Economic Development in India

1stBBALLB

KLE SOCIETY’S LAW COLLEGE

 Objectives:

The course is developed keeping in view the

dynamics of economic principles in legal
system. The Course intends to describe
economic development in relation to
Agriculture, Industry and Banking, the national
income and the functions of the Central Bank
i.e., RBI and the impact of globalization on the
economy.
 SYLLABUS
UNIT – I

• Economic Development in India in relation to Agriculture-

Marketing and Finance

• Industry: Capital formation and FDI. Service Sector: Banking,

Insurance and Other Services like tourism, medical services and
software services since 1990.
UNIT – II

• National Income: meaning, measurement and difficulties.

Parallel Economy: meaning, magnitude & consequences, Factors
responsible for the generation of black money. Policy to control
parallel economy.
 SYLLABUS
UNIT – III

• Functions and role of RBI and monetary policy: Quantitative and

Qualitative methods of Credit Control, Working of the Indian
monetary system, Chakravarthy Committee Report.
UNIT – IV

• New Industrial policy: changing role of public sector, small sector

industrial policy. Abid Hussein Committee Report on SSI.
UNIT – V

• Globalization and its impact on Indian Economy, Emerging trends

in India’s Foreign Trade, Exim Policy, India and WTO, World Bank
and IMF.
 Reference Books:

• Indian Economy – A. N. Agarwal

• Indian Economics – Shankaran
• Indian Economy – Rudradutt, KPM Sundaram
• Indian Economy – S. M. Mishra, V. K. Puri
• SUPPLEMENTARY READING
FRANCIS CHERUNILAM – INTERNATIONAL
BUSINESS
 Features of Indian Economy

INTRODUCTION
• In the 21st century, India has been an emerging economic power with vast
human and natural resources, and a huge knowledge base.
• Since 1991, continuing economic liberalization has moved the economy
towards a market-based system. A revival of economic reforms and better
economic policy in 2000s accelerated India’s economic growth rate.
• By 2008, India had established itself as the world’s second-fastest growing
major economy. However, the year 2009 saw a significant slowdown in
India’s official GDP growth rate to 6.1%as well as the return of a large
projected fiscal deficit of 6.8% of GDP which would be among the highest
in the world.
• India has retained its position as the third largest startup base in the world
with over 8,900-9,300 startups, with about 1,300 new start-ups being
founded in 2019, according to a report by NASSCOM. India also witnessed
the addition of 7 unicorns in 2019 till August, taking the total tally up to 24.
• India has retained its position as the third
largest startup base in the world with over
8,900-9,300 startups, with about 1,300 new
start-ups being founded in 2019, according to
a report by NASSCOM. India also witnessed
the addition of 7 unicorns in 2019 till August,
taking the total tally up to 24.
 The features of Indian Economy are as
follows-
Low Per capita Income

• India’s per capital income is very low as compared to the advanced

countries. India's per capita income was $1670 per year in 2016, ranked at
112th out of 164 countries as reported by the World Bank. The growth of
8.6 percent in per capita income is the lowest in six years in nominal terms
for India in 2017-18. And according to 2005 statistics, the per capita
•
income figure in Switzerland was nearly 76 times, in U.S.A. about 61 times,
in Germany about 48 times and in Japan about 54 times the per capita
income figure in India. Thus the standard of living of Indian people remained
all along very low in comparison to that of developed countries of the
world. According to the World Bank’s Report, in 2017, India’s PCI was $
1940 and was ranked 138 out of 184 countries.
 Dependency on Agriculture

• Indian economy is characterized by too much dependence

on agriculture and thus it is primary producing. A very high
proportion of population is engaged in agriculture and allied
activities even now, thus contributing a large share in the
national income of our country. The latest statistics reveal
that 50% of people in India are dependent on agriculture for
employment.

• It is also marked by low agricultural productivity, lack of

modernization and lack of diversification in its output. Thus
agricultural sector is overburdened
 Heavy Population pressure

• India has a very high rate of growth of population since 1950. Thus
the pressure of population on the country is very heavy. This has
resulted from a very high level of birth rates coupled with a falling
level of death rates. The rate of growth of population was
• 1.31 per cent annually during 1941-50 to 2.5 per cent annually
during 1971-81 to 2.11 per cent annually during 1981-91 and then
finally to 1.77 per cent during 2001-2011 and is at 1.1% in 2017.
• Density of population in India is 382 persons per sq km. Delhi
(11,320) turns out to be the most densely inhabited followed by
Chandigarh (9,258), among all States/UTs, both in 2001 and 2011
Census.
 Prevalence of Chronic
unemployment and
• underemployment
Rapid growth of population coupled with inadequate growth of secondary and tertiary
occupations are responsible for the occurrence of chronic unemployment and under-
employment problem in our country. India also has the problem of cyclical unemployment.
Unemployment Rate in India increased to 6.10 percent in 2018 from 3.52 percent in 2017.
Unemployment Rate in India averaged 4.12 percent from 1983 until 2018, reaching an all time
high of 8.30 percent in 1983 and a record low of 3.41 percent in 2014.
• Lack of market for industrial goods, leads to disincentive for growth of industrial sector, poverty,
lack of effective demand, unskilled labour with lack of opportunities for employment, dominance
of traditional industries with lower productivity are all factors for prevalence of unemployment in
the country.

• The pandemic has pushed another 100 million people around the world into extreme poverty,
says the World Bank chief. Such has been the economic impact of Covid-19, the severity of which
is being felt in India too. A report by the Centre for Monitoring Indian Economy says around 1.8
crore salaried jobs were lost since April.
• Improving capital formation

• In India, the rate of capital formation is also low.

Capital formation mainly depends on the ability
and willingness of the people to save. With low
per capita income and mal-distribution of income
in the country, the ability of the people to save is
very low for which capital formation will be
considerably less.
• Low level of living
•
• The standard of living of Indian people in general is considered as very low. Nearly
25 to 40 per cent of the population in India suffers from malnutrition. The average
protein content in the Indian diet is about 49 grams only per day in comparison to
that of more than double the level in the developed countries of the world.
• India remains one of the highest-ranking countries in the world in terms of the
number of children suffering from malnutrition. India continues to consume
non-nutritious, non- balanced food either in the form of under nutrition, over
nutrition or micronutrient deficiencies, according to the report.
•
A small percentage of Indian populations have access to safe drinking water and
proper housing facilities. As per the estimate of National Building Organization
(NBO), in total there was a shortage of 31 million housing units at the end of March,
1991 and by the turn of the century, total backlog of housing shortage in the country
is around 41 million units.
Inequality in the distribution of wealth

•
• Unequal distribution in income is the result of inequality in the
distribution of assets in the rural areas. On the other hand, in respect of
industrial front there occurs a high degree of concentration of assets in
the hands of very few big business houses. This shows high degree of
assets concentration in the hands of very few powerful business houses of
our country.
• The nation has seen much of the increase in inequality has been since
1991. The wealth held by Indian billionaires increased from 49 billion
dollars in 2004 to 479 billion dollars held by richest 100 billionaires by
2017. The wealth of Indian billionaires was less than 5% of the GDP until
2005, but increased sharply to 22% by 2008, declined after the financial
crisis to 10% by 2012. By the latest estimates, the total wealth of Indian
billionaires is 15% of the GDP of the country. The richest 10% of Indians
own 77.4% of the country’s wealth, 2018 Global Wealth Report. The
bottom 60%, the majority of the population, own 4.7%
 Poor quality of human capital

•
• Indian economy is suffering from its poor quality of
human capital. Due to high poverty levels, a large
population of Indians lives BPL and do not have access
to basic health and educational facilities.
• Mass illiteracy is the root of this problem and illiteracy
at the same time is retarding the process of economic
growth of our country. As per 2001 census, 65.3 per
cent of the total population of India is literate and the
rest 34.7 per cent still remains illiterate. India marks
for poor health, lower literacy rates, malnutrition, and
lack of proper housing. It reduces the quality of living.
 Technological backwardness

•
• The economy of our country is thus suffering
from technological backwardness. Obsolete
techniques of production are largely being
applied in both the agricultural and industrial
sectors of our country.
 Demographic factors

•
• The demography of India’s population is like the density of population, age composition, sex composition, literacy
rate, life expectancy and rural-urban ratio etc... The demographic characteristics of India are not at all satisfactory.
• The density of population calculated as a ratio of the number of persons per square kilometer of land area. Normally
the density of population is very high in the urban and industrial areas and it is quite low in the rural areas, according
2001 census the density of population in India is 324per sq km.
• The proportion of females per 100 males has fallen from 962 in 1901 to 933 in 2001. The latest trend showcases that
in India 103 female babies are born against 100 male babies and loss of female babies after birth is much higher than
that of male.
• The analysis of age composition of population can determine the proportion of labor force in the total population of
the country. The population in India is divided into three groups on the basis of age structure such as 0-14, 15-59 and
60 and above. The higher child population in India has resulted from higher birth rate and fall in the infant mortality
rate. Populations on 0-14 age groups are dependent.
• The proportion on working population in the age group of 55-60 has been declining from
• 60.2 percent in 1921 to 57.1 percent in 1951 and then 54.1 percent in 1981. In 2017, about 27.78 percent of the
Indian population fell into the 0-14 year category, 66.23 percent into the 15-64 age group and 5.99 percent were
over 65 years of age.
• The rural urban composition of India population reflects on the pattern of living of the country’s population. There is
growing trend for gradual shift of population from rural to urban areas. The urban population increased by 41
percent during 194.51. The percentage of urban population in total population has gone up from 17 percent in 1951
to 25.72 percent in 1991 and 27.8 percent in 2001. The Rural – Urban distribution: 68.84% & 31.16% as of 2011
census.
Under-utilization of natural resources

•
• India is considered as a very rich country. Various
types of natural resources, viz., land, water,
minerals, and forest and power resources are
available in sufficient quantity in the various parts
of the country. But due to its various inherent
problems like inaccessible region, primitive
techniques, shortage of capital and small extent of
the market such huge resources remained largely
under-utilized.
 India as a developing Economy
After 70 years of Indian independence the economy has achieved several qualities for which India can
be considered as a developing nation. They are as follows-
• Increase in Net National Product:
• According to the CSO (Central Statistical Organization), India’s net national product at factor cost
(NNP at FC), i.e. national income was only Rs 1, 32,367 crores in 1950-51 increased to Rs 12,
66,005 crores in 2003-04. During the last two decades the national income has increased
significantly to 5.8 % per year compared to 3.4% in first three decades. National Income estimates
of first two years of 10th Five year plan are available. In these two years NNP rose at the rate of
6.5% per year although the growth rate was not adequate still it reflects some sign of
improvement in terms of NNP at FC.

• Increase in Per Capita (Per Head) Income:

• Increase in per capita net national product at factor cost (per capita income) is considered to be
far better index of economic growth. For this reason the planners of Indian economy want to
progress the economic growth in terms of per head income. According to 1993- 94 prices, Indian’s
per capita income in 1950-51 was Rs, 3,687.1. In 2003-04, within the five decades the per capita
income rose to Rs 11,798.7, although the Planning Commission expected that the per capita
income of India would be doubled in twenty years.
•
• However this is an over-optimistic view without any basis. Over twelve years since 1992, the per
capita income increased at a rate of 4.2% per year. In the first two years of 10th Five Year Plan per
capita NNP at FC increased at the rate of 4.7 per year. However, the overall performance
throughout the planning period was not adequate due to long past colonial exploitation.
•
 Rise in Capital Formation
• According to Simon Kuznets, “Capital formation is necessary condition for
economic productivity and growth.” Rise in capital formation leads to
increase in the growth of primary, secondary and tertiary sectors. During
the planning period the gross domestic capital formation had increased
from 8.7% in 1950- 51 to 26.3% in 2003-04.
•
Industrial Growth:
• In India there are no such uniformity during the plan periods as far as
industrial growth is concerned. Indian industries during the Third Five Year
Plan observed a decent growth of about 8%), but thereafter industrial
stagnancy took place. In 1976-77, the growth was abnormally high, but it
decreased steadily during 1979 80. Again, it rose up during 80’s, According
to Economic Survey, the average] annual industrial growth rate in India
which was 5.6% in First Five Year Plan had increased to 8.6% during The
Tenth Five Year Plan.
•
• Agricultural Progress:
• The impact of new agricultural policy, i.e., green revolution, had increased
our Food Grain production substantially from 81.0 million tonnes in the
Third Plan (annual average) to 212.0 million tonnes in 2003-14. Wheat
production increased from 11.1 million tonnes in 2003-04. The average
annual production of rice rose from 35.1 million tonnes in Third Five Year
Plan to 87.0 million tonnes in 2003 04.
•
• Rise of Social Over Head Capital:
• Social overhead capital includes transportation, irrigation, energy
production, education, medical facilities etc. During the overall planning
period these sectors had increased considerably.
•
• The railway’s route length increased by more than 9000 kms and the
operation fleet has practically doubled.
•
• India’s road network is now one of the largest in the world. The total road length
comprising national highways, state highways and other roads was 24.8 lakh kms in
2001-02. Shipping and civil aviation have also improved equally.
•

• India is still facing an energy crisis, but over the past five decades there has been a
massive increase in installed electricity generating capacity. In 2003-04, the installed
electricity generating capacity was 1, 21,400 MW against 2,300 MW in 1951.
Likewise irrigation facilities in the country have been increased raising irrigated area
from 2.26 crore hectares in 1950-51 to 8.47 crore hectares in 1999-2000.
•
During the planning period the number of educational institutions has increased two
times, whereas the number of teachers and students increased more than four
times. Medical facilities have also increased during this period along with the
number of doctors and number of nurses. The bed population is currently 0.93 beds
per 1000 population as against 0.33 beds per 1000 population in 1950-51.
 Major Issues of Development
•
• Since independence Indian economy has thrived hard for improving its pace of
development. India in the process is preparing itself for becoming an economic
superpower, to attain this status; it must expedite socio-economic reforms and take
steps for overcoming institutional and infrastructural bottlenecks inherent in the
system. Availability of both physical and social infrastructure is central to sustainable
economic growth. But there are many problems which are to be addressed that are
hampering the process of faster economic growth and economic development.
• The major issues are-

• Low per Capita Income

• National income and per capita income are the parameters to gauge the economic
growth of any country. It is said that higher the level of national income, higher will
be the rate of economic [Link]’s net national product (NNP) at factor cost in
2007-08 at 1999- 2000 prices stood at Rs 27,60,325 Cr. Population during the time
stood at 1124 million. This means per capita NNP came to Rs 24,256 or Rs 2,021 per
month. Further studies reports that the per capita income in India in 2014 was
$1,560, the per-capita Gross National Income (GNI) of USA was 35 times that of India
and that of China was 5 times higher than India. This indicates that, the standards of
living of masses are badly low. Even the basic necessities are beyond the means of
the majority of population.
 High proportion of people below
poverty line.
•
• Indian economy also has great inequalities in the distribution of income and wealth. India had third highest number
of people living in extreme poverty. India's poverty rate for the period 2011-12 stood at 22% of the total population.
Nearly 60 p.c. of the total population share one-third of India’s national income while only rich 5 p.c. of the total
population enjoy the same amount of national income.
• This inequality widens the problem of poverty. Even in 1972-73, more than 50 p.c. of the total population lived below
the poverty line. Thanks to some economic progress it has come down from 36% in 1993-94 to about 27.5% in 2004-
05, 23.5% as of 2011.
•
Low level of productive efficiency due to inadequate nutrition and malnutrition.
•
• Nutrition and balanced diet is a prerequisite for productive affiance. The NSS has estimated around 55% of urban
population 45% of rural population suffer from inadequate intake of nutritional food intake. The level of malnutrition
is visible in all income groups across the country.
• Causes identified are-
•
• High proportion of calorie intake is derived from cereals
•
• Consumption of non cereal commodities is far short of the requirements.
•
• Change pattern of food habits.
 Imbalance between the
•
•
population size, resources and
The rate of growth of population is very high. So far as the size of population is concerned, India

capital.
ranks second next only to China. 1.1% population growth is not sustainable for India. High birth
rate coupled with low death rate is the genuine cause for population explosion in India. In the
20th century, India’s population went up by 5 p.c. as against 3 p.c. increase in the world’s
population as a whole. This is imposing great economic burdens. The cchallenges are- per capita
availability of land, sizeable proportion of capital utilised for provision of basic facilities for
increasing population slows down the economic development.
• Problem of unemployment
•
• On one hand Natural resources are under-utilized and on the other there is massive wastage
occur in the case of manpower resources. Economic growth is not to the mark of population
growth rate and has accentuated the problem of unemployment in India. Indian agriculture
exhibits a considerable amount of underemployment and disguised unemployment. In the urban
areas disguised unemployment is visible. Despite massive investment made during the various
plan periods, unemployment problem has assumed a gigantic proportion. This amounts to huge
wastage of human capital.
•
Instability of output of agriculture and related sectors.
•
• The uncertainty in agricultural production and gamble with monsoon along with lack of irrigation
facilities has been the major reason for fluctuations in agricultural productivity
 Problem of unemployment

•
• On one hand Natural resources are under-utilized
and on the other there is massive wastage occur
in the case of manpower resources. Economic
growth is not to the mark of population growth
rate and has accentuated the problem of
unemployment in India. Indian agriculture exhibits
a considerable amount of underemployment and
disguised unemployment. In the urban areas
disguised unemployment is visible. Despite
massive investment made during the various plan
periods, unemployment problem has assumed a
Instability of output of agriculture
and related sectors.
• The uncertainty in agricultural production and
gamble with monsoon along with lack of
irrigation facilities has been the major reason
for fluctuations in agricultural productivity.
 Economic Development in India in
relation to Agriculture
•
• Agriculture is the backbone of Indian Economy, I would like to start the
explanation by quoting that ‘No other country in the world has given so
much importance and devotion to agriculture as much as India gives to it,
in India Agriculture is not just an occupation but it is a divine form of
worship for the farmers’. In a condition like this we discuss the idea of
agriculture in India, features, draw backs and also agriculture marketing
and finance.
• Agriculture is the most important sector of Indian Economy. Indian
agriculture sector accounts for 18 per cent of India's gross domestic
product (GDP) and provides employment to 50% of the countries
workforce. India is the world’s largest producer of pulses, rice, wheat,
spices and spice products. India has many areas to choose for business
such as dairy, meat, poultry, fisheries and food grains etc. India has
emerged as the second largest producer of fruits and vegetables in the
world.
• According to the data provided by Department of Economics and Statics
(DES) the production of food grains for the year 2013-2014 is 264 million
tons which is increased when compared to (2012-2013) 257million tons.
This is a good symptom for the Indian economy from the agriculture
• The share
of agriculture in GDP increased to 19.9
per cent in 2020-21 from 17.8 per cent
in 2019-20. The last time
the contribution of
the agriculture sector in GDP was at 20
per cent was in 2003-04
• The contribution of agriculture in the initial two
decades towards the total national output is between
48% and 60%. In the year 2001-2002, this contribution
declined to just around 26%. The aggregate Share of
Agriculture and Allied Sectors, Including agribusiness,
domesticated animals, and ranger service and fishery
sub segments as far as rate of GDP is 13.9 percent
during 2013-14 at 2004-05 prices. Agricultural exports
constitute a fifth of the total exports of the country.
• Export of spices from India is relied upon to US$ 3
billion by 2016-17, The Indian flavours business is
pegged at Rs 40,000 crore. Thus agriculture in India
has completely changed with economic planning since
1950-51, and with special emphasis on agricultural
Role of Agriculture in Indian Economy:
• The contribution of agriculture during the first
two decades towards the gross domestic
product ranged between 48 and 60%. In the
year 2001-2002, this contribution declined to
only about 26% and now contributes to 18%
of NI.
 Agriculture plays vital role in generating employment:

• India at least two thirds of the working

population earn their living through
agricultural works. In India other sectors have
failed generate much of employment
opportunity the growing working populations.
Agriculture makes provision for food for the ever increasing
population:

• Due to the excessive pressure of population labour surplus

economies like India and rapid increase in the demand for
food, food production increases at a fast rate. The existing
levels of food consumption in these countries are very low and
with a little increase in the capita income, the demand for
food rise steeply. During 2018-19 crop year, food grain
production is estimated at record 283.37 million tons. In
2019-20, Government of India is targeting food grains
production of 291.1 million tons.
• Output of foodgrains in India increased from 50.82 million
tonnes in 1950-51 to 252.22 million tonnes in 2015-16
Contribution to capital formation:

• Since agriculture happens be the largest industry in

developing country like India, it can and must play an
important role in pushing up the rate of capital
formation. To extract surplus from agriculture the
following policies are taken:
• Transfer of labour and capital from farm to non-farm
activities.

• Generation of surplus from agriculture to increase the

agricultural productivity.
Supply of raw material to agro based industries:

• Agriculture supplies raw materials to various agro based

industries like sugar, jute, cotton textile and vanaspati
industries. Food processing industries are similarly
dependent on agriculture. Therefore the development of
these industries entirely is dependent on agriculture.
• Agro-based industries are industries that use plant
and animal-based agricultural output as their raw
material. Also, they add value to agricultural
output by processing and producing marketable
and usable products. Some examples of
agro-based industries in India include Textile,
Sugar, Vegetable Oil, Tea, Coffee and Leather
goods industries.
Market for industrial products:

• The increase in rural purchasing power is very

necessary for industrial development as two- thirds
of Indian population live in villages. After green
revolution the purchasing power of the large farmers
increased due to their enhanced income and
negligible tax burden. This has contributed for
market for industrial sector by agricultural sector.
Influence on internal and external trade and commerce:

•
Indian agriculture plays a vital role in internal and
external trade of the country. Internal trade in
food-grains and other agricultural products helps in
the expansion of service sector. In 2013, India
exported agricultural products valuing around 39
billion dollars. India exports agricultural produce and
processed food to over 100 countries all around the
world.
Contribution in government budget:

•
• Right from the First Five Year Plan agriculture is
considered as the prime revenue collecting sector for the
both central and state budgets. However, the
government earns huge revenue from agriculture and its
allied activities like cattle rearing, animal husbandry,
poultry farming, fishing etc. Indian railway along with the
state transport system also earn handsome revenue as
freight charges for agricultural products, both- semi
finished and finished ones.
Need of labour force:

• A large number of skilled and unskilled

labourers are required for the construction
works and in other fields. This labour is
supplied by Indian agriculture.
Greater competitive advantages:

• Indian agriculture has a cost advantage in several

agricultural commodities in the export because of
low labour costs and self- sufficiency in input supply.
 Problems of Indian agriculture
• Small and fragmented landholdings
•
• Lack of Quality Seeds
•
• Manures, Fertilizers and Biocides
•
• Irrigation
•
• Lack of mechanization
•
• Soil erosion
•
• Agricultural Marketing
•
• Inadequate storage facilities
•
• Inadequate transport
•
• Scarcity of capital
 Recent Government Initiatives to
strengthen Indian Agriculture
• Some of the recent major government initiatives in the sector are as
follows:
•
• In September, 2019, Prime Minister, Mr. Narendra Modi launched the
National Animal Disease Control Programme (NADCP), expected to
eradicate foot and mouth disease (FMD) and brucellosis in livestock.
• In May 2019, NABARD announced an investment of Rs 700 crore venture
capital funds for equity investments in agriculture and rural-focused
start-ups. As per the Ministry of Agriculture, during 2019-20, Rs 1.50
crore has been allocated to state of Andaman and Nicobar as a central
share for implementation of per drop more crop component of Pradhan
Mantri Krishi Sinchai Yojana (PMKSY).
• Under Budget 2019-20, Pradhan Mantri Samman Nidhi Yojana was
introduced under which a minimum fixed pension of Rs 3000 (US$ 42.92)
to be provided to the eligible small and marginal farmers, subject to
certain exclusion clauses, on attaining the age of 60 years.
• As per the Union Budget 2019-20, government will work with State
Governments to allow farmers to benefit from e-NAM. Prime Minister of
India, launched the Pradhan Mantri Kisan Samman Nidhi Yojana
(PM-Kisan) and transferred Rs 2,021 crore (US$ 284.48 million) to the
bank accounts of more than 10 million beneficiaries on February 24,
• The Agriculture Export Policy, 2018 was approved by Government
of India in December 2018. The new policy aims to increase India’s
agricultural exports to US$ 60 billion by 2022 and US$ 100 billion
in the next few years with a stable trade policy regime.
• In September 2018, the Government of India announced Rs
15,053 crore (US$ 2.25 billion) procurement policy named
‘Pradhan Mantri Annadata Aay Sanrakshan Abhiyan' (PM- AASHA),
under which states can decide the compensation scheme and can
also partner with private agencies to ensure fair prices for farmers
in the country.
•
In September 2018, the Cabinet Committee on Economic Affairs
(CCEA) approved a Rs 5,500 crore (US$ 820.41 million) assistance
package for the sugar industry in India.
• The Government of India is going to provide Rs 2,000 crore (US$
306.29 million) for computerization of Primary Agricultural Credit
Society (PACS) to ensure cooperatives are benefitted through
digital technology.
• With an aim to boost innovation and entrepreneurship in agriculture, the
Government of India is introducing a new AGRI-UDAAN programme to
mentor start-ups and to enable them to connect with potential investors.
• The Government of India has launched the Pradhan Mantri Krishi Sinchai
Yojana (PMKSY) with an investment of Rs 50,000 crore (US$ 7.7 billion)
aimed at development of irrigation sources for providing a permanent
solution from drought.
• The Government of India plans to triple the capacity of food processing
sector in India from the current 10 per cent of agriculture produce and has
also committed Rs 6,000 crore (US$
• 936.38 billion) as investments for mega food parks in the country, as a
part of the Scheme for Agro-Marine Processing and Development of
Agro-Processing Clusters (SAMPADA).
• The Government of India has allowed 100 per cent FDI in marketing of
food products and in food product e-commerce under the automatic
route.

• [Link]
artups/
 WHAT IS FDI SIR ?
• A foreign direct investment (FDI) is an
investment made by a firm or individual in one
country into business interests located in
another country.
• FDI takes place when an investor establishes
foreign business operations or acquires
foreign business assets in a foreign company.
However, FDIs are distinguished from
portfolio investments in which an investor
merely purchases equities of foreign-based
companies.
• Achievements in the sector
•
• A foreign direct investment (FDI) in India’s food
processing sector is stood at US$ 628.24 million
in 2018-19.
• Sugar production in India has reached 33.16
million tonnes (MT) in 2018-19 sugar season and
is expected to produce 26.85 MT in 2019-20,
according to the Indian Sugar Mills Association
(ISMA).
• The Electronic National Agriculture Market
(eNAM) was launched in April 2016 to create a
unified national market for agricultural
commodities by networking existing APMCs. Up
to May 2018, 9.87 million farmers, 109,725
traders were registered on the e-NAM platform.
• As India battled bitter
memories of the 1943
Bengal famine, and the
prospect of another
threatened the nation in
the ’60s, renowned
geneticist Dr MS
Swaminathan invited
American biologist Dr
Norman Borlaug to help
increase the country’s food
production. Borlaug, known
as the ‘Father of the Green
Revolution’, was famous
worldwide for developing
high-yielding,
disease-resistant wheat
varieties. He came to India
in 1963 and, along with
Swaminathan, examined its
food situation and advised
the government on a new
course of action. Their work
led to a surge in food
production and a decline in
food prices, and eventually
contributed to Borlaug
 Green Revolution

•
• The growth of agriculture depends on technical aspects. The
agricultural inputs include seeds, fertilizer, plant protection,
machinery and credit, irrigation and assume an importance place.
One of the important prerequisite for growth of agriculture is
irrigation. Irrigation means watering the fields by any means other
than rain. Indian agriculture is a rain fed and productivity depends
on availability of water. Thus impetus was given for bringing more
agricultural land under irrigation. In 1950-51, 17% of land was
under irrigation and as of 2016-17 48% of land is covered by
irrigation.
• The need for Irrigation in India is mainly to address the following
issues-

• As Indian agriculture is rain fed, the farmers face the problem of

insufficient, uncertain and irregular rainfall.
• An increase in irrigated lands can lead to higher productivity.
• Irrigation can lead to multiple cropping possible thus
making the food requirement self sufficient.
• It helps in implement of new agricultural strategy.
•
• It can bring more land under cultivation.
•
• There can be two crops per year with irrigation it will
help in reducing instability in levels.
• The irrigation potential has increased from22.6 million
hectares in1950-51 to 113.3million hectares in
2011-12 and further to 141.4 million hectares as of
2016-17. The Government allocation has increased
from 442 crores in I plan to 1, 04,450 crores in 10th
• The new agricultural strategy was adopted in India
during the Third Plan, i.e., during 1960s. In 1951,
Prime Minister Nehru invited Ford Foundation
president Paul G. Hoffman to begin a program in India.
Ford began by sending Douglas Ensminger as a
representative. "Ensminger's first projects in India
were connected to community development and thus
were aimed at increased food grain production
through social reform with secondary attention paid to
the spread for existing technologies but only minor
interest in new technology.“ As suggested by the team
of experts of the Ford Foundation in its report “India’s
Crisis of Food and Steps to Meet it” in 1959, the
Government decided to shift the strategy followed in
agricultural sector of the country.
• Paul Hoffman, the first President of the enlarged
Ford Foundation met Jawaharlal Nehru, the first
Indian Prime Minister several times in 1951 and
impressed upon him and other Indian policymakers
the role Ford Foundation could play in supporting
training projects. Dr. Douglas Ensminger
(1910-1989) was appointed as the Ford Foundation
representative for India and Pakistan in November
1951 and in February 1952, the Ford Foundation
opened an office in Delhi.
• Douglas Ensminger was born in Stover, Missouri,
USA, did his undergraduate and postgraduate
studies in Rural Public Welfare at the University of
Missouri and obtained his PhD in Rural Sociology
from Cornell University in 1939. For the next twelve
years he worked with the United States Department
of Agriculture as a social scientist, eventually
[Link]
heading the Division of Education and Extension
[Link]
Training, Office of Foreign Cultural Relations.
• India imported so much American grain that at one point the United States
controlled "as much as one-third of the money supply in India." the United States
saw its role in providing food and agricultural aid to India in the context of the Cold
War. By that time, the USSR had the atomic bomb and China was on the brink of
becoming Communist. The US used food and agricultural aid with the hopes of
preventing hunger, unrest, and Communism in India. Until at least 1961, the Indian
government based its policies upon bedrock of steady and usually low-cost American
food grain imports."
• Thus, the traditional agricultural practices followed in India are gradually being
replaced by modern technology and agricultural practices. The report of Ford
Foundation suggested introducing intensive effort for raising agricultural production
and productivity in selected regions of the country through the introduction of
modern inputs like fertilizers, credit, marketing facilities etc. They "prepared a
ten-point program that promoted the "package" approach to increasing India's
agricultural yields. On a trial basis of seven districts, India would attempt to marshal
all of the inputs, to be made available to capable farmers, needed for intensive
high-yielding practices. Use of improved seeds, fertilizer, irrigation, and pesticides
was indispensible. Also needed were adequate credit facilities, technical advice, and
a guaranteed price that would provide the grower an incentive to take the risk of
trying new technology. This report was the foundation for
•
the Intensive Agricultural District Program (IADP), the organizational framework for
the green revolution."
• Accordingly, in 1960, seven states were selected and from these 7 states,
seven districts were selected and the Government introduced a pilot
project known as Intensive Area Development Programme (IADP) into
those seven districts.
• West Godavari In AP
•
• Shahabad in Bihar.
•
• Raipur in Madhya Pradesh.
•
• Thanjavur in Tamil Nadu
•
• Ludhaina in Punjab
•
• Aligarh in UP
•
• Pali in Rajasthan for millets.
•
• In 1964, Lal Bahadur Shastri became Prime Minister
appointed C. Subramaniam as Minister of Food and
Agriculture. Together, Shastri and Subramaniam
worked to encourage an increase in grain production
via increased government support of agricultural
production. To do this, they took the recommendation
of the Food grains Prices Committee that the
government should offer incentive prices for grain that
are higher than procurement and market prices.
Additionally, Subramaniam favored building up
government reserves of grain by purchasing it on the
open market at incentive prices. With these policies in
place, the price of wheat increased by 33 percent
between 1964 and November 1965. By 1967, Indian
• Green Revolution varieties of wheat covered
504,000 hectares in India in 1966-67 and grew
nearly 20 times to 10 million hectares by
1972-73.
• In the initial stage, HYVP along with IAAPThe
Intensive Agriculture Area programme (IAAP)
was implemented in 1.89 million hectares of
area. Gradually the coverage of the
programme was enlarged and in 1995-96,
total area covered by this HYVP programme
was estimated to 75.0 million hectares which
• Features of Green Revolution-

• Revolutionary:

• The Green revolution is considered as revolutionary in character

as it is based as new technology, new ideas, new application of
inputs like HYV seeds, fertilizers, irrigation water, pesticides etc.
As all these were brought suddenly and spread quickly to attain
dramatic results thus it is termed as revolution in green
agriculture.
• HYV Seeds:
•
• The most important strategy followed in green revolution is the
application of high yielding variety (HYV) seeds. Most of these HYV
seeds are of dwarf variety (shorter stature) and matures in a
shorter period of time and can be useful where sufficient and
assured water supply is available.
• Confined to Wheat Revolution:

• Green revolution has been largely confined to Wheat crop

neglecting the other crops. 90 per cent of land engaged in wheat
cultivation is benefitted from this new agricultural strategy. Most
of the HYV seeds are related to wheat crop and major portion of
chemical fertilizer are also used in wheat cultivation. Therefore,
green revolution can be largely considered as wheat revolution.
• Narrow Spread:

• The area covered through green revolution was initially very

narrow as it was very much confined to Punjab, Haryana and
Western Uttar Pradesh only. It is only in recent years that
coverage of green revolution is gradually being extended to other
states like West Bengal, Assam, Kerala and other southern states.
 Impact of Green Revolution:

• Introduction of new agricultural strategy or

green revolution has created huge impact on
the economy of the country.
 Increase in Agricultural
Production:
•
• Due to the adoption of new agricultural strategy
the volume of agricultural production and
productivity has recorded manifold increase.
• The production of wheat, rice, maize and potatoes
has increased substantially.
• Total production of food grains in India increased
from 81.0 million tonnes (annual average) during
the Third Plan to 264.8 million tonnes in
2013-2014.
• The introduction of Special Food grains
Production Programme (SFPP) and the Special
Rice Production Programme (SRPP) has supported
Increasing Employment Opportunities:

•
• The introduction of new agricultural strategy
has led to considerable expansion of
agricultural employment. Due to the
introduction of multiple cropping, job
opportunities in the rural areas has also
expanded as the demand for hired workers
required for farm activities increased
simultaneously.
 Strengthening the Forward and
• Although Backward Linkages:
traditional linkages between agriculture and
industry existed since a long back, but green
revolution has strengthened the linkages.
• Strong forward linkage of agriculture with industry
was noticed even in the traditional agriculture as
agriculture supplied various inputs to industries.
• But the backward linkage of agriculture to industry,
i.e., in the form of agriculture using finished products
of industry, was very weak.
• But introduction of modern technology to agriculture
has raised a huge demand for agricultural inputs now
produced and supplied by industries.
• Thus, modernisation of agriculture and development
of agro-based industries has strengthened both
forward and the backward linkages between
 Increase in Regional Disparities:
• Introduction of new technology in agriculture has widened the
regional disparities as only some regions well endowed with
resources and irrigation potential have benefitted most from the
introduction of modern technology.
• The coverage of green revolution has been raised from a mere
1.89 million hectares in 1966-67 to only 71.3 million hectares in
1994-95 which accounts to nearly 42 per cent of gross cropped
area of the country.
• Moreover, as the green revolution was very much restricted to
production of wheat thus the benefits were very much restricted
to 20.4 million hectares of area engaged in wheat production (only
12 per cent of gross cropped area). Moreover, only those areas
having irrigation facilities and package of other inputs could
achieve success in HYVP of wheat.
• Thus, accordingly the regions of Punjab, Haryana and Western
Uttar Pradesh derived the benefits of new agricultural strategy.
But the agriculture of the remaining more than 80 per cent of the
cropped area of the country is still depending on vagaries of the
 No response from Small and
Marginal Farmers:

• Small and marginal farmers in India could not

be able to adopt new strategy due to their
poor financial condition and poor
creditworthiness. Majority of rural household
having small size of land or no land has
derived negligible benefit from this new
technology.
 Market Oriented:

• Introduction of new technology in agriculture

has transformed the farmers market oriented.
Indian farmers are mostly depending on
market for getting their inputs as well as for
selling their output. Moreover, farmers are
also depending much on institutional credit
available in the market to meet cost of
adoption of new technology.
 Change in Attitudes:

• Green revolution has contributed favorably to

change the attitudes of farmers in India.
Agricultural operation has enhanced its status
from subsistence activity to commercial
farming due to the adoption of new strategy.
 Unwanted Social Consequences:
•
• Green revolution has also raised certain unwanted social
consequences. Various socio- economic studies have
confirmed these consequences. Green revolution paves the
way for transforming a large number of tenants and
share-croppers into agricultural labourers due to large-scale
eviction of tenants by large farmers as they find large-scale
farming is highly profitable.
• Again the increasing application of poisonous pesticides,
without realizing its health hazards has added a serious
health problem.
• Withstanding all the debates, there has been an increase in
the production of food grains, and thus with the population
of the country crossing 1.2 billion mark and the demand for
food grains increasing to 270 million tonnes, green
revolution becomes a necessity.
 Achievements of Green
Revolution:
• The most important achievement of new strategy
is the substantial increase in the production of
major cereals like rice and wheat.
• The production of rice has increased from 35
million tonnes in 1960-61 to 54 million tonnes in
1980-81 and then to 106.5 million tonnes in
2013-14.
• The production of wheat has also increased
significantly from 11 million tonnes in 1950- 51 to
36 million tonnes in 1980-81 and then to 95.9
million tonnes in 2013-2014. During this period,
the yield per hectare also increased from 850 kgs
 Weaknesses of Green Revolution:
• Following are some of basic weaknesses of new agricultural
strategy:
•
– Adoption of new agricultural strategy through IADP and HYVP led to
the growth of capitalist farming in Indian agriculture as the adoption
of these programmes were very much restricted among the big
farmers, necessitating a heavy amount of investment.

– The new agricultural strategy failed to recognize the need for

institutional reforms in Indian agriculture.
– Green revolution widened the disparity in income among the rural
population.
•
– New agricultural strategy along with increased mechanization of
agriculture created a problem of labour displacement.
– Green revolution widened the inter-regional disparities in farm
production and income.
– Green revolution has led to some undesirable social consequences
arising from incapacitation due to accidents and acute poisoning
from the use of pesticides.
Agricultural Labor
 Introduction
• Agricultural labor has contributed immensely
to the growth of the Indian economy. Thus it
was opined that “It is one of the primary
objects of the Five-Year Plans to ensure fuller
opportunities for work and better -living to all
sections of the rural community and in
particular, to assist agricultural laborers and
backward classes to come up to the level of
the rest.”
• According to the National Commission on
Labor: "an agricultural laborer is one who is
basically unskilled and unorganized and has
little for its livelihood, other than personal
labor."
• The First Agricultural Labor Enquiry
Committee 1950-55 defined Agricultural
Laborer as - “Those people who are engaged
in raising crops on payment of wages”
• Agricultural labors means who works on the
land and of others on wages. Agricultural
works are agricultural workers constitute the
most neglected class in Indian rural structure.
Agriculture labor may be defined as labor who
works in agriculture or allied activities for the
whole or part of the year in return for (in cash
or kind or both) for full- time or part time
work.
• Landless Agricultural Laborer: The laborers don’t
posses land and can be further sub- divided into:

• Permanent Laborers attached to cultivating

households: Permanent or attached laborers
generally work on some sort of contract. The
wages are determined by custom or tradition.
• Temporary or Casual Laborers: Casual labourers
are engaged only during peak period for work.
The employment is temporary and labourers are
paid at the market rate. These labourers are not
• Small and Marginal Land-Owners: These are
very small cultivators whose main source of
earnings due to their small and marginal
holdings is wage employment. These laborers
can again be divided into three subgroups:
• (i) Cultivators: Cultivators are small farmers,
who possess very little land and therefore,
have to devote most of their time working on
the lands of others as labourers. (ii) Share
croppers: Share croppers are those who, while
sharing the produce of the land for their work,
also work as labourers.
• (iii) Lease holders: Lease holders are the
tenants who not only work on the leased land
but also work as labourers.
 Features of Agricultural
Labourers-
• Agricultural Labourers are scattered:
Agricultural labour in India is being widely
scattered over large number of villages in the
country and so cannot be effectively
organized.
• Unskilled and Lack Training: Agricultural
labourers, especially in smaller villages are
generally unskilled workers carrying on
agricultural operation at a very low wages.
Majority of them are generally conservative
and tradition bound. There is hardly any
motivation for change or improvement. Since
there is no alternative employment, the
agricultural laborer has to do all types of
work- both farm and domestic for landlord.
• Unorganized: Agricultural labourers are not
organized like industrial labourers. These
laborers are illiterate and ignorant. They live
in villages scattered all over the country.
Hence they could not be organized in unions.
Accordingly, it is difficult for them to bargain
with the land owners and secure good wages.
• Low Social Status: Most agricultural workers
belong to the depressed classes, which have
been neglected for ages. In some parts of
India, agricultural labourers are migratory,
moving in search of jobs at the time of
harvesting with a lot of dislocation of family
life, dislocation of education of children and
numerous other handicaps.
• Abundance of Labour: The agricultural
labourers are abundant in supply in relation to
their demand. It is only during the sowing and
harvesting seasons that there appears to be
needful employment, later majority of
agricultural workers are jobless The problem
of labors are that they are unskilled and fail in
securing alternative employment.
• Low Bargaining Power: Due to all the above
mentioned factors, the bargaining power and
position of agricultural labourers in India is
very weak. In fact, quite a large number of
them are in the grip of village money lenders,
landlords and commission agents, often the
same person functioning in all the three
capacities. The farm labourers have been
getting very low wages and have therefore to
live in a miserable sub-human life.
 Causes for growth of agricultural
labourers
• Increase in Rural
Population

• Decline of Cottage
Industries and
Handicrafts

• Eviction of Small
Farmers and Tenants
from the Land

• Uneconomic Land
Holdings and
fragmentation of land
holdings.

• Increase in
indebtedness

• Break-up of Joint
Family System.
 Improvement of Agricultural Labour
• Abolition of Agricultural
Slavery- the Indian
Constitution has
declared the practice of
serfdom an offence. It
has abolished agrarian
slavery including forced
labour by law

• Minimum Agricultural
Wages- under
Minimum Wages Act,
The Minimum Wages
Act was passed in 1948,
according to which
every State
Government was asked
to fix minimum wages
• Provision of Land leading to rehabilitation of landless agricultural workers.
The zamindari system was abolished by law in all the States and with that
all the exploitation associated with the system has been removed.
• Besides, tenancy laws have been passed in most of the states protecting
the interests of the tenants and
labourers, and enabling them to acquire the lands they cultivate. Many
states have passed legislation fixing ceiling on agricultural holdings by
which the maximum amount of land which a person can hold has been
fixed by law.
• Cooperative farming-
During the Second
Five-Year Plan, efforts
were made to
encourage the
formation of labour
co-operatives. Public
works programme

• Employment
Guarantee Scheme:
The Government of
Maharashtra
introduced it in 1977.
 20 Point program
• 20-Point Programme:
• Prime Minister Indira Gandhi
• TWENTY POINT PROGRAMME. The Twenty
Point Programme was initially launched by
Prime Minister Indira Gandhi in 1975.
restructured in 1982 and again on 1986.
• The Programme aims to provide momentum
to schemes relating to poverty alleviation,
employment generation in rural areas,
housing, education, health and family welfare,
protection of environment and many other
schemes having a bearing on the quality of
life, especially in the rural areas.
 • Speedy implementation of ceiling
legislation and distribution of
20-Point Programme:
surplus land among landless
labourers and small peasants;
• Provision of house sites for landless
labourers and conferment of
ownership rights of the houses if
they have been occupying them for
a certain period;
• Abolition of bonded labour;

• Liquidation of rural indebtedness

and moratorium on recovery of
debts from landless labourers,
artisans and small peasants; and
• Review of the minimum wage
legislation for agricultural labour
and introduction of suitable
enhancement of minimum wages
wherever necessary.
• A special scheme was introduced
for providing employment. Rural
Employment (CSRE), National Rural
Employment Jawahar Gram
Samridhi Yojana (JGSY), and
National Food for Work Programme
(NFFWP), Mahatma Gandhi Rural
Employment Guarantee Act
MGNREGA
• In July, 1975, soon after the Emergency was
declared, the Government introduced the 20-
point economic programme which included a
number of measures to improve the economic
condition of the landless workers and other
weaker sections of the community in our
villages.
• These measures were:
• Special agencies for development - Small Farmers
Development Agency (SFDA) and Marginal Farmers and
Agricultural Labourers Development Agency (MFAL) -
were created in 1970-71 to solve the problems of
Agriculture labour of the country.
• The Central Government has passed the National Rural
Employment Guarantee Act (2005) which makes it
mandatory for the Government to provide 100 days of
employment per rural household. Welfare Measures for
Agricultural Labour-
• The old age pension scheme, to those who have attained
the age of 60 and having no sons, needs to be extended
to cover all agricultural workers of age 60, irrespective of
presence of sons/daughters.
• Minimum wages through a single window for agricultural
labourers was introduced. A crop insurance scheme on
the pattern of ‘livestock insurance’ and ‘life insurance’
needs to be introduced. Drought Prone areas, Desert
areas development programmes etc.
 Measures taken by the
government to improve the
conditions of agricultural
labourers:
• The Government has shown awareness
of the problems of agricultural workers
and all plan documents have suggested
ways and means to ameliorate the lot of
these people. Measures adopted by the
Government for ameliorating the
economic conditions of agricultural
labourers are -
• Passing of minimum wage Act.

• Abolition of Bonded Labourers

• Providing land to landless labourers

• Provision of Housing cities to houseless

• Special schemes for providing employment are as follows-

• Crash Scheme for Rural Employment (CSRE)

• Integrated Rural Development Programme (IRDP )

• Pilot Intensive Rural Employment Project
(PIREP)

• Food for works programme (FWP)

National Rural Employment Programme (NREP)

• Rural Landless Employment Programme (RLEP)

• Drought Prone Area Programme (It was known

as Rural Works Programme)
• Jawahar Rojgar Yojana (which come in with the merger of
NREP and RLEGP)

• Desert Development Programme

• National Scheme of Training of Rural Youth for Self

Employment (TRYSM)

• Development of Women and Children in Rural Areas

(DWCRA)

• Abolition of Bonded Laborer Act

Agriculture Marketing

• Agricultural marketing system is

an efficient way by which the
farmers can dispose their
surplus produce at a fair and
reasonable price. Improvement
in the condition of farmers and
their agriculture depends to a
large extent on the elaborate
arrangements of agricultural
marketing. The term
agricultural marketing include
all those activities which are
mostly related to the
procurement, grading, storing,
transporting and selling of the
agricultural produce.
 Thus, Prof. Faruque has rightly
observed:
• “Agricultural marketing comprises all
operations involved in the movement of farm
produce from the producer to the ultimate
consumer. Thus, agricultural marketing
includes the operations like collecting,
grading, processing, preserving,
transportation and financing.”
 Different systems of agricultural
marketing are-
• The farmers in India is to sell away their
surplus produce to the village moneylenders
and traders at a very low price, The
moneylender and traders may buy
independently or work as an agent of a bigger
merchant of the nearly mandi. In India more
than 50 per cent of the agricultural produce is
sold in these village markets in the absence of
organized markets.
 Sale in Markets:

The method of disposing surplus of the Indian farmers is to sell

their produce in the weekly village markets popularly
known as ‘hat’ or in annual fairs.

• Sale in Mandis:
• The form of agricultural marketing in India is to sell the
surplus produce though mandis located in various small and
large towns. There are nearly 1700 mandis which are
spread all over the country. As these mandis are located in
a distant place, thus the farmers will have to carry their
produce to the mandi and sell those produce to the
wholesalers with the help of brokers or ‘dalals’.
•
These wholesalers of mahajans again sell those farm
produce to the mills and factories and to the retailers who
in turn sell these goods to the consumers directly in the
 Co-Operative Marketing

• This form of marketing is the co-operative

marketing where marketing societies are
formed by farmers to sell the output
collectively to take the advantage of collective
bargaining for obtaining a better price.
 Regulated Markets:

• Organized marketing of agricultural

commodities has been promoted throughout
the country through a network of regulated
markets, whose basic objective is to ensure
reasonable prices to both farmers and
consumers by creating a proper market
environment for fair play of supply and
demand. The number of regulated markets
has grown from 286 in 1950 to 7,114 as on
31st March, 2014, besides which there are
Defects of Agricultural Marketing
in India:
• The major problem faced by farmers in India is lack of adequate storage
facility to store the agricultural produce.
• The farmers in distress sell their produce to middlemen, moneylenders at
low prices due to financial problems.
• There is no proper development of road connectivity from villages to taluk
places, towns and cities which acts a hindrance for farmers to transport
their products to markets.
• There is existence of unfavorable mandis where farmers are exploited by
intermediaries and middlemen.
• The markets are unregulated and do not follow rules and regulations as
specified by the government and thus farmers are exploited.
• There is lack of Market Intelligence as correct and accurate information of
market prices for agricultural commodities do not reach farmers.
•
There is lack of knowledge to grade the agricultural produce by the
farmers, thus they do not get fair price for their produce. Lack of
Institutional Finance
 Remedial Measures for Improvement
of Agricultural Marketing:

• An improvement of the agricultural marketing in India

is utmost need of the hour. Thus there is a need to
meet the above mentioned conditions develop
agricultural market in India. Thus the measures taken
are-to establish regulated markets.
• Establishment of co-operative marketing societies.
• Extension and construction of additional storage and
warehousing facilities for agricultural produce of the
farmers.

• [Link]
a/
• The expansion of market yards and other
allied facilities for the new and also to the
existing markets can lead to better functioning
of agricultural markets..
• Provision is made for extending adequate
amount of credit facilities to the farmers.
• A timely provision of marketing information to
the farmers.
• Improvement and extension of road and
transportation facilities for connecting the villages
with mandis.
• Provision for standardization and grading of the
produce for ensuring good quality to the consumers
and better prices for the farmers.
• Formulating suitable agricultural price policy by the
Government for making a provision for remunerative
prices of agricultural produce of the country.

• (Standardisation determines the specifications of a

manufactured product such as size, quality,
performance etc. Goods that cannot be produced of a
single size, weight or colour such as fruits, grains, eggs
or cotton are graded into classes on the basis of
Steps Taken for Improvement of
Agricultural Marketing in India:
• The Government has taken following
important steps for the improvement of
agricultural marketing in India:
 Warehouses:
• For constructing the network of warehouses in
the town and mandis, the All India Warehousing
Corporation has already been set up. In 1988-89,
the Central Warehousing Corporation (CMC)
owned and managed nearly 465 warehouses with
its total storage capacity of 6.4 million tonnes.
• State Warehousing Corporations (SWCs) also own
and manage about 1300 warehouses as of
1988-89 with its total storage capacity of about
8.5 million tonnes. Besides, the Co-operative
Societies have also been provided with necessary
financial and technical help to promote
 Development of Marketing Societies
and Regulated Markets:
• The Co-operative Credit Societies are also
re-vitalized for providing more credit to the
farmers. Again about 2633 general purpose
primary co-operative marketing and
processing societies have also been formed
for assuring reasonable prices to the farmers
and also to remove all existing intermediaries
from the market. As on March 2009, about
7,139 regulated markets had been set up to
safeguard the interest of farmers.
• Price of important food grains are also
stabilized by the Government as per the
recommendations of the Agricultural Costs
and Prices. Lastly, the marketing of
agricultural produce has also been improved
significantly by the Government with the
growing involvement of the organizations like
Food Corporation of India, Cotton Corporation
of India, Jute Corporation of India etc.
 Infrastructure and other facilities:

• The central Government is also providing

assistance for the creation of infrastructural
facilities in the markets and also for setting up
godowns in rural areas. These schemes have
been transferred to different States and Union
Territories with effect from April 1992.
• The National Agricultural Co-operative Marketing
Federation of India (NAFED) is also working as an apex
body of marketing co-operatives in the country. It is
also providing effective support to the farmers for
marketing their produce and also undertaking price
support and market intervention operation
NAFED:

• NAFED is a central nodal agency for undertaking price

support operations for pulses and oilseeds and market
intervention operation for horticultural items like
Kinnu/Malta, onion, potato, grapes, black pepper, red
chilies etc. During 1994-95 NAFED’s turnover was Rs
 Standardization and Grading
• The main function under institutionalized
agricultural marketing is to promote
standardization and grading of agricultural
products. In order to improve the
marketability of products within and
outside the country, an effective quality
control mechanism is essential. In order to
facilitate grading; standards have been laid
down for 143 agricultural and allied
commodities under the Agricultural
Produce (Grading and Marketing) Act,
1937.
• Accordingly, the Agricultural Produce
(Grading and Marking) Act, 1937 was the
first legislation enacted by the Central
• The Act also empowers the Central Government
to include additional commodities/products in the
schedule for enforcement of grade standards and
implementing grading and quality control.
Ag-mark standards have been framed and notified
in respect of 163 commodities which include food
grains, pulses, fruits and vegetables, spices, edible
nuts, oilseeds, vegetable oils and fats, fibers,
forest products, livestock, dairy and poultry
[Link] present, 22 Regional Agmark
Laboratories are operating under the Apex Central
Agmark Laboratories, Nagpur. These laboratories
also provide training to chemists of the
laboratories of States and Union Territories
 The latest reforms to strengthen
agricultural marketing are
• National Agriculture Market is one of the
reform agenda, with the objectives to create
barrier free market, enhance competition &
transparency in transactions and widen choice
to farmers for sale of their produce; Prime
Minister Shri Narendra Modi launched the
pilot of e-NAM, the e-trading platform for the
National Agriculture Market (eNAM) on 14th
April, 2016. Initially 21 mandis in 8 states had
been linked to the National Agriculture
• The Government of India has launched six
new user friendly features of National
Agriculture Market (e-NAM) platform. i.e.
– e-NAM Mobile App;
– BHIM payment facility;
– New and improved Website with eLearning Module;
– MIS Dashboard
– Grievance Redressal Management System for Mandi
Secretaries; and
– Integration with Farmer Database.
 Agricultural finance

• Agricultural production in this country depends upon

millions of small farmers. It is the intensity of their
effort and the efficiency of their technique that will
help in raising yields per acre. Finance in agriculture is
as important as other inputs being used in agricultural
production. With the prevalence of inadequate
financial resources and absence of timely credit
facilities at reasonable rates to farmers, many of the
farmers are unable to go in for improved seeds and
manures or to introduce better methods or
techniques. Thus realizing the importance of
agricultural credit in fostering agricultural growth and
development, the emphasis on the institutional
framework for agricultural credit is being stressed
 Meaning
• “Agricultural finance is the study of financing
and liquidity services credit provides to farm
borrowers. It is also considered as the study of
those financial intermediaries who provide
loan funds to agriculture and the financial
markets in which these intermediaries obtain
their loan able funds.”
• Money lenders were the main source of credit to
agricultural sector in early period along with some
co-operative banks as an institutional agencies
providing finance to agriculture.
• With 14 major commercial banks being
nationalized in 1969, it was made mandatory for
these banks to provide finance to agriculture as a
priority sector.
• These banks undertook special programs of
branch expansion and created a network of
banking services throughout the country and
started financing agriculture on large scale. Thus
agriculture credit acquired multi-agency
dimension
 NEED FOR AGRICULTURAL FINANCE

• The financial need of the Indian farmer can be

broadly classified into two categories

– On the basis of time and

– On the basis of purpose.

 The needs of the farmers can be classified into
three categories on the basis of time:

• Short term.

• Medium term, and

• Long term finance.

• Short-term loans are required for the
purchase of seeds, fertilizers, pesticides, feeds
on fodder of livestock, marketing of
agricultural produce, payment of wages for
hired labors.
• Period of such loans are up to 15 months.
Agencies for granting such loans are the
moneylenders and cooperative societies.
• Medium-term loans are obtained for the
purchase of cattle, small agricultural
implements, repair and construction of wells
etc. The period of such loans extends from 15
months to 5 years. These loans are generally
provided by money-lenders, relatives of
farmers, cooperative societies and commercial
banks.
• Long-term loans are required for effecting]
permanent improvement on land, digging
tube wells,’ purchase of larger agriculture
implements and’ machinery like tractors,
harvesters etc. and repayment; of old debts.
The period of such loans extends beyond; 5
years. Such loans are normally taken from
Primary Cooperative Agricultural and Rural
Development Banks (PCARDBS).
 On the Basis of Purpose

• Agricultural credit needs of the farmers can be

classified on the basis of purpose into the
following categories:

• Productive needs- it includes all credit

requirements which directly affect agricultural
productivity. Farmers need loans for the
purchase of seeds, fertilizers, manures,
agricultural implements, livestock, digging and
repair of wells and tube wells, payment of
wage, effecting permanent improvements on
land, marketing of agricultural produce, etc.
Repayment of these loans is generally not
difficult because the very process of
• Consumption needs- Farmers often require
loans for consumption as well. Institutional
credit agencies do not provide loan for
consumption purpose. Therefore farmers
stretch their hand towards the moneylenders.
• Unproductive borrowings-Loans are taken for
unproductive purposes such as litigation,
marriages, and social ceremonies on birth and
death of a family member, religious functions,
festivals etc.
• Farmers take loans from Mahajans since
institutional credit agencies do not give such
loans.
SOURCES OF AGRICULTURAL FINANCE
• The two major sources of finance in
agriculture are institutional and non-
institutional sources.
• Non-Institutional sources are the following:
• a) Moneylenders –
• b) Relatives
• c) Traders, Commission agents and Landlords
 Moneylenders –

• There are two types of money lenders in rural areas.

• There are rich farmers or landlords who combine
farming with money-lending.
• There are also professional money lenders whose only
occupation or profession is to lend money. The
cultivators depend upon the money-lenders for their
requirements of cash. The money lender freely
supplies credit for productive and non-productive
propose, and also for short-term and long-term
requirements the farmers.
• He is easily accessible and maintains a close and
personal contact with the borrowers often having
 Relatives-
• depend for short term finance for
unproductive consumption
 Traders, Commission agents and
Landlords-
• Traders and commission agent supply funds to
farmers for productive purpose much before
the crops mature. They force the framers to
sell their produce at low price and they charge
a heavy commission for themselves.
• Thus source of finance is particularly
important in the case of cash crop like cotton,
groundnut, tobacco, and in the case of fruit
like mangoes.
 Institutional Source –
• Institutional sources consist of the government and
co-operative societies, commercial bank including the
Regional bank, Lead bank.
• Co operatives: Indian planners consider co-operation as an
instrument for economical development of the deprived
farmers, particularly in the rural areas.
• They see in a village panchayat, a village co-operatives and
village school, as the trinity of institution on which a
self-reliant and just economic and social order is to be built.
• The co-operative movement was started in India largely
with a view for providing agriculturists funds for agricultural
operations at low rates of interest and protects them from
the clutches of money lenders. The rural co-operative credit
institutions in India have been organized into short-term
and long-term structures.
• Primary Agricultural Credit Society- These credit
societies are grass root level arms of the short
term co-operative credit structure. These are
organized at the village level. PACs deal directly
with farmers and grant short term and medium
term loans and also undertake distribution and
marketing functions. The usefulness of PACs has
been rising steadily.
• In 1950-51, it advanced loan worth Rs. 23 crores
and Rs. 34,520 crore in 2000-01. The PACs have
stepped up their advances to the weaker sections
particularly the small and marginal farmers. The
progress has been quite spectacular but not
sufficient considering the demand of finance by
• Central Cooperative Banks- The second tier
District Central Cooperative Banks (DCCBs) are
organized at the district level. There are 369
District Central Cooperative Banks as of
2001-2002. The loan amount of 56,650crore
was distributed to the farmers so far. Their
main task is to lead Primary Agricultural Credit
Societies in village.
• State Cooperative Banks- The third and
uppermost tier are the (STCBs) organized at the
state level state Cooperative Banks (state level).
There are 30 State Cooperative banks in the
country. These Banks are the apex banks of the
Cooperative credit structure.
• It serves as a link between NABARD from which it
borrows and lends to the co-operative central
bank and primary societies village. Central
Cooperative Banks functions as intermediaries
between the State Cooperative Bank and Primary
• Commercial Banks:
• In fact up to 1970, the government policy was to
depend entirely on the cooperative banks as a
major source of institutional credit in rural areas.
But looking to the growing demand, Government
felt that Cooperative Bank alone cannot meet the
need for agricultural finance, Govt changed the
policy and a number of institutions were
developed to provide rural credit. In 1969, 14
major banks were nationalised.
• In 1980, six more banks were nationalised. In
2004, the number of total branches had shot up
to 67,062, of this 32,200 in rural areas to 47,599
as of 2016
• Regional Rural Banks:

• The Working Group on Rural Banks (1975)

recommended for the establishment of
Regional Rural Bank (RRBs) to supplement the
efforts of the commercial banks and the
cooperatives in extending credit to weaker
sections of the rural community, small and
marginal farmers, landless labourers, artisan
and other rural residents of small means.
National Bank for Agriculture and Rural
Development (NABARD):

• The most important development in the field

of rural credit has been the setting up of the
National Bank for Agriculture and Rural
Development (NABARD) in July 1982. It took
over from Reserve Bank of India all the
functions that the latter performed in the field
of rural credit. NABARD is now the open bank
for rural credit.
 Functions of NABARD (1982):
• The main functions of NABARD are as follows:
•
– It works as an open body to look after the credit requirement of the rural
sector.
•
– It has authority to oversee the functioning of ‘the cooperative sector
through its Agricultural Credit Department.
– It provides short-term credit (up to 18 months) to State Cooperative Banks
for seasonal agricultural operation (crop loans), marketing of crops,
purchase and distribution of fertilizers and working capital requirements of
cooperative sugar factories.
– It provides medium-term credit (18 months to 7 years) to State
Co-operative Banks and RRBs for agricultural purposes purchase of shares
of processing societies and conversion of short- term crop loans into
medium term loans in areas affected by natural calamities.
– It provides medium and long-term credit (not exceeding 25 years) for
investment in agriculture under schematic lending to State
Cooperative Banks, Land Development Banks, RRBs and commercial
banks.
– It provides long-term assistance in the form of loans to state
governments (not exceeding 20 years) for contribution to share
capital of cooperative credit institutions.
– It has been entrusted with the responsibility of inspecting District
and State Cooperative Banks and RRBs. The inspection of State Land
Development Banks and other Federation Cooperative are
undertaken on a voluntary basis.
– It maintains a research and development fund to be used to promote
research in agriculture and rural development so that projects and
programmes can be formulated and designed to suit the
requirement of different areas.