising

livestock.

It includes the following sectors and their approximate contribution to the agriculture sector (by the

value of produce)

◦ Crops (61%):

◦ Livestock rearing (27%):

◦ Fisheries (5%)

◦ Forestry and logging (7%)

• Crop Sector: classified into Field crop, plantation, horticulture and other crops. The share of the

crop sector in by value of produce is 61%. Out of this field crops cereals, pulses, sugar and fibre

comprise 54%. The remaining 46 % comes from plantation horticulture and other crops combined.

These broadly include fruits and vegetables, condiments and spices, Drugs and narcotics and

other crops like rubber, Guar etc.

• Livestock: roughly classified into Milk-based (66%), Meat-based (20%) and others (Honey, wool,

dung, eggs etc.)

• Forestry and logging: Forest products are classified into: Major (Timber based: 81%) and Minor

forest produce (Non-timber based: 19%)

• Fisheries: comprises: Inland fishing (59%) and marine fishing (41%)

Importance of Agriculture

• Source of food supply: Agriculture is the primary source of food supply for a country's
 population; hence, surplus food production is necessary to ensure food security. (Food production

is also critical to ensure the nutritional security of a nation)

• Forward and backward linkages with industry: agri has backward linkages with industry. It

provides raw materials to industries (directly or indirectly). It also creates demands for industrial

goods and services including agricultural inputs—Eg. fertiliser machinery etc.

• Employment: agriculture creates employment for the workforce with fewer skills compared to

other sectors. In 2018-19 agriculture contributed roughly 70 % of the 46 million jobs created in the

country. Around 45% of the workforce is dependent on agriculture.

• Agriculture acts as a shock absorber in terms of economic distress.

• Poverty alleviation: a unit increase in agricultural growth is 2-3 times more effective in poverty

alleviation vis a vis non-agricultural sectors. Eg. between 1993-94 to 2003-04 2.38% agricultural

growth contributed a 0.75% decline in rural poverty. Between 2004-05 and 2011-12, a 3.75%

agricultural growth contributed to a 2.3% decline in rural poverty.

• Foreign exchange: agriculture contributes to nearly 10% of India’s total exports. Amongst the

major agricultural exports, there are Basmati rice, marine products, condiments and spices etc.

• Capital formation: Surplus in agriculture boots savings that can then be used as investments

towards agricultural infrastructure or industrial development. This is critical for a country with over

60% rural population.

STATUS OF AGRICULTURE AT INDEPENDENCE

The agricultural system we inherited from the British was a low-productivity, low-production

system.
There were primarily two reasons for it:

Changes to land revenue management

The Britishers introduced three types of land revenue settlements in the country (permanent

settlement, ryotwari, mahalwari). Out of these settlements the permanent settlement, which was

brought in to reduce the uncertainty, arbitrariness, corruption and oppression in the agricultural

sector created further problems:

Increased the oppression of tenants who were the erstwhile cultivators of the land.

Introduced a new class of landowners called zamindars who had no incentive to invest back inland.

Tax rates were kept high.

The problems were further compounded by absentee landlordism and sub infeudation

The ryotwari and mahalwari systems were a marginal improvement over the permanent settlement

system in that land was surveyed and assessed, official records were maintained and settlement was

done directly with the cultivators.

However, the share of the govt. Of the total produce was still arbitrarily kept high.

The commercialisation of agriculture: was done essentially in pursuit of profits by the EICo. It

helped them save up on bullion and manage the triangular trade between India, China and Britain.

However, it led to the progressive deindustrialisation of the country (India became a net exporter of

raw materials) and also exposed the local cultivators to additional market risk (Global)

Both of these two factors created a system characterized by:

• Small and scattered landholdings

• Widespread poverty

• Mass indebtedness
• Low capital formation: because of lesser incomes and low savings:

• Primitive technology

• Rain-fed agriculture

• Lack of Infrastructure

All of these aforementioned characteristics combined to create a low production and low productivity

system and hence farming in India was barely subsistence.

More than ⅔ of our population was dependent on agriculture.

More than 30% of the farmers used wooden gloves.

Less than 6% of the farmers used inorganic fertilizers

More than 80% of the arable land was rainfed

Since there was little surplus, farmers did not earn substantial incomes leading to poor investment in

agriculture.

Any failure of monsoons would lead to shortages of food and hence food inflation.

PRE GREEN REVOLUTION PERIOD

Govt. strategy: In the pre-green revolution period the government's strategy towards agriculture

broadly involved three types of interventions:

Structural reforms: It involved several land reform measures including land ceiling and redistribution

acts, tenancy reforms and land consolidation measures

Institutional reforms: this broadly included national extension services: for the popularisation of

inorganic fertilizers, scientific farming techniques etc. and community development programs.

Furthermore, there were steps taken towards the extension of institutional credit to rural areas
Infrastructural reforms: Among many things, it mainly focused on the extension of irrigation for

instance 9% and 8% of the total plant outlay of the first and second 5-year plans respectively went

into an extension of irrigation.

Net outcomes:

Impact of These interventions

The net Irrigated area in India witnessed a growth of around 30% from 1951 to 1961(20 Million Ha to

27 Million Ha)

Per hectare use of inorganic fertilisers increased-

N- 0.42 to 3.5 Kg/Ha

P-0.03 to 0.75 Kg/Ha

K-0- 0.5 Kg/Ha

Food grain production had a CAGR of 4% in this period while the overall agricultural growth in the

1st three FYPs was around 3%

However the rice grain production was not commensurate with the increase in demand, mainly

owing to population growth and an increase in incomes

As India adopted the Mahalanobis growth model (industrialisation), the plan outlay for agriculture

declined.

1st FYP- Irrigation infra and land reforms led to increased targeted production

2nd FYP- Increased focus on industries and plan outlay for Agriculture decreased

1957 -Drought led to increased imports, and India met its 1st BoP Crisis(monsoon failure)

This prompted the govt to consult the Ford Foundation as a result of which the Intensive Agriculture

Development Program(IADP)(7 states covered) was launched in 1960, followed by IAAP(114 districts)
in 1964

Both these programs were successful however their success was limited by two successive

droughts in 1965-66.

These droughts significantly affected the food grain production which declined by 19%.

It was followed by the PL 480 Crisis (Agri Trade Development & Assistance Act 1954), during which

the US government limited critical famine aid until it received assurance that the Indian government

would implement agricultural reforms and temper its criticism of US foreign policy regarding Vietnam.

This prompted the govt to undertake the HYV programs as part of a New Agriculture Strategy- HYV

program in the 'plan holiday' period 1966-69

The outcome of this program is called the Green Revolution

CONTEXT OF GREEN REVOLUTION

Ford and Rockefeller Foundation assisted Mexico to develop HYV seeds in the 1940'S and 1950s.

Issues with existing seeds:

• Design flaw (tall and top heavy plants would lead to lodging)

• Use of inorganic fertilisers especially N based, would advance the date of lodging.

• More nutrients used by stalk and leaves leaving less for grain.

Japan and Taiwan had semi-dwarf varieties (Norin 10 variety)

Cross-breeding of bevor and Norin 10 gave semi-dwarf varieties.

Lerma rojo 64, Sonora 64, Sonora 63, and mayo64 were some varieties used for field trials in India.

For rice, IR8 was formed by corssing DGWG with PETA

GREEN REVOLUTION

HYV seeds for wheat were brought in from Mexico (CYMMYT) and rice from the Philippines (IRRI)

It was an input-intensive program for the seeds that required assured irrigation, chemical fertilizers

and pesticides

These seeds also produced semi-dwarf varieties of plant which has an advantage over traditional

varieties as a hedge against lodging, winds and improved nutrient allocation in the plant

The seeds also produced shorter duration and shorter crop cycle, which became an opportunity for

farmers to increase cropping intensity i.e. grow multiple crops in a year

These HYVs are considered a technological revolution owing to their increasing yields 2-3 times

more than traditional varieties. However, they require a short fertilizer and irrigation support (seed

fertilizer technology)

The first wave of the green revolution (GR) (1966-76):

• GR greatly benefitted the states of Punjab Haryana and western UP, also known as the early GR

states because of the following reasons:

• Assured irrigation: Bhakra Nangal project

• Historic advantage: detailed and clear land records owing to the Mahalwari system. Detailed

records allowed a detailed analysis of pilot programs

• State govt initiatives: Punjab Agri University contributed to all India-coordinated wheat

improvement programs.

• Furthermore, State govt procured 90000 diesel pump sets for the farmers

• Land consolidation was made mandatory making contiguous parcels of land available

• Adaptive research for wheat was easy in this belt owing to contiguity and hence uniformity of agro-
 ecological conditions

Disadvantages of the eastern states:

• Despite the abolition of the zamindari system, its remnants were still present. More than 80% of

farmers were small and characterised by a deep shortage of capita;

• Irrigation was not assured and hence agriculture depended on the vagaries of monsoon

• The state govt did not pitch in. There was a lack of diffusion of private tube wells and delays in

rural electrification

• It was only in the 1980s that GR started benefitting farmers in this region

IMPACT OF GREEN REVOLUTION

Benefits:

• Substantial increase in foodgrain production making India self-sufficient in food grains eg. since

1st 5-year plan food grain production in India has risen from 60mt to 307 mt out of which rice is

107 mt (6 times increase) wheat is 109mt (17 times increase)

• Food security: surplus food production made it feasible for the govt. To plan for poverty alleviation

and hunger eradication. Surplus food formed the backbone of India’s PDS and hence NFSA

• Increase in production of commercial crops such as sugarcane because of newer techniques and

newer market linkages aided by GR.

• The initial increase in employment owing to increased cropping intensity (multiple cropping)

• Surplus production creates marketable surplus and hence contributes to farmers’ incomes. The

crop sector in India is estimated to contribute 17% of farm incomes

• With the growth of shadow industries and the emergence of industrial towns eg. Meerut
Drawbacks:

• Rise in regional imbalance; most of the benefits of GR were cornered by yearly green revolution

states

• Interpersonal inequality has also risen. There has been witnessed reversed tenancy by a small

proportion of rich and influential farmers to leverage “ economies of scale”

• Intercrop imbalance has also resulted. Post-1960s the gross cropped area has increased to 38%

while that of coarse grains has halved. Pulses have also been pushed to marginal lands. This

affects dietary diversity and contributes to nutritional imbalance

• Ecological damage: input support from the govt. Has led to the indiscriminate use of resources

leading to environmental damage. eg. loss of soil fertility, receding groundwater table,

bioaccumulation etc.

• The increased reliance on a few HYV of seeds has led to a neglect of traditional varieties of

seeds.

• Growth in the production of food grains has made the govt complacent. Institutional and

structural reforms have been neglected. Eg. land reforms, investment in irrigation infrastructure

etc.

• This input-intensive mode of farming is predicated on govt support. Owing to this and the politics

of populism the gift finds it hard if not impossible to exit the subsidy regime

AGRICULTURAL MARKETING

Marketing is the human activity directed at satisfying the needs and wants through an exchange
process or it is the performance of business activities that direct the flow of goods and services from

producers to consumers

Agricultural marketing is an umbrella term that comprises all activities involved in the supply of farm

inputs and outputs that ensure that farm produce reaches the eventual consumer

in other words, it includes all the aspects of agri-business while excluding the core activity of

cultivation

It will encompass input and output marketing. eg. all pre and post-production activities, input and

output supply chain, logistics, processing, distribution and retailing etc.

agents involved- farmers, warehouse owners, transporters, retailers, consumers etc.

Type of Marketing:

Input Marketing:

It ensures a timely and reasonable supply of inputs that contribute to farming. For example, seeds,

fertilizers, types of machinery, etc.

Output Marketing:

It starts when the produce attains a form in which it can be collected either for consumption or for

further economic purposes.

Objectives of Agriculture Marketing:

a. Ensuring a balance of demand and supply -> Optimum price discovery -> Equilibrium Price.

b. Monetization of produce -> Sales -> Generating income -> Integrate agriculture with national

economy.
• Desired Outcomes of the marketing:

• To ensure that all produce that farmers are willing to sell gets lifted at a certain premium to the

producer.

• It should ensure that price spread/dispersion between the primary producer and the ultimate

consumer is minimal or reduced.

• Increase in farm production to be translated into a proportionate increase in the real income of the

farmers.

• To make available all products of farm origin to the consumers at a reasonable price without

compromising the quality of the produce.

• Hence there is a need for an effective and efficient agriculture market.

HOW TO CREATE AN EFFECTIVE AND EFFICIENT MARKET?

a. Pushing Demand Signal to the Supply Side:

The markets must push demand signals other than price to minimize the blind push of agriproducts

into the markets.

b. Increase In Competition:

For optimal price discovery, increased transparency, and improved resource optimization.

c. Creating a unified market to eliminate artificial demand imbalances by effective integration of

marketing systems.

NEED FOR THE GOVT. INTERVENTION

• Agriculture directly affects the well-being of a large population base especially the prosperity of the

rural economy.

• Around the 1960s half of the national income came from agriculture while it employed about 70%

of the workforce.

• Agriculture trade is monopsonic hence the need to protect the farmers' interests and provide them

an environment of fair trade.

• the added objective of food security also makes the government a buyer of the farm produce.

• Hence it has to monitor and control production and availability of food grains.

• Food inflation is also an important macroeconomic metric, hence the need for government

intervention to protect the consumer's interests as well.

The government's intervention was ensured through the policy majors initially adopted in the

mid-1960s. Both the central and state governments implement various support measures and

interventions including -

Input subsidies, price support stand procurement, provision of market infrastructure, and market

regulations.

INPUT SUBSIDIES

Subsidies: These are the transfer payments made by the government/public authorities directly or

indirectly to aid, assist, or promote an activity or to ease the burden of the intended beneficiary.

The WTO defines subsidies as:

A subsidy arises if:

1. There is a financial contribution made by the government or a public body-

a. In the form of a direct transfer of funds. Ex. Cash transfer.

b. Potential direct transfer of funds. Ex. Loan guarantee by the government.

c. Government revenue is foregone. Ex. tax credits/tax concessions.

d. Government itself provides goods and services other than general infrastructure.

2. If there is price/income support and the benefit is conferred.

Types of subsidies

• Producer Subsidy- subsidy given to producer

• Consumer Subsidy- given to end beneficiaries

• Direct Subsidy- it involves the transfer of funds directly to the beneficiary e.g. PM KISAN, DBT for

LPG

• Indirect subsidy- It involves offering goods and services at discounted prices e.g. Fertiliser,

power, etc

• Disadvantages of Indirect subsidies

• They create price arbitrage, which creates an incentive for leakages and market distortion

• The supply chains required to facilitate access to subsidies for foods & services will add additional

cost

• There is a lack of freedom on 'end use'

• There is no recognition of individual agency

Disadvantages of Direct subsidies

• There may emerge inclusion and exclusion errors regarding beneficiary identification

• the beneficiary may not use the benefit for the intended purpose

• Since no supply chain needs to be created, beneficiaries may then have to rely on market forces of

demand and supply

• There is a need for financial inclusion and literacy

• Timely revision as per inflation is required

Fertiliser Subsidy

These are given by the central government

The fertiliser subsidy regime in India has two types of mechanism

1) Administered price mechanism/Cost plus approach for Urea- in this approach the govt

statutorily fixes the MRP of urea

The subsidy component is derived by adjusting the cost of production and pre-fixed margins with

the MRP

In the case of importers, the subsidy component is arrived at by adjusting the MRP with the

consignment cost(there is canalisation of import of urea-only license holder can import)

2) The Nutrient Based Subsidy Regime(NBS) for DAP and MoP

Under this regime, the manufacturer/importer is free to set the MRP, while the government fixes the

per kg cost of nutrient as components of fertilisers

Issues with Fertiliser Subsidies

• Subsidies have lowered the price of urea to the extent of 75% vis-a-vis 23% for DAP and MoP.

Hence the application of fertilisers is heavily skewed towards urea, which disturbs the nutrient

balance of the soil

• The industrial use of urea and its lower price encourages illegal diversion to industries and

smugging to Nepal and Bangladesh. As per the Economic Survey 2015-16, this theft was

estimated at 41% of the total amount supplied.

• Benefits of Neem Coating against Prilled urea-

◦ It has no industrial use

◦ Pesticidal properties

◦ Reduces hygroscopicity

◦ Reduces water solubility of urea, preventing the leaching

◦ Photosentive volatility

◦ Reduces Nitrifying bacteria

• As a result of price arbitrage fertilisers get hoarded by a section of rich and influential farmers, who

create a black market. As per a study conducted in 2013-14, around 51% of farmers in India paid

a price for urea which was 61% more than the statutorily fixed MRP, despite urea being part of the

Essential Commodities Act

• The APM followed for urea creates no incentives for firms to improve their production efficiency.

Power Subsidy

• Power is Concurrent list subject (Electricity Act 1948)

• Policy & Regulation- Generation, Transmission, and Distribution

• Ministry of Power- CERC

• State Deptt of Power- SERC

• Tariff Mechanism for power for agro use in India

Volumetric pricing/Metered Consumption: Bill= Price per unit x unit consumed

Under this mechanism, electricity is charged based on units consumed

Upto the 1970s, state utilities charge tariffs on volumetric pricing

As the number of electrified pump sets increased, the transaction cost of metering became

prohibitively expensive as against the revenues realised

Consequently, most states shifted to flat tariffs

Flat Tariff Mechanism- Under this mechanism, consumers are charged a fixed amount, generally

linked to the power rating of the pump sets used. Initially the idea was to align these tariffs with the

generation and supply costs. However most states instead further subsidised power for agriculture

Problems/Issues in Power Subsidy

• Lack of data regarding power consumption in agriculture: There is no single official source of

the total power subsidy given to the agricultural sector i.e. data is not available at the granular level

• There are estimates that power subsidies cost India Rs 1.5 Lakh Crore in 2015-16

• Many Utilities in the state inflate the sales of power to the agricultural sector to hide their losses

• 11 agrarian states in India contribute to 95% of agriculture power consumption

• The sectoral share of power consumption agriculture rose from 2-3 % in the 1970s to 17-18% in

2019. The global average is 2.84% (USA 0.15 %)(China 2.3 %)

• There is a lack of transparency in "use estimation and reported losses"

• There are losses to power utilities owing to little to no competition in the distribution sector
• The poor health of the DISCOMS creates a ripple effect; it disturbs the balance sheets of banks,

reduces the willingness of banks to lend, and this inability to borrow disincentivised private

investment in generating additional capacity

• Extremely low power tariff also leads to indiscriminate use of pump sets (due to heavily subsidised

power) leads to excessive water use in agriculture

• According to FAO, India is the largest user of groundwater for irrigation which is two times more

than the US and China

• Owing to the poor financial health of the DISCOMS, they resort to load shedding and reduction in

the quality of power supply to the agriculture sector

• This induces underutilisation of agricultural infra, increases costs on repair & maintenance on

farmers, and even causes accidental deaths

• Because of extremely low tariff rates for power in agriculture it becomes difficult to analyse the

impact of more fundamental reforms like volumetric pricing

Credit subsidy

• 1960s- Cooperatives

• 1968- National Credit Commission- recommended SCBs to extend rural credit

• 1969- Priority sector Lending& Lead Bank Scheme- 40% of ANBC to priority sector

• 1969- 1st phase of bank nationalisation

• 1976- RRBs

• 1982- NABARD

• 1995- The Rural Infrastructure Development Fund (RIDF)

• 1998- KCC scheme

• 2004 - RBI mandates Ground Level Credit

• 2006- Interest Subvention Scheme

• 2009- Prompt Repayment Incentive

Interest Subvention Scheme(ISS)- this scheme is of recent origin

Farmers receive a short-term pre-harvest loan with an interest subvention of 3%

Prompt repayment incentive scheme 2009: a further 2% relaxation is offered to farmers who repay

their loan amounts within time. It is the central govt that will pay the differential rate of interest on

behalf of farmers

Recently, the central govt has also started post-harvest loans with an interest subvention of 2%

Issues with credit subsidy

The rationale behind credit subsidy is weak because the interest rate does not appear to be a

binding constraint for greater adoption of institutional credit

The RBI has observed that institutional credit in the farm sector has plateaued at around 61 %,

meaning that around 39% of rural credit still comes from non-institutional sources, a majority of

which is charged at interest rates of over 20 %

The binding constraint is therefore not the interest rates, but collateral

2) Destruction of rural credit culture by Loan waivers

Crop Insurance

Insurance is a hedge against risks, uncertainties and negative externalities

Similarly crop insurance is a hedge against a shortfall in crop production

Under the PMFBY, a few changes have been made to the previous crop insurance regime (Area Yield

Assurance Program):

1) Premium rates have been fixed at 2%, 1.5%, and 5% of the sum insured for Kharif, Rabi, and

Horticultural crops

2) The government is pushing towards enhancing the levels of sum assured to be commensurate

with the cost of cultivation

The government is seeking to involve private insurance companies to participate in open competitive

bidding

State govt float tenders for clusters of districts, which are notified well in advance

Past data on yields is supplied to the prospective bidders by states and the lowest-cost bidder is

selected

The difference b/w the premium of the lowest bidder and the government-mandated subsidised rate

is the subsidy expenditure of the govt which is equally shared b/w central and state governments

In 2018 budgetary allocation to crop insurance was 13 thousand crores

Issues

Low uptake among farmers- the govt has mandated uptake amongst loanee farmers

Amongst the non-loanee farmers, the uptake is very low

The problem also suffers because of the need for extensive coordination among

stakeholders(Central, states, Insurance companies, and farmers)

The rationale behind subsidies

1) They encourage farmers to increase input application and marketable surplus

2) Subsidies also incentives farmers to invest in new technologies

3) They guard against price fluctuations of inputs

4) They have a moderating influence on food prices

General Issues with Subsidy programs

Subsidies are an opportunity cost for capital expenditure in agriculture i.e. undermine capital

expenditure in agriculture which could have otherwise contributed to long-term productivity

Central State

Fertilisers -1.5 Lac cr 1.5 Lac cr

Credit - 16K cr 10-15 K cr

Insurance - 13-15K cr 13-15 K cr

Provision of agro-inputs at subsidised prices results in resource wastage

Additionally there is a risk of ecological damage due to a lack of incentives to control an

indiscriminate use

Subsidies in India suffer from a lack of clear and coherent objectives

Coupled with populism it creates an excessive fiscal strain for the government from which there is no

structured strategy to exit