(Sample Materials) Economic Survey & Government’s Plan, Programme & Policies - "Agriculture & Food Management"

Contents of the Chapter:

• Indian Agriculture
• Commodity Futures Market
• Major Schemes/Programmes for the Agricultural Sector

Indian agriculture

Indian agriculture is broadly a story of success. It has done remarkably well in terms of output growth, despite weather and price shocks in the past few years. India is the first in the world in the production of milk, pulses, jute and jute-like fibres, second in rice, wheat, sugarcane, groundnut, vegetables, fruits and cotton production, and is a leading producer of spices and plantation crops as well as livestock, fisheries and poultry. The Eleventh Five Year Plan (2007-12) witnessed an average annual growth of 3.6 per cent in the gross domestic product (GDP) from agriculture and allied sector against a target of 4.0 per cent. While it may appear that the performance of the agriculture and allied sector has fallen short of the target, production has improved remarkably, growing twice as fast as population. India's agricultural exports are booming at a time when many other leading producers are experiencing difficulties. The better agricultural performance is a result of: a) farmers' response to better prices; b) continued technology gains; and c) appropriate and timely policies coming together. Yet India is at a juncture where further reforms are urgently required to achieve greater efficiency and productivity in agriculture for sustaining growth. There is need to have stable and consistent policies where markets play a deserving role and private investment in infrastructure is stepped up. An efficient supply chain that firmly establishes the linkage between retail demand and the farmer will be important. Retionalization of agricultural incentives and strengthening of food price management will also help, toegether with a predictable trade policy for agriculture. These initiatives need to be coupled with skill development and better research and development in this sector along with improved delivery of credit, seeds, risk management tools, and other inputs ensuring sustainable and climate-resilient agricultural practices. Finally, while the sharp increase in prices of food articles, especially proteins, fruits and vegetables, and the growing foodgrains stocks in public sector continue to be subjects of debate, these may be the pointers towards the need for both relative price shifts responding to shifts in demand and reconsidering traditional instruments of food management.

Although agriculture, including allied activities, accounted for only 14.1 per cent of the GDP at constant (2004-5) prices in 2011-12, its role in the country's economy is much bigger with its share in total employment according to the 2001 census, continuing to be as high as 58.2 per cent. The declining share of the agriculture and allied sector in the country's GDP is consistent with normal development trajectory of any economy, but fast agricultural growth remains vital for jobs, incomes, and the food security. The growth target for agriculture in the Twelfth Five Year Plan remains at 4 per cent, as in the Eleventh Five Year Plan.

Rainfall Distribution during Monsoon 2012

Out of a total of 36 meteorological subdivisions in the country, 23 received excess/ normal rainfall and in the remaining 13 subdivisions rainfall was deficient.

With more than half of the cultivated area dependent on monsoon, advance information about the intensity and spread becomes very important. With the objective of improving monsoon forecasts for the country over all temporal scales (short to medium and long term), the Earth System Science Organization (ESSO)/ Ministry of Earth Sciences has initiated the National Monsoon Mission during the Twlefth Five Year Plan with an estimated budget of Rs. 400 crore. Under this Mission, a dynamic framework for prediction of monsoon over all time scales will be implemented during the next five years. Joint collaborative research projects will also be undertaken with national and international scientists involved in monsoon research. This is a crucial step towards improving the reliability of monsoon forecasts for appropriate and timely policy interventions to support farmers and food management.

Sugar sector Reforms in India

• India is the largest consumer and second largest producer of sugar after Brazil. Sugar and Sugarcane are notified as essential commodities under the Essential Commodities Act 1955. The production of sugarcane during 2012-13 is estimated at 334.54 million tonnes. However the Indian sugar sector suffers from policy inconsistency and unpredictability. The Sugar industry in India is over-regulated and prone to cyclicality due to price interventions. Deregulation of the sugar industry has been widely debated for a long time. From a purely economic point of view, greater play of market forces would provide better prices and serve the interests of all stakeholders. The government should come into the picture only in situations where absolutely necessary. Export bans and controls could be replaced with small variable external tariffs to stabilize prices.

• A report on 'Regulation of the Sugar Sector in India: The way forward' has been submitted by the Committee under the chairmanship of Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister. The ways forward suggested include: a) phasing out cane reservation area; b) dispensing with minimum distance criteria; c) dispensing with the levy sugar system; states that want to provide sugar under the PDS may procure it from the market according to their requirement, fix the issue price and subsidize from their own budgets. Currently, there is an implicit cross-subsidy on account of the levy as sugar mills are under a transition, some level of central support to help states meet the cost to be incurred on this account may be provided for a transitory period; d) dispensing with the regulated release mechanism (of non-levy) sugar; e) stable trade policy; no quantitative or movement restrictions on byproducts like molasses and ethanol and dispensing with compulsory jute packing. A stable, predictable, and consistent policy reforms have to be brought about in a fiscally neutral manner and issues considered for implementation in a phased manner.

Edible Oil Economy

• India is one of the largest producers of oilseeds in the world. However, 50 per cent of its domestic requirements are met through imports, out of which crude palm oil and RBD palmolein constitute about 77 per cent and soyabean oil constitutes about 12 per cent. Import dependence was about 3 per cent during 1992-3. The production of oilseeds, though it has increased in recent years (from 184.40 lakh tons in 2000-1 to 297.99 lakh tons in 2011-12), has not kept pace with the demand for edible oils in India. Imports have helped raise the per capita availability of edible oils which has increased from 5.8 kg in 1992-3 increased to 14.5kg in 2010-11.

• One instrument for promoting future domestic production is calibration of the import duty structure. Large imports of edible oils are primarily due to competitive prices of edible oils in the international market and the import duty structure which has been sharply reduced to near zero levels over time to protect consumers. India has a market share that allows it to set some independent tariff policy that can meet both goals better. Considering the situation, it is time to frame a price band for edible oils in a manner that harmonizes the interests of domestic farmers, processors, and consumers through imposition of import duty at an appropriate rate. The import duty would also generate revenue, which could also be utilized for an oilseeds development programme. Recently the tariff value of all edible oils which had remained unchanged since 2006 was updated to market levels. This is a right step for aligning the tariffs to current prices for edible oils in the international market. By freezing the tariff value, imports had become more attractive than domestic refining. Over time, domestic oil palm production may also gain.

• India is also fortunate in having a wide range of oilseed crops grown in its different agro-climatic zones, including high-value premium crops. Recently export of edible oils in branded consumer packs upto 5 kg has been allowed without any quantitative limit having minimum export price (MEP) of US $ 1500 per ton in order to encourage export of high value premium edible oils. Farmers respond to prices. The aim of policy is to consistently enhance their competitiveness.

Integrated Nutrient Management

India meets 80 per cent of its urea requirement through indigenous production but is largely import dependent for meeting its requirements of the potassic (K) and phosphatic (P) fertilizer requirements. The consumption of fertilizers in nutrient terms has shown improvement, indicating that the policies for increasing availability and consumption of fertilizers at affordable prices in the country have been successful. However over-use of nitrogenous and limited use of P and K fertilizers are matters of great concern and need appropriate price incentives by reducing fertilizer subsidies so that sustainable practices are encouraged.

Policy Initiatives for Fertilizers

The government has notified the New Investment Policy 2012 (NIP-2012) in the urea sector which will encourage investments leading to increase in indigenous capacities, reduction in import dependence and savings in subsidy due to import substitution at prices below import parity price (IPP). It is expected that fresh investment will come for expansion, revival, and setting up of brownfield and greenfield projects. Adequate provisions are made in NIP-2012 to ensure the long-term availability of gas required for expansion and greenfield/brownfield projects. In the event of increase in gas prices or fall in IPP, provisions are made in the policy to protect the interest of investors. It has been decided to implement direct cash transfer to the farmers in a phased manner, which would help target small, marginal, and other farmers and bring more transparency in subsidy disbursement. Eleven districts have been identified for piloting this across 10 states.

Under the Nutrient Based Subsidy (NBS) scheme for phosphatic and potassic (P&K) fertilizers implemented in 2010, a fixed amount of subsidy, decided on annual basis, is provided to each grade of P&K fertilizer, depending upon its nutrient content. An additional subsidy is also provided to secondary and micro-nutrients. Under this scheme, manufacturers/marketers are allowed to fix the maximum retail price (MRP). Presently (as in November 2012), farmers pay only 58 to 73 per cent of the delivered cost of P&K fertilizers; the rest is borne by the Government of India in the form of subsidy. However, the government continues to share a substantial burden in the form of fertilizer subsidy.

MSP is announced well ahead of the sowing season so that farmers can take informed decisions on cropping. Taking into account the relevant factors especially for encouraging farmers that these are remunerative, the government fixed the MSPs for kharif crops of the 2012-13 season and rabi crops of 2012-13 season to be marketed in 2013-14. The substantial price increases in many crops are a noticeable feature specially at a time when the global food prices were also on a rising trend. This puts in substantial fiscal stress on the government.

The Government of India has centrally designated agencies to undertake Price Support Scheme (PSS) operations. The losses, if any, incurred by the central agencies for undertaking PSS operations are fully reimbursed by the central government. The government also implements a Market Intervention Scheme (MIS) on the request of states/union territories (UTs) for horticultural and agricultural commodities, generally perishable in nature and that are not covered under the PSS. States/UTs bear 50 per cent of the loss (25 per cent in the case of north-eastern states), if any, incurred on its implementation. However the loss is restricted up to 25 per cent of total procurement value. Profit earned, if any, in implementing the MIS is retained by the procuring agencies. A few procurement operations were made by NAFED in 2011-12 in gram and urad in Rajasthan and milling copra in the Andaman & Nicobar islands and MIS was implemented in arecanut, onion, and turmeric in Karnataka; apple in Himachal Pradesh; and potato in Uttar Pradesh.

MAJOR SCHEMES / PROGRAMMES FOR THE AGRICULTURAL SECTOR

Agriculture being a state subject, primary responsibility for increasing agriculture production, enhancing productivity and exploring the untapped potential of the sector rests with the states. The central government supplements the efforts of state governments through centrally sponsored and central-sector schemes

National Food Security Mission

To enhance the production of rice, wheat, and pulses by 10, 8, and 2 million tonnes respectively by the end of the Eleventh Plan through area expansion and productivity enhancement; restoring soil fertility and productivity; creating employment opportunities; and enhancing farm-level economy to restore the confidence of farmers of targeted districts, a centrally sponsored National Food Security Mission (NFSM) was launched in 2007-8 with three major components, viz. NFSM-Rice, NFSM-Wheat, and NFSM-Pulses. During the Eleventh Five Year Plan, NFSM-Rice was implemented in 144 districts of 16 states, NFSM-Wheat in 142 districts of 9 states and NFSM-Pulses in 468 districts of 16 states. In 2012- 13, six north-eastern states, viz. Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Sikkim were included under NFSM-Rice and the hill states of Himachal Pradesh, and Uttarakhand under NFSMRice and Wheat and J & K under NFSM- wheat. Specifically, during 2012-13 a Special Plan to achieve 19+ million tonnes of pulses production during kharif 2012 was launched with a total allocation of Rs.153.5 crore comprising Rs.107.3 crore for activities to be undertaken under the NFSM and Rs.46.2 crore for activities to be undertaken under the Micro Irrigation Scheme. During 2012-13, Rs. 87.0 crore has been allocated for additional area coverage of pulses during rabi/summer 2012-13.

Rashtriya Krishi Vikas Yojana

The Rashtriya Krishi Vikas Yojana (RKVY) was launched in 2007-8 with an outlay of Rs. 25,000 crore in the Eleventh Plan for incentivizing states to enhance public investment. States were provided Rs. 22,408.79 crore under the RKVY during Eleventh Five Year Plan. The RKVY format permits taking up national priorities as sub-schemes, allowing the states flexibility in project selection and implementation. Allocation under the RKVY for 2012-13 is Rs. 9217 crore. The RKVY links 50 per cent of central assistance to those states that have stepped up the percentage of state plan expenditure on the agriculture and allied sector. A total of 5768 projects were taken up by states in the Eleventh Plan of which 3343 had been completed till December end 2012.

National Mission for Sustainable Agriculture

Climate change poses a major challenge to agricultural production and productivity. The National Mission for Sustainable Agriculture (NMSA), under the aegis of the National Action Plan on Climate Change (NAPCC), seeks to address issues related to 'Sustainable Agriculture' in the context of risks associated with climate change. It hopes to achieve its objectives by devising appropriate adaptation and mitigation strategies for ensuring food security, enhancing livelihood opportunities, and contributing to economic stability at national level. The NMSA has already been accorded 'in-principle' approval by Prime Minister's Council on Climate Change. During the Twelfth Five year Plan, climate change adaptation and mitigation strategies will be operationalized by restructuring the existing programmes.

Bringing Green Revolution to Eastern India

Bringing Green Revolution to Eastern India, initiated in 2010-11, intends to address the constraints limiting the productivity of 'rice based cropping systems' in eastern India comprising seven states, viz. Assam, Bihar, Chhattisgarh, Jharkhand, Odisha, Eastern Uttar Pradesh, and West Bengal. Rs. 400 crore each was allocated for the programme during 2010-11 and 2011-12 and of Rs.1000 crore during 2012-13.

Rainfed Area Development Programme

Given the importance of rainfed agriculture in India, the Rainfed Area Development Programme (RADP) was launched by the government as a pilot scheme under the RKVY focusing on small and marginal farmers and farming systems. It adopted a holistic 'end-to-end approach' covering integrated farming, on-farm water management, storagemarketing, and value addition of farm produce in order to enhance farmers' income in rainfed areas. During 2012-13, the RADP is being implemented in 22 states and will be substantially upscaled during the Twelfth Plan as a programme component under the NMSA.

Integrated Scheme of Oilseeds, Pulses, Oil Palm, and Maize

The Integrated Scheme of Oilseeds, Pulses, Oil Palm, and Maize (ISOPOM) provides flexibility to states in implementation based on a regionally differentiated approach for promoting crop diversification and providing a focus to the programme. Under the Scheme, assistance is provided for purchase of breeder seed, production of foundation seed, production and distribution of certified seed, distribution of seed minikits, distribution of plant protection chemicals, plant protection equipments and weedicides, supply of rhizobium culture/phosphate solubilizing bacteria, supply of improved farm implements, distribution of gypsum/pyrite/liming/dolomite, distribution of sprinkler sets and water-carrying pipes, and publicity for encouraging farmers to grow oilseeds and maize.

National Horticulture Mission

The National Horticulture Mission (NHM) covered 18 states and three UTs during the Eleventh Plan. The scheme aims at the holistic development of the horticulture sector by ensuring forward and backward linkages through adopting a cluster approach with the active participation of all stakeholders. During the Eleventh Plan period 16.7 lakh ha of land was brought under horticulture / high value horticulture crops.

National Agricultural Insurance Scheme

The Agriculture Insurance Company of India Ltd. implements the National Agricultural Insurance Scheme (NAIS). At present the scheme is being implemented by 24 states and two UTs. Since inception, claims of about Rs. 24,246 crore have been paid against premium income of about Rs. 7580 crore benefiting about 511 lakh farmers.

Dairy Sector

India ranks first in the world in milk production, which has gone up from 53.9 million tonnes in 1990- 1 to 127.9 million tonnes in 2011-12. The per capita availability of milk has also increased from 176 grams per day in 1990-1 to 290 grams per day in 2011-12. This is comparable with the world per capita availability of milk at 289.31 grams per day for 2011.

The Intensive Dairy Development Programme, Strengthening Infrastructure for Quality and Clean Milk Production, Assistance to Cooperatives, and Dairy Entrepreneurship Development Scheme are some of GoI's important schemes/programmes for meeting the growing demand for milk. The National Project for Cattle and Buffalo Breeding has been under implementation since 2000.

Decentralized Procurement Scheme

A number of states have opted for implementation of the Decentralized Procurement Scheme (DCP) introduced in 1997, under which foodgrains are procured and distributed by state governments themselves. Under this scheme, the designated states procure, store, and issue foodgrains under the TPDS and welfare schemes of the GoI. The difference between the economic cost fixed for the state and the CIP is passed on to the state government as subsidy. The decentralized system of procurement has the objectives of covering more farmers under MSP operations, improving efficiency of the PDS, providing foodgrains varieties suited to local tastes, and reducing transportation costs.

Economic Cost of Foodgrains to the FCI

The economic cost of foodgrains consists of the MSP (and bonus if applicable) as the price paid to farmers, procurement incidentals, and the cost of distribution. The economic cost for both wheat and rice has witnessed significant increase during the last few years thanks to increase in MSPs and procurement incidentals.

Open Market Sale Scheme (Domestic)

The FCI on behalf of the GoI has been undertaking sale of wheat and rice at predetermined prices/reserve prices in the open market from time to time to enhance market supply of foodgrains to have a moderating influence on open market prices and to offload surplus stocks. Under the Open Market Sale Scheme (Domestic) (OMSS[D]), 95 lakh tonnes of wheat has been allocated for tender sale to bulk consumers and sale to small private traders since July 2012 for the period up to February 2013. Under the OMSS retail scheme, 5 lakh tonnes of wheat and 5 lakh tonnes of rice have been allocated for sale to states/UTs/cooperatives for the period up to March 2013.

Agricultural Exports

As per World Trade Organization (WTO) International Trade Statistics, 2012 (based on trade in 2011), global export and import of agricultural and food products is US$ 1.66 trillion and US$ 1.82 trillion respectively. India's share in this is 2.07 per cent and 1.24 per cent respectively. India has improved its position in agricultural and food exports to 10th globally.

The National Food Security Bill

In order to address the issue of food security in a comprehensive manner, the Government introduced National Food Security Bill in the Lok Sabha on 22 December, 2011. The Bill, inter alia, envisages coverage of 75% of the rural and 50% of the urban population for subsidised foodgrains under the Targeted Public Distribution System, besides provisions for nutritional support to women and children. After its introduction, the Bill was referred to the Parliamentary Standing Committee on Food, Consumer Affairs and Public Distribution for examination. The Committee held wide ranging consultations with Central Ministries/Departments, various other organizations and individuals and also visited States/UTs to obtain their views/suggestions on the Bill. The Standing Committee has submitted its report to the Speaker, Lok Sabha on 17th January, 2013, which is being processed in consultation with concerned Central Ministries/Departments and States/UTs.

COMMODITY FUTURES MARKET

The commodity futures market facilitates the price discovery process and provides a platform for price-risk management in commodities. Currently 113 commodities are notified for futures trading of which 51 are actively traded in five national and 16 regional commodity-specific exchanges. The year 2012-13 witnessed a decline in the total value of trade compared to the corresponding period of the preceding year.