Business Economics – V

Module II: Agricultural sector during post reform period

Q.1 Explain main objectives of NAP 2000.

Ans. Indian government adopted the policy of liberalization since 1991. Liberalization opened Indian market for
foreign goods. This has posed many new challenges to the economy. Again in 1995 WTO was set up and all member
countries are supposed to open market for foreign goods. It has provided new opportunities to Indian agriculture to
enter in international market.

To face the new challenges and to exploit the new opportunities by agriculture, Indian government introduced
National Agricultural Policy 2000. Main objectives of National Agricultural Policy are stated as follows:

1. Growth – The main objective of National Agricultural Policy 2000 is to maintain agricultural growth rate of
minimum 4% per annum.
2. Efficient use of Resources – Agricultural growth should be with efficient use of resources. Various
resources available in rural areas must be used in most efficient manner.
3. Equity – NAP 2000 aims at growth with equity. It implies that agricultural growth in the county must not be
confined to specific region and specific people. In other words, growth must be across the regions and across
the farmers.
4. Demand Oriented Growth – Agricultural growth must be demand oriented. Production of such products
must be increased which are demanded more in the market. Agricultural growth must offer more benefits to
the farmers through agricultural exports.
5. Sustainability – Agricultural growth must be sustainable environmentally, technologically and economically.

Q.2 Explain important features of NAP 2000.

Ans. They are explained as follows.

1. Sustainable Agriculture – Agriculture should become a regular and long lasting activity in the country. To
achieve the objective of sustainable agriculture following steps can be proposed.
a) Check over diversion of agricultural land for non – agricultural activities.
b) Unutilized and waste land should be brought under cultivation or should be used for afforestation.
c) There should be conservation of soil.
d) There should be conservation and proper use of water resources.
2. Institutional Development- National Agricultural Policy 2000 aims at institutional development in rural
areas for creating a suitable environment for agricultural growth. For institutional development in agriculture
government selected 3 areas:
a) Land Reforms – For the implementation of land reforms following measures would be taken:
I. Consolidation of land holding to solve the problems created by sub division and fragmentation
of agricultural land.
II. There should be recognition of rights of tenants.
III. There should be developmental of lease market in agriculture.
b) Rural Credit – Main factor responsible for agricultural backwardness in India is lack of capital. To
overcome this problem there should be development of credit facilities in rural areas. For development
of rural credit following measures are proposed.
I. Expansion of banking facilities in rural areas.
II. Bank and self help groups linkage for the development of micro – credit in rural areas.
 c) Development of Co-operative Sector – Agricultural development needs development of co-operative
sector. Government proposes following steps to encourage co-operative sectors in rural areas.
I. Development of co-operative farming
II. Development of co-operative marketing
3. Investment in Agricultural- Agricultural development needs investment in agriculture. Following measures
can be proposed to increase investment in agriculture.
I. Private sector investment will be encouraged in agricultural research and marketing.
II. Investment in agriculture can be increased through rural electrification.
III. Through the development of irrigation facilities production in agriculture will increase and cultivation
will become a profitable activity. This will automatically encourage investment in agriculture.
4. Generation and Transfer of Technology – For agricultural growth and development, technological
development in agriculture is necessary. For the generation and transfer of technology in agriculture
government proposed following measures:
I. There should be regionalization of agricultural research based on identified crop – zones.
II. Research and extension linkage in agriculture must be strengthened.
III. Innovative changes should be introduced so that extension system is farmer accountable and farmer
responsible.
5. Incentives – For higher growth in agriculture certain incentives must be given to agriculture. Government
proposed following incentives to agriculture.
I. There should be widening of agricultural market to avoid price fluctuations in agricultural market.
II. Improving terms of trade in favour of agriculture against industries.
III. Providing similar facilities to agriculture as given to industries like credit facilities.
IV. Encouragement should be given to increase agricultural exports.
6. Risk Management – Farmers are exposed to risk from the time of seed sowing to the time of threshing and
harvesting. In order to cover the risk or minimize the risk of farmers government proposes following
measures:
I. There will be introduction of a comprehensive Insurance policy from the time of seed sowing to the
harvesting.
II. Government will develop proper marketing facilities such as storage facilities to minimize the risk of
farmers.
III. Government purchases of food grains at minimum support prices will be continued.
7. Inputs Management – Higher growth in agricultural production and increase in agricultural exports needs
proper management of inputs. Government proposed following measures for proper input management.
I. There should be adequate and timely supply of quality inputs.
II. There should be optimum use of fertilizer.
III. There will be development of National Seed Grid to ensure the supply of seed in every part of the
country.
IV. There should be minimum use of chemical pesticides.
8. Food and Nutritional Security – Population of India is growing very fast. Due to rapid growth of population
there is risk of food scarcity. To provide food& nutritional security government proposed following measures.
I. There should be availability of hybrid seeds in the country.
II. There should be development of new crop varieties particularly food crops.
III. There should be emphasis on post – harvest management.
IV. There should be development of animal husbandry such as dairy and poultry products to increase the
supply of animal proteins.
Q.3 Discuss the implications of NAP 2000

Ans: Various implications of NAP 2000 are explained as follows:

1. Expansion of cultivable land area – According to an estimate India has 79.5 million hectares of
wasteland. This should be brought under cultivation and afforestation.
2. Increase in agricultural productivity – Agricultural productivity in India is less than developed
countries. NAP 2000 aims at increasing agricultural productivity.
3. Land reforms – The real cultivator must be protected. Hence, tenancy laws and transfer of ownership to
real cultivator must be ascertained.
4. Development of co –operative sector – There must be development of co-operative farming and co-
operative marketing in agriculture to increase production and protect the interest of farmers.
5. Expansion of Banking facilities in rural areas – Banking facilities must be developed in rural areas.
Farmer must be provided credit at reasonable rate of interest.
6. Increase in investment – Investment in agriculture must increase for higher growth. Private sector can be
motivated to invest in agricultural research and agricultural marketing.
7. Appropriate technology – R&D should be encouraged in agriculture. The technological development
should be area specific and suitable to crop and environment.
8. Crop Insurance – Comprehensive insurance scheme must be offered to farmers. This should cover
losses from the day of seed sowing to the day of harvest. This can encourage agricultural growth by
inducing investment on inputs.
Hence, NAP 2000 targets higher growth is agriculture through various types of positive changes.

Q.4 Explain the need for agricultural pricing policy in India.

Ans – Agricultural price policy refers to various measures taken by the government to regulate the prices of
agricultural produce. It is necessary to achieve following objectives.
1. Protection to farmers – Prices of agricultural products are influenced more by the supply as the demand
is relatively inelastic for agricultural products, In case there is good crop the supply of agricultural
products will increase and consequently prices will fall. Hence, farmers will be the losers.
Thus, to protect the interest of farmers a standard price level should be maintained by government.
2. Protection to consumers – Agricultural products such as food grains are essential commodities. When
supply of agricultural products decrease due to crop failure, prices will increase. This will affect poor
consumers.
Thus, to protect poor consumers, price level should be regulated by government.
3. Promotion of capital formation in Agricultural – Farmers in India treat agriculture as a way of life.
Hence, there is absence of desire to invest in agriculture for making commercial gains. The farmers can
be encouraged to invest in agriculture if they expect better returns. It is therefore necessary to offer
remunerative prices for agriculture products.
4. Reduction in Income inequality – Level of income of those who are engaged in secondary and tertiary
sectors is higher than those who are engaged in agriculture. This is responsible for income inequality in
the county.
Income inequality between farm and non – farm activities can be reduced by offering higher prices of
farm produce.
5. Increase in marketable surplus – Generally Indian farmers produce for self consumption. They must be
motivated to increase the production and marketable surplus to satisfy the needs of urban population. This
is possible by offering higher prices for their produce. Therefore, price policy is necessary in India.
 6. Modern technology – In India old techniques of cultivation are used by the farmers. If farmers expect
better returns, they will be encouraged to use new techniques of cultivation.
It is necessary to offer therefore higher prices for agricultural produce.
7. Effective utilization of resources – Agricultural land and other resources should be utilized effectively in
the country with minimum wastage. It is possible by offering appropriate prices to farmers.
8. Cropping pattern – Agricultural pricing policy can influence cropping pattern in the country. Production
of certain crops can be increased through higher market prices while the production of other crops can be
discouraged through lower prices.

Q.5 Explain the essentials of agricultural pricing policy in India.

Ans – Agricultural pricing policy includes various steps taken by government to manage the prices of agricultural
products – It is explained as follows.

1. Butter stocks – The government builds large stock of food grains to stabilize the prices. In the year of
crop failure, the supply of food grains in the market is low. Hence, prices will have tendency to rise. In
this situation the stocks held with government are supplied in the market to check the prices rise.
2. Development of Warehousing – In absence of storage facilities farmers are forced to sell their produce
immediately after the harvest. As a result market supply increases and prices level decreases. In order to
protect the farmers storages facility is developed by constructing warehouses. This will help farmers to
secure better prices by selling at appropriate time.
3. Credit Facility – In absence of institutional credit facilities, farmers borrow from money lenders at a
higher rate of interest. In this situation they are forced to sell their crop immediately after the harvest to
repay the loans.
Provision of bank credit at lower rate of interest can provide waiting capacity to farmers. Hence, they will
sell at appropriate time to get better prices.
4. Organisation of Regulated markets – Most of the states have regulated markets which help stabilize the
prices of agricultural products. It protects the interest of farmers.
5. Administered Prices – Agricultural Prices commission was set up in 1965. It was renamed as
Commission for Agricultural Costs and Prices (CACP) in 1985.
CACP announces following types of prices –
a) Minimum support Prices (MSP) – They are fixed by CACP to give guarantee to farmers that they
may sell any amount of produce to government at this minimum price. Hence, increase in supply will
not result in fall in prices. They are secured by government through MSP.
MSP is fixed by taking into account all costs like expenses on the purchase of inputs, imputed value of
family labour,rental value of owned land, land revenue paid to government and 50% return on the cost.
b) Procurement Prices – They are announced by CACP to motivate farmers to sell their produce to
government instead of selling in the market to traders. This is higher than MSP. It is necessary to
maintain buffer stock of food grains. But at procurement prices the government will purchase till the
targeted stock is procured. After the stock is procured, the government can buy but only at MSP.
c) Issue Prices – They are announced CACP and at this price food grains are sold by the government for
poor consumers from rationing and fair prices shops.
d) Statutory minimum support prices – In case of sugarcane and jute the MSP is given a statutory
status. It means no trader in the market will pay a lower price to farmers than MSP fixed by the
government.
 6. High powered price monitoring Board – It was set up in 1999. Its job is to monitor the prices of
essential goods. If the board anticipates any shortage which may lead to increase in price, it will inform
the government to take necessary action and check price rise.
Q.6 Explain the limitation of APP or Critically evaluate APP in India.
Ans – There are following defects in Agricultural Pricing Policy in India.
1. Favour to low cost states – CACP fixes a common purchase price for the whole country on the basis of cost
of production in the higher cost state. Due to the above policy the farmers in low cost areas enjoy higher
profit and farmers in higher cost areas get lesser profit.
2. Benefits to large farmers – CACP offers higher prices to benefit farmers. But large farmers who cultivate
more land area have large amount as marketable surplus As a result income level of large farmers is
increasing significantly. But small farmers have little marketable surplus. Hence, they get little benefits of
APP of the government.
3. Inflationary Trend – CACP fixes prices at higher level every year. When government is offering higher
prices to farmers, traders also increase the price. This has resulted into a continuous increase in food prices in
the market. This increases cost of living followed by increase in wages and finally rise in prices of all
commodities.
4. Effect on rural poor – The government assumes that increase in prices of agricultural products will help
farmers to pay more wages to workers. As a result income of poor people will increase. But it has not
happened.
On the contrary the poor landless people have to buy food grains from the market at higher prices. Therefore,
agricultural pricing policy has adversely effected the poor people in rural areas.
5. High cost of Procurement – Agricultural pricing policy involves procurement of food grains from farmers at
higher prices, transportation of food grains, storage of food grains and supply of food grains to poor people at
subsidized prices. It involves a very high cost. Hence there is a question mark on viability of the policy.
6. Limited Coverage – Wheat and rice are the two main crops which are covered by price policy. But there are
many other crops that are not covered by the policy. As a result, farmers and consumers both suffer.

Q.7 Explain the role of various financial institutions in rural credit in India.
Ans – In the initial years after independence, non institutional sources like money lenders provided a larger
portion of rural credit. But later on with the expansion of banking facilities in rural areas the role of institutional
sources increased.
The institutional sources of rural credit include following.
1. Co – operatives – Co- operatives credit societies are set up to provide cheaper credit to farmers.
The structure of co-operatives societies include co-operative banks to provide short and medium term credit and
land development banks to provide long term credit.
Co – operative banks operate at three levels -
I. Primary co-operative Banks – They operate at the local or village level to provide short – term and
medium term credit to farmers.
II. Central co-operative Banks – They operate at district level to provide finance to primary co-operative
banks
III. State co-operative Bank – In every state there is a state co-operative bank to provide credit to Central co-
operative banks.

Land Development Banks, provide long – term credit to farmers, operate at two levels

I. Primary Land Development Banks – They operate at village and district level to provide long – term credit
for the purchase of tractors, harvesters etc.
II. State Land Development Banks – They operate at state level to support primary land development banks.
State co – operative banks are State Land Development Banks get support from NABARD.
Role of co-operative banks in rural credit is shown in following table-
Year or Period % share of co-operative Banks in rural credit
1970’s 77.0
2017-18 12.8
It can be noticed that the share of co-operative banks has declined sharply.
2. Commercial Banks – After nationalization of commercial bank in 1969, their importance in rural credit
increased. Commercial banks provide short term, medium term and long term credit to farmers for productive
purposes.
The contribution of commercial banks in rural credit in India is shown in following table.
Year / Period % share of commercial Bank in rural credit
1970’s 21.0
2017-18 75.2
It is noticed that commercial Banks contributed only 21% of total rural credit during 1970’s but in 2017-18, their
share in rural credit was 75.2%
After nationalization of commercial banks in 1969, RBI prepared Lead Bank Scheme for the development of
banks in each district of the country. Under the lead bank scheme, the branches of banks increased in rural
areas. As a result people can approach commercial banks easily for credit.
3. Regional Rural Banks (RRBs) – On 2nd Oct 1975, Government of India set up RRBs. At present there are
56 RRBs operating in India with 14,494 branches across 525 districts of the country.
A RRB is sponsored by a commercial bank. They provide credit mainly to weaker sections of village society.
The role of RRBs in rural credit is shown in following table.
Year / Period % share of RRBs in rural credit
1970’s 2.0
2017-18 12.0
In 1970’s they contributed only 2% of the total credit flow in rural areas and in 2017-18 it went up to 12.0%. The
progress is not impressive. This is because they are facing the problem of recovery of loans due to political
interference.

Q.8 Write a note on NABARD.

Ans – National Bank for Agricultural and Rural Development (NABARD) was set up in July, 1982 as the apex
financial institutional for rural credit.
NABARD is a refinance institution as it provides finance to state government, state co-operative banks, RRBs
etc. for financing the activities of agricultural and rural development.
Various functions of NABARD can be broadly classified into 3 categories.
1. Credit Function – NABARD provides credit to state government, state co –operative banks, commercial
banks and RRBs.
A State government can get credit from NABARD to develop state co-operative bank. It can also get finance
from NABARD for a project of rural development. NABARD provides refinance to state co-operative banks
to increase credit flow in rural areas. NABARD refinances RRBs to provide greater amount of credit to
weaker sections of society. NABARD encourages banks to support SHGs which benefits mainly poor
sections of the society and leads to women empowerment. It also supports NGOs for development activities
in rural areas. NABARD refinances tribal development projects in various parts of the country.
2. Development function – It includes various functions performed by NABARD for the development of
agriculture and rural areas by providing financial support to co-operative banks and RRBs. It also prepares
plan of action for the development of co-operative banks and RRBs in rural areas.
3. Supervisory functions – NABAR conducts inspection of state co-operative banks, central co-operative
banks and RRBs. It inspects the account of the banks and ensures credit flow in right direction. NABARD
also conducts periodical inspection of various state level co-operative bodies such as weaver’s societies,
Marketing Federation etc. to protect the interest of members.

Q.9 Explain the problems of rural credit in India. Give your suggestions to improve rural credit.
Ans – Major problems of rural credit in India are explained as follows –
1. Excessive formalities – A bank uses certain procedure before giving loans such as application form, proof of
the purpose etc. A farmer who may not be educated finds it difficult to follow the procedure. Hence, goes for
non- institutional borrowing.
2. Higher Rate of Interest – Rate of Interest changed by banks are still higher keeping in view the paying
capacity of poor farmers.
3. Problem of Security – Banks usually insist on collateral securities against credit provided to farmers. But
poor people in rural areas do not have such assets.
4. Less credit flow to poor farmers – Margined farmers (less than 1 acre land) and Small farmers (min. 1 acre
but less than 2 acre of land) constitute nearly 80% of the farmers in the country. But they fail to get loans
from banks.
5. Credit for unproductive purchases – The farmers require credit for consumption needs as well as for
unproductive needs. Bank however provide loans for productive purpose only.
6. Political Interference – Banks are unable to function freely in accordance with the policies. Thus, flow of
credit is influenced by political interference.
7. Increasing Bad – debts – The problem of recovery has become a serious issue in rural areas. Banks struggle
to recover the loans. As a result NPAs are growing.

Suggestions – To improve rural credit following steps can be suggested –

1. Simplification of procedure – The lending procedure and use of formalities can be simplified. This will
encourage farmers to approach banks.
2. Reduction in Rate of Interest – The farmers should be provided credit at the minimum ROI say 1% per
annum. If interest free loans are given to farmers will be a better idea.
3. Unsecured loans – The farmers should be given credit without any collateral security. This will divert
borrowing from money lenders to banks.
4. Multi purpose credit – The farmers must be provided credit for consumption and unproductive uses also.
This will reduce the control of money lenders who exploit farmers.
5. Crop insurance – It should be made compulsory to cover farmers against crop failures. This will avoid
uncertainly and ensure repayment of loans by farmers.
6. Kisan Credit Card – KCC must be given to all farmers with increased limit.

Q.10 Explain various defects of agricultural marketing in India.

Ans – Agricultural marketing in India suffers from following defects-
1. Lack of warehousing facility – In rural areas warehousing facilities are not available. Farmers cannot
store their produce after the harvest to sell at the right time at remunerative prices. They are compelled to
sell immediately after the harvesting when price level is usually low.
2. Lack of Transport facility – In rural area proper roads and transport facilities are inadequate. In is
difficult for the farmers to transport their produce in the market from villages. As a result, they sell out to
local village traders at lower prices.
 3. Lack of grading and standardization – In agricultural market system of grading and standardization of
the product is absent. A farmer does not separate his good quality product with poor quality but sells the
entire amount in one common lot at one price. Thus, there is loss.
4. Lack of credit facility – Banking facilities are not available in rural areas. Farmers cannot get institutional
credit at lower rate of interest. Hence, they borrow from money lenders at a higher rate interest. It forces
them to sell immediately after the harvest at a lower price.
5. Large number of middlemen – In agricultural market, there are large number of middlemen between the
farmers and consumers. They include Arhatiyas, wholesalers, retailers, commission agents etc. They take
always almost 40% of the price paid by the final consumers. This is a loss to farmers.
6. Market malpractices – In agricultural market there are various types of malpractices like use of wrong
weights, unauthorized deductions, higher brokerage etc. They lead to losses incurred by the farmers.
7. Lack of marketing information – Generally, farmers are not educated people. They do not have
information about the price prevailing in the market at the time of sale. The ignorance of the farmers is
exploited by traders. They offer lower prices to farmers.
8. Distress sale – Majority of farmer in India are poor. They do not have capacity to wait after the
production. As a result, supply in the market increases after the harvest and prices fall. There is distress
sale at lower prices.
9. Weak Bargaining power – In agricultural market traders are more organized than farmers. As a result
bargaining power of farmer is weak. They often sell their product at lower rates.
It is therefore clear that Indian Agricultural market is suffering from various defects which leads to
unfavorable condition for the farmers.

Q.11 Discuss various measures introduced by the government to improve agricultural marketing in India.
Ans – In order to resolve the problems of agricultural marketing various measures taken by government are
explained as follows-
1. Development of transport facilities – Transport facilities are being developed in rural areas. Villages are
linked with towns and main market for agricultural products.
2. Construction of warehousing – There is construction of large number of warehouse across the country
by the central government as well as by the state government. More than 5000 godowns have been
constructed in the county.
3. Provision of institutional credit – Banking facilities are developed in rural areas to provides cheaper
credit to farmers. Central and state governments also provide cheaper loan to farmers.
4. Provision of grading – Central Quality Control Laboratory is set up at Nagpur to examine the quality of
the agricultural products. Good quality products are given AGMARK seal. This indicates better quality
and therefore better price for such products.
5. Information system – News print and electronic media are directed to provide the information to farmer
about price prevailing in the market. Price display board is also set up to make farmers aware of price in
the market.
6. Regulated Market – There are more than 7000 such markets in the country. It is regulated by marketing
committee which has representatives of trades, farmers, agents, government etc. The committee ensures
no malpractices and payment of fair price to farmers.

RECENT DEVELOPMENTS IN AGRICUTLTURAL MARKETING

A. The Model APMC – The Ministry of Agriculture has developed a Model Agricultural produce market
committee (APMC) Act, 2003. The model APMC facilitates –
1. To set up special markets for specified agricultural commodities
 2. It permits individuals, farmers and consumers to set up new markets for agricultural products in
any area.
3. Provides direct sole to consumers.
4. Create required market infrastructure
B. Contract farming – A new Model Contract Farming Act, 2017 has been formulated. Contract farming
involves agricultural production being carried out on the basis of an agreement between biased and farm
producers.
Contract farming by Pepsico for tomato in Punjab, Mc Cain for potato in Gujarat have helped farmers to
get good price for their produce.
C. E-commerce in Agricultural Marketing – It refers to buying and selling of goods on an online
platform. E –commerce is advantageous to consumers as well as sellers by avoiding middlemen.
Big market, Grofers and Natures’ basket are dealing in e – commerce in Agricultural marketing.

Q.12 Explain the reference of Enabling Environment with regards to agricultural marketing.
Ans – The process of agricultural marketing involves the activities from production to consumption. This process
is supported or enabled by several factors which contribute to enabling environment in agricultural marketing.
Thus an enabling environment refers to a set of factors that enable the participants in agricultural marketing to
effectively conduct the process of agricultural marketing. The enabling environment includes following:
1. Output – The issue of agricultural marketing arises only after there is sufficient production as marketable
quality surplus. This requires availability of growth and sufficient quality of various agricultural inputs.
2. Storage – farmer need proper storage facilities so that they can store the product berore marketing it at
appropriate time.
3. Transport – In order to supply the product in local, regional and national market, proper transport
facilities are necessary.
4. Information – There should be a proper system of providing information to farmers regarding the prices
of agricultural products in the market. Media and Price display board can play important role.
5. Grading – To enable the farmers to get price according to the quality of their product, there must be
organizations like AGMARK with trained staff to grade the product.
6. Institutional system – Enabling environment for agricultural marketing involves various institutions like
banking facilities to provide finance to agriculture.
7. Infrastructure – Proper infrastructure like irrigation, power supply, warehousing etc. provide enabling
environment for agriculture marketing.
8. Supply chain co-ordination – It is necessary to avoid waste and delay of agricultural products in the
market.
9. Legal and Policy Framework – To check malpractices in the market, there must be proper legal
framework. Further, a policy framework like subsidies, export policy etc are necessary to guarantee
reasonable returns to farmers.
10. Regulatory system – To ensure proper functioning of the market, a market regulatory system must be in
place such as market regulatory body.
It is therefore clear that above factors can create an enabling environment in agricultural marketing for all
participants in the market.