Agriculture Economics - Paper 1

SPEC 105
POSTGRADUATE COURSE
M.A - ECONOMICS
FIRST YEAR
FIRST SEMESTER
ELECTIVE PAPER - I
AGRICULTURE ECONOMICS
INSTITUTE OF DISTANCE EDUCATION

UNIVERSITY OF MADRAS
MA - ECONOMICS ELECTIVE PAPER - I
FIRST YEAR AGRICULTURE ECONOMICS
FIRST SEMESTER
WELCOME
Warm Greetings.
It is with a great pleasure to welcome you as a student of Institute of Distance Education,

University of Madras. It is a proud moment for the Institute of Distance education as you are
entering into a cafeteria system of learning process as envisaged by the University Grants
Commission. Yes, we have framed and introduced Choice Based Credit System(CBCS) in
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Regulations, to attain the target of total number of credits set for each course and also each
degree programme. What is a credit? To earn one credit in a semester you have to spend 30
hours of learning process. Each course has a weightage in terms of credits. Credits are assigned
by taking into account of its level of subject content. For instance, if one particular course or
paper has 4 credits then you have to spend 120 hours of self-learning in a semester. You are
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assessed periodically by means of tests, assignments and quizzes either in class room or
laboratory or field work. In the case of PG (UG), Continuous Internal Assessment for 20(25)
percentage and End Semester University Examination for 80 (75) percentage of the maximum
score for a course / paper. The theory paper in the end semester examination will bring out your
various skills: namely basic knowledge about subject, memory recall, application, analysis,
comprehension and descriptive writing. We will always have in mind while training you in
conducting experiments, analyzing the performance during laboratory work, and observing the
outcomes to bring out the truth from the experiment, and we measure these skills in the end
semester examination. You will be guided by well experienced faculty.
I invite you to join the CBCS in Semester System to gain rich knowledge leisurely at
your will and wish. Choose the right courses at right times so as to erect your flag of success.
We always encourage and enlighten to excel and empower. We are the cross bearers to make
you a torch bearer to have a bright future.
With best wishes from mind and heart,
DIRECTOR
(i)
MA - ECONOMICS ELECTIVE PAPER - I
FIRST YEAR AGRICULTURE ECONOMICS
FIRST SEMESTER
COURSE WRITER
Dr. J. Maheswari
Assistant Professor
PG & Research Department of Economics
Quaid-E-Millath Government College for Women (A)
Anna Salai, Chennai - 600 02.
COORDINATION & EDITING
Dr. K. Jothi Sivagnanam

Professor and Head
Department of Economics
University of Madras
Chepauk, Chennai - 600 005.
© UNIVERSITY OF MADRAS, CHENNAI 600 005.
(ii)
M.A - DEGREE COURSE
FIRST YEAR -
FIRST SEMESTER
Elective Paper - I
SYLLABUS
UNIT - I
Agricultural Production and Productivity: Resource use and efficiency - Production function
analyses in agriculture - Factor combination and resource substitution - Cost and supply curves
- Size of farm and laws of returns - Theoretical and empirical findings - Farm budgeting and
cost concepts - Supply response of individual crops and aggregate supply.
UNIT - II
Economics of Rural Infrastructure: Use of land, water and energy - Rural transport,
communication, banking, extension services – Role and modes - Problems of rural electrification
- Rural social infrastructure - education and health and information dissemination - Rural Finance
- Role of capital and rural credit - Organized and unorganized capital market - Characteristics
and sources of rural credit - Institutional and non-institutional - Rural Labour - Mobility of labour
and segmentation in labour markets - Marginalisation of rural labour - Nature, extent and trends
in rural unemployment - Agricultural wages in India - Male-female wage differences - Non-
agricultural rural employment - Trends and determinants.
UNIT - III
Diversification of Rural Economic Activities: Livestock economics - Livestock resources

and their productivity - Problems of marketing - White Revolution - Fishery and poultry
development - Forestry, horticulture and floriculture - Issues and problems in rural industrialization
and development of agro-based industries.
(iii)
UNIT - IV
Agricultural Growth in India: Recent trends in agricultural growth in India - Inter-regional

variations in growth of output and productivity - Cropping pattern shifts - Supply of inputs -
Irrigation, power, seed and fertilizers - Pricing of inputs and role of subsidies - Distribution of
gains from technological change - Role of Public investment and capital formation in Indian
agriculture - Strategy of agricultural development and technological progress - Sustainable
agriculture - Indigenous practices - Bio-technological practices and growth potential.
UNIT - V
Agriculture and External Sector: International trade in agricultural commodities -

Commodity agreements - Role of World Trade Organization - Issues in liberalization of domestic
and international trade in agriculture - Nature and features of agri-business - Role of MNCs -
Globalization of Indian economy and problems and prospects of Indian agriculture - Impact of
World Trade Organization on Indian agriculture.
RECOMMENDED TEXT
1. Sadu and Singh – Fundamentals of Agricultural Economics.
2. C.B. Mamoria - Agricultural Economics.
(iv)
M.A - DEGREE COURSE
FIRST YEAR -
FIRST SEMESTER
Elective Paper - I
SCHEME OF LESSONS
Sl.No. Title Page
1. Agricultural Production and Productivity 001
2. Economics of Rural Infrastructure 024
3. Diversification of Rural Economic Activities 054
4. Agricultural Growth in India 079
5. Agriculture and External Sector 101
(v)
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UNIT I
AGRICULTURAL PRODUCTION AND

PRODUCTIVITY
Learning objectives
After studying this unit, you should be in a position to:
 Understand the meaning and scope of Agricultural Economics
 Explain resource and efficiency in traditional Agriculture
 Understand Production Function Analysis in Agriculture
 Apply Cost and Supply Curves:
 Find the causes for the Shift in the Supply Curve of Agricultural Products:
 To Examine the theoretical and empirical findings of Size of Farm and Law of Returns
 Explain Farm Budgeting and its types
 To understand Advantages of Farm Budgeting
 Explain Cost-type and Concepts
 To understand Supply Response of Individual Crops and Aggregate Supply
Structure
1.1 Introduction
1.2 Definition and Scope of Agricultural Economics
1.3 Resource and Efficiency in Traditional Agriculture
1.4 Production Function Analysis in Agriculture
1.4.1 Diminishing Returns in Agriculture
1.4.2 Increasing Returns in Agriculture
1.4.3 Constant Returns in Agriculture
1.5 Factor Combination and Resource Substitution

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1.6 Cost and Supply Curves
1.7 Causes for the shift in the Supply Curve of Agricultural Products
1.8 Size of Farm and Law of Returns – Theoretical and Empirical Findings
1.9 Farm Budgeting
1.9.1 Types of farm budgeting
1.9.2 Advantages of Farm Budgeting
1.10 Cost-type and Concepts
1.11 Supply Response of Individual Crops and Aggregate Supply
1.12 Summary
1.13 Key Words
1.14 Review Questions
1.15 Answers to Check Your Progress
1.16 Suggested Readings
1.1 Introduction
The word Agriculture comes from the Latin words agre, referring to the soil and culture,
to its cultivation. Agriculture, in its widest sense can be defined as the cultivation and/or production
of crop plants or livestock products. It is synonymous with farming: the field or field-dependent
production of food, and industrial organic materials.
1.2 Definition and Scope of Agricultural Economics
According to Snodgrass and Wallace
“Agricultural economics is an applied phase of the social science of economics

in which attention is given to all aspects of problems related to agriculture.”
Agriculture sector is considered to be the most important in Indian scenario. The scope
of agricultural production economics includes production, distribution, consumption and
government activities in relation to agriculture and farm enterprises. To be more specific, the
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scope of agricultural economics can also be analysed on the political aspect. Self-sufficiency
in food produce can reduce foreign dependence for food supply and raw materials,especially
in times of crisis. There is a large scope of agricultural economics in various factors of production
also viz. land, labour, capital, organization etc.
Nature of Agricultural Economics
Micro as well as Macro
When the subject of study is individual farmer then it is micro-economics and when we
study agricultural economy as a whole then it is called macro-economics
Static as well as Dynamic
The basic difference between the two is that in former, time variable is not considered
while the latter analysis deals with a period of time. In the present-day dynamic concept is
gaining momentum.
Applied science or Pure science
Agricultural economics is classified as an applied science as it is concerned with the

identification, description and classification of economic problems of agriculture. Thus,
agricultural economics is concerned with the evolving of appropriate principles that govern the
amount of land, labour, and capital that the farmer should use to maximize his profit and using
the factors efficiently.
Science or Art
Agriculture is the science and art of cultivation of crops and raising the livestock and is
not only a mode of livelihood but also a way of life. Agricultural production economics is a
science because it relies on the principles and verifications of the data. It is an art because it
deals with the various ways of application of the principles and to suit the conditions.
Scope of Agricultural Economics
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in food produce can reduce foreign dependence for food supply and raw materials, especially
in times of crisis.
The scope of agricultural production economics as quoted by Taylor “Agricultural

economics deals with the principles which underline the farmers’ problems of what to produce
and how to produce what to sell and how to sell in order to secure the largest net profit for
himself consistent with the best interest of the society as a whole. “
Principles applied in Agricultural Production Economics
1. Law of equi-marginal return
2. Law of diminishing return
3. Law of opportunity cost
4. Law of substitution
5. Law of comparative advantage
6. Principle of combining enterprises
7. Cost concepts and principles
1.3 Resource and Efficiency in Traditional Agriculture:
Today in India, as in many other developing countries with a rich agricultural tradition of
their own, the words ‘improved agriculture’ and ‘progressive agriculture’ have become
synonymous with the spread of HYVs grown with ever-increasing doses of chemical fertilizers
and pesticides. Wherever the new crop varieties have spread, time-honoured crop rotations,
intercropping patterns and other important features of traditional agriculture have been harshly
uprooted.
1.4 Production Function Analysis in Agriculture
Production function is the creation of utility and units of values; it is the relationship
between inputs and outputs. It is a technological relation showing, for a give state of technological
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knowledge, how much can produce with given amounts of inputs. Production function expresses
the technological or engineering relationship between supplied by factors and outputs. Production
is the function of land, labour, capital, organization, technology, enterprise and government
contribution. It represents production efficiency achieved with the help of leastcost combinations
of inputs or factors.
In the words of Stigler: “The production function is in fact the economist’s summary of
the technical engineers’ knowledge,” “Production function describes the laws of proportion,
that is, the transformation of factor inputs, into products of any particular time period. It thus
represents the technology and technically the most efficient method of production”
1.4.1 Diminishing Returns in Agriculture
The law of diminishing returns is a part of the law of variable proportions. It is regarded
as the ‘long term law of agriculture’- in fact long term law of life itself.
There are limits to the extent to which one factor of production can be substituted for
another. The elasticity of substitution between factors is not infinite. If all factors are kept
constant and only more water is supplied, unlimited output at increasing returns cannot be
expected for ever. The same can be said about the application of fertilizers or pesticides or
high yielding variety of seeds. Land becomes the greatest limiting factor or at least its fertility.
Following are the important causes for diminishing returns in agriculture:
1. Diminishing returns emerge because of the declining fertility or the original state of the
land.
2. Diminishing returns are due to limited substitutability of the factors of production. According
to Mrs. Joan Robinson the elasticity of substitution between factors is not infinite.
3. Diminishing returns are obtained when the scale of operation is not increased but when
only one variable input is changed while the quantities of other inputs are kept constant.
4. The total production increases but the incremental production becomes smaller and smaller
due to marginal productivity of the land declines and later on the average productivity
also declines.
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5. Diminishing returns may be obtained after increasing or constant returns and become the
natural outcome of agricultural operations.
1.4.2 Increasing Returns in Agriculture
This means that increasing outputs can be obtained with the same inputs or that the
rising inputs bring more than proportionate outputs. This relationship better has to be in physical
terms and not merely in revenue terms. Increasing revenue cost ratio can be a function of
better terms of trade only.
Increasing returns are obtained when diseconomies are less than the economies of
production. If the indivisibilities can be overcome, economies of scale are reaped. Large size
farms can afford to use machines and big farm machines require large size farms.
Generally, it will not be sufficient to employ additional labour or capital only to obtain
increasing returns. In the long run the sizes of all factors of production and all inputs have to be
increased. If the same land can be used for raising two or three crops it is land augmenting
technique. Land augmenting and saving techniques help in realizing increasing economic
returns, including higher production. Higher yield and outputs take us towards increasing returns.
Higher economic returns require several other things also. Optimum sized land holding,
availability of credit at the right time so that the real inputs can be procured at the right time,
extension facilities, technologies increase the production. Subsidies and price support provide
incentives to the farmers for better production.
1.4.3 Constant Returns in Agriculture
It means that each marginal unit of a variable resource adds the same amount of the
output to the total production. Though ‘diminishing marginal productivity’ is the rule, constant
productivity is frequently observed when no resource is fixed and all are increased together in
the same proportion. For example, another acre may be as productive as the first with same
inputs. If one acre of wheat requires 20 man-hours of labour, 30 kg of seed and 13 inches of
irrigation water and yields 10 quintals of wheat, the second acre will require additional 20
manhours of labour, 30 kg of seed and 13 inches of irrigation water and will also yield 10
quintals of wheat. The second acre is just as productive. The marginal or added production
from each increase in resource input is the same: this is a case of constant productivity.
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Under constant productivity, each unit input increase is just as profitable as another.
Under such conditions the profit rule is: If production is profitable on first unit, keep producing
till the constant returns hold. Do not produce at all, if production is not profitable on first unit. In
a sense, follow the same principle i.e. continue adding the variable resource to the fixed
resource(s) as long as the return is greater than the added costs.
Limits on constant returns are reached as some of the factors become fixed. If nothing
else becomes fixed, management becomes a fixed resource. The productivity of one resource
depends on the amount of the others with which it is used. For example, if capital is fixed at a
low level for the farm as a whole, labour productivity will be lower. Since the productivity of one
resource depends on the amount of other resources with which it is combined, farmers having
different quantities of land, capital, labour and management will have different programmes.
1.5 Factor Combination and Resource Substitution
For cultivation of agriculture, various inputs or practices can be substituted in varying

degrees for producing a given output. A producer has to choose a particular combination of
inputs, which would be most profitable or more income generating.
To produce certain level of output, the farmer has to decide upon the least cost combination
of inputs. There are large number of alternatives for performing different farm operations and
obtaining output through different combinations of inputs. For example –
1. Use of bullocks Vs. tractor for a given size of a farm,
2. Harvesting of crops by machines Vs. by manual labour,
3. Milking machines Vs. hand milking for a given herd of cows,
4. Wheat bhusa, green fodder and grains-mix in dairy feeds,
5. Combinations of potash, phosphate, and nitrogen in fertilizers for crops.
A number of combinations of concentrates and green fodder, for example, can be used
in producing a given amount of milk. Forage usually substitutes at diminishing rate for grain.
Problem here is to find the least cost combination of fodders and grains, milk production
remaining the same a combination of fodders and grains which, cost remaining the same, will
yield maximum output of milk.
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Cost minimization will not depend only upon the cost of inputs and prices of products but
also on the rate of substitution. For example, if labour costs are less relative to cost of performing
the operations by machines, costs may be lowered by substituting labour for machinery. If
machine costs are low relative to labour, labour should get substituted with machine operations.
1.6 Cost and Supply Curves
Supply means the quantity of a good or service that a producer is willing and able to
supply in to the market at a given price in a given time period. Normally as the market price of
a commodity increase, producers will expand their supply onto the market. There are three
main reasons why supply curves for most products slope upwards from left to right giving a
positive relationship between the market price and quantity supplied. When the market price
raises an increase in consumer demand, it becomes more profitable for businesses to increase
their output.
Higher prices send signals to firms that they can increase their profits by satisfying demand
in the market. When output rises, a firm’s costs may rise, therefore a higher price is needed to
justify the extra output and cover these extra costs of production. Higher prices make it more
profitable for other firms to start producing that product so we may see new firms entering the
market leading to an increase in supply available for consumers to buy. For these reasons we
find that more is supplied at a higher price than at a lower price.
The supply curve shows a relationship between the price of a good or service and the
quantity a producer is willing and able to sell in the market.
Figure 1
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The Figure (1) elaborates the supply of agriculture product is higher, due to raise in the
price.
1.7 Causes for the shift in the Supply Curve of Agricultural Products
i) Costs of production: A fall in the costs of production leads to an increase in the supply
of agricultural products because the supply curve shifts downwards and to the right. Lower
costs mean that a farmer can supply more at each price. For example he might benefit
from a reduction in the cost of imported raw materials. If production costs increase, a
business will not be able to supply as much at the same price - this will cause an inward
shift of the supply curve. An example of this would be an inward shift of supply due to an
increase in wage costs.
ii) Changes in production technology: Production technology influence the manner in

which resource inputs are combined to produce outputs. An advance in technology means
that a given aoung of resources can be used to produce more goods, or that the same
amount of production can be obtained with fewers resources.
iii) Government taxes and subsidies: Government intervention in a market can have a
major effect on supply. A tax on producers causes an increase in costs and will cause the
supply curve to shift upwards. Less will be supplied after the tax is introduced. A subsidy
has the opposite effect as a tax cut. A subsidy will increase supply because a guaranteed
payment from the Government reduces costs allowing them to produce more output at a
given price. The supply curve shifts downwards and to the right depending on the size of
the subsidy.
iv) Climatic conditions: For agricultural commodities such as coffee, fruit and wheat the
climate can exert a great influence on supply. Favourable weather will produce a bumper
harvest and will increase supply. Unfavourable weather conditions such as a drought will
lead to a poor harvest and decrease supply. These unpredictable changes in climate can
have a dramatic effect on market prices for many agricultural goods.
v) Change in the price of a substitute: A substitute in production is a product that could

have been produced using the same resources. Take the example of barley. An increase
in the price of wheat makes wheat growing more attractive. This may cause farmers to
use land to grow wheat and less to grow barley. The supply of barley will shift to the left.
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vi) The number of producers in the market: The number of sellers in a market will affect
total market supply. When new producers enter a market, supply increases and causes
downward pressure on the market price. Sometimes producers may decide to deliberately
limit supply by controlling production through the use of quotas. This is designed to reduce
market supply and force the price upwards. The entry of new producers in a market
causes an increase in market supply and normally leads to a fall in the market price paid
by consumers. More producers increase market supply and expand the range of choice
available.
1.8 Size of Farm and Law of Returns –

Theoretical and Empirical Findings
The efficient scale of farm operation depends both on narrowly-defined scale economies
in production, essentially a matter of irregularity of inputs and specialization of labour and on
scale-related transaction costs in input and output markets, including both information costs
and scale economies in transport and marketing.
These give rise to economies of scale, so it could be that the mechanization of farming
that results from a rise in the price of labour relative to capital would lead to such a large
increase in the minimum inputs that the family farm would become obsolete.
Transaction costs associated with the care, maintenance and transport of irregular inputs
may be such as to inhibit renting, with not only a potential impact on optimal scale but also on
mode of organization of farming, which may be essentially driven by the accumulation of wealth
in the form of these inputs.
Such a measure not only allows for transaction costs and scale economies, but also for
the possibility that optimal factor proportions vary with scale, which would in general imply that
narrowly- defined scale economies would vary according to the factor-proportions ray along
which they were being measured.
Similarly, it was suggested in a study of rice farming in one area of Andhra Pradesh that
the ownership of irregular irrigation equipment was determining farm size, at a level above that
of the family farm. An extra element in this case was that the farms were almost all owner
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operated, suggesting the absence of secure long-term land rental contracts that might allow
tenants to amortize investments in immobile, irregular equipment. Yet it may be that choice of
technique rather than mode of production will adjust. Examples are the emergence of hand
and treadle pumps in Bangladesh and of bamboo tube wells in India, where the initially-introduced
tube well and pump technologies had favoured larger scale.
Management skill is another irregular input that may account for scale economies.
Moreover, good farm managers are likely to find it optimal to manage larger farms than poor
managers. To the extent that the availability of new seeds, fertilizers and pesticides, together
with the possibility of obtaining credit to pay for them, has increased, one expects the returns
to scarce managerial skill to have risen, which is lent support by evidence that the impact of
schooling on agricultural productivity is substantially higher in such modernizing environments
than in traditional ones. Where this has in fact induced the acquisition of greater skills, one
would expect optimal scale to have risen. Against this, some technological advance may favour
local knowledge sufficiently that efficiency demands more intensive managerial input, leading
to smaller scale.
Check Your Progress - A
State Whether each of the following statements is ‘True’ or ‘False’

i. The study of the agricultural economy is macroeconomic in nature
ii. If all factors are kept constant and only more water is supplied, then law of constant
returns operate
iii. Change in technology increases agricultural output
iv. A tax on producers causes an increase in costs and will cause the supply curve to shift
downwards
v. The number of sellers in a market will lead to a fall in the market price.
1.9 Farm Budgeting
Budgeting is a method of analysing plans for the use of agricultural resources at the
command of the decision maker. Farm plan is a programme of the total farm activity of a
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farmer drawn up in advance. Farm plan serves as the basis of farm budgeting. Therefore, farm
plan can be prepared without a budget but budgeting is not possible without farm plan. Therefore,
the budgeting can be defined as :
1. The physical aspects of farm planning when expressed in monetary terms called farm
budgeting.
2. The expression of farm plan in monetary terms by estimation of receipts, expenses and
net income is called budgeting.
3. Farm budgeting is a process of estimating costs, returns and net profit of a farm or a
particular enterprise
4. Budget is a statement of estimated income and expenditure. We will be concerned with

both planning and budgeting as the budget helps us to evaluate alternative plans and
select the one that is most profitable. Therefore, farm planning and budgeting go side by
sides.
1.9.1 Types of Farm Budgeting:

There are four main types or methods of farm budgeting.
A. Enterprise budgeting
B. Partial budgeting
C. Full or complete budgeting & planning.
D. Cash flow budget
A. Enterprise budgeting:
The enterprise budgets are the input-output relationship for individual enterprises. An
enterprise budget includes all the variable resources required per unit (a hectare/animal/tree,
etc.) of an enterprise and its cost, the expected output, gross returns, etc. Enterprise budgets
provide useful information regarding the resources requirements and the relative profitability of
different enterprises. Thus, these budgets, considered in the framework of farm resources, are
the alternatives from among which the most profitable ones are to be selected. In this context,
the enterprise budgets need to be prepared at different levels of technology, as
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(a) The existing level of technology; and
(b) The improved or recommended level of technology
A comparison of the enterprise budgets at the existing and improved levels of technology
provides the scope or the potential of making farm improvements. The enterprise budgets lack
in one important aspect that these do not consider the complementary and supplementary
relationships amongst themselves which are quite common among farm enterprises at low
level of production, but they simply assume to be competitive to one another right from the
beginning. But these relationships are taken care of in complete planning and budgeting.
B. Partial budgeting:
Partial budgeting It refers to estimating costs and returns and net income of a particular
enterprise. It refers to estimating the returns for a part of the business i.e. one or few activities
for example.
1. To estimate additional cost and returns from growing one hectare of hybrid Wheat in
place of local Wheat.
2. To estimate additional cost and returns by adopting foliar application of chemical fertilizers
instead of soil application.
Partial budgeting is a method of making a comparative study of the cost-and-return

analysis resulting from a change in a part of the business organization. This change may be
made through a careful selection from among alternative methods of production or practices,
the choice of which is based on the opportunity cost of relative profitability and does not affect
the total farm organization vitally. This technique helps to make decisions whenever small
changes in the existing farm organizations are contemplated. The following four points are
important in setting up a partial budget:
1. Additional returns from change,
2. Reduction in unit cost,
3. Reduction in yield, if any, and

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4. Addition in cost incurred.
Thus, partial budgets deal with such changes in the farm organization as can increase
farm incomes without changing the total farm organization. The farmer would know the total
net benefit from the change, the complete details of what he should do at what cost & what he
is not to do after the change and come out with higher profits.
C. Complete Budgeting:
It is also called as total or overall budgeting. It refers to preparing budget for the farm as
a whole. Complete budgeting considers all the crops, livestock, methods of production and
aspects of marketing in consolidated farm and estimates costs and returns for the farm as a
whole. Therefore, complete budgeting can be specifically defined as “An estimation of the
probable income and expenditure is made for the farm as a single unit of course, a complete
budget is required when a farm plan is prepared for new farm or when drastic changes are
suggested in the plan of the existing pattern on an established farm”. Complete budgeting can
be prepared for short run or annual budget and for long run.
D. Cash flow budget:
Tallies the cash receipts and expenses of the farm over a fixed time period (usually a
year). This budget shows whether or not expected total cash income will be adequate to cover
cash expenses, which is useful to assess major purchase, and to plan loan repayment or new
borrowing.
1.9.2 Advantages of Farm Budgeting

Following are the main advantages of farm budgeting:
1. It evaluates the old plan and guides the farmers to adopt a new farm plan with advantage.
2. It makes the farmer conscious of the waste (leakage) in the farm business.
3. It gives comparative study of receipts, expenses and net earnings on different farms in
the same locality and in different localities for formulating national agricultural policies.
4. It guides and encourages the most efficient and economical use of resources.
5. It serves as valuable basis for improvements in farm management practices.

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1.10 Cost-Types and Concepts
The term ‘cost’ generally refers to the outlay of funds and or productive purposes. In
other words, cost refers to the expenses incurred on productive services and physical input
factors
Cost analysis is an important tool to describe the relationship of costs to income.

Commonly, there are two types of costs used in farming viz. fixed costs and variable costs.
However, marginal or added cost is also an important tool to guide the farmer to decide, how
far he can push the production and how much of various resources he can use. There are
other costs which have boon derived from those main groups.
1) Fixed Costs:
These costs are related to fixed resources and are overhead costs. They remain constant
irrespective of the yields obtained. These are the same at all levels of production. Rent, interest
on fixed capital, depreciation of building, taxes and wages of the permanent labourers constitute
fixed costs. Fixed costs have little relation to making decision on the level of production of
farming practices.
2) Variable Costs:
These costs are related to the variable resources and change with the output. The variable
costs are nil, if there is no production on the farm. They change with the quantity of production.
In the beginning, as the production increases. Variable costs rise quite rapidly, but with further
rise in production variable costs do not increase proportionately with the production due to
economies brought about by mass production later on as diminishing returns set in, variable
costs start rising more rapidly than the production. If farming is to be carried, the variable cost
must be less than selling price, e.g. current supplies such as seeds, fertilizers, irrigation,
insecticides, hired labour charges, interest on working capital
3) Total Costs:
The fixed and variable costs make total cost of production of each unit of crop or livestock
product. The total cost stands even when production is zero. The increase in variable costs
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determines whether farming would be profitable, but once the total costs are covered, the
farmer remains indifferent to the average cost of per unit cost of production. Profit = Gross
income - Total Cost (Fixed Variable)
4) Average Total Cost:
It refers to the average of all costs (fixed + variable) per unit of output. It is the resultant
of total cost divided by the output. In the beginning the average costs are very high because
the high fixed costs are distributed on a few units of production. But as more units are produced
the fixed costs are spread over on more and more units. When the fixed costs have spread
over on many units, there is not much effect of the fixed costs on the average costs. Variable
costs assume importance’s average cost begin to raise,
Fixed Cost + Variable Cost/ Total Cost= Average total cost =Total output/ Total output
5) Average Fixed Cost:
Average fixed cost is a fixed cost per unit of output. The total fixed cost is the same at all
the levels of production. The average fixed cost falls continuously at a decreasing rate as more
output is produced. It is because the fixed cost is divided by increasingly large number as
output increases. It can be expressed as
AFC =
Where,
AFC = Average Fixed Cost
TFC = Total Fixed Cost
Y = Output.
6) Average Variable Cost:
The average variable cost (AVC) refers to total variable cost per unit of output. The AVC
has an inverse relationship with average product (AP). When AP increases
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AVC decreases, when AP decreases AVC increases, furthermore, when AP is at maximum

the
AVC must be at its minimum.
The AVC is expressed as: AVC= VC/Y
Where,
VC= Variable cost
Y= Output
7) Marginal Cost:
Marginal cost (MC) is the change in cost associated with an increase of one unit of
output. The marginal cost has also certain relationship with Marginal Product (MP) just as the
average variable cost has with average product. There is an inverse relationship between
Marginal Product (MP) and Marginal Cost (MC) that is when MP is increasing, MC is decreasing,
when MP is decreasing MC is increasing and when MP is at maximum MC is at lowest point.
As marginal costs are related to the cost of producing additional units of output, they are
affected only by the variable costs, fixed cost, as a rule, do not influence the marginal cost,
because they neither increase nor decrease with the additional production. Marginal costs are
very important in determining as to how far production should be pushed and how much of the
various resources should be used. A farmer should acid to the production as long as added
return is greater or at least equal to the added cost.
Cost Concepts and Items of Cost: Cost is the value of the factors of production used in
producing and distributing goods and services. The cost of a factor unit equals the maximum
amount which the factor could earn in alternative employment. Concept means idea underlying
or general motion.
The cost of production of a crop is considered at three different levels viz. Cost A, Cost-
B and Cost-C. The concept of three costs such as Cost-A, Cost B and Cost-C is followed by the
Directorate of Economics and Statistics, Government of India in their cost studies. These cost
concepts are generally followed in the studies of cost of production of crops.
18
The input items included under each category of cost are given below.
Cost-A: Actual paid-out costs for owner cultivator, inclusive of both cash and kind
expenditure which include following cost items,
1. Hired human labour: a) Male b) Female
2. Total bullock labour a) Owned b) Hired
3. Seeds
4. Manures
5. Fertilizers
6. Insecticides and pesticides
7. Irrigation charges
8. Land revenue, cusses and other taxes
9. Depreciation or capital assets 10. Transport and Marketing
11. Interest on working capital
Cost B: If the amount invested in purchase of land would have been put in some other
long-term enterprise or in a bank, it would have yielded some returns or interest. But due to the
investment of the amount in purchase of land, the farmer has to scarify returns or interest that
he would have otherwise gained. And as such this loss is considered as cost, it is called rental
value of land. Similarly, the hypothetical interest that the capital invested in farm business
would have earned, if invested alternatively is also considered as cost. Rental value of land
and interest on fixed capital represent imputed costs which are added to Cost A to give Cost B.
Cost B = Cast A + imputed rental value of owned land + Imputed interest on owned fixed
capital.
Cost C: It is the total cost of production which includes all cost items, actual as well as
imputed. The value of holding’s own labour is to be imputed and added to cost B to workout
Cost C.
Cost C = Cost B + imputed value of family human labour.

19
1.11 Supply Response : Individual Crops and Aggregate Supply
Like the majority of countries in Asia, India has been following a structural adjustment
programme since the mid-1980s. Significant progress was made during 1986-92: large and
frequent devaluations; exchange rate liberalization; reform and rationalization of the tax system,
especially tariffs; decontrol of agricultural prices and liberalization of marketing and the
agricultural sector was the principal source of economic growth over 1986-92;. The rationale
behind agricultural liberalization is that the biases against agriculture inherent in protectionist
policies, evident in India from the late 1960s, discourage production so that reforms which
introduce price incentives and efficient marketing will encourage producers to respond.
In many developing countries, governments have been inclined, implicitly or explicitly, to

tax the agricultural sector as part of a policy of industrialization-led growth, justified by the
belief that industry is the dynamic sector while the agricultural sector is static and unresponsive
to incentives. If supply response is low, then taxing agriculture will generate resources for other
sectors of the economy, without significantly affecting agricultural growth. But if, on the contrary,
agricultural supply response is high, then taxing agriculture can retard agricultural growth,
creating food and input supply bottlenecks which will eventually bring down the rate of growth
of the entire economy, increase reliance on imports to meet food requirements and reduce
agricultural exports (often the principal source of foreign exchange). In general, policies biased
against agriculture have done more harm than good, reducing growth in the agricultural sector
and consequently in the economy as a whole.
The performance of export crop production (measured as official purchases), in both the
long-run and short-run, can be fully explained by a secular downward trend. The dominance of
the trend prevented estimation of price elasticity, although the trend in production is in line with
that in prices. The failure to find a short-run response is consistent with the time lags inherent
in export crop response, as many of the major crops are perennials. Farmers are indeed
responsive, which is consistent with the evidence of agricultural sector growth. Liberalization
of agricultural markets, where it increases the effective prices paid to farmers, can be effective
in promoting production, and is consistent with the observed improved performance of the
sector following liberalization in the 1980s. Complementary interventions, to improve
infrastructure, marketing, access to inputs and credit, improved production technology etc,
20
can be expected to make producers even more responsive.
Check Your Progress – B
State Whether each of the following statements is ‘True’ or ‘False’

i. The expression of farm plan in monetary terms is called budgeting
ii. Farm budgeting does not encourage efficient and economical use of resources
iii. Partial budgeting refers to estimating costs and returns and net income of a particular
enterprise
iv. The variable costs are nil, if there is no production on the farm
v. The AVC has a direct relationship with average product
1.12 Summary
in food produce can reduce foreign dependence foo food supply and raw materials, especially
in times of crisis. There is a large scope of agricultural economics in various factors of production
also viz. land, labour, capital, organization etc.
Diminishing returns are obtained when the scale of operation is not increased but when
only one variable input is changed while the quantities of other inputs are kept constant.
Increasing returns are obtained when diseconomies are less than the economies of production.
If the indivisibilities can be overcome, economies of scale are reaped. Large size farms can
afford to use machines and big farm machines require large size farms.Under constant
productivity, each unit input increase is just as profitable as another. Under such conditions the
profit rule is: If production is profitable on first unit, keep producing till the constant returns hold.
Do not produce at all, if production is not profitable on first unit.
Supply means the quantity of a good or service that a producer is willing and able to
supply in to the market at a given price in a given time period. Normally as the market price of
21
a commodity increase, producers will expand their supply onto the market. There are three
main reasons why supply curves for most products slope upwards from left to right giving a
positive relationship between the market price and quantity supplied. When the market price
raises an increase in consumer demand, it becomes more profitable for businesses to increase
their output.
Budgeting is a method of analysing plans for the use of agricultural resources at the
command of the decision maker. Farm plan is a programme of the total farm activity of a
farmer drawn up in advance. Farm plan serves as the basis of farm budgeting. Therefore, farm
plan can be prepared without a budget but budgeting is not possible without farm plan.
There are two types of costs used in farming viz. fixed costs and variable costs. However,
marginal or added cost is also an important tool to guide the farmer to decide, how far he can
push the production and how much of various resources he can use. There are other costs
which have boon derived from those main groups.
Like the majority of countries in Asia, India has been following a structural adjustment
programme since the mid-1980s. Significant progress was made during 1986-92: large and
frequent devaluations; exchange rate liberalization; reform and rationalization of the tax system,
especially tariffs; decontrol of agricultural prices and liberalization of marketing and the
agricultural sector was the principal source of economic growth over 1986-92;. The rationale
behind agricultural liberalization is that the biases against agriculture inherent in protectionist
policies, evident in India from the late 1960s, discourage production so that reforms which
introduce price incentives and efficient marketing will encourage producers to respond.
1.13 Key Words

 Agricultural Economics : Agricultural economics includes production, distribution,
consumption and government activities in relation to agriculture and farm enterprises.
 Applied Science : Is concerned with the identification, description and classification of

economic problems of agriculture
 High Yielding Variety Seeds :HYV seeds are seeds are of better quality than normal

quality seeds.
22
 Production function : Production function describes the laws of proportion, that is, the
transformation of factor inputs, into products of any particular time period.
 Supply Curve : Supply Curve means the quantity of a good or service that a producer is
willing and able to supply in to the market at a given price in a given time period
 Budgeting : Budgeting is a method of analysing plans for the use of agricultural resources
at the command of the decision maker. Farm plan is a programme of the total farm
activity of a farmer drawn up in advance
 Enterprise budgeting : The enterprise budgets are the input-output relationship for
individual enterprises
 Partial budgeting : Partial budgeting refers to estimating costs and returns and net
income of a particular enterprise.
 Complete Budgeting : Complete Budgetingrefers to preparing budget for the farm as a

whole.
 Cost analysis : Cost analysis is an important tool to describe the relationship of costs to
income
 Fixed Costs : Fixed Costs are those costs related to fixed resources and are overhead
costs.
 Variable Costs : Variable Costs are related to the variable resources and change with
the output

1. Define Agricultural Economics and state the Scope of agricultural economics
2. State the principles applied in agricultural production economics
3. Explain three types of returns to scale in agricultural prodcution
4. Write a short note on
a. Production Function
b. Farm Budgeting
c. Supply Curve
d. Types of cost
23
5. Explain the causes for the shift in supply curve of agricultural products
6. Explain different types of farm budgeting

A: (i) True (ii) False (iii) True (iv) False (v) True
B: (i) True (ii) False (iii) True (iv) True (v) False

1) Agrawal A.N. (1981), ‘Indian Agriculture’- Vikas Publishing House Pvt. Ltd.in India’
Himalaya Publishing House, Delhi
2) Mahendran T (2008), ‘Agricultural Development in India’ - Abhijit Publications, Delhi
3) Memoria C.B. and Tripathi B.B. (2007), ‘Agricultural Problems in India’- Kitab Mahal,
Allahabad
4) Pawade B.B. et. al (2008), ‘Adoption and Impact of New Agricultural Technology on
Tribal Agriculture’ Serials Publications, New Delhi
5) Sadhu A.N. and Mahajan R. K(1985)., ‘Technological Change and Agricultural Development
in India’ Himalaya Publishing House, Delhi
6) Shrivastava O.S. (2010), ‘Theories and Policy Issues of Agricultural Economics; Anmol
Publications Pvt. Ltd, New Delhi
24
UNIT II
ECONOMICS OF RURAL INFRASTRUCTURE
Learning objectives
 Know the availability of land in India and its different uses
 Define ‘rural labour’ distinguishing it among its different forms
 Relate the concepts of marginalisation, mobility and segmentation of rural labour market
to their implications on rural economic structure
 Explain the trends in rural employment and unemployment in India
 Analyse the prevalence and consequences of gender issues and wage differentials in
the rural farm and non-farm sector
 Discuss the trends, determinants and productivity levels of non-agricultural rural

employment in India; and
Structure
2.1 Introduction
2.2 Use of land, Water and Energy
2.3 Rural Transport
2.4 Communication, Banking, Extension Services – Role and Modes
2.5 Problems of Rural Electrification
2.6 Rural Social Infrastructure- Education and Health
2.7 Information dissemination
2.8 Rural Finance
2.9 Role of capital and Sources of Rural Credit
2.9.1 Types of Rural Credit
2.9.2 Sources of Rural Credit

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2.10 Organized and Unorganized Capital Market
2.11 Characteristics of Rural Credit
2.12 Institutional and Non-Institutional Sources of Rural Credit
2.13 Rural Labour
2.14 Mobility of Labour
2.15 Segmentation in Labour Markets
2.16 Marginalisation of Rural Labour
2.17 Nature, Extent and Trends in Rural Unemployment
2.18 Agricultural Wages in India
2.19 Male – Female Wage Differences
2.20 Non-Agricultural Rural Employment – Trend and Determinants
2.21 Summary
2.22 Key Words
2.1 Introduction
Infrastructure is the term for the basic physical systems of a business or nation —
transportation, communication, sewage, water and electric systems are all examples
of infrastructure. These systems tend to be high-cost investments and are vital to a
country’s economic development and prosperity.
Infrastructure plays a crucial role for not just the country’s economic growth but also its
progress in human development. Rural areas account for a larger part of the geographical
area in India. Census 2011 reports that there are 6.4 lakh villages in India, which shelter more
than two-third of the country’s population. Provision of basic infrastructure facilities for this
large section of the population spread across 3.28 million square kilometre of the country’s
geographical area has been a major challenge.
26
Agriculture Infrastructure is the most essential input regarding the development of Indian
agriculture as one third population of the country depends on agriculture sector directly or
indirectly. Indian agriculture contributes to the national Gross Domestic Product is about 25 per
cent. At present, much emphasis has been on commercializing agricultural production hence
adequate production and distribution of food has become a high priority. This in turn implies
that Agriculture Infrastructure like seeds, fertilizers, irrigation sources should be organized to
achieve the maximum momentum of growth.
2.2 Land Use
Land is the most vital resource of a country. It is a fixed asset and cannot be expanded
to meet the needs of an increasing population. Therefore, it must be used carefully and in the
best possible manner. The total geographical area of India is 32.88 lakh sq. kms.
The major land uses in India are: Net Sown Area (NSA) The total land area on which
crops are grown in a region is called net sown area. The net sown area and the area sown
more than once together are called gross cultivated area. In India, about 47 per cent of total
reporting area is under the net sown area.
States namely Punjab, Haryana, West Bengal, Uttar Pradesh, have the high proportional
share of NSA than the national average. Against this, the share of NSA is less than one half of
the national average in states of Himachal Pradesh, Uttarakhand, Meghalaya, Manipur,
Nagaland, Mizoram, Sikkim and Arunachal Pradesh. All these states suffer from physical
disabilities such as undulating terrain due to hilly topography, limiting the availability of plain
land and fertile soils, important for cultivation. This is evidently clear from state wise distribution
of proportional share of NSA that physiographic factors play an important role in availability of
net cropped area in a region.
The net sown area, current fallows and land under tree crops and groves are included in
agricultural land use. The agricultural land in India is little more than 50 per cent of the total
geographical area in the country. This is the highest share of land in any country in the world.
But due to large size of population in India, per capita arable land is available only 0.17 hectares,
which is lower than the world average (0.24 hec).
27
Water Use
India has long faced the challenge of providing safe drinking water to over 700 million
people in more than 1.5 million villages. In 1972, the government began to improve rural water
supply, and in the mid-1980s the issue was declared a national priority. As a result, by 2011, 95
percent of India’s rural population had access to some form of water supply infrastructure. In
practice however, many systems were no longer functional. The key issue was that systems
were designed and constructed by state engineering agencies with little participation from
local communities. People lacked a sense of ownership, and maintenance was neglected.
Consumers also treated water as a right to be provided free-of-cost by the government, making
systems financially unsustainable. Moreover, a growing population led to the mounting demand
for water, with the result that water tables were falling and many water sources were shrinking
or drying up altogether. At the same time, rural households had begun to demand higher levels
of service. While in the 1990s, rural communities were satisfied with village wells and hand
pumps, many now sought piped household connections.
Energy Use
The country has inherited a stagnant agriculture at the time of Independence. The
traditional tools and implements relied mostly on human and animal power and used a negligible
amount of commercial energy. However, successive governments realized the importance of
agriculture and initiatives were taken for the growth of this sector. Increased investment in
irrigation infrastructure, expansion of credit, marketing, and processing facilities therefore, led
to a significant increase in the use of modern inputs.
Till the 1950s, use of tractors for agriculture was very limited. Tractor manufacturing in
India started in 1961 with aggregate capacity to manufacture 11,000 tractors. Joint efforts
made by the government and private sector have led to steady increase in the level of
mechanization over the years.Given that rains are not always timely and evenly distributed,
farmers prefer pump sets as a more reliable and assured source of irrigation; as a
result, energization of pump sets have been increasing rapidly. As on 31 March 2004, 14.1
million pump sets had been energized. Maharashtra has the maximum number of energized
pump sets (2.4 million), followed by Andhra Pradesh (2.3 million). Earlier, the average capacity
28
of the pump sets was 3.68 kW and a pump set on an average consumed 6004 kWh of electricity
in that year (Central Electricity Authority, 2005). However, owing to insufficient electricity supplies,
some farmers have also procured diesel pump sets as a standby. In the recent past, concerted
efforts of the government has led to an introduction of biomass and solar photovoltaic based
pumping systems
2.3 Rural Transport

Transportation refers to any vehicle or activity that moves people and goods from one
place to another. The key modes of transportation for people and goods include buses, trains,
trucks, cars, airplanes, and other forms of motorized vehicles. However, transportation can
also refer to bicycles, boats, and even pedestrian traffic.
a) Means of Rural Transport
There is various transportation means are used in India which of some important menace
are given below:
1) Bicycles
Bicycles are a common mode of travel in much of India. More people can now afford to
own a cycle than ever before. In 2005, more than 40 percent of Indian households owned a
bicycle. Even though India is the second largest producer of bicycles in the world,
2) Hand-pulled rickshaw
Hand pulled rickshaw is that where non-motorised vehicle and a person pulls the rickshaw
by hand. This type of rickshaw mostly used in West Bengal, Madhya Pradesh, Utter Pradesh
etc. Hand pulled rickshaw is one of traditional transportation means in India. While the government
of India trying to bann such rickshaw.
3) Cycle rickshaw
Cycle rickshaws were introduced in India in the 1940s. They are bigger than a tricycle
where two people sit on an elevated seat at the back and a person pedals from the front. In the
late 2000s, they were banned in several cities for causing traffic congestion. However these
rickshaws are used in rural areas to carry agricultural good and human transport also. Cycle
rickshaws have been providing the cheapest way to transportation.
29
4) Bullock Cart
A bullock cart is a two-wheeled vehicle pulled by bulls or male buffalos. It is a means of

rural and some extent of urban transportation. Bullock carts are used since ancient times in
many parts of the world. They are still used today where modern vehicles are too expensive or
the infrastructure does not favour them. Camel carts operate in Rajasthan and Gujarat in both
urban and rural sectors. In Haryana, Punjab and Western UP, buffaloes also are used for
carting.
5) Two-wheelers or Motor Cycles
Motorised two-wheelers like scooters, small capacity motorcycles and mopeds are very
popular as a mode of transport due to their fuel efficiency and ease of use. In rural areas motor
cycles are used as mean of transport in various activities including agriculture and allied.
6) Automobiles
Automobiles like Tempo, Trucks and Lorries are used to goods transpiration in rural areas.
Private vehicles are providing transportation facilities to farmers and other rural businessmen.
It is useful transportation to carry heavy agriculture goods transport from rural areas to market.
7) Water Transport
In the rural areas water transport like river transport and sea transport also used to human
and goods transport. Because of extensive network of inland waterways in the form of rivers,
canals, backwaters and creeks water transport have play very important role in rural areas. In
India total navigable length is 14,500 kilometres, out of which about 5,200 km of river and 485
km of canals are available to water transport.
8) Rail Transport
Rail transport is mostly available in urban areas in India. However some villages also
connected through the railway network in India. Because of new policy of rail ministry the rail
facilities will be available to rural peoples also. But their percentage is very low as present.
b) Rural Transportation Scenario in India
In the hierarchy of road system in India, rural roads include other district roads (ODR) and
Village roads (VR). There are about six lakh villages spread over 3.28 million square kilometres
30
area. According to the recent study by Planning Commission only three-fifths of the nearly 6
lakh villages are known to be connected by all weather roads. In 2000, a Centrally Sponsored
Scheme called the Pradhan Mantri Gram Sadak Yojana.
Transportation plays a critical role in the life style of a community – the factors that
influence a community’s quality of life. Transportation allows for access to food, healthcare,
educational opportunities, and employment. Additionally, access to transportation increases
rural residents’ ability to access recreation, entertainment, and other activities that promote
community engagement. Efficient and affordable transportation is an important driver in
economic growth in rural areas and helps ensure that people can obtain services and participate
in public life.
In 2000, around 40 percent of villages in India lacked access to all-weather roads and
remained isolated during the monsoon season. To improve rural connectivity, Pradhan Mantri
Gram Sadak Yojana (Prime Minister’s Rural Road Program), a project funded by the Central
Government with the help of World Bank, was launched in 2000 to build all-weather roads to
connect all habitations with a population of 500 or above (250 or above for hilly areas)
2.4 Communication, Banking, Extension Services –

Role and Modes
Rural Communication
Rural communication is an interactive process in which information, knowledge and skills,

relevant for development are exchanged between farmers, extension/advisory services,
information providers and research either personally or through media such as radio, print and
more recently the new “Information and Communication Technologies” (ICTs).
Telecommunications is now universally acknowledged as one of the prime movers of the

modern economy. Hence it has a vital importance for a developing economy like India. There is
a large unsatisfied telecommunication demand, which needs to be addressed at the earliest.
Telecommunications is one of the prime supported services needed for rapid growth and
modernization of various sectors of the economy. The telecom revolution has contributed
enormously to the increased efficiency in the economy. It is not only the growth of a sector but
also it has a “multiplier effect on the entire Indian economy. Initially, telephone service is a
31
considered as high luxuries service in India and used in only urban areas. But, now it becomes
a common facility to everyone including rural peoples.
1) Rural Telephony
To provide telephone facilities to rural peoples the Ministry of Telecommunication have

adopted appropriate policy recently. Village Public Telephones (VPTs) and Rural Community
Phones scheme enables access to telephone service in rural areas. As well as the
telecommunication department has implemented a scheme of Rural Community Phones (RCPs)
which has been launched under Universal Service Obligation Fund (USOF) to create
infrastructure in rural and remote areas.
2. Rural Cellular Services
After establishment of the Telecom Regulatory Authority of India (TRAI) in 1997 rural
cellular service are increasing continually due to the proper attention of TRAI to expansion rural
cellular services. Although, increased competition in the cellular sector leads to capture rural
cellular service market. As a result rural cellular subscribers are increased tremendously in
recent years. According to TRAI there are 37.40 million subscribers are in rural areas as on
March 2007.
In India the most widely used and available tools of farmers’ advisory services are-
telephone based Tele Advisory Services, the mobile based Agri Advisory services, television
and radio-based mass media programmes, web based online Agri Advisory services, video-
conferencing, Online Agri video Channel, besides traditional media like, printed literature,
newspapers, and farmer’s exhibition/fair etc.
Most of the agricultural institutes and organizations have their own telephone based
advisory services for farmers which provide telephone based Agri advisory services through a
dedicated telephone number to provide real-time information and advisory. The on-line phone
based expert advice service, Kisan Call Centres (KCC), launched by the Ministry of Agriculture,
Government of India is available for all within the country since January 2004.A toll-free telephone
number “1800-180-1551” has been provided that is operational on all days from 6.00 am to
10.00 pm.
32
Rural Banking
Rural banking in India started since the establishment of banking sector in India. Rural
Banks in those days mainly focused upon the agro sector. Today, commercial banks and
Regional rural banks in India are penetrating every corner of the country are extending a
helping hand in the growth process of the rural sector in the country.
The area of operation of a majority of the RRBs is limited to a notified area comprising a
few districts in a State.SBI has 30 Regional Rural Banks in India known as RRBs. The rural
banks of SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal
Pradesh to North East. Apart from SBI, there are other few banks which functions for the
development of the rural areas in India.
Co-Operative Banks
The Co-operative bank has a history of almost 100 years. The Co-operative banks are
an important constituent of the Indian Financial System, judging by the role assigned to them,
the expectations they are supposed to fulfill, their number, and the number of offices they
operate.
Their role in rural financing continues to be important even today, and their business in
the urban areas also has increased phenomenally in recent years mainly due to the sharp
increase in the number of primary co-operative banks.
Co-operative Banks in India are registered under the Co-operative Societies Act. The
RBI also regulates the cooperative bank. They are governed by the Banking Regulations Act
1949 and Banking Laws (Co-operative Societies) Act, 1965.
Extension Services
Extension process is concerned with communicating the technology of scientific agriculture

to the farmers in order to transform traditional level of agriculture to better for improving their
economic conditions. Hence, extension in agriculture would mean stretching out the knowledge
to farmers on adoption of the new technology and improved practices in various sub-sectors
like crop production, livestock rearing fodder production, sericulture, bee-keeping, horticulture
etc.
33
Extension aims at changing the outlook and attitude ofthe farming community in general
and it seeks means to improve the farm operations and farmer’s family life in totality on their
own initiative. As the farmers are mostly small and marginal, they lack direct access to developing
agricultural technology. Educating such a group of farmers has to be, therefore, a sustained
process to keep pace with rapidly changing agricultural technology.
Agricultural extension is considered to be a special branch of rural extension dealing with

several economic and social aspects of farming community such as:
i) Efficient farm production
ii) Efficient marketing, distribution and utilisation of farm produce
iii) Conservation, development and use of natural resources for farm sector development
iv) Efficient farm management
v) Improving the standard of living of rural population
vi) Development of leadership for community improvement.
Check Your Progress A
State whether each of the following statements is ‘True’ or ‘False’

i. The total land area on which crops are grown in a region is called net sown area
ii. Tractor manufacturing in India started in 1861
iii. In Haryana, Punjab and Western UP, buffaloes also are used for carting.
iv. A toll-free telephone number is operational on all days from 6.00 am to 10.00 pm.
v. Rural Banks do not focuse upon the agro sectors
2.5 Problems of Rural Electrification
Rural Electrification is a process of bringing electrical power to rural and remote

areas.Electricity is not only used for household purposes but it also allows mechanization of
many farming operations, such as threshing, milking, hoisting grain for storage.
India adopted rural electrification programmes and build new ones in order to provide
400 million Indians electricity in rural India. Before Pradhan Mantri Gram Yojana bloomed with
notable results, rural electrification was going south due to major crisis.
34
Challenges were faced during 2010-2014 electrification, and things were in bad shape
when it came to making progress.Rich states provided some number of villages with power but
poorer states still struggle to do so. Although things progressed a bit there were still problems
faced.
1. Non-uniformly electrified
2. Poor planning
3. Electricity Theft
4. Poor infrastructure for electrical transmissions
5. Lack of political will
6. Incomplete Coverage
7. Faulty/Incomplete Data
8. Time Consumption & Difficult Procedure
9. Low Demand & Low Consumption
10. Less use of Renewable Energy Resources
 Solar Energy
 Wind Energy
 Hydro Energy
Major problems faced by Indian Electric Sector are-
1. Gap between Generation and demand. India has a large gap between the demand and
supply. Specially at the time of peak load in summer season of northern region. Actually,
the overdrawn of power by this region leads to blackout in 2012.
2. High losses in power systems. These losses include Technical Losses i.e. T&D
(transmission and distribution) losses, and Commercial losses due to theft and improper
meter reading in mostly rural areas. Transmission and distribution losses in system have
been around 20 % as reported by various electricity boards. However Utilities like Tata
power in Delhi having transmission losses approx. 1 % are doing very well.
35
3. Lack of latest Technology. Most of the houses in rural areas are still having Electro-
mechanical meters. Automated meter reading Infrastructure(AMR/AMI) are not used at
very large scale. Smart sensors and Smart microgrids are bounded to books and journals
only. FACTS devices are also not implemented at full scale.
4. No earthing wiring/fitting for home appliances in any house of rural area.
5. Very less focus on Energy mix with Renewable (RES).
6. Lack of Demand Side Management (DSM) Strategies.
7. Power quality Issues. Quality of power is also a big issue in Indian power sector.
2.6 Rural Social Infrastructure- Education and Health
Education
The 8th All India School Education Survey (AISE) report shows that there are 6.75 lakh
primary schools functioning in rural areas in the country. It presents a picture that on an average
every village in India has a primary school. The survey reports that there are 3.04 lakh upper
primary, 82.8 thousand secondary and 36.9 thousand higher secondary schools along with
1.18 thousand degree colleges in the rural belt of India. However, average teacher availability
in the schools is quite low. For example, in the primary schools this is just 2.2 teachers per
school. Even in terms of the number of classrooms, availability of safe drinking water facilities,
toilet facilities etc. the school infrastructure in rural India needs a lot more improvement.
Therefore, governments at various levels need to be pro-active to develop and maintain the
infrastructure for education in rural areas.
Health
Health infrastructure in rural India is still quite inadequate. As on March 2011, the total of
6.4 lakh villages in the country were covered with only 23,887 Primary Health Centres (PHCs)
and 1,48,124 Sub-Centres. This shows that, on an average, 4.3 villages have one sub-centre
and only one PHC exists for as many as 27 villages. Added to this, many health centres are
also run without doctors (or absentee doctors) and in some cases treatment is done by unskilled
healthcare workers. Absence of connectivity to the villages and inadequate number of health
centres and skilled health workers still endangers the life of rural population in the country.
36
2.7 Information Dissemination
Information and communication technologies (ICTs) have been with us for many years
and have played an important role in promoting agricultural and rural development during the
last few decades. The role of TV and radio in rural education and extension services has been
well documented. These technologies will continue to play a critical role in and along with the
new information and communication technologies. But what characterizes the new information
and communication technology revolutions is the convergence of three technology sectors
whose convergence has resulted in a qualitative difference in the way we can generate,
disseminate and transfer knowledge and thus contribute to development.
Methods of Information Dissemination
Traditional methods of dissemination of information still persist in the villages and are
slow moving and time consuming. Not only that, there is a loss of information due to the
involvement of large numbers of intermediaries in the process.
Generally, government officials and NGOs are the main sources of information for villagers.
More than fifty percent of information comes to the villagers by way of the Sarpanch of the
Panchayat through the Pallisabha and Gram Sabha. The Pallisabha is conducted every month.
Villagers are asked to attend. Apart from this, the Block Development Officer visits the village
and provides information about different activities taken up by the Government and how villagers
will be benefited by them. The main problem in this model is that it is time consuming and less
information is actually communicated. It has been observed that hardly sixty percent of the
villagers attend the Pallisabha.
2.8 Rural Finance
Rural finance comprises credit, savings and insurance (or insurance substitutes) in rural
areas, whether provided through formal or informal mechanisms. The word ‘credit’ tends to be
associated with enterprise development, whereas rural finance also includes savings and
insurance mechanisms used by the poor to protect and stabilize their families and livelihoods
(not just their businesses).
37
The Consultative Group to Assist the Poor (CGAP) defines rural finance as ‘financial
services offered and used in rural areas by people of all income levels’, and agricultural finance
as ‘a sub-set of rural finance dedicated to financing agriculture-related activities, such as input,
supply, production, distribution and wholesaling, and marketing
Rural finance comes in three major forms:

1. Informal financial institutions which are not regulated by banking sector such as rotating
and savings groups, church groups or similar groupings of people
2. Semi-formal institutions which are not regulated by banking sector but are usually licensed
and supervised by another government agency such as self help groups, NGOs involved
in provision of financial services and microfinance organizations (in some instances).
3. Formal institutions which are subject to banking regulations and supervision such as
microfinance institutions, banks. In order to enhance the quality of rural livelihoods a
more holistic approach to development is needed. Governments need to design and
implement agriculture friendly policies that will encourage the development of financial
sector and market oriented enterprises. Governments and donors need to invest into
human and institutional development in rural areas.
2.9 Role of capital and Sources of Rural Credit
Capital plays a vital role in the modem productive system. Production without capital is
bard for us even to imagine. Nature cannot furnish goods and materials to man unless he has
the tools and machines. Because of its strategic role in raising productivity,Capital occupies a
central position in the process of economic development. In fact, capital formation is the very
core of economic development.
Another important economic role of capital formation is the creation of employment

opportunities in the country. Capital formation creates employment at two stages. First, when
the capital is produced-some workers have to be employed to make capital goods like machinery,
factories, dams, irrigation works, etc. Secondly, more men have to be employed when capital has
to be used for producing further goods.
38
Capital accumulation is the very core of economic development. It may be a predominately

private enterprise system like the American, or a communistic economy like the Soviet, economic
development cannot take place without capital accumulation. No economic development is
possible without the construction of irrigation works, the production of agricultural tools and
implements, land reclamation, building of dams, bridges and factories with machines installed
in them, roads, railways, and airports, ships and harbors – all the “produced means of
further production” associated with high levels of productivity. It seems unquestionable that
the insufficiency of capital accumulation is the most serious limiting factor in underdeveloped
countries. In the view of many economists, capital formation occupies the central and strategic
position in the process of economic development.
2.9.1 Types of Rural Credit
Considering the period and purpose of the credit requirement of the farmers of the country,
agricultural credit in India can be classified into three major types:
(a) Short Term Credit:
The Indian farmers require credit to meet their short term needs viz., purchasing seeds,
fertilisers, paying wages to hired workers etc. for a period of less than 15 months. Such loans
are generally repaid after harvest.
(b) Medium Term Credit:
This type of credit includes credit requirement of farmers for medium period ranging
between 15 months and 5 years and it is required for purchasing cattle, pumping sets, other
agricultural implements etc. Medium term credits are normally larger in size than short term
credit.
(c) Long Term Credit:
Farmers also require finance for a long period of more than 5 years just for the purpose
of buying additional land or for making any permanent improvement on land like sinking of
wells, reclamation of land, horticulture etc. Thus, the long term credit requires sufficient time
for the repayment of such loan.
39
2.9.2 Sources of rural credit

Major sources of rural credit in India. They are:
1. Co-Operative Credit Societies
2. Land Development Banks
3. Commercial Banks
4. Regional Rural Banks
5. The Government
1. Co-Operative Credit Societies:
The co-operative societies are supposed to be the cheap-est and most important source
of rural credit. When co-operatives were first set up it was thought that they would be able to
meet almost the entire credit needs of numerous small and me-dium farmers.As a result, the
moneylenders would recede to the background. But this has not really
However, during the plan period the co-operative societies have made steady progress
and have succeeded to some ex-tent in promoting thriftiness and self-help among farmers.
They have started helping the farmers in a big way. Short-term loans issued by Primary
Agri-cultural Credit Societies (PACs) increased from Rs. 305 crores in 1965-66 to Rs. 5,200
crores in 1999-00. During the same period term loans is-sued increased from Rs. 37 crores to
Rs. 2,100 crores.
2. Land Development Banks:
Land devel-opment bank (formerly known as land mortgage banks) mainly provide long-
term loans to farmers against the mortgage of their lands at low rates of interest over a period
of 15 to 20 years. Farmers find borrowing from such banks attractive if costly land improvement
programmes (such as digging or deepening of wells) are to be undertaken, or if additional land
is to be acquired through outright purchase, or if previous debts have to be repaid.
3. Commercial Banks:
Before nationalisation of top 14 commercial banks in June 1969, they had an urban bias.
They were mainly accepting deposits from the urban people and making loans to trade and
40
industry. Agriculture and rural industries were neglected by them. Since agricul-ture by its very
nature was a risky venture, private commercial banks turned away from rural areas.
Commercial banks now provide both direct and indirect finance to agriculture. Direct
finance is provided for short and medium terms to enable farmers carry out agricultural operations
smoothly. Indirect finance is provided in the form of advances for the purchase of inputs like
seeds and fertilis-ers. Such loan is also provided through PACs.
Commercial banks not only help with agricultural operations but also for extending credit
to service units which provide infrastructural facilities such as storing and warehousing of
agri-cultural produce, marketing, transporting and re-pairing of agricultural implements.
Farmers also get commercial bank assistance un-der various schemes as Small Farmers
Development Agencies (SFDAs) and Marginal Farmers and Agricultural Labourers (MFAL).
Commercial banks have also sponsored regional rural banks as per the 20-point Programme
with a view to extending credit to small and marginal farmers and protect them from the
exploitation of moneylenders.
4. Regional Rural Banks:
In 1975, the Government set up a network of regional rural banks to look into the special
needs of small and marginal farmers, landless workers, rural artisans and the rural poor in
general. The unique feature of the 196 RRBs operating since September 1990 is that they
cater exclusively to the weaker sections of the rural community through nearly 14,800 branches
spread over India.
5. The Government:
The Government has also provided short-term and long-term loans to farmers in times of
emergency such as floods or famine. Such loans are known as Taccavi loans. Such loans are
offered at a concessional rate of interest (6%) and the mode of repayment is also very convenient.
It can be repaid in several installments at the time of payment of land tax. How-ever, such loans
have not assumed significance over the years.
41
2.10 Organized and Unorganized Capital Market
Organised sector:
 The institutions which are controlled by the central bank of the country namely RBI,
SEBI, IRDA are called as institutional or organized.
 Organised sector is classified into two categories namely
 Banking institutions and
 Non-banking financial institutions
 The following institutions are under the purview of organized sector – Small Industries
Development Bank of India, National Bank for Agriculture and Rural Development, National
Housing Bank, Export-Import Bank of India etc.,
Unorganised sector:
 In the case of Indian Banking System, indigenous bankers are included in the unorganized
sector. Indigenous bankers include those individuals and banks who accept deposits or
depend on credit to run their business, they deal with short-term credit instruments namely
hundies for the purpose of providing financial help for goods and services
 The rate of interest charged by them fluctuates directly with the need and time period of
the borrowers and may sometimes be as high as 300 percent. They are the major sources
of funds for small borrowers on account of simple documentation and funds are made
available to the borrowers at any time during a day.
2.11 Characteristics of Rural Credit
 The formal and informal sectors coexist, despite the fact that formal interest rates are
substantially below those charged in the informal sector.
 Interest rates may not equilibrate credit supply and demand: there may be credit rationing,
and in periods of bad harvests, lending may be unavailable at any price.
 Credit markets are segmented. Interest rates of lenders in different areas vary by more
than plausibly can be accounted for by differences in the likelihood of default.
42
 There is a limited number of commercial lenders in the informal sector, despite the high
rates charged.
 In the informal sector interlinkages between credit transactions and transactions in other
markets are common.
 Formal lenders tend to specialize in areas where farmers have land titles.
 Borrowers differ in the likelihood that they will default, and it is costly to determine the
extent of that risk for each borrower. This is conventionally known as the screening
problem.
 It is costly to ensure that borrowers take those actions which make repayment most
likely. This is the incentives problem.
 It is difficult to compel repayment. This is the enforcement problem.
2.12 Institutional and Non-Institutional Sources of Rural Credit

There are two broad sources of agricultural credit in India:
(1) Non-Institutional Sources
(2) Institutional Sources
(1) Non-Institutional Sources
The non-institutional finance forms an important source of rural credit in India, constituting
around 40 percent of total credit in India. The interest charged by the non-institutional lenders
is usually very high. The land or other assets are kept as collateral. The important sources of
non-institutional credit are as follows:
(i) Money-Lenders: Money-lending has been the widely prevalent profession in the rural
areas. The money-lenders charge huge rate of interest and mortgage the property of the
cultivators and in some cases even the peasants and members of his family are kept as
collateral. (ii) Other Private Sources:
(a) Traders, landlords and commission agents: The agents give credit on the
hypothecation of crops which when harvested is used to repay loans.
43
(b) Credit from relatives: These credits are generally used for meeting personal
expenditure.
(2) Institutional Sources
The general policy on agricultural credit has been one of progressive institutionalization
aimed at providing timely and adequate credit to farmers for increasing agricultural production
and productivity. Providing better access to institutional credit for the small and marginal farmers
and other weaker sections to enable them to adopt modern technology and improved agricultural
practices has been a major thrust of the policy. National Bank for Agriculture and Rural
Development (NABARD) is an apex institution established in 1982 for rural credit in India. It
doesn’t directly finance farmers and other rural people. It grants assistance to them through
the institutions described as follows:
1. Rural Co-Operative Credit Institutions:
Rural Credit cooperatives are the oldest and most extensive form of rural institutional
financing in India. The major thrust of these cooperatives in the area of agricultural credit is the
prevention of exploitation of the peasants by moneylenders. The rural credit cooperatives may
be further divided into short-term credit cooperatives and long-term credit cooperatives.
The short-term credit cooperatives provide short-term rural credit and are based on a
three-tier structure as follows:
(a) Primary Agricultural Credit Societies (PACs): These are organized at the village level.
These societies generally advance loans only for productive purposes. The main objective
of a PACS is to raise capital for the purpose of giving loans and supporting the essential
activities of the members such as supply of agricultural inputs at cheap price, improving
irrigation on land owned by members, encourage various income-augmenting activities
such as horticulture, animal husbandry, poultry etc. In India, around 99.5 percent of villages
are covered by PACs.
(b) District Central Cooperative Banks: These cooperatives are organized at the district level.
The PACS are affiliated to the District Central Co-operative Banks (DCCBs). DCCBs
coordinate the activities of district central financing agencies, organize credit for PACs
and carry out banking business.
44
(c) State Co-Operative Banks: The DCCBs are affiliated to State Co-operative Banks (SCBs),
which coordinate the activities of DCCBs, organize provision of finance for credit worthy
farmers, carry out banking business and act as leader of the Co-operatives in the States.
Long-term credit Cooperatives: These cooperatives meet long-term credit of the farmers
and are organized at two levels:
(i) Primary Co-Operative Agriculture and Rural Development Banks: These banks
operate at the village level as an independent unit.
(ii) State Co-Operative Agriculture and Rural Development Banks: These banks operate
at state level through their branches in different villages.
2. Commercial Banks:
Commercial Banks(CBs) provide rural credit by establishing their branches in the rural
areas. The share of commercial banks in rural credit was very meager till 1969. The All India
Rural Credit Review Committee (1969) recommended multi agency approach to the rural and
especially agricultural credit. It suggested the increasing role of the CBs in providing agricultural
credit. Further, under the Social Control Policy introduced in 1967 and subsequently the
nationalization of 14 major CBs in 1969 (followed by another six banks in 1980), CBs have
been given a special responsibility to set up their advances for agricultural and allied activities
in the country.
3. Regional Rural Banks (RRBs):
RRBs are the specialised banks established under RRB Act, 1976 to cater to the needs
of the rural poor. RRBs are set-up as rural-oriented commercial banks with the low cost profile
of cooperatives but with the professional discipline and modern outlook of commercial banks.
Between 1975 and 1987, 196 RRBs were established with over 14,000 branches. As a result
of the amalgamation, the number of RRBs was reduced from 196 to 133 as on 31 March, 2006
and to 96 as on 30 April 2007. RRBs covered 525 out of 605 districts as on 31 March 2006.
After amalgamation, RRBs have become quite large covering most parts of the State. Increased
coverage of districts by RRBs makes them an important segment of the Rural Financial
Institutions (RFI). The branch network of RRBs in the rural area form around 43 per cent of the
45
total rural branches of commercial banks. A large number of branches of RRBs were opened
in the un-banked or under-banked areas providing services to the interior and far-flung areas
of the country. RRBs primarily cover small and marginal farmers, landless laborers, rural artisans,
small traders and other weaker sections of the rural community.
2.13 Rural Labour
A Rural Labourer is defined as ‘one who does manual work in rural areas in agricultural
and/or non-agricultural occupation in return for wages in cash or kind, or partly in cash and
partly in kind.’ The term ‘wages’ included salary also. The National Commission on Rural Labour
(NCRL) (1991), on the other hand, defined rural labour as ‘persons living and working in the
rural areas subsisting partly or wholly form wage income’. The NCRL, however, argued that the
self-employed workers forming part of the petty production system should be classified as
rural labour since their living condition are also equally poor. Rural labour so defined would
thus comprise both the
1. wage-paid manual workers engaged in agricultural and non-agricultural activities, and

the
2. small and marginal farmers, tenants and share croppers and artisans who are considered
under the self-employed segment.
Forms of Rural Labour
There are three forms of labour which are classified based on their nature of employment.
These are: (i) wage (paid) employment, (ii) self-employment and (iii) unemployment i.e. days
on which employment could not be obtained though was available and seeking work. For
empirical purposes, rural labour is further classified by men, women and children with separate
figures generated for each. All these categories are also further classified by their major caste
distinction viz. scheduled caste and scheduled tribes.
2.14 Mobility of Labour
Labour migration is an important feature in the development process in India. Macro

level surveys shows that there has been an increase in magnitude of labour migration over the
46
years. It is more prevalent among the males for employment related reasons and occurs
prominently from certain backward regions of the country. The two macro data sources on
migration which are the Census and the NSSO show that rural to rural migration is the most
dominant stream. Though migration is found to be positively related with monthly per capita
expenditure, the case of short term migration differs sharply in its characteristics features.
2.15 Segmentation in Labour Markets
One of the features of the rural economy in the developing countries is segmented labour
market. Small landholders do not participate in the labour market directly as suppliers of labour.
They prefer to use their family labour for cultivation of their own holdings, unwilling to sell
surplus labour to large landholders who may need such labour. This kind of segmentation is
attributed to factors like size of landholding, difference in the status of land ownership and
landlessness, gender division and discrimination based on caste/social divisions, etc.
There are also cases of segmentation owing to household specific markets (called autarkic
markets). In the light of these factors, in real life, the daily labour market does not operate
perfectly smoothly. Neither all work seekers of 76 wage work can find employment at all points
of time nor all employers can find workers at market wage rate when they need them. Therefore,
at times (i.e. days) when the small farmer’s family members cannot find work in the market,
they work on their own land. This can, however, happen only up to a point where their marginal
rate of substitution between goods and leisure equals the marginal product value of their labour
time rather than the market wage. This causes difference in marginal productivity of labour
between small and large farms.
Likewise, there could be specific preference by some family members like women and
children who may work on their own farm not preferring to offer themselves for hire or may
offer their labour time for specific operations and not others. They may also offer their labour in
the lean season to complement the family income or along with hired equipment/machinery/
bullocks. Caste considerations may also impose restrictions on the use of labour where the
owners of landholding who belong to higher castes may refuse to handle plough or work on
farms of the other owners of equal/lower castes. Because of such segmentation of rural labour
markets, there occurs scarcity of labour during busy seasons especially of male casual labour.
47
To ensure uninterrupted labour supply the land owners indulge in options like:
1. long labour contracts,
2. regular employment of labour,
3. attached labour through land-labour or credit-labour contracts, etc.
2.16 Marginalisation of Rural Labour
There are two constituents of rural labour, one, engaged in agriculture and the other,
engaged in non-agricultural activities. In India, the number of agricultural workers is estimated
at 259 million out of which about 240 million (92.7%) are in the rural areas. The agricultural
workers themselves work out to a significant 75.5 percent of total workforce (estimated at 343
million in 2004-05) in India. Out of this total workforce engaged in agriculture, 64 percent are
self-employed (in farming) with the remaining 36 percent being wage-workers.
Almost all the wage workers (98 percent) are casual 80 labourers. Further, over time,
landlessness in rural areas has increased with the share of such households (with no land)
having increased from 13 percent in 1993-94 to 14.5 percent in 2004-05. Among the agricultural
labour households, nearly one-fifth (19.7 percent) are landless and another close to two-thirds
(62.3 percent) sub-marginal land holders (i.e. possessing ‘less than 0.4 hectares of land’).
Even among the relatively better placed farmer households, as much as 15.2 percent
possess no land with another 14.6 percent households possessing less than 0.4 hectare of
land. Poor asset base and landlessness are thus the prime factors for workers in the rural
areas to subsist as agricultural labourers depending on non-agricultural activities during lean
season. The educational attainment among them being very low (74.1 percent of agricultural
labourers and 57.5 percent of the farmers were either illiterate or with education below primary
level) such labourers mainly survive as the ‘marginalised group’.
The overall poverty estimate among such labourers was 28.4 percent as against a
corresponding estimate of 19.9 percent for the agricultural workers in general. This ratio was
as high as 40 percent for STs and 31 percent for SCs. With little human and physical capital,
and lacking the wherewithal to organise themselves for making their voice heard, this
marginalised group is left with no option but to take up low paid wage labour in agriculture
which at best enables them to barely subsist.
48
2.17 Nature, Extent and Trends in Rural Unemployment
Rural unemployment
India is a country of villages as around three fourth of its population lives in rural areas.
For rural workers, agriculture is virtually the sole occupation. However, agriculture is not able to
provide gainful employment to all those who seek it. So there is unemployment in rural areas
which takes three broad forms, viz,
1. Open and chronic unemployment,
2. Seasonal unemployment, and
3. Disguised unemployment.
1. Open and Chronic Unemployment: In the agricultural sector we have a large group of
landless labourers who seek wage employment on farms. There are also cultivators who
seek additional income by working as labourers in their spare time. But due to heavy
pressure of population on India’s still underdeveloped agricultural sector, many people
fail to get employment and hence remain chronically unemployed. Since they openly
search for employment and hence their unemployment is not hidden, this is called open
unemployment.
2. Seasonal Unemployment: Agriculture, which is the major economic activity in villages, is
a seasonal phenomenon. There are seasons like sowing and harvesting of crops when
all are busy and employment is high. But there are also slack seasons such as the period
between sowing of crops and their harvesting when most people have nothing much to
do and are thus unemployed. Many rural industries such as sugar mills, rice shellers,
cotton ginning units, are based on processing of agricultural produce. So they too provide
only seasonal employment. Hence the rural economy largely has seasonal employment
alternated with periods of seasonal unemployment.
3. Disguised Unemployment : Disguised unemployment or hidden unemployment is a ind

of unemploymnet where some people seem to be employed but are actually not. For
example Agriculture sector is rural areas. When 10 members are actually unemployed
rather than being unemployed.
In view of stagnant/declining labour absorption capacity of agriculture, and the lack of

alternative employment opportunities in the non-agricultural sectors especially for the low skilled,
there is growing unemployment in the rural labour market. The number of days of unemployment
49
has increased (for male and female agricultural labourers combined) from 30 days in 1993-94
to 51 days in 2004-05. The corresponding figures by gender was from 33 days to 53 days for
males and from 26 days to 47 days for females. Consequently, the unemployment rate (for
males and females combine) on current daily status (CDS) basis has steeply increased from
9.7 percent in 1993-94 to 16.2 percent in 2004-05. The corresponding increase in CDS
unemployment for males was from 9.7 percent to 15.6 percent and for females from 9.8 percent
to 17.3 percent. The disguised unemployment [on the basis of usual principal status (UPS)]
was placed at 20 percent for males and 23.7 percent for females. The corresponding figures
for male andfemale ‘casual labour’ was 19.1 percent and 19.8 percent respectively. The
prevalence of such high level of unemployment and under-employment among the rural labour
establishes the significance of programmes like National Rural Employment Guarantee Act
(2005) to help meet the deficit employment for the rural labour
2.18 Agricultural Wages in India

Wages are paid to agricultural labours in different ways. Wages can be paid on hourly,
daily, monthly or six monthly/yearly basis. They can also be paid on piece rate basis for different
operations. Wages can be paid in cash or kind or in mixed form. Payment in kind includes food
and beverages served along with cash payment or only in the form of food grains, fodder and
other agricultural produce. Generally speaking, the overall wage level of agricultural labour
have been very low in India. There is also wide variation in wage rate between lean season and
busy season and between different agricultural operations linked to seasonal 31 The
unemployment rate is expressed as a percentage of ‘unemployed’ to the total ‘labour force’. 84
activities. Most of the work is casual and manual in nature which are mainly undertaken by the
socially backward groups like SCs and STs.
2.19 Male – Female Wage Differences
Wage Differential Based on Skill Levels:
In the matter of wage payment, agricultural labour faces greater discrimination compared
to non-agricultural labour. This discrimination is particularly more brazen in case of female
labour. The ratio of female wage rate to male wage rate has remained around 0.70 in India.
This apart, there is difference in wages depending on the nature of work and skill involved. For
instance, all the agricultural operations where women predominate such as sewing, transplanting,
weeding and harvesting have fixed minimum wages in the ‘unskilled’ category. Ploughing, a
predominantly male operation, has a minimum wage fixed in the ‘semiskilled’ category.
50
Sectoral Disparities and Structural Inconsistencies:
Women on an average get 23.37 percent less days of employment compared to males
making their unemployment rate higher among the agricultural labour. In this section, we saw
that in terms of average minimum wage, women received up to 30.6 percent less wage than
men. There are studies which have reported that in sectors like construction, significant
proportion of women workers have been dislodged in favour of men. Further, the relatively
lower educational and skill background of women also works against them, with jobs in the
secondary/modern sectors becoming skill-intensive (Chadha, 1997). Their lack of skills thus
constrains their entry into non-farm jobs while lack of assets 32 0.66 in 1993-94, 0.62 in 1999-
2000 and 0.65 in 2004-05. 85 prevents them from taking up self-employment of any kind.
Further, the process of structural change in the economy also works to the disadvantage of the
female labour especially in agriculture. This is evidenced by the social oppression and exploitation
suffered by women labour at the hands of their employers when their men folk migrate to
distant places in search of work
2.20 Non-Agricultural Rural Employment –

Trend and Determinants
The shift of employment from the agriculture to the non-agricultural activities in the rural
areas, therefore, helps in improving the living standards of rural labour. This also has the
advantage of the labour not being uprooted from their homes avoiding in the process the
consequences of urban crowding like the spread of slums. The generation of non-farm
employment has, therefore, been adopted as the preferred policy option to bring about the
desired structural change in employment in the rural areas. As a consequence, the dependence
of the rural workforce on agriculture has declined from 81.4 percent in 1983 to 78.4 percent in
1993-94 and to 72.7 percent in 2004-05. There has consequently been an increase in the
share of rural non-agricultural employment from 18.6 percent in 1983 to 21.6 percent in 1993-
94 and 27.3 percent in 2004-05. The figures show that the rate of change in the non-farm
employment has been faster in the 1990s as compared to the 1980s.
There are, however, glaring differences in the share of non-farm employment between
the male and female work force: in 2004-05, the percentage of non-farm employment held by
males was 33.5 percent, while for females it was only 16.7 percent. The reason for such a low
51
share, among others, can possibly be seen in the sector which 86 have contributed more for
the growth of non-farm employment. Among the sector which have faired well in this respect
are: construction, trade and transport followed by manufacturing activities (Chadha, 1997; Sen
and Jha, 2005). As noted earlier, activities of secondary and tertiary sector generally demand
higher levels of educational attainment in which the rural females are relatively more backward.
Data for 2004-05 also show that, in India, males have consistently higher level of mean years
of schooling for all type of rural non-farm employment in the unorganised sector. The factors
which have contributed for the growth of non-farm employment can be traced to both the
demand and supply factors. On the demand side, infrastructural development has been a
major factor as it promotes secondary sector development in general and rural industrialisation
in particular. It also enhances the asset values of cultivating and noncultivation households.
2.21 Summary
It has been evidenced that the overall infrastructural development in both the rural and
urban areas in India have contributed to increasing the demand for rural non-farm employment.
On the supply side, in addition to the education and skill levels noted above as an important
factor, it has been observed that, socially, males are the first to offer themselves for new jobs
which require not only occupational but also spatial mobility
The shift of rural work force from agriculture to non-farm employment, characterised as
the desired structural change in rural employment to be achieved, is also partly explained by
the saturation of employment potentials in agriculture. A major factor in this change has been
identified as the higher labour productivity in the non farm employment as compared to that in
agriculture. This productivity difference points out towards a ‘pull’ factor in employment shift
rather than a ‘push’ factor.
Further, it has been observed that one of the factors in the expansion of non-farm
employment has been the role of public investment in promoting infrastructure in rural areas.
This has not only helped in the promotion of rural industrialisation but has also established the
crucial link with the modern urban economy. Thus activities/promotion of sectors like
manufacturing/repair, construction, transport, and storage, with higher productivity levels, have
a major influence in expanding the rural non-agricultural sector in India.
52
Check Your Progress B
State whether each of the following statements is ‘True’ or ‘False’.

i. Traditional methods of dissemination of information still persist in the villages
ii. Loans Provide for a period of less than 15 months is called medium term loan
iii. Long term loans are required to buy agricultural inputs
iv. Mortgage banks provide long-term loans to farmers against the mortgage of their lands
at low rates of interest
v. NABARD is an apex institution established in 1982 for rural credit in India.
2.22 Key Words

 Infrastructure : Infrastructure is the term for the basic physical systems of a business or
nation — transportation, communication, sewage, water and electric systems are all
examples of infrastructure.
 Net Sown Area : The total land area on which crops are grown in a region.
 Rural communication : Is an interactive process in which information, knowledge and
skills, relevant for development are exchanged between farmers, extension/advisory
services,
 Extension Services : Is concerned with communicating the technology of scientific
agriculture to the farmers in order to transform traditional level of agriculture to better for
improving their economic conditions
 Rural Electrification: Rural Electrification is a process of bringing electrical power to
rural and remote areas.
 Rural finance : comprises credit, savings and insurance in rural areas, whether provided
through formal or informal mechanisms.
 Organised sector : The institutions which are controlled by the central bank of the country
namely RBI, SEBI, IRDA are called as institutional or organized.

1. Explain the pattern of land use and Energy use in agriculture
2. Explain various modes of rural transport

53
3. Explain the importance of rural communication
a. Extension Services
b. Information Dissemination
c. Organised Capital Market
d. Features of rural credit
5. Discuss the problems of rural electrification
6. Explain different types of rural credit
7. Discuss various sources of rural credit
8. Explain institutional sources of credit
9. State the nature of rural labour
10. Discuss the types of rural unemployment
11. State the causes for male – female wage difference

A: (i) True (ii) False (iii) True (iv) True (v) False
B: (i) True (ii) False (iii) False (iv) True (v) True
2.25 Suggested Reading

1) Adinarayana Et Al and Reddy Rural Infrastructure And Development (2010)
2) Deepak Kumar andPadmanabhan Nair (2010), “ Rural Infrastructure: Issues And

Perspectives”
3) India Infrastructure Report 2007, Oxford
4) India Rural Infrastructure Report – NCAER

54
UNIT III
DIVERSIFICATION OF RURAL
ECONOMIC ACTIVITIES
Learning objectives
After going through this unit, you will be able:
 To explain the types of livestock and factors affecting on their productivity
 To understand the status of Indian livestock sector
 To explain the concept of White Revolution and development of fishery, poultry

developments, horticulture developments and floriculture.
 To explain the concept and problems of rural industrialisation
Structure
3.1 Introduction
3.2 Livestock Economics
3.2.1 Meaning
3.2.2 Scope of Livestock Economics
3.3 Livestock Resources
3.4 Livestock Productivity
3.4.1 Factors Affecting Productivity of Livestock
3.4.2 Livestock Sector in India
3.4.3 Importance of livestock Sector in the economy
3.4.4 Problems of Livestock Sector in India
3.5 Problems of Rural Marketing
3. 6 White Revolution
3.7 Fishery Development

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3.8 Poultry Development
3.8.1 Types of Poultry Farming
3.9 Forestry
3.10 Horticulture and Floriculture
3.11 Issues and Problems of Rural Industrialisation
3.11.1 Importance of Rural Industrialisation
3.11.2 Problems of Rural Industrialisation
3.12 Development of agro-based Industry
3.13 Summary
3.14 Check your progress
3.15 Key Words
3.17 Answer to Check Your Progress
3.1 Introduction
In the agriculture-oriented economy livestock and other related activities are playing very
important role in the development of economy. Hence there is need to study the dairy, fishery,
fruits, vegetables, flowers, activities. However it is essential to study rural economy also because
all the activities are concern to the rural areas. In this chapter we will study the livestock
economics and their importance as well as diversification process of rural economic activities.
It covers rural water, energy, marketing, fishery, poultry, horticulture, rural banking and fiancé
and rural industrialization. In this chapter we will study the livestock economics and their
importance as well as diversification process of rural economic activities.
3.2 Livestock Economics
Livestock sector plays a critical role in the welfare of India’s rural population. It contributes
nine percent to Gross Domestic Product and employs eight percent of the labour force. This
56
sector is emerging as an important growth leverage of the Indian economy. In recent years,
livestock output has grown at a rate of about 5 percent a year, higher than the growth in
agricultural sector. Livestock is an important sub-sector of Indian agricultural economy which
plays a multi-faceted role in providing livelihood support to the rural population.
3.2.1 Meaning
Livestock economics, or the application of economic methods to optimising the decisions

made by livestock producers, grew to prominence around the turn of the 20 century. It focused
on maximising the yield of livestock s while maintaining a good ecosystem. Throughout the last
century, the discipline expanded and the current scope of the discipline is much broader.
Livestock economics today includes a variety of applied areas, having considerable overlap
with conventional economics. It combines the technical aspects of livestock production with
the business aspects of management, marketing and finance. Livestock sector includes animal
husbandry, dairy and fisheries sector are considerable major sectors. It plays an important role
in the national economy and in the socioeconomic development of the country. It also plays
important role in the rural economy as supplementing family incomes and generating gainful
employment in the rural sector, particularly among the landless labourers, small and marginal
farmers and women.
3.2.2 Scope of Livestock Economics
Livestock economics is an applied branch of agriculture economics and pure micro

economics also. It has followings subject areas:
1. Production of Livestock – Livestock production is the key of livestock business; increase

in the production is need of changing market with their quality also. However management
of quality and quantity of livestock production is one of the challenges to the livestock firm
operators. It refers to the volume of production of various types of livestock products i.e.
milk, eggs, meat, silk, and allied products. it also includes how to increase production and
manege it
2. Production Cost of Livestock - As per the business norms livestock sector also requires
economy in the production cost. It refers to the overall production cost, average production
cost and marginal production cost of livestock production and keeping livestock resources.
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There are various methods and tricks have been used to reduce production cost of livestock
production.
3. Pricing of the Livestock Product- Pricing is major issue in the livestock sector due to
their importance in income generation and profit. Without profit and sufficient revenue
generation any business activity can t run full-fledged from. To the pricing of livestock
seller or producer should aware about competitive prices, cost of production and durability
of the product.
4. Supply of Livestock Product- Supply of the livestock produce is very critical issue due
to their non-durability and pricing factors. Because of insurability or little durability of
livestock products the livestock market is „market of buyers not sellers or producers
market. There is little elasticity of demand in the livestock supply.
5. Demand for Livestock Products- Demand for livestock production is depends upon
numbers of population in the country or demand from abroad. There are two types of
demand fro livestock products, one is quantitative demand and another is qualitative
demand for livestock products. The quantity demand leads by low income group peoples
and qualitative demand is actually demand by the high income group peoples and some
extent of middle class.
6. Management of Demand and Supply – Livestock industry also needs demand and
supply management according to the business needs. The rapidly increasing demand for
livestock products pushes against a traditional resource base for livestock production
that cannot expand at the same pace. Diversity is a main characteristic of traditional
livestock production. A wide array of feed resources is being used, most of which have no
or only limited alternative value. The success of the livestock firm operator is basically
depending upon it. For the management of demand and supply there is detail knowledge
should be require about changing market demands and their direction; and actual and
forthcoming supply of particular livestock product.
3.3 Livestock Resources
Livestock refers to one or more domesticated animals raised in an agricultural setting to

produce commodities such as food or fibre, or labour. The term livestock is normally defined as
animals rose to produce milk, meat, work, and wool. It includes beef and dairy cattle, swine,
58
sheep, horses, goats, and poultry. Other animals used in agriculture such as emus, bees, fish
bait, etc. are considered alternative animal agriculture and are not covered here. There are
numbers of resources in livestock stock sector. While some of the resources are mostly
considered due to their utility and reliability in order to business or occupational requirements.
After review of global livestock sector we have found followings important livestock resources.
1. Cattle and Buffaloes - Cattle and buffaloes are one of the best resources to the dairy
industry. There are number of verities are available of cattle and buffaloes. Today, dairy
cows are specialized and most have been bred to produce large volumes of milk, with
little or no regard for their production of meat across the world. The Jersey, Holstein,
Ayrshire, Guernsey, Brown Swiss, Milking Shorthorn are well-known verities of the cow
and African buffalo, Cape buffalo, Surti, Jaffrabadi, Mehsana, Bhadawari, Nagpuri,
Pandarpuri of buffalos. The cattle and buffalos play an importance role in total agriculture
production and economic income of small farm holder. It is the main source of drought
power in cultivation of crop and paddy rice field preparation, the main fertilizer. In the
most of countries buffalo s meat have been used in food. Buffalo s and cow s male calves
provide direct cash income to the small farm holder.
2. Seeps and Goats – Seeps and goats are multi utility animal that others, seeps gives
wool, milk and meat. However, their once-vital status has been largely replaced by other
livestock species. A sheep’s wool is the most widely used of any animal, and is usually
harvested by shearing. Ovine meat is called lamb when from younger animals and mutton
when from older ones. Sheep and goats are used to meat today, and are also occasionally
raised for pelts, as dairy animals. Sheep and goats skin is likewise used for making
clothes, footwear, rugs, and other products. Goats are renowned for their hardiness and
can survive in most environments. Increasing demand of meat of goat and seeps goat
and sheep farming business has becomes more profitable worldwide. There are breeds
of seeps like Pugal, Nilgiri and Garole need immediate steps for preservation and breeds
of goats like Jamnapari, Barbari, Beetal and Surti Black Bengal and Osmanabadi available.
3. Pigs – in the western countries pig’s meat most favourite meat than other livestock and
there are too much demand of this meat in hotel industry. Pig farming is the one of the
more profitable business in the western countries. While from some last years there is
59
significant development found in the Asian countries also. This business is increasing day
to day due to much more demand of pig meat in the market.
4. Chickens, Ducks and Turkey - Chicken, turkey and ducks are an important livestock
element in the world agriculture scoter. Poultry farming is raising chickens, turkeys, ducks
and other fowl for meat or eggs. Poultry is mostly used for meat and eggs but other
products come from these animals.
5. Horses, and Camels – Horses, Donkey and yokes are also one of the livestock elements.
In the underdeveloped countries these animals are used to good transport and travelling
also. According to available information donkeys and yokes are used to travelling in hilly
regions where the modern transport system can t provide transportation facilities. Camels
are specially used in the Arabic countries to carry goods and travelling. There are numbers
of breeds of camels like breeds of camel viz. Bikaneri, Jaiselmeri, Kuchchi ,Mewati,
Marwadi, Mewadi, Sindhi, Shekawati.
3.4 Livestock Productivity
There are differing constraints to increasing livestock productivity in developing countries

depending on prevailing agro-ecological conditions. Perhaps most importantly, increase in
livestock performance and productivity can be gained by changes in diet and feeding practice,
from improvements in farm management strategies and disease control. Livestock with relevant
productivity and disease resistance traits can also contribute to maximizing the efficiency of
animal agriculture.
a) Productivity Function
To understand the productivity of the livestock sector we should understand first its
production function. As per production function approach in microeconomics. We can set up
the production function of the livestock production as below;
Y = f (X 1, X 2, X 3, X 4, X 5,........... X n)
Y = Output (Livestock Products) f= functional relationship
X 1, X 2.......... X n = factors faceting on production

60
The equation shows technical relationship between output of the livestock sector and
various input used to produce livestock products i.e. fixed capital invested in livestock animals
and equipments, tools, technology required to farm, variable costs like food, nutrition s, health
facilities, insurance of livestock, maintenance of farm etc.
There are numbers of factors faceting on productivity of the livestock according to types
of livestock animals. While we can identify some common factor relates to productivity of the
livestock. According to International Livestock Research Institute (ILRI) feeds and nutrition,
management of natural resources, improvement of animal health and utilization of livestock
genetic potential are influences significantly on productivity of livestock sector:
3.4.1 Factors Affecting Productivity of Livestocks

1. Feeds and nutrition – Feed and nutrition is very important factor for each living thing, in
the case of livestock animals it is also plying important role in their productivity either in
milk production, meat or other related products of livestock sector.
2. Management of natural resources – Management of natural resources also needed to

improve livestock productivity. Apart from nutrition and feed water, air and temperature
requirements of the livestock animals are plying important role in productivity of livestock.
Good controlled and managed natural elements influence positively on it. Hence, livestock
farm operator should concentrate on management of related natural factors.
3. Improvement of animal health – Animal health is most important requirement of the

more productivity of the livestock. Animal diseases continue to constrain livestock
productivity and agricultural development. Healthy animals will be provide more and good
quality produce i.e. milk, meat, silk etc. Live stock form operator should have either good
knowledge about health care of the animals or expertise can be barrow to improve health
of animals. However, the introduction and use of advanced medicinal facilities and
crossbreeding can be reducing animal daises and increase in milk and meat productivity.
4. Utilization of livestock genetic potential – Each type of animals have their own genetic
potential of output of milk, silk and meat. It should be identify and utilize in the proper way.
Some animals have good genetic capacity to produce milk and silk and some are useful
to meat production. Hence we should identify these capacities of specific animal and
utilize it.
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5. Size of farm – size of livestock farm is one of the considerable factors in productivity of
livestock. Large sized farms are more economical in working and conducive to greater
productivity than small sized livestock farm. There is use of technology possible in large
sized farm due to considerable size of farm.
6. Crossbreeding and Variety – crossbreeding of the animals is another alternative way to

improve productivity of the animals. It is a method of implant the special genetic features
of the animals one to another. There is very essential need to select appropriate variety of
the animals to specific output according to their potentials and genetic features.
3.4.2 Livestock Sector in India
Livestock sector of the Indian economy has playing important role in the increasing
production, income and employment in rural areas. According to 17th censes of the livestock,
existing population of registered livestock is 485,002 thousands. It is increasing day by day
due to its importance as an alternative source of income from livestock animals. The importance
of livestock in India goes beyond the function of food production. According to Annual Report
of Ministry of Agriculture, Government of India, India has vast resource of livestock and poultry,
which play a vital role in improving the socioeconomic conditions of rural masses. India ranks
first in respect of buffalo, 2nd in cattle and goats, 3rd in sheep, 4th in ducks, 5th in chickens
and 6th in camel population in the world. India has 57% of the world’s buffalo population.
Importance of Livestock Sector in the Economy
Importance of livestock is not only limited to the farmers and livestock farmers, it also
important to common peoples and processing industrialists. This provides subsidiary occupation
to a large section of the society particularly to the people living in the draught prone, hilly, tribal
and other remote areas where crop production on its own may not be capable of engaging
them fully. In the adverse climatic conditions and national calamities like drought, flood etc.,
animal husbandry practices shall be proved to be boon for sustaining the livelihood of the
landless and marginal farmers in the state. The importance of livestock are as follows :
1. Share in National Income: The livestock sector contributed significant share in national
income and production in the economy. It is evident that than agriculture sector livestock
sector has been contributing in national income. In India, livestock sector has contributing
over 5.26 per cent to the total GDP during 2006-07.
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2. Support to Rural Peoples: As a source of income for rural peoples, milk and meat
production provide approximately 26 percent of the agricultural gross domestic product in
the developing world compared to 55 percent in the industrial world. The provision of
livestock through inheritance, gifts, and so on is part of most rural societies. Livestock are
often one of the most important sources of cash income for poor households.
3. Helps to Poor and Small Farmers: Livestock sector has been providing good support to
the farmers and poor people s by the additional income source. Near about 70% of livestock
market in India is owned by 67% of small and marginal farmers and by the land less.
Livestock are an important source of income for the rural poor also.
4. Employment Generation: Livestock sector has considerable importance in so far as it

offers economic scope of alternative employment. It is an employment source to rural
peoples. The livestock sector has providing direct and indirect employment to the farmers,
land labourers and rural peoples.
5. Alternative Food Supply: Art from income and employment generation livestock sector
has plying very important role in the food security of the nation. Livestock sector of the
various countries have evident that various products of the livestock sector provides
alternative food to remove food insecurity. Milk, eggs, meat and fish production has
providing foods to most of the nations in the world. One of the most important benefits is
evident that the livestock revolution is able to provide household, national, and global
food security.
6. Supply of Non-edible Products: The Livestock Sector not only provides essential proteins
and nutritious human diet through milk, eggs, meat, etc. but also plays an important role
in utilization of non-edible agricultural by- products. Livestock also provides raw material
by-products such as hides and skins, bone, fat, etc.
7. An Instrument to assets Creation: Livestock is nothing but medium of income it is a

medium of assets creation. In order to increasing prices of cattle, chickens and other
livestock factors can be used as instrument of capital formation and holding asset. While
it notes that there are some risks in holding assets in the form of livestock because
Livestock carries much more risk than crop production.
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8. Support to Processing Industry: Livestock processing industry has whole depending

upon livestock production and their supply. Livestock processing industries like dairy,
meat processing, silk processing, fish processing industries are providing packaged food
and processed food due to the regular supply of primary livestock production of livestock
sector. Without support of this the development of livestock processing industry is unable.
9. Empowerment of Women: In the livestock sector, women are also working with certain
activities like feeding the animals, milking of animals etc. mostly performed by women.
However, role of both men and women are complementary in this sector. It provides
earning for women and ultimately leading to the economic empowerment of women.
10. Importance in International Trade: Indian livestock sector has been a net earner of
valuable foreign exchange for the country. Livestock products like milk production, meat,
wool and their products etc. constitute a major item of export of India. The livestock sector
not only provides livestock products to the domestic peoples but also providing opportunity
to foreign earnings from their export.
3.4.4 Problems of Livestock Sector in India
Apart from importance, developments and achievements of the livestock sector in India.
Today this sector has facing some problems as shown:
 Poor investment in the livestock technology which is essential to increase productivity

and production as well as improvement in quality
 Large unorganized sector has been found in the Indian livestock sector, who have not
good bargaining power.
 Use of technology and Information and Communication technology in the marketing and
production is very low, while government has trying to increase in it but their efforts are
not enough.
 Government veterinary services can be under-resourced and are not able to meet the
needs of remote or nomadic communities in India who have lots of livestock.
 Veterinary medicines are often unavailable or unaffordable in rural areas as well as farmers
has having very poor knowledge of maintenance of livestock.
64
 In Indian livestock sector the peoples are sale their product directly without processing
due to insufficient availability of processing units.
 The main challenges facing fisheries development in the country include development of
sustainable technologies for fin and shell fish culture, yield optimization, infrastructure
for harvest and postharvest operations and landing and berthing facilities for fishing
vessels. There are poor linkages between livestock sector and research laboratories,
agricultural colleges, fishery and dairy institutes in India.
 Unequal development of this sector leads to the unbalances supply of the livestock
production in the country.
 Co-operative dairy, fishery and poultry farming are developed in some states in India.
But most other states are not having such types of organization in India.
3.5 Problems of Rural Marketing
Rural market is basically agriculture-based market and it has facing various problems
because of globalization and crucial competition in the emerging market. Marketing can also
be defined as the series of activities involved in making available services and information,
which influence the desired level of production relative to market requirements, and the
movement of the product or commodity from the point of production to the point of consumption.
According to Thomsen the study of agricultural marketing comprises all the operations (including
livestock production) and the agencies conducting them, involved in the movement of farm –
produced foods, raw material, and there derivatives. According to Agricultural marketing
Commission (1976), agricultural marketing is a process which starts with a decision to produce
a saleable farm product and it involves all the aspects of marketing structure or system, both
functional and institutional and all stages of sailing. For the developments of rural market there
is need to develop agro-based marketing and marketing infrastructure. In the recent scenarios
there are followings problems found in the rural markets.
1. Lack of Grading and Standardisation: Grading and standardisation is a marketing need

which facilitates the movement of produce. Without it the rule of caveat emptor prevails;
and there is confusion and unfairness as well. In the rural markets most of livestock
products and other agricultural products ahs been soled without grading and
65
standardisation. This affects their revenue from sale and demand of the products also.
Broadly rural marketing incorporates the marketing of agricultural products, rural industries
products and services of many kinds. The trade channels for different types of commodities
available in rural areas private, cooperatives, processors, regulated markets and state
agencies. For there better prices for agro-based goods it is essential but there is lack of
knowledge about it among the rural people.
2. Lack of Storage Facilities: Storage is an important marketing function involves holding

and preserving goods from the time they are produced until they are needed for
consumption it adds time utility to products. In the livestock secretor cold storage facilities
are required very much than general storage facilities to meat, fish, eggs, milk and their
products. These storages have controlled temperature as per requirements of the products.
However, there are no adequate storage facilities in rural areas to store agriculture
surpluses. It required to overproduction and under pricing situation to farmers. Because
of inadequate storage facilities farmers soled their products immediate by available present
prices in the market; they cant wait till fair price of their produce. Lack of proper storage
facilities leads to attacks by pests and other organisms on agricultural products and damage
caused through such infestations.
3. Lack of Appropriate Financing : According to Reserve Bank of India there are only 48
percent banks branches of commercial banks are working in rural areas and these are
not sufficient to rural peoples. Due to the unavailability of banking services money lenders
are providing credit facilities in higher rate of interest. To obtain immediate income from
agricultural produce farmer tries to sell off the produce immediately after the crop is
harvested though prices at that time are very low.
4. Problem of Transportation: Transportation and road connectivity is essential requirement

of markets. While in the rural areas it is found that there are no sufficient road and
transpiration facilities provided. In the monsoon session the rural roads becomes
unserviceable. Some of the rural inhabitants are connected through roads under the
„Pradhan Mantri Gram Sadak Yojana .
5. Large number of middlemen: The chain of middlemen in the rural marketing is so large
that the share of farmers and livestock goods producers is reduced substantially.
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6. Inadequate Processing Facilities: Processing is essential need in the livestock sector

due to non-durability of the products. The processing activity changes the form of original
product and brought in to durable form. As well as processing converts the raw livestock
products in the consumable products. However, in rural areas and there is lack of such
processing units, some units are established in urban areas but rural farm operators can
t sale their livestock material due to inconveniences. According to the available information
only 15 percent of milk and 10 percent of meat is processed in the India.
7. Lack of Marketing Information: In the rural areas other than new papers, radio and
television no any effective marketing information system has been established to inform
farmers and rural peoples about marketing situations. The rural peoples don t have internet
based marketing information centres as per their requirements, while some centres are
established for it but they are not active in their course of business. Today, the rural
peoples are depending upon information given by traders; it is tragedy of the rural peoples
in the world information technology.
8. Seasonal Demand: Demand for goods and some services in rural markets depend upon
agricultural situation. In the rural market consumption of consumers is mostly depend
upon income from agriculture and allied sector. However, agriculture to a large extent
depends upon monsoon, therefore, the demand and purchasing power of the rural peoples
are not constant in different situations due to irregular income from agriculture.
9. Malpractice in Weights and Measures: There are so many malpractices are found in
the rural markets, traders and wholesale purchasers are doing malpractices in purchasing
of livestock products and agricultural products. Most of time there is not used standard
weights and measurement instruments by traders for purchase goods from farmers.
Because of low literacy in the rural peoples they can t aware about it. In the mandies and
local markets traders purchases agricultural products using quotha or lump-sum pricing
methods. Even now the number of unregulated markets in the country is substantially
large. The brokers taking advantage of the ignorance, and illiteracy of the farmers, use
unfair means to cheat them.
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3.6 White Revolution
White revolution is related to revolution in the dairy sector in India. Since 1965 the
government of India has adopted policy to increase milk production and increase per capita
availability of milk in India. As a result there was extreme growth found in milk production, this
is called as white revolution. In another word white revolution is refers to the growth in milk
production. Dr Kurien has known as pioneer of the white revolution in India. Government is
actively supporting the dairy sector by implementing various schemes. It all started with the
White Revolution under the title Operation Flood (OF) Programme launched in 1970. By
promoting
Dairying has become an important secondary source of income for millions of rural families
and has assumed a most important role in providing employment and income generating
opportunity. Indian Dairying is unique in more than one ways. It ranks first with its 185.2 million
cattle & 97.9 million buffaloes accounting for about 51 percent of Asia s and about 19 per cent
of world s bovine population. It also ranks first in milk production with a production of 100.9
million tones in 2006-07 due to operation flood programme.
White revolution word is related to revolution in the dairy sector in India. Since 1965 the
government of India has adopted policy to increase milk production and increase per capita
availability of milk in India. As a result there was extreme growth found in milk production, this
is called as white revolution. In another word white revolution is refers to the growth in milk
production. Dr Kurien has known as pioneer of the white revolution in India. Government is
actively supporting the dairy sector by implementing various schemes. It all started with the
White Revolution under the title Operation Flood (OF) Programme launched in 1970. By
promoting Anand Pattern of dairy cooperatives, OF envisaged sustained increase in resource
productivity culminating in improved quality of life of milk producers and assured supply of
quality of milk and other dairy products to consumers at reasonable price in a free market
environment.
Dairying has become an important secondary source of income for millions of rural families
and has assumed a most important role in providing employment and income generating
opportunity. Indian Dairying is unique in more than one ways. It ranks first with its 185.2 million
68
cattle & 97.9 million buffaloes accounting for about 51 percent of Asia s and about 19 per cent
of world s bovine population. It also ranks first in milk production with a production of 100.9
million tones in 2006-07 due to operation flood programme.
3.7 Fishery Development
Fisheries Sector has been recognized as one of the great income and employment
generators as it stimulates growth of a number of subsidiary industries. Fish being a source of
cheap animal protein, is an important source of diet for a large section of economically backward
population of the country. India has a about 8041 km of coastline, and about 5.70 million ha of
fresh water area suitable for fisheries production. Fishing, aquaculture and allied activities are
reported to have provided livelihood to over 14 million persons in 2006-07.
There has been significant growth in fish production in the country in the recent years.
India is now the fourth largest producer of fish in the world. With a total fish production of 7.13
million tonnes in 2008-09, India contributes 4.7 per cent towards the global production of 151.70
million tonnes. While production from Inland sector is 4.22 million tonnes, the production from
the Marine sector stands at 2.91 million tonnes. The country stands third in the world in total
fish production and second in inland aquaculture. The fisheries sector has registered an average
annual growth rate of around 4 per cent during the last five years. As many as 14.48 million
persons in the country depend on fisheries sector for their livelihood. The sector contributes
around 1 per cent to the GDP and 4.72 per cent to Agriculture GDP.
3.8 Poultry Development
Poultry Development has taken a quantum leap in the last three decades, emerging from
a near backyard practice to ventures of industrial proportion. Poultry is one of the fastest
growing segments of the agricultural sector in India. Poultry development in the country has
shown steady progress over the years. India ranks third in egg production in the world as per
FAOSTAT data for the year 2006. The broiler industry is well dominated in southern states in
our country with nearly 60-70% total output coming from these states. The layer industry once
again is represented more in southern states especially, Andhra Pradesh, Tamil Nadu and
Maharashtra producing nearly 70% of the country’s egg production. India’s 75% of egg produce
69
is consumed by the 25% population living in urban and semi- urban areas. Presently about 800
hatcheries are operating in the country.
3.8.1 Types of Poultry Farming
Poultry farming is raising chickens, turkeys, ducks and other fowl for meat or eggs.
Poultry farming mostly known as chicken farming, while there is turkey and duck farming also
includes in poultry farming.
a) Chicken Farming: There are two types of chicken farming namely backyard chicken
farming and commercial chicken farming. Backyard chicken farming is traditional farming
method and there birds are also traditional or non-hybrid. In the backyard farming the
local feed fro chicken has been used. However, in the commercial chicken farming farm
house is well managed and mentioned and having hybrid chickens. The hybrid chicken
farming requires mentioned temperature and feed.
b) Turkey Farming: Turkey occupies an important position next to chicken, duck. Guinea
fowl and quail in contributing the most evolving sector, which is playing a significant role
in augmenting the economic and nutritional status of varied population. They form almost
two percent of the total poultry population. They are reared for meat only and its meat is
the leanest among other domestic avian species. Turkeys are mostly concentrated in and
around cosmopolitan cities of India in small numbers. Indigenous and non-descriptive
turkeys are found in good numbers in Kerala, Tamil Nadu, eastern districts of Uttar Pradesh
and some other parts of India.
c) Ducks Farming: Ducks occupy an important position next to chicken farming in India.
They form about 10% of the total poultry population and contribute about 6-7% of total
eggs produced in the country. Ducks are mostly concentrated in the Eastern and Southern
States of the country mainly coastal region with non- descriptive indigenous stocks, which
however are poor layers.
3.9 Forestry
Forests provide a wide range of goods and various ecological services to us. They are a
rich source of biodiversity. A large number of poor people living in and around the forest areas
depend heavily on these forests for their livelihood. We need to maintain a good forest cover
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both in terms of size and quality, and use it in a sustainable manner. Forest resources are most
important resources of our country useful in maintaining ecological balance, providing fire
wood, providing raw materials to many industries, providing protection to wild animals and to
conserve the soils. There are four types of forests in our country.
Deciduous forest: The trees shed their leaves during winter and grow freshly during
summer. Evergreen forests: They remain green through the year.
Coniferous forests: Typically grows in cold hilly Himalayan region with coniferous plants.
Scrub forests: With parched vegetation, poor growth of plants, such forests are spread over
drier parts of our country.
Reserved Forests- Areas notified under Indian forest act, of state forest act and has full
degree of protection of forests. All activities are prohibited without permission in reserved forests.
Protected Forests- Areas notified under Indian forest act, of state forest act and having
limited degree of protection of forests. All activities are prohibited without permission in reserved
forests.
3.10 Horticulture and Floriculture
Horticulture:
Horticulture has been defined as the culture of plants for food, comfort and beauty.
Horticultural development had not been a priority until recent years. In the period 1948- 1980,
the main focus of the country was on cereals and not much planned efforts had been made for
horticultural development. But after 1993 the government focused attention to horticulture
development through an enhancement of plan allocation and knowledge-based technology.
Despite of this decade being a period of “golden revolution” productivity of the horticultural
crops has increased only marginally from 7.5 tonnes per hectare in 1991-92 to 8.4 tonnes per
hectare in 2004-05. In India 2005 is the one of the mile stone for the horticulture due to the
launch National Horticulture Mission by Government of India to promote integrated development
in horticulture, to help in coordinating, stimulating and sustaining the production and processing
of fruits and vegetables and to establish a sound infrastructure in the field of production,
processing and marketing.
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There are significant change in fruits and vegetable crops in India after 1990. In 1990 to
1995 only 483 thousand hectares of area under the fruit crops, it increased to 2090 thousand
hectares till 2004. In the fruit cultivation Banana, Mbonambi, Mango and Sapota is the major
fruits in India. Other than these fruits grapes, lime, orange, apple are also taking significant
place in the horticulture sector of Indian economy. Area of vegetable crops is increased from
258 thousand hectare to 780.3 thousand hectare in 1990 to 2008.
Floriculture:
Floriculture is the art and knowledge of growing flowers to perfection. Being a branch of
horticulture, it deals with the cultivation of flowers and ornamental crops from the time of planting
to the time of harvesting. It also includes production of planting materials through seeds, cuttings,
budding, grafting and marketing of flowers and flower produce. Though flower cultivation has
been practiced in India since times immemorial, floriculture has blossomed into a viable business
only in recent years. Considering the potential this sector has in generating income and
employment opportunities, promoting greater involvement of women and enhancement of
exports, it has been identified as an extreme focus area for exports by the government of India.
In recent years floriculture units have come up near most metropolitan cities like Bangalore,
Pune, Delhi, Hyderabad and Chennai. India enjoys the advantage of favorable agro- climate,
cheap labour, extensive arable land and skilled manpower. Because of these reasons, India
has a very high potential for export of cut flowers. The Government of India has given Thrust
Area Status for floriculture industry as a potential foreign exchange earner.
State whether the following statements are “True” or “False”

i. Livestock economics is applied economics
ii. India ranks tenth in respect of buffalo breeds
iii. Camel can be used to goods transport and travelling
iv. Green revolution is revolution in the Dairy sector in India
v. Reserved forest areas notified under Indian forest act or state forest act and has full
degree of protection of forests.
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3.11 Issues and Problems of Rural Industrialisation
In the last section of this topic we have studied the Indian poultry, fishery, dairy, horticulture,
floriculture and forestry sector development. Now we have turned our attention on problem of
rural industrialisation in India. Rural industries are need of rural India, according to the Mahatma
Gandhi Indian can’t develop without development of rural India. A rural industry includes rural
small scale, cottage industries, handicrafts and artisan enterprises. It is a source of rural income
and employment, however these industries are not developed and established as per
requirement of rural areas due to the various problems in India.
3.11.1 Importance of Rural Industrialisation
Rural industries have providing followings utility and it have potential to development of
rural sector in India. There is followings notable importance of rural industries;
1. Rural industries are provides alternative employment to rural peoples
2. It provides market to primary agricultural products i.e. cotton, sugarcane, fruits, milk etc.
3. It provides various industrial products to rural people
4. It will encourage rural youth to entrepreneurship and business activities
5. Rural industries can use rural resources to rural developments
6. Rural industries provides additional income source to rural peoples and increase slandered
to living
7. Rural industries are useful to decentralisation of industries
3.11.2 Problems of Rural Industrialisation
Rural industries are need of rural areas in the present scenario in India. While there are
so many obstacles found in the rural industrialisation as given below;
1. Lack of skilled labour force is one of the important obstacles in rural industrialisation in
India. In the rural area literacy level and percentage of skilled labour is very low.
2. Lack of adequate electricity supply is also one of the problems in industrialisation. In the
rural area have not proper electricity facilities and there is problem of low voltage and
discontinuity in centricity supply.
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3. Transporting facilities is one of the requirements of industrialisation, but in the rural area
no sufficient transport facilities are available. Most of roads are becomes unserviceable in
rainy session.
4. In the rural area it is found that, because of lack of appropriate banking facilities and
supply of capital industries are not established in rural areas.
5. There is lack of entrepreneurial capacities are also one of the problem in rural
industrialisation in India.
6. There is no availability of modern technology to the industrialisation in rural areas. Modern

machines and modern technology is easy available in urban areas but not available in
rural areas easily.
7. Rural industrialization would be a total fiasco because of unsound rural marketing

infrastructure. As long as rural products do not enter the normal supply chain, their products
cannot enjoy a good market
3.12 Development of agro-based Industry
The agro-based industry includes industries related to textiles, sugar, paper and vegetable
oil. These industries use agricultural products as their raw materials. Textile industry is the
largest industry in the organized sector.
Types of Agro-based Industry

1. Cotton textiles
2. woollen textiles
3. Silk textiles
4. Synthetic fibres
5. Jute textile industries
Textile Industry
It occupies unique position in the Indian economy, because it contributes significantly to

industrial production (14 per cent), employment generation (35 million persons directly – the
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second largest after agriculture) and foreign exchange earnings (about 24.6 per cent). It
contributes 4 per cent towards GDP. It is the only industry in the country, which is self-reliant
and complete in the value chain i.e., from raw material to the highest value added products.
Cotton Textiles
In ancient India, cotton textiles were produced with hand spinning and handloom weaving
techniques. After the 18th century, power-looms came into use. Our traditional industries suffered
a setback during the colonial period because they could not compete with the mill-made cloth
from England. Today, there are nearly 1600 cotton and human made fibre textile mills in the
country.
About 80 per cent of these are in the private sector and the rest in the public and
cooperative sectors. Apart from these, there are several thousand small factories with four to
ten looms. In the early years, the cotton textile industry was concentrated in the cotton growing
belt of Maharashtra and Gujarat. Availability of raw cotton, market, transport including accessible
port facilities, labour, moist climate, etc. contributed towards its localisation. This industry has
close links with agriculture and provides a living to farmers, cotton boll pluckers and workers
engaged in ginning, spinning, weaving, dyeing, designing, packaging, tailoring and sewing.
The industry by creating demands supports many other industries, such as, chemicals
and dyes, mill stores, packaging materials and engineering works. While spinning continues to
be centralised in Maharashtra, Gujarat and Tamil Nadu, weaving is highly decentralised to
provide scope for incorporating traditional skills and designs of weaving in cotton, silk, zari,
embroidery, etc.
India has world class production in spinning, but weaving supplies low quality of fabric as
it cannot use much of the high quality yarn produced in the country. Weaving is done by
handloom, power loom and in mills. The hand spun khadi provides large scale employment to
weavers in their homes as a cottage industry.
India exports yarn to Japan. Other importers of cotton goods from India are U.S.A., U.K.,
Russia, France, East European countries, Nepal, Singapore, Sri Lanka, and African countries.
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India has the second largest installed capacity of spindles in the world, next to China, at
around 34 million (2003-04). Since the mid-eighties, the spinning sector has received a lot of
attention.
Jute Textiles
India is the largest producer of raw jute and jute goods and stands at second place as an
exporter after Bangladesh. There are about 70 jute mills in India. Most of these are located in
West
Bengal, mainly along the banks of the Hugli river, in a narrow belt (98 km long and 3 km
wide). Factors responsible for their location in the Hugli basin are: proximity of the jute producing
areas, inexpensive water transport, supported by a good network of railways, roadways and
waterways to facilitate movement of raw material to the mills, abundant water for processing
raw jute, cheap labour from West Bengal and adjoining states of Bihar, Orissa and Uttar Pradesh.
Kolkata as a large urban centre provides banking, insurance and port facilities for export of jute
goods.
The jute industry supports 2.61 lakh workers directly and another 40 lakhs small and
marginal farmers who are engaged in cultivation of jute and Mesta. Many more people are
associated indirectly. Challenges faced by the industry include stiff competition in the international
market from synthetic substitutes and from other competitors like Bangladesh, Brazil, Philippines,
Egypt and Thailand. However, the internal demand has been on the increase due to the
Government policy of mandatory use of jute packaging. To stimulate demand, the products
need to be diversified. In 2005, National Jute Policy was formulated with the objective of
increasing productivity, improving quality, ensuring good prices to the jute farmers and enhancing
the yield per hectare. The main markets are U.S.A., Canada, Russia, United Arab Republic,
U.K. and Australia. The growing global concern for environment friendly, biodegradable materials
has once again opened the opportunity for jute products.
Sugar Industry
India stands second as a world producer of sugar but occupies the first place in the
production of gur and khandsari. The raw material used in this industry is bulky, and in haulage
76
its sucrose content reduces. There are over 460 sugar mills in the country spread over Uttar
Pradesh, Bihar, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh and Gujarat along with
Punjab, Haryana and Madhya Pradesh. Sixty per cent mills are in Uttar Pradesh and Bihar.
This industry is seasonal in nature so, it is ideally suited to the cooperative sector.
In recent years, there is a tendency for the mills to shift and concentrate in the southern
and western states, especially in Maharashtra; this is because the cane produced here has
higher sucrose content. The cooler climate also ensures a longer crushing season. Moreover,
the cooperatives are more successful in these states. Major challenges include the seasonal
nature of the industry, old and inefficient methods of production, transport delay in reaching
cane to factories and the need to maximise the use of baggage.
3.13 Summary
An original livestock science referred as animal husbandry and is mixing of pure science
and agriculture science. Livestock economics is applied branch of agriculture economics.
Livestock sector includes Production of Livestock, Production Cost of Livestock, Pricing , Supply
of Livestock , Demand for Livestock and Management of Demand and Supply. The productivity
of livestock depends upon Feeds and nutrition, Management of natural resources, Improvement
of animal health, Utilization of livestock genetic potential , Crossbreeding, variety, Quality and
quantity and Size of farm. In Indian economy livestock sector has emerging an important
sector and it has contributing national income, employment, export, women empowerment,
rural development and provides alternative income sources to rural peoples. In India milk,
meat, wool are the major livestock production including their processed products.

i. Rural industries are useful to decentralisation of industries
ii. Textile industry is not an agro-based industry
iii. India is the largest producer of raw jute and jute goods
iv. Poultryfarming is also called aschickenfarming
v. Livestock sector is not a subsector of agriculture

77
3.14 Key Words

 Livestock Economics : Livestock economics is an applied branch of agriculture
economics and pure micro economics also.
 Cross Breeding : crossbreeding of the animals is another alternative way to improve

productivity of the animals
 White Revolution : White revolution is related to revolution in the dairy sector in India
 Deciduous forest : The trees shed their leaves during winter and grow freshly during
summer.
 Evergreen forests : They remain green through the year.
 Coniferous forests : Typically grows in cold hilly Himalayan region with coniferous plants
 Scrub forests : With parched vegetation, poor growth of plants.
 Reserved Forests : Areas notified under Indian forest act, of state forest act and has full
degree of protection of forests
 Crossbreeding is the scientific method for generation of diverse variety of animals with
genetic modification and combination of characterises of two or more animals in single
animal.
 Grading and Standardisation is process of classification of products either agriculture

or industrial according to their quality and characteristics, colour, test, weight, size etc

1. What is livestock economics? explain the scope of livestock economics.
2. Explain the factors affecting on productivity of livestock products.
3. Explain the livestock sector development of Indian economy
4. Explain the importance of livestock sector in the economy
5. Explain the nature and developments of poultry sector in India
Write Short Notes
1. Types of livestock resources

78
2. Livestock Production in India
3. Challenges and Problems of Livestock Sector
4. Problems of marketing
5. White revolution in India
6. Problems of horticulture in India
7. Forestry in India
3.16 Answer to Check Your Progress

B: (i) True (ii) False (iii) True (iv) True (v) False
3.17 Suggested readings

1. S.K. Chatterjee, Cultivation Of Medicinal And Aromatic Plants In India - A Commercial
Approach
2. Sadhu and Singh, (1989), Fundamental of Agricultural Economics, Himalaya Publishing

House, Delhi, India
3. Shete, N. B .Problems and prospects of financing agro-processing industry in India,

National Institute of Bank Management, Pune, India
4. Shni R. N., (1992), Leading Issues in Agricultural Economics, Vishal Publication, Jalandhar,
India
79
UNIT IV
AGRICULTURAL GROWTH IN INDIA
Learning Objectives
 Understand the trend in the growth of agriculture
 Explain inter regional variation in terms of production and productivity
 Need for shift in cropping pattern
 Know the importance of supply of inputs
 Examine the types and need for subsidies
 Understand the importance of capital formation in agriculture
 Explain Sustainable Agriculture, Indigenous Practices andBio-technological Practices
Structure
4.1 Recent Trends in Agricultural Growth in India
4.2 Inter-Regional Variations in Growth of Output and Productivity
4.3 Cropping Pattern Shifts
4.4 Supply of Inputs- Irrigation, Power, Seed and Fertilizers
4.5 Pricing of Inputs and Role of Subsidies
4.6 Distribution of Gains from Technological Change
4.7 Role of Public Investment and Capital Formation in Indian Agriculture
4.8 Strategy of Agricultural Development and Technological Progress
4.9 Sustainable Agriculture
4.10 Indigenous Practices
4.11 Bio-technological Practices and Growth Potential
4.12 Summary
4.13 Key Words

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4.1 Recent Trends in Agriculture Growth in India
Ranking second in the world farm output, the agricultural sector is the backbone of Indian
Economy contributing majorly to the country’s GDP. As on February 2018, it is estimated that
over 58% of rural Indians depend on agriculture for their livelihood and this sector contributes
around 17-18% to the country’s GDP (Gross Domestic Product). The Indian food industry is
poised for huge growth which employs more than 50% of the workforce in India, owing to
increase in its contribution to world food trade every year due to its immense potential for value
addition, particularly within the food processing industry. Apart from this an average India still
spends the major chunk of his/her salary on food. Here’s all that you need to know about
agriculture in India.
The Current Scenario of Agricultural Sector in India as (Economic Survey 2017-18)
 India’s food grain production reached 275.68 million tonnes in the year 2016-17 and is
estimated to reach 274.55 million tonnes in 2017-18
 Currently, Indian farmers are getting used to farm mechanization at a faster rate as
compared to the past. This is can be reflected by but is not limited to the sale of tractors.
Indian tractor industries have emerged as the largest in the world accounting for about
one-third of total global tractor production as put by The Economic Survey 2017-18, but it
also states that more needs to be done in this front
 The economic survey also stated that Agricultural R&D is the main source of innovation,
which can help in sustaining agricultural productivity growth in the long-term.
 Currently with the growing urban migration by men, ‘feminisation of agriculture sector’ is
being witnessed with a greater number of women participating in multiple roles as
cultivators, entrepreneurs, and labourers.
Main Crops and their Yields in Indian Agricultural Sector
Traditionally it is known that India grows almost every crop major crops grown in Indian
Agricultural Sector –
 Food Crops – Rice, wheat, maize, millets, pulses
 Cash Crops – Sugarcane, tobacco, cotton, jute
 Plantation Crops – coffee, coconut, tea, rubber

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 Horticulture – Fruits and vegetables
Indian agriculture witnesses 2 agricultural seasons- Kharif and Rabi. The main crop grown
in Kharif season is Rice and the main crop grown in Rabi is Wheat.
4.2 Trends in Agriculture Productivity
Productivity shows the production or output per unit of input. Agricultural productivity is
Land
Productivity Level of Agriculture is defined as the amount of crops production in per

hectare land.Agriculture productivity = Total agriculture crop production/Total land area
(hectares). The Table (4.1) shows the trend in terms of 4 features viz., area under agriculture,
Production, yield and percentage of land under irrigation
Table 4.1
Food grains: All-India Area, Production and Yield alongwith coverage under Irrigation
Year Area Production Yield (Kg/ Area under

(Million (Million Hectare) Irrigation (%)
Hectare) Tonnes)
1950-51 97.32 50.82 522 18.1
1960-61 115-58 82.02 710 19.1
1970-71 124.32 108.42 872 24.1
1980-81 126.67 129.59 1023 29.7
1990-91 127.84 176.89 1380 35.1
2000-01 121.05 196.81 1626 43.4
2010-11 126.67 244.49 1930 47.8
2016-2017 124.30 252.02 2018 51.9
Source: Agricultural Statistics at a Glance 2016, Ministry of Agriculture & Farmers Welfare,
Government of India
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The Table (4.1) indicates that
 The area under cultivation has been 97.32 Million Hectare in 1950-51, which increased
to 124.30 in 2016-17. However, it is lower when compared to previous decades.
 The total production has been continuously growing inspite of variation in the area of
cultivation. It has increased from 50.82 Million tonnes in 1950-51 to 252.02 Million tonnes
in 252.02
 In terms of yield per hectare it was just 522 Kg per hectare in 1950-51 and has shown
drastic increase of about 2018 Kg per hectare in 2016-2017.
 Irrigation in India includes a network of major and minor canals from Indian rivers,
groundwater well based systems, tanks, and other rainwater harvesting projects for
agricultural activities. Of this groundwater system is the largest. In 1950-51, only about
18.1% of total agricultural land in India was reliably irrigated which has increased to
51.9% in 2016-2017
Current Scenario
 Growth in Rice Production
Rice has always been one of the staple crops grown in India because it is a tropical crop
that can be grown almost throughout the year. India is the 2nd largest producer of rice in the
world and it also has the largest area in world under rice cultivation. Since, 2010 the production
of as well as yield of rice has increased significantly. In FY16, production of rice stood at
103.61 million tonnes as compared to 20 million tonnes in 1950. The increase in rice production
is a result of better agricultural facilities like irrigation, latest technology, quality seeds, and
improved methods of production. But growing rice in India is majorly dependent on monsoon.
 Growth in Wheat Production
Like rice, wheat also saw a major boost in production since 2010. India is the second
largest producer of wheat with total production of 93.82 million tonnes in FY 2016. Wheat is
considered to be one of the staple food of many Indian states. The wheat production saw a
boom post-independence after the introduction of first phase of Green Revolution. With the
influx of quality seeds, new methods for production, new equipment and technologies, the total
wheat production increased from 11 million tons in 1966-67 to 17 million tons in 1967-68. Like
rice, even the production of wheat depends heavily on monsoons.
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 Yield of Jowar increased with a decrease in production
Jowar is considered to be one of the staple food of low-income group and is used as a
food for animals and raw materials for industries. Over the years it has been observed that the
Jowar cultivating land has been declining but in contrary to this decline the yield per hectar has
increased which is a result of modern quality seeds and new and improved methods of
production.
 India is the second largest fruit producer in the world the output estimated to be 300.64
million tonnes in 2016-17 and is expected to reach 305.43 million tonnes in the year
2017-18.
 In the year 2016-2017 the largest increase was recorded under pulses which is around
43.66 lakh hectares
 India is evolving as the export hub of instant coffee leading to exports of coffee increase
17 percent in the calendar year 2017 to reach US$ 958.80 million.
4.2 Inter-Regional Variations in Growth of

Output and Productivity
The growth performance of the states can be analysed considering three distinct phases
of agricultural development in India viz
i. the first phase of green revolution 1970-71 to 1979-80,
ii. second phase of green revolution 1980- 81 to 1990-91,
iii. and the period after economic reform 1991-92 onwards
The exponential growth rates of value of output and productivity for the country during
the whole period (1970-71 to 2005-06) revealed that all India agricultural output and yield grew
at the rate of 2.6% and 1.43% respectively.
The states like Haryana (3.46%), Madhya Pradesh (3.38), Rajasthan (3.36%), Goa (3.3%)
and West Bengal (3.24%) achieved higher growth in the level of output whereas the states like
Madhya Pradesh (2.81%), Rajasthan (2.5%), Haryana (2.5%), Punjab (2.12%) and Uttar
Pradesh (2.04%) registered higher growth in productivity during the entire period.
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The performance of the state of Jammu and Kashmir remained poor in both respects
during he whole period. The performance of the Indian agriculture during the first phase of
green revolution (1970-71 to 1979-80) was not extraordinary. All India growth for the agricultural
output and yield during this period was recorded as 1.88% and 1.48% per annum respectively.
However, during this time period few states achieved outstanding growth in the rete of output
and yield. In the level of output, the states like Manipur (6.46%), Arunachal Pradesh (5.9%),
Maharashtra (5.78%), Punjab (5.43%) and Haryana (3.36%) performed significantly well,
whereas in case of yield the states Punjab, Maharashtra, Manipur achieved significant growth.
In fact, during this period the effect of green revolution was not widespread all over the
country. This is evident from the observed lower growth rate of other states like Andhra Pradesh,
Madhya Pradesh, Kerala, Rajasthan, Orissa, Bihar, Karnataka and Jammu and Kashmir in
both output and yield. Most of the states grew at an accelerated rate in both output and yield
during this period. The states such as Tamil Nadu (5.46%), West Bengal (5.25%), Rajasthan
(5.5%), Punjab (4.9%), Haryana (4.78%) and Madhya Pradesh (4.62%) achieved outstanding
growth in agricultural output and the states of Punjab (6.38), Haryana (6.29), Madhya Pradesh
(6.11) and West Bengal (5.48) achieved remarkable growth in yield rate.
Moreover, during this period the states of different regions i.e, West Bengal of eastern
region, Rajasthan of central region, Tamil Nadu of Southern region contributed to the higher
Growth rate in India. Most other states except a few registered higher growths compared to the
previous period during the second period.
4.3 Cropping Pattern Shifts

Crop pattern refers to the proportion of area under different crops at a particular period of
time. A change in cropping pattern means a change in the proportion of area under different
crops. It can be described in a number of ways but the most convenient method is to classify
the agricultural production into two groups i.e. food grains and non-food grains.
Cropping Pattern of Food-grain crops in India
India ranks second in world rice and wheat production, contributing to more than 21
percent and 11 percent of world rice and wheat output. Food grain constitutes 64 percent of the
gross cropped area (GCA), although it accounts for less than 25 percent of the total value of
output of agriculture and allied activities.
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In India, there is an existing imbalance in the cropping pattern of the food grains because
a large proportion of the area under food grains is occupied by cereals.
The food grains occupied an area of 97.32 million hectare (mha) in 1950-51 has increased
to 126.74 mha in 2011-12. In these years, the area under cereals such as rice and wheat has
grown but the same under course cereals and millets has decreased. The following table shows
this.
Table 4.2
Year Rice Wheat Coarse Total Pulses Total Food

Cereals Cereals grains
1950-51 30.81 9.75 37.67 78.23 19.09 97.32
2011-12 44.07 29.82 26.62 100.52 26.22 126.74
The Table (4.2) shows that Rice is the major cereal crop among food grains and showed
a gradual increase in the area and so also the wheat. But coarse grains like Jowar, Bajra and
Maize showed a decline in the percentage of the area. If we study the area of cultivation of
food grains and non-food grains, there was a gradual shift from non-food grains to food grains.
Reasons of imbalance in Crop Pattern
Prices of food grains have been rising quite fast and the farmers have started growing
food crops in the similar way they grow commercial crops like cotton, oil seed crops sugarcane
etc. Cultivation of food grains has become highly remunerative and productive under the
influence of new technology. Traditionally, the Minimum Support Prices for wheat and rice have
been maintained reasonably high (in comparison to millets such as Jowar and Bajra/ This has
helped the farmers to increase their production.
There has been a change in the consumption pattern and people have moved from
coarse cereals to wheat and rice for their main dietary grain. This is because of the increase in
the income of the people and coarse cereals being the inferior goods.
The strategic objectives of agricultural development in India have been changing over
time. In 1960s, it was to maintain the prices of food grains at low level. The government
significantly supported the growth of wheat and rice cultivation via its policy intervention,
procurement and technology. In 1960s to 1980s, it was to maximize food production. In 1980s
86
to 1990s, it was to go for a demand driven production pattern. Since 1990s, it was to reduce
inputs of agricultural commodities.
Cropping pattern of non-food grains
Among non-food grain crops, oil seeds form an important group which also include other
crops like cotton, jute, sugarcane, tobacco, tea, coffee, etc. The area has shown increasing
and decreasing trends.
Sometimes there is an increase in the area and sometimes there is a decrease in the
area but overall there was not much change in the area of cultivation.
Common Factors affecting cropping pattern in India
Geographical Features
Cropping pattern of any region depends upon geographical features as soil, climate,
rainfall, etc. Apart from this, it depends on the nature and availability of irrigation facilities.
Economic Motivations
Economic motivations are also important in determining the cropping pattern. The prices
influence the acreage under the crops in two ways. Firstly, variations in the intercrop price
disparities led to shifts in acreage between the crops. Secondly, maintenance of a stable level
of prices for a crop provides a better incentive to the producer to increase the opt put than what
a very high level of price does, if there is no uncertainty of this level being maintained over a
number of years.
Government Policies
Fixed procurement price of wheat and rice and other Government controls have induced
farmers to shift the cultivation to cash crops like sugarcane. Farmers also would choose the
combination of crops which would give them maximum income. Relative profitability per acre is
the main consideration which influences the crop pattern. Small farmers are first interested in
producing food grains for their requirements and devote only a small relative acreage to cash
crops than large farmers. Food Crop Acts, Land use Acts, intensive schemes for paddy, cotton,
oil seed etc. all these bring sharply into focus the possibility that while each individual measure
may push the crop pattern in the direction intended to, but if the overall effect of all measures
87
taken together on the entire crop pattern is taken, it may not be in accordance with national
requirements.
4.4 Supply of Inputs- Irrigation, Power, Seed and Fertilizers
Agricultural inputs are a great determinant of yields in any type of agricultural production.
In the modern world today, agriculture has become extremely dynamic therefore, making the
kind of inputs that are being used in the sector today upgraded.
Farm inputs come in a wide array from the most common which include but not limited
to; Manure, Farm chemicals, Machinery, Seeds, Water, to many additional concepts that all
cook in the same pot to yield glamorous results. A highlight of the most basic is discussed
below.
To begin with, Seeds are at the front row in determining the output of a certain production.
Hybrid seeds still remain the best seeds for planting as they have been bred to resist the
drawbacks from elements such as weeds and parasites in crop production for instance. When
selecting seeds for planting, it’s important to first verify that the seeds are certified to avoid
purchasing counterfeits. Consider their adaptability to the climate and other features of that
region such as the soil. Different hybrid seeds adapt differently to the various climatic regions
in a place
Secondly, when it comes to Manure, modern fertilizers incorporate all the necessary
nutrients composition, and are of different types to suit the different needs they attend to at
different times of production. Fertilizers too should be handled with caution as to whether they
are legit and should also be used in correct amounts, since too much or too little of the latter
may hinder the achievements of desired yields
Another major input is Water which is the core resource in all types of production. Due to
the modern trends in the weather pattern, rainfall-dependent agriculture has always stumbled
due to unpredictable changes in rainfall. Irrigation remains the best solution to handle the
water availability issue. Moreover, it minimizes the risk of crop failure. Therefore, in farming,
practices such as water harvesting are highly encouraged. Besides setting up irrigation systems,
drainage is also a factor to address to prevent water logging and flooding which leads to
leaching of nutrients and hence poor yields.
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Apparently, crops are always attacked by respective pests and diseases and therefore it
is a necessity to have standby agrochemicals i.e pesticides and herbicides to address this.
The major mistake that farmers take is acting after realizing the damage by pests. To curb this
challenge, it is advised that the herbicides and chemicals are put prior to expected attacks so
that the crops remain immune. However, this does not apply to all situations as some pests
and diseases are sometimes an outbreak or unlikely calamities.
Check Your Progress - A

i. Productivity of Land cannot be measured
ii. In developed countries 70 percent of people are engaged in agriculture
iii. The first phase of green revolution was between 1970-71 to 1979-80
iv. A change in cropping pattern means a change in the proportion of area under different
crops.
v. Hybrid seeds do not give high yield
4.5 Pricing of Inputs and Role of Subsidies
Agricultural Subsidies:
An agricultural subsidy (also called an agricultural incentive), is a

governmental subsidy paid to agri businesses, agricultural organizations and farms to
supplement their income, manage the supply of agricultural commodities, and influence the
cost and supply of such commodities.
Kinds of Agricultural Subsidies in India

(1) Input Subsidies: Subsidies can be granted through distribution of inputs at prices that
are less than the standard market price for these inputs. The magnitude of subsidies will
therefore be equal to the difference between the two prices for per unit of input distributed.
Naturally several varieties of subsidies can be named in this category.
(a) Fertiliser Subsidy: Distribution of cheap chemical or non-chemical fertilisers among

the farmers. It amounts to the difference between price paid to manufacturer of
fertiliser (domestic or foreign) and price, received from farmers.
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This subsidy ensures:

(i) Cheap inputs to farmers,
(ii) reasonable returns to manufacturer,
(iii) stability in fertiliser prices, and
(iv) availability of fertilisers to farmers.
In some cases this kind of subsidies are granted through lifting the tariff on the import of
fertilisers, which otherwise would have been imposed.
(b) Irrigation Subsidy: Subsidies to the farmers which the government bears on account
of providing proper irrigation facilities. Irrigation subsidy is the difference between
operating and maintenance cost of irrigation infrastructure in the state and irrigation
charges recovered from farmers. This may work through provisions of public goods
such as canals, dams which the government constructs and charges low prices or
no prices at all for their use from the farmers. It may also be through cheap private
irrigation equipment such as pump sets.
(c) Power Subsidy: The electricity subsidies imply that the government charges low
rates for the electricity supplied to the farmers. Power is primarily used by the farmers
for irrigation purposes. It is the difference between the cost of generating and
distributing electricity to farmers and price received from farmers.
The State Electricity Boards (SEBs) either generate the power themselves or
purchase it from other producers such as NTPC and other SEBs. Power subsidy
“acts as an incentive to farmers to invest in pump sets, bore-wells, etc.
(d) Seed Subsidy: High yielding seeds can be provided by the government at low
prices. The research and development activities needed to produce such productive
seeds are also undertaken by the government, the expenditure on these is a sort of
subsidy granted to the farmers.
(e) Credit Subsidy: It is the difference between interest charged from farmers, and
actual cost of providing credit, plus other costs such as write-offs bad loans.
Availability of credit is a major problem for poor farmers. They are cash strapped
and cannot approach the credit market because they do not have the collateral
needed for loans. To carry out production activities they approach the local money
lenders.
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(2) Price Subsidy: It is the difference between the price of food-grains at which FCI procures
food-grains from farmers, and the price at which PCI sells either to traders or to the PDS.
The market price may be so low that the farmers will have to bear losses instead of
making profits. In such a case the government may promise to buy the crop from the
farmers at a price which is higher than the market price. The difference between the two
prices is the per unit subsidy granted to the farmers by the government. The price at
which the government buys crops from the farmers is called the procurement price. Such
procurement by the government also has a long run impact. It encourages the farmers to
grow crops which are regularly procured.
(4) Export Subsidies: This type of subsidy is not different from others. But its purpose is
special. When a farmer or exporter sells agricultural products in foreign market, he earns
money for himself, as well as foreign exchange for the country. Therefore, agricultural
exports are generally encouraged as long as these do not harm the domestic economy.
Subsides provided to encourage exports are referred as export subsidies.
4.6 Distribution of Gains from Technological Change

Technology offers a huge potential for poverty reduction of small holders in agriculture.
However, other potentially cheaper and faster sources of income gains have not been exhausted,
particularly through institutional and policy changes, e.g., greater access to productive assets,
improved property rights and contracts in accessing land, more effective agrarian institutions
in support of productivity growth such as microfinance, infrastructure investment and service
coops to reduce transactions costs in accessing markets, and policies that do not discriminate
against agriculture and poor farmers. Hence, to be effectively used for poverty reduction, the
technology instrument needs to be embedded within a comprehensive rural development and
poverty reduction strategy that weights the effectiveness of this instrument against other
substitute approaches.
4.7 Role of Public Investment and Capital Formation in

Indian Agriculture
Capital Formation
Capital formation, is a process of building up the stock of capital. It is achieved by saving

a part of current income of the economy and investing it in the making of capital goods like
machines, tools, plants and equipment’s, transportation, storage and communication facilities,
etc.
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Significance of Capital Formation

Capital formation contributes significantly to the process of economic development by:
(i) helping to build the physical infrastructure;
(ii) facilitating the adoption of modern production techniques and methods;
(iii) improving the productive capability of workers;
(iv) enabling the efficient use of natural resources; and
(v) facilitating the adoption of technological changes raising as a result the farm production,
productivity and income.
Types of Capital and Capital Formation

Capital used in agriculture can broadly be classified into two categories:
(i) fixed capital and
(ii) working capital.
Fixed capital is that capital which lasts for more than one year. It includes the investment
in farm machines such as tractor, pump-sets, and other assets like tube-wells, land development,
farm building, etc. Working capital is that capital which lasts for less than one year such as
expenses on seeds, fertilizers, wages to the workers, etc.
Thus, capital formation in agriculture comprise of additions to the fixed capital less
disposals and change in inventories. Inventories include materials and supplies meant for
intermediate inputs in production and finished goods for sale (e.g. packaging). Fixed capital
formation consists of net addition to fixed assets (i.e. total addition minus depreciation) in the
current year. For the stock of capital to be maintained, additional investment equal to the
amount of capital consumed (i.e. depreciation) should be made in that year.
Fixed Capital Formation can further be classified into Gross Fixed Capital Formation
(GFCF) and Net Fixed Capital Formation (NFCF). The GFCF consists of sum of all additions to
the existing stock of fixed capital in the current year while NFCF refers to GFCF net of
depreciation in the current year. Depreciation [i.e. consumption of fixed capital (CFC)] is
calculated only for all fixed assets (tangible and intangible).
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Capital, on the basis of ownership, is categorised as private and public. Capital owned by
local, state and central governments, such as, municipal sewage lines,dams, power projects,
roads, canals, warehouses, market-sheds etc. are public capital. Any capital owned by private
individuals/companies, such as farm machinery and equipment is termed as private capital.
Both public and private capital is necessary for the development of agricultural sector.
Sources of Capital Formation
There are two sources of capital formation: domestic and external. Domestic sources
comprise of:
(i) voluntary and involuntary savings,
(ii) public borrowings,
(iii) activation of idle resources, and
(iv) deficit financing.
There are two major sources of voluntary savings viz. household sector and corporate
sector; the two together contributes to about 90 percent of our total savings with the ‘public
sector’ occupying the third position accounting for the remaining 10 percent of total savings. Of
these three constituents, the household sector’s saving accounts for the highest (around 60
percent). The household sector’s savings depends upon distribution of income and wealth in
the economy, per capita income, propensity to save, availability of banking infrastructure, rate
of interest, etc. It also depends on non-economic factors like savings for children’s education
and marriage, health and old-age security, etc.
The corporate sector refers to the non-governmental private companies. Involuntary

savings are mobilized by the government through instruments like taxation and compulsory
savings (e.g. provident fund). Public or government borrowing refers to mobilisation of savings
through issuing of bonds (e.g. infrastructure development bond). Activation of idle resources
refer to engaging surplus agricultural workforce in works of productive asset creation like
construction of roads, tube-wells, canals, school buildings, etc.
The government can also raise capital through deficit financing which could be used to
generate productive assets in the public sector.
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External sources of capital formation include:
(i) foreign direct investment (FDI),
(ii) external government borrowings (EGBs),
(iii) External Commercial Borrowings (ECBs) and
(iv) development assistance from international institutions like World Bank, NRI deposits,
etc.

i. Subsidy ensures cheap inputs to farmers
ii. The electricity subsidies imply that the government charges high rates for the electricity
supplied to the farmers
iii. Fixed capital is that capital which lasts for more than one year
iv. The external sources of capital formation cn be raised by farmers
v. Sustainable agriculture ensures protection of environment
4.8 Strategy of Agricultural Development and

Technological Progress
As agriculture sector is the mainstay of Indian economy and accounts almost 14% of the
GDP. Therefore, to enhance the contribution of agriculture sector, adoption of newer and
improved technology is essential. Let us discuss the following importance of technology in
context to the advancement of Indian agriculture: -
1) Increase in Production: Before the 1970s, Indian agricultural output did not rise much to
meet the country’s needs. The mid-1960s was a disaster as far as India’s agricultural
sector was concerned. The country witnessed a massive shortfall in agricultural output
when the vast number of people faced the twin blows of hunger and malnutrition. This
then demanded innovative effort on a massive scale which later introduced the green
revolution comprising a package of modem inputs—irrigation, improved seeds, and
fertilizers etc. The green revolution is driven by the technology revolution: seed-fertilizer-
water technology or modem technology.
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2) Increase in Employment: With the advancement of technology, the outdated and old
techniques of farming can now be replaced by the farmers. Due to the implication of
Green Revolution, government is focusing on the inclusive growth pattern in agriculture
sector too, so that large mass of unemployed labors can be given wages. Techniques like
multiple cropping, double cropping, proper irrigation facilities, HYV seeds will help the
farmers to self earn and contribute in the growth of Indian Economy.
3) Role of IT: Here by technology we not only focus to the farming techniques but other
means of technology too. That is advancement of information technology, has also emerged
as an important field in building a good network for the farmers to connect with the other
parts of the state. Due to mobile phones, use of computers, Internet, etc. is helping in
correct decision making for the personnel who work for the welfare of the farmers. Thus,
we see that Information Technology (IT) has a major role to play in facilitating farmers in
improving the efficiency and
4) Commercialisation: Advancement in new and improved technology will help in more

and high yield production of some of the leading exports from the country have like jute
goods, tea, oil, cakes, tobacco, spices, coffee, etc. By exporting them, it has been possible
to import in return the much-needed machinery and manufactured goods.
5) Reduction in the dependency of Climate: Invention like poly houses has given the
opportunity to the farmers to grow vegetables under the technically build poly houses
which provide proper temperature to the vegetables which were unable to grow in that
regions climate. For example in the regions of Rajasthan, farmers are making use of poly
houses to grow tomato, potato, green vegetables which were once not possible for them.
6) Research and Development : New laboratories and research centres are being opened
up to carry forward different types’ agriculture related research. These national level centres
like Krishi Vigyan Kendra are helping farmers with the new farming techniques and new
variety of seeds for better level of production. And to do the research new and modern
technologies are being used by the agro scientists and researchers.
7) Provider of Global Market: After the period of 1990s the Indian economy was opened
and global level competition was there. Seeing other countries progress Indian agriculture
was also given a boost with the help of technology due to which finished and good variety
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of food grains can be produced and that can compete in the global market. With the
proper irrigation system, good fertilizers, pesticides and HYV seeds Indian agriculture
saw a boost in the level of production, which ultimately created a demand in the global
market. For example Indian spices, jute, tea, cotton, silk, has a place in global market.
8) Effective Use of GIS :GIS ( Geographical information system ) that is a well defined
system to capture ,store ,check and display data related to positions on earth’s surface .
The use of remote sensing, GIS , bio engineering etc., with the help of these technologies
agriculture sector performances are effectively monitored . With use of remote sensing
and GIS applications better planning, advising and monitoring the status of the crops can
be done. Also, it helps in giving quick responds related to crop stress conditions and
naturalCalamities. Through this art sensing techniques we can detect trace amounts of
various chemicals and fertilisers present in the soil. Challenges of crop stress, soil problems,
and natural disasters can be tackled effectively through these technologies.
4.9 Sustainable Agriculture
Sustainable agriculture is a way of farming that can be carried out for generations to
come. This long-term approach to agriculture combines efficient production with the wise
stewardship of the earth’s resources.
A sustainable agriculture is one that, over the long term, enhances environmental quality
and the resource base on which agriculture depends; provides for basic human food and fiber
needs; is economically viable; and enhances the quality of life for farmers and society as a
whole. After reading these two definitions, it is important to know various characteristics of
sustainable agriculture.
Characteristics of Sustainable Agriculture
By the definitions of sustainable agriculture, a farm that emphasizes short run profit but
sacrifices environmental quality would not be sustainable in the long run. From the other
perspective, pursuing environmental quality without ensuring viability of short-run returns also
would be unsustainable. Meet human needs with a safe, high-quality, - and affordable supply
of food and fiber; Provide access for everyone to nutritious, health and affordable food, while
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ensuring a safe and secure supply of food; Produce quality food while preserving open space,
abundant wildlife, and other forms ofbiodiversity; Protect the natural resource base and prevent
4.10 Indigenous Practices
Over the centuries, indigenous peoples have provided a series of ecological and cultural
services to humankind. The preservation of traditional forms of farming knowledge and practices
help maintain biodiversity, enhance food security, and protect the world’s natural resources.
The most common indigenous practicing methods are :
1. Agroforestry
Agroforestry involves the deliberate maintenance and planting of trees to develop a

microclimate that protects crops against extremes. Blending agricultural with forestry techniques,
this farming system helps to control temperature, sunlight exposure, and susceptibility to wind,
hail, and rain. This system provides a diversified range of products such as food, fodder, firewood,
timber, and medicine while improving soil quality, reducing erosion, and storing carbon.
2. Crop Rotations
The principles of crop rotation have been successfully used for thousands of years in
agriculture and are still used today. Crop rotation is the practice of growing different crops on
the same land so that no bed or plot sees the same crop in successive seasons. It is a practice
designed to preserve the productive capacity of the soil, minimize pests and diseases, reduce
chemical use, and manage nutrient requirements, all of which help to maximize yield. The
practice of crop rotation builds better soil structure and increases the ability to store carbon on
farms.
3. Mixed-/Inter-cropping
Mixed cropping, also known as intercropping, is a system of cropping in which farmers

sow more than two crops at the same time. By planting multiple crops, farmers can maximize
land use while reducing the risks associated with single crop failure. Intercropping creates
biodiversity, which attracts a variety of beneficial and predatory insects to minimize pests and
can also increase soil organic matter, fumigate the soil, and suppress weed growth.
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4. Polyculture
Polyculture systems involve growing many plants of different species in the same area,
often in a way that imitates nature. By increasing plant biodiversity, polyculture systems promote
diet diversity in local communities, are more adaptable to climate variability and extreme weather
events, and are more resilient to pests and diseases. Polycultures are integral to permaculture
systems and design and provide many advantages such as better soil quality, less soil erosion,
and more stable yields when compared to monoculture systems.
5. Water Harvesting
Water harvesting is defined as the redirection and productive use of rainfall, involving a
variety of methods to collect as much water as possible out of each rainfall. Many water
harvesting structures and systems are specific to the ecoregions and culture in which it has
been developed. This may involve collecting water from rooftops, from swollen streams and
rivers during monsoon season, or from artificially constructed catchments. This ensures that
farmers have a substantial amount of water stored up in the case of drought or limited rainfall.
4.11 Bio-technological Practices and Growth Potential

Biotechnology refers to the use of living organisms for the manufacture of useful products.
Micro-organisms such as useful traits of algae, bacteria, fungi, yeast, and cells of higher plants
and animals can be combined to manufacture new varieties of crops. Thus the hybrid varieties
of crops that we see today are the product of biotechnology.
The term “biotechnology” is derived by combining the words ‘biology’ and ‘technology’. It
concerns with the exploitation of biological organisms for generating products/ services that
are useful to man. There are two important features of biotechnology: utilization of biological
entities, their components or constituents, and generation of some product or services for
enhancement of human welfare. Biotechnology has affected many major areas of human activity
and welfare such as industries, medicine, agriculture and environment. It has been used as an
important force for creation of quality product, enriching human consumption and propagation
of quality animal and plant life. It has also created ample scope for employment, trade and
influenced national economy.
Contribution of biotechnology to agricultural development is represented by achievements

in rapid clonal multiplication of plants of economic importance, production of virus-free plants,
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rescue of otherwise nonviable interspecific hybrid, production of hybrids from sexually

incompatible combinations through hybridization, etc. Efforts are being made to improve
photosynthetic efficiency, nitrogen fixation efficiency, nutritional quality of seed storage proteins,
etc. through genetic engineering. Plant tissue culture is being propagated in different species
for higher production, disease resistance and quick maturing of fruit crops.
4.12 Summary
India is expected to achieve the ambitious goal of doubling farm income by 2022. The
agriculture sector in India is expected to generate better momentum in the next few years due
to increased investments in agricultural infrastructure such as irrigation facilities, warehousing
and cold storage. Furthermore, the growing use of genetically modified crops will likely improve
the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few
years due to concerted efforts of scientists to get early-maturing varieties of pulses and the
increase in minimum support price.

i. The green revolution is driven by the technology revolution
ii. Krishi Vigyan Kendra are helping farmers with the new farming techniques
iii. Mixed cropping, is also known as crop rotation
iv. Biotechnology refers to the use of living organisms for the manufacture of useful products
v. Indigenous Practices cannot ensure food security
4.13 Key Words

 Agricultural Productivity : Agricultural productivity is measured as the ratio of agricultural
outputs to agricultural inputs
 Crop pattern : Crop pattern refers to the proportion ofarea under different crops at a

particular period of time.
 Hybrid Seeds : hybrid seed is seed produced by cross-pollinated plants.
 Input Subsidies : Subsidies granted through distribution of inputs at prices that are less
than the standard market price for these inputs
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 Fertiliser Subsidy : Distribution of cheap chemical or non-chemical fertilisers among the

farmers.
 Power Subsidy : The electricity subsidies imply that the government charges low rates
for the electricity supplied to the farmers
 Capital Formation : Capital formation, is a process of building up the stock of capital.
 Fixed Capital : Fixed capital is that capital which lasts for more than one year
 Sustainable Agriculture : Sustainable agriculture is a way of farming that can be carried

out for generations to come.
 Agroforestry : Agroforestry involves the deliberate maintenance and planting of trees to

develop a microclimate that protects crops against extremes.
 Crop Rotation : Crop rotation is the practice of growing different crops on the same land
so that no bed or plot sees the same crop in successive seasons
 Mixed Cropping : Mixed cropping, also known as intercropping, is a system of cropping

in which farmers sow more than two crops at the same time
 Polyculture : Polyculture systems involve growing many plants of different species in the
same area, often in a way that imitates nature
 Biotechnology : Biotechnology refers to the use of living organisms for the manufacture
of useful products.

1. Analyse the trend in agricultural productivity
2. Discuss the Inter-regional Variations in Growth of Output and Productivity
3. Analyse the shifting of cropping pattern of food grains and non-food grains
4. Explain the factors affecting cropping pattern
5. write a short note on
a. Supply of Inputs
b. Importance of capital formation
c. Types of Capital Formation
d. Sustainable Agriculture
e. Biotechnology
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6. Describe different types of subsidies
7. Explain the major sources of capital formation
8. Examine the benefits of technological change in Agriculture
9. Explain the types of indigenous practices

B: (i) True (ii) True (iii) False (iv) True (v) False

1) Dantwala, M.L., 1991, Indian Agricultural Development since Independence: A Collection
of Essays, Oxford and IBH publishing Co.Pvt.Ltd.
2) Kurien, C. T., 1981, Dynamics of Rural Transformation: A Study of Tamil Nadu, 1950-
1975, Orient Longman.
3) Mal, P., 2001, Infrastructure Development for Agriculture and Rural Development, Mohit
Publications, New Delhi.
4) Planning Commission, 2003, Tenth Five Year Plan, Government of India.
5) Rao, C. H. H., 1994, Agricultural Growth, Rural Poverty and Environmental Degradation
in India, Oxford University press, Delhi.
6) Rao, V. M., 2000, Modernising Indian Agriculture: Priority Tasks and Critical Policies,
DRG Study No.21, Reserve Bank of India, Mumbai.
7) Rao. J. M. and S. Storm, 1988, Distribution and Growth in Indian Agriculture, in Byres,
T.J.(ed). Indian Economy: Major Debates since Independence, Oxford University press,
Delhi.
8) Sen, B., 1974, The Green Revolution in India; A perspective, New York, Wiley.
9) Singhal, V., 1996, Indian Agriculture, Indian Economic Data Research Centre.
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UNIT V
AGRICULTURE AND EXTERNAL SECTOR
Learning objectives
 Understand the trend in international trade of agricultural products
 Explain commodity agreements
 Understand the role-played WTO in promoting International trade in agriculture
 Discuss the issues in Liberalisation of Domestic and International Trade
 Analyse the role of MNCs
 Explain problems and prospects of globalisation of Indian Economy
 Examine the impact of WTO agreements on Indian Agriculture
Structure
5.1 International Trade in Agricultural Commodities
5.2 Commodity Agreements
5.3 Role of World Trade Organisation
5.4 Issues in Liberalisation of Domestic and International Trade in Agriculture
5.5 Nature and Features of Agri-business
5.6 Role of MNCs in Agriculture
5.7 Globalisation of Indian Economy and Problems and Prospects of Indian Agriculture
5.8 Impact of World Trade Organisation on Indian Agriculture
5.9 Summary
5.10 Key Words

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5.1 Introduction
Indian is an agriculture-based country, where more than 50% of population is depend on

agriculture. The commitment of agribusiness in the national income in India is all the more,
subsequently, it is said that agriculture in India is a backbone for Indian Economy. 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.
5.2 International Trade in Agricultural Commodities
Agriculture trade contributes 15 percent of total foreign exchange earnings. Broadly,

agricultural and agri-based products can be divided into three categories, they are raw products,
semi-raw products and processed and ready to yield products.
The major agri-exports of India are cereals, rice, basmati rice and non-basmati rice,
spices, oilcake, tobacco un-manufactured, tea, coffee and marine products. Lack of market
access in the developed market economy countries due to high tariffs and pronounced Non-
tariff barriers has been acting as a deterrent for the exports. As against agricultural exports,
agri-imports constitute only a small proportion of the country’s total imports 5%.
Subsequent to the economic reforms initiated in June 1991, removing the restrictions
and protective licensing regime, free trade in a large number of items has become the order of
the day. With the removal of QRs on agricultural items and urea the Indian farmer community
has been placed to face stiff competition from the developed nations.
Two-thirds of Indian farmers are in the small and marginal farmers cultivating two hectares
of land contrary to the popular perceptions given a level playing field.These farmers are not
able to compete with their western counterparts in agricultural production and exports.
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5.3 Commodity Agreements
Commodities are primary goods used as inputs in manufacturing processes and traded
in world markets. Commodities can be agricultural produce like coffee, cotton, jute and olive.
This is also called soft commodities. Commodities can also be minerals like tin, zinc, copper
and oil that are extracted from the land. This latter category is also known as hard commodities.
International commodity agreements (ICA’s) are essentially multilateral instrumentalities

of governmental control that support the international price of individual primary commodities,
especially through such arrangements as export quotas or assured access to markets.There
have been seven major international commodity agreements. These international commodity
agreements are given as follows:
1. International Rubber Agreement
This agreement was negotiated under the Integrated Programme of Commodities. It

was concluded on 6th October 1979 and came provisionally in force in April 1982. However,
the agreement came into operational in November 1981 when the buffer stock manager started
buying natural rubber in order to stabilize prolonged decline in natural rubber. This agreement
got the support of producers and consumers. Malaysia’s share was 41.5 percent, Indonesia’s
23.5 per cent and Thailand’s 13.8 per cent. There are three countries who together constitute
88 per cent of world exports. The major consumers of natural rubber are: the US -25 per cent,
European Community -23 per cent and Japan – 11 per cent. The main concern of all consumers
is assured supply.
2. International Sugar Agreement
There have been four international sugar agreements in post war period. The first one
was signed in 1953, second in 1958, with a five year gap, a third agreement was signed in
1968. After a four year gap a fourth agreement was signed. Negotiation under the auspices of
UNCTAD through 1983 and 1984 failed to result in any agreement. Sugar agreement operated
entirely through export controls. It did not achieve much success. One of the reasons for the
agreement’s failure was that sugar is produced by developed and developing countries. Further,
holding stocks was yet another problem.
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3. International Tin Agreement
The tin agreement became operational in 1956. These agreements have subsequently
renewed and sixth agreement came into force on a provisional basis. Since the US did not
become a party under the agreement, the International Tin Council has intervened in the tin
market both by negotiated supply restriction and through operation of buffer stock. This
intervention has been considered moderately successful.
4. International Cocoa Agreement
Cocoa trade has a long history of attempting to stabilize through buffer stock operations.
In 1956, the UN Committee on International Commodity Agreement was asked by the UN to
hold a conference. It passed a resolution requesting Food and Agricultural Organization (FAO)
to suggest method of stabilizing prices. The work of FA0 cocoa study group resulted in a draft
of an international commodity agreement on which an international conference was called in
1965. Since then three subsequent conferences have been held- in 1966, 1967 and 1972. In
1972 the agreement was ratified.
5. International Coffee Agreement
The first agreement became operational in 1963. The first agreement effectively formalized
and gave consumer sanction to this arrangement. There was some rise in prices. The second
agreement was terminated in 1972, the consumer export quotas was the most important
instrument to stabilize prices.
6. International Olive Oil Agreement
In 1956 and 1963 there were International Olive Oil Agreements. In 1955, under the
auspices of the U.N., 11 members participated of which 9 were exporting countries and 2 were
importing countries. In 1963 7 were exporting countries and 4 were importing countries. An
International Olive Oil Council was established in 1963. The duration of the agreements of
1959 and 1963 was four years each. The Olive Oil Council was expected to make studies of
the olive oil market, production, prices, etc. These agreements had price stabilization objective
through price control.
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7. International Wheat Agreement
In the early twenties and the thirties wheat was brought under the control of four main
producers. The restrictions included those on acreage and export. The operation of the earlier
wheat agreement demonstrated the need for some form of sanction to enforce compliance by
participants.There were six international wheat agreements: in 1933, 1942, 1949, 1953, 1956
and 1959. The duration of the agreements varied from failure 1942 of the agreement to 2-4
years. The major instruments of control had been export quotas and acreage restriction in the
1933 agreement.
5.4 Role of World Trade Organisation
India is a founder member of World Trade Organization and also treated as the part of
developing countries group for accessing the concessions granted by the organization. As a
result, there are several implications for India for the various agreements that are signed under
WTO are
(i) Reduction of Tariff and Non-Tariff Barriers: The agreement involves an overall reduction

of peak and average tariffs on manufactured products and phasing out the quantitative
restrictions over a period. The important implication is that the firms that have competitive
advantage would be able to survive in the long run.
(ii) Trade Related Investment Measures (TRIMS): The agreement prohibits the host country

to discriminate the investment from abroad with domestic investment i.e. agreement
requires investment to be freely allowed by nations.
(iii) Trade Related Intellectual Property Rights (TRIPS): An intellectual property right seeks

to protect and provide legal recognition to the creator of the intangible illegal use of his
creation. This agreement includes several categories of property such as Patents,
Copyrights, Trademarks, Geographical indications, Designs, Industrial circuits and Trade
secrets. Since the law for these intangibles vastly varied between countries, goods and
services traded between countries which incorporated these intangibles faced severe
risk of infringement.
(iv) Agreement on Agriculture (AOA): The agreement on agriculture broadly deals with
providing market access, reduction of export subsidies and government subsidies on
106
agriculture products by member countries. The reduction of tariffs and subsidy in export
and import items would open up competition and provide a better access to Indian products
abroad.
(v) Agreement on Sanitary and psyto-sanitary measures (SPM): This agreement refers

to restricting exports of a country that do not comply with the international standards of
germs/bacteria etc. Since allowing such products inside the country, there would be spread
of disease and pest in the importing country. The implication of these agreements is that
there is an urgent need to educate the exporters regarding the changing scenario and
standards at the international arena especially in food processing, marine food and other
packed food industries.
(vi) Multi-Fiber Agreement (MFA): This agreement is dismantled with effect from 1 January

2005. The result was removal of quantitative restrictions (QRs) on the textile imports in
several European countries. As a consequence, a huge textile market is opened up for
developing countries like India. In order to take advantage of opening up better
preparedness is required in terms of modernization, standardization, cost efficiency, and
customization to meet challenges of foreign customers.

i. Agriculture trade contributes 15 percent of total foreign exchange earnings in India
ii. There have been no international sugar agreements in post war period
iii. India is a founder member of World Trade Organization
iv. Geographical Indicators is not recognised as Intellectual Property Rights
v. The Indian government followed restrictive trade policies for agricultural products during
the pre-reform period
5.5 Issues in Liberalisation of Domestic and

International Trade in Agriculture
The Indian government followed restrictive trade policies for agricultural products during
the pre-reform period till the early 1990s. Although the comprehensive economic reforms since
107
1991 substantially liberalized external trade in non-agricultural goods, the progress of

liberalization of trade policies for agricultural products was very slow in the early 1990s. Exports/
imports of agricultural products were restricted through several controls including quotas,
licenses, prohibitions and minimum export prices, high tariff rates, etc. The QRs on a number
of agricultural products were administered through the public and private sector trading
enterprises.
The process of liberalization of external trade policies for agricultural products, initiated
as a part of the economic reforms since 1991, was accelerated with the implementation AoA
under WTO since 1995. The process was further accelerated following India’s defeat in the
dispute with the USA in the WTO to retain QRs on imports on the ground of balance of payments
Import polices were remarkably changed with the removal of all QRs on agricultural
imports and introduction of tariffs for all agricultural imports in April 2001. Policies for promotion
of export of agricultural commodities have been adopted through removal of restrictions on
licensing, abolition of minimum export prices, reduction in the number of agricultural products
subjects to state trading, relaxation of export quotas, increased availability of credit for export
of agricultural products, etc.
The primary objective of the new trade policy is to provide stimulus to exports, promoting
export competitiveness by reducing the degree of regulations, and licensing controls on external
trade. The details of the trade policy announced on March 31, 1992 for achieving the stated
objective of the new trade policy are provided in the Export–Import Policy 1992–97, and the
subsequent changes made in the policies are available in the Export–Import Policy 1997–
2002, 2004–09, and 2009–14.
While the Export–Import Policy (1992–97) was oriented towards trade liberalization and
the same for 1997–2002 towards globalization, the Export–Import Policy (2004–09) emphasized
the importance of trade as an instrument of growth. The policies related to agricultural products
emphasized that as India has immense potential for exports of these products, it should exploit
this opportunity. For this purpose, various restrictions and controls on exports of agricultural
productshave been gradually removed, and institutional and infrastructural support and some
indirect incentives have been provided. QRs on imports of
108
agricultural products have been completely eliminated by April 2001, and the tariff rates
on imports have been reduced for many agricultural products.
5.6 Agri Business
Agribusiness is the business of agricultural production. The term was coined in 1957 by
Goldberg and Davis.
It includes agrichemicals, breeding, crop production (farming and contract farming),

distribution, farm machinery, processing and seed supply, as well as marketing and retail sales
“Agri-business is the sum total of all operations involved in the manufacture and distribution
of farm supplies, production activities on the farm, storage, processing and distribution of farm
commodities and items made from them”
Agri-business involves three sectors:
Input sector: It deals with the supply of inputs, required for the farmers for raising crops,
livestock and other allied enterprises. These include seeds, fertilizers, chemicals, machinery
and fuel.
Farm sector: It aims at producing Livestock and other products.
Product sector: It deals with us aspects like storage, processing and marketing the
finished products so as to meetthedynamic needs of consumers.
Therefore, Agribusiness is sum total of all operations or activities involved in the business
of production and marketing of farm supplies and farm products for achieving the targeted
objectives.
Importance of Agri-business
 It deals with agricultural sector and also with the portion of industrial sector, which is the
major source of farm inputs like fertilizers, pesticides, machines, processing and post-
harvest technologies.
 It suggests and directs the government and private sectors for development of sub sectors.
 It contributes a good part of the national economy.

109
Dimensions of Agri-business:
 It deals with different components of both agricultural and industrial sector, their
interdependence and influence of one sector on other.
 It deals with decision making process of farm either private or government in relation to
production and selling aspects.
 It deals with strengths and weaknesses of a project and thereby their viability in competing
enterprises.
 Agri-business is always market oriented.
 Structure of Agri-business is generally vertical and it comprises the following
 Govt. policies and programmes regarding raising of crops or taking enterprises etc.,
 Research and extension programmes of the Govt.
 Farm supplies or inputs
 Agricultural production
 Processing
 Marketing of agricultural products
5.7 Role of MNCs in Agriculture
Multinational corporations (MNCs) are huge industrial organizations having a wide network
of branches and subsidiaries spread over a number of countries. The two main characteristics
of MNCs are their large size and the fact that their worldwide activities are centrally controlled
by the parent companies. Such a company may enter into joint venture with a company in
another country. There may be agreement among companies of different countries in respect
of division of production, market, etc.
Advantages of MNCs :
1. Since independence India has gone global from anything to everything. We have
encouraged multinational giants to extend business in almost every sector of Indian
economy, except agriculture. Those hands that feed the entire nation are left with nothing
at the end. Their sufferings are looked down upon with mere compensations for natural
110
calamities and for lives lost due to distress. These farmers do have the right to extend
their occupation and make it bigger and better if agriculture sector is opened for MNCs.
2. Half of the Indian population, the entire rural map of the country, is into farming. They do
have the capability to serve within India as well as outside India. If MNCs are allowed to
invest in Indian agriculture, their advanced technologies, better funds for irrigation, and
modern knowledge of farming can change the lives of Indian farmers. And then farming
will not be something forced upon them for livelihood through generations but a productive
means of better living.
3. It is clear that all the policies being made to ease woes of farmers are failing miserably.
Subsidies, compensations and tax ease are not making any difference in solving the
issues surrounding farming in India. In such a situation when the government and NGOs
have failed to bring farmers any relief, it is definitely worth it to give a chance to MNCs to
raise farming standards in India.
4. Giant manufacturers, given a chance, can utilize the efforts of farmers and shape it in the
best possible way, improving their lives as well as increasing production and economy.
Collaborations between agriculture sector and multinational companies can be beneficial
for the country as well as farmers.
Disadvantages of MNCs :
1. Opening agriculture sector for MNCs would eventually increase the price of food
commodities, to which the upper and middle class might somehow sustain but the low
class will be at a bigger disadvantage that we can comprehend.
2. There is no being sure that multinational ventures would not further add to the woes of
farmers by deploying for the benefits of other nations. This would enslave the farmers at
the hands and mercy of giant companies who will still consider them as cheap labours,
their energy to be harvested for their benefits.
3. MNCs are not sure about investing in Indian agriculture sector because of the uncertainty
in climate and harvest. Not being able to meet the target is their reasonable concern.
Manufacturers cannot face the risks of compromised production of raw materials. Even if
India opens its agriculture sector for MNCs, there are less chances that they would be
willing to be a part of complicated tax schemes and policies that our government has
111
induced. We are unable to pass a simple land bill for the farmers without creating major
controversy, forget opening up to multinational ventures.
5.7 Globalisation of Indian Economy and Problems and

Prospects of Indian Agriculture
Globalization aims at integrating national economy with that of the world. Increased free
and open international trade, foreign investment, technology exchange etc. are all integral to
the globalised world. Globalisation had a significant impact on Indian agriculture – in many
good and some bad ways.
Positive Impact of globalisation:
Economic impact : Globalisation enabled greater access to technological advancements

in agriculture, including high yield varieties, genetically modified crops (GM crops) and micro-
irrigation techniques. Foreign investment in agriculture in contract farming, cold storage and food
processing have helped farmers. Access to foreign markets has greatly boosted
Indian agricultural exports.
Social impact : Globalisation helped improve food productivity and production and
helped transform rural agrarian societies. It has empowered the farmers to understand, reach
out and compete in global markets. The new technologies, especially in irrigation, helped in
addressing rural water stress and keeping agriculture viable. It has also helped change the
agrarian society’s attitudes towards new technologies in farming.
Following are some positive consequences of globalization on Indian agriculture.
A) Positive Consequences-
1) Availability of modern Agro- technologies:
There is availability of modern agro technologies in pesticides, herbicides, and fertilizers

as well as new breeds of high yield crops were employed to increase food production. These
technologies included modern implementations in irrigation projects, pesticides, synthetic
nitrogen fertilizer and improved crop varieties developed through the conventional, science-
based methods available at the time. Use of High Yielding Varieties (HYVs) like IR8 a semi-
112
dwarf rice variety. HYVs significantly outperformed traditional varieties in the presence of
adequate irrigation, pesticides, and fertilizers.
2) Rise in production and productivity:
Due to adoption of HYV technology the production of food grains increased considerably
in the country. The production of wheat has increased from 8.8 million tones in 1965-66 to
184 million tones in 1991-92. The productivity of other food grains has increased considerably.
It was 71% in case of cereals, 104%for wheat and 52% for paddy over the period 1965-66 and
1989-90.
3) Growth of National Income :
Receiving the international market for the agricultural goods of India, there is an increase
in farmer’s agricultural product. New technology, new seeds, new agriculture practices etc.
helped to grow the agricultural product. From the monetary point of view the share of agriculture
sector in the economy is raised to 14.2% of the GDP (2010-11).
4) New areas employment :
While exporting agricultural products it is necessary to classify the products,

its standardization and processing, packing etc. Therefore, after LPG the agro allied industries
has created employment in various sector like packing, exporting, standardizing, processing,
transportation and cold storage etc. The industries depending on agriculture are stored and it
made an increase in employments.
5) Agriculture as a prime moving force :
The growth of agricultural sector in India has correspondent relation with industrial growth
and national income in India. It is assumed that 1% increase in the agricultural growth leads to
0.5% increase in the industrial output and 0.7% increase in the national income in India.
Especially after LPG the agricultural sector in India is developing rapidly. As a result, the
government of India announced agriculture as the prime moving force of the Indian economy
in 2002. As per World Trade Organization data, global exports and imports of agricultural and
food products in 2011 stood at $1.66 trillion and $1.82 trillion respectively. India’s share in this
is 2.07 per cent and 1.24 per cent respectively.
113
6) Rise in the share in trade :
Because of the conditions of WTO all of the countries get the same opportunities, so
there is an increase in the export of agricultural products. According to data provided by World
Bank, India’s share in exports (goods and services) rose from 0.54%in 1990 to 0.67% within
five years after globalization took place i.e. upto 1999. Indian exports rose by 103% during the
same period.
7) Growth of Agro exports :
The prices of agricultural goods are higher in the international market than Indian markets.
If the developed countries reduced grants, they have to increase in the prices. So there will be
increase in the export in Indian market and if the prices grow, there will be profit. Agricultural
products account for 10.23% of the total export income of the economy, while agricultural
imports account for just 2.74% of the total imports. Agricultural exports was 33.54 billion $ in
the year 201-13.
8) Reduction in poverty :
It is also true that globalization is commonly characterized as increasing the gap between
the rich and the poor, but it is a matter of looking at poverty in relative terms. India’s prior
concern is to remove poverty, which is worse than death, and if India makes efforts, globalization
can be a key to get rid of it. Moreover, the percentage of people below the poverty line has
been decreasing progressively, from 36 percent in 1993-94 to 21.9 percent in 2011-12.
These are some positive consequences of globalization on Indian agriculture. But as far
as a developing country like India is concerned the negative consequences are proved as
more effective. These are as follows.
B) Negative Consequences-
1. Vicious debt trap and farmers suicides-
The National Sample Survey Organization (NSSO) Report 2005 indicates that 1 in 2
farm households are in debt and only 10 per cent of the debt was incurred for non production
purposes. Also, 32.7 per cent of farmers still depend on money lenders. The National Crime
114
Records Bureau reports that between 1997-2005 1,56,562 farmers committed suicide. Nearly
60% of them took place in the 4 progressive states, viz., Maharashtra, Andhra Pradesh,
Karnataka and Madhya Pradesh.
2. Migration of labours
For the Indian farmer, who is already paralyzed by low productivity and lack of postharvest
storage facilities has resulted in heavy loss of produce and revenue. It is only because of low
tariff in imports due to liberalized import duties which came as a bombshell. The domestic
farmer could not stand the competitiveness of international market, which has resulted in
migration of labor from agriculture to other industrial activities.
3. Lower income of rural farmers
According to Nobel Prize-winning economist Joseph Stiglitz, Trade agreements now forbid
most subsidies excepted for agricultural goods. This depresses incomes of those farmers in
the developing countries who do not get subsidies. And since 70 per cent of those in the
developing countries depend directly or indirectly on agriculture, this means that the incomes
of the developing countries are depressed.
4) Lessening international competitiveness –
In India 60 percent of population depend on agriculture. This pressure on agriculture is

increasing day by day because of the increasing population. Because of marginal land holding
the production cost of Indian farmers is higher as well as the quality and standardization of
agro produce is much neglected. Along with this, the curtailment in subsidies and grants has
weakened the agricultural sector. On the contrary before the reduction in grants by WTO,
developed countries had distributed grants on large scale. They had grown the amount of the
grants on large scales in agriculture during 1988-1994. So they have not to face many difficulties
if there is a reduction in grants. On this background the farmers are not in a position to compete
international market.
5) Abnormal hike in Fertilizers and Pesticide prices-
Immediately after globalization Indian rupee was devaluate by 25% and Indian crops
became very cheap and attractive in the global market, which led Indian farmer for export and
115
encouraged them to shift from growing a mixture of traditional crops to export oriented ‘cash
crops’ like chilli, cotton and tobacco. These need far more inputs of pesticides, fertilizers and
water than the traditional crops require. It automatically increased Fertilizer and pesticide prices
by 300 percent
6) Electricity tariffs have also been increased-
Pre liberalization, subsidized electricity policy helped farmers to keep the costs of
production low. The electricity costs increased dramatically when farmers turned to the cultivation
of cash crops, which needed more water, hence, more water pumps were needed and there
was higher consumption of electricity. Andhra Pradesh being traditionally drought prone, the
situation further worsened.
7) Price crash-
As per reforms of WTO, Indian government removed import tariffs and duties. Earlier
these were working as cushion to protect and encourage domestic producers. By 2001, India
completely removed restrictions on imports of almost 1,500 items including food.
8) Fall in agricultural employment-
In 1951, agriculture provided employment to 72 per cent of the population and contributed
59 per cent of the gross domestic product. However, by 2001 the population depending upon
agriculture came to 58 per cent whereas the share of agriculture in the GDP went down drastically
to 24 per cent and further to 22 per cent in 2006-07. This has resulted in a lowering the per
capita income of the farmers and increasing the rural indebtedness.
5.8 Impact of World Trade Organisation on Indian Agriculture

The Agreement on Agriculture (AoA) of the WTO marked a significant turning point in
world trade in agriculture. The AoA, which emerged from the Uruguay Round of Multilateral
Trade Negotiations (1986–1993), came into force from January 1, 1995. The Agreement sought
to bring free and fair competition to this sector through a fair and market-oriented agricultural
trading system. As the root cause of distortion of international trade ingriculture was found to be
the huge subsidies given by the developed countries to their agricultural sector, the starting
point for achieving a fair agricultural trade regime was thought to be the reduction in domestic
116
production subsidies and in the volume of subsidised exports, and minimum market access
opportunities to agricultural producers throughout the world.
The Agreement, therefore, contains provisions in three broad areas of agriculture and
trade policy:
(1) market access,
(2) domestic support, and
(3) export subsidies.
All the WTO members except the least developed countries were required to make
commitments in these areas. Developing countries were given Special and Differential
Treatment(S&DT) to a certain extent (Ministry of Commerce 1999).These provisions have far-
reaching consequences for Indian agriculture.
Market Access
As India was maintaining Quantitative Restrictions due to balance of payments

reasons(which is a GATT consistent measure), it did not have to undertake any commitments
in regard to market access. The only commitment India has undertaken is to bind its primary
agricultural products at 100%; processed foods at 150% and edible oils at 300%. Of course,
for some agricultural products like skimmed milk powder, maize, rice, spelt wheat, millets etc.
which had been bound at zero or at low bound rates, negotiations under Article XXVIII of GATT
were successfully completed in December, 1999, and the bound rates have been raised
substantially.
Domestic Support
India does not provide any product specific support other than market price support.
During the reference period (1986-88 ), India had market price support programmes for 22
products, out of which 19 are included in our list of commitments filed under GATT. The products
are - rice, wheat, bajra, jawar, maize, barley, gram, groundnut, rapeseed, toria, cotton, Soyabean
(yellow), Soyabean (black), urad, moong, tur, tobacco, jute, and sugarcane. The total product
specific Aggregate Measurement of Support (AMS) was (-) Rs.24,442 crores during the base
period. The negative figure arises from the fact that during the base period, except for tobacco
117
and sugarcane, international prices of all products was higher than domestic prices, and the
product specific AMS is to be calculated by subtracting the domestic price from the international
price and then multiplying the resultant figure by the quantity of production.
Non-product specific subsidy is calculated by taking into account subsidies given for
fertilizers, water, seeds, credit and electricity. During the reference period, the total non-product
specific AMS was Rs.4581 crores. Taking both product specific and non-product specific AMS
into account, the total AMS was (-) Rs.19,869 crores i.e. about (-) 18% of the value of total
agricultural output.
Since our total AMS is negative and that too by a huge magnitude, the question of our
undertaking reduction commitments did not arise. As such, we have not undertaken any
commitment in our schedule filed under GATT. The calculations for the marketing year 1995-
96 show the product specific AMS figure as (-) 38.47% and non-product specific AMS as 7.52%
of the total value of production. We can further deduct from these calculations the domestic
support extended to low income and resource poor farmers provided under Article 6 of the
Agreement on Agriculture. This still keeps our aggregate AMS below the minimum level of
10%.
Export Subsidies
In India, exporters of agricultural commodities do not get any direct subsidy. The only
subsidies available to them are in the form of (a) exemption of export profit from income tax
under section 80-HHC of the Income Tax Act and this is also not one of the listed subsidies as
the entire income from Agriculture is exempt from Income Tax per se. (b) subsidies on cost of
freight on export shipments of certain products like fruits, vegetables and floricultural products.
We have in fact indicated in our schedule of commitments that India reserves the right to take
recourse to subsidies (such as, cash compensatory support) during the implementation
period.
118
Table 5.1
Impact of WTO
Growth rate of output (%) Growth rate of yield (%)
Crop Pre- Post- Entire Pre- Post- Entire

WTO WTO period WTO WTO period
Rice 3.44 1.49 2.02 2.92 1.54 1.73
Wheat 3.65 1.97 2.57 2.97 1.04 1.71
Coarse cereals 0.48 2.03 1.02 2.41 3.05 2.56
Total cereals 2.88 1.77 2.01 3.21 1.82 2.17
Pulses 1.27 1.93 1.07 1.40 0.42 0.59
Total food grains 2.82 1.87 1.95 2.67 2.26 2.05
Groundnut 2.90 “0.31 0.22 1.51 1.56 1.31
Table (5.1) reports the estimated annual growth rates of output and yield of individual
crops and crop groups during 1980/81–2013/14, dividing the period into the pre-WTO (1980/
81–1994/95) and the post-WTO (1995/96– 2013/14) periods. The growth rate of production
and yield is found to have decelerated during the post-WTO period for all the crops and crop
groups except coarse cereals and cotton, as the growth rates declined significantly during the
post-WTO period from their rates in the pre-WTO period. Coarse cereals and cotton are the
only crops whose output and yield experienced significant acceleration in growth during the
post-WTO period relative to the pre-WTO period. The production of groundnut experienced a
negative growth rate during the post-WTO period in spite of the fact that its yield growth rate
has accelerated during this period. The growth rate of GDP from agriculture & allied activities at
constant (2004–05) prices has also decelerated since the mid-1990s, as the growth rate declined
from 4.05% during the pre-WTO period to 3.16%during the post-WTO period.
119
5.9 Summary
The green revolution had led to several technological improvements and innovations in
the Indian agriculture, leading to a substantial increase in agricultural production, especially of
foodgrains. This had a favourable impact on India’s exports. From a net importer of foodgrains,
India emerged as a net exporter of agricultural commodities.
During 1990-91 to 2013-14, the compound annual growth rate has been found more of
agricultural import (21.44 %) than export (17.96%). This has been due to liberalization of
economic policies and opening up of agricultural trade in the post-WTO period. This also
reflects the increased global competition in India’s agricultural trade. The increasing growth in
imports adversely affected the agricultural trade, slowing down the growth in agricultural trade
balance to 16.57 per cent. The CAGR of agricultural export and import in the post-liberalization
period is depicted in Table 1 in five sub-periods. The perusal of Table 1 reveals that agricultural
export growth rate drastically came down from 21.78 per cent during 1991-95 to 5.55 per cent
in 1996-00. However, it picked up subsequently, though slowly, and reached 16.07 per cent
during 2006-10, and jumped to 31.71 per cent during 2011-14. It showsthat liberalization and
globalization adversely affected agricultural export during 1990-2000, but thereafter the Indian
agricultural sector became competitive. In the case of import, there was a sharp decline from
49 per cent during 1991-1995 to 17.21 per cent during 2001-05, However, growth in agriculture
import picked-up from 2006 onwards

i. QRs on imports of agricultural products are completely eliminated in 1991
ii· The term Agri business was coined by Goldberg and Davis.
iii· Multi-National Companies Concentrates its business activities in one country
iv· Opening the economy for free trade is a step for globalisation
v· As per reforms of WTO, Indian government removed import tariffs and duties
120
5.10 Key Words

 Agri Commodities : Commodities Are Primary Goods Used As Inputs In Manufacturing
Processes And Traded In World Markets.
 Non-tariff barriers to trade : Non-tariff barriers to trade (NTBs) or sometimes called “Non-
Tariff Measures (NTMs)” are trade barriers that restrict imports or exports of goods or
services through mechanisms other than the simple imposition of tariffs
 The Agreement on Trade-Related Investment Measures : The Agreement on Trade-

Related Investment Measures (TRIMs) are rules that apply to the domestic regulations a
country applies to foreign investors, often as part of an industrial policy.
 The Agreement on Agriculture : The Agreement on Agriculture (AoA) is an

international treaty of the World Trade Organization. I
 Agribusiness : Agribusiness isthe business of agricultural production
 Multinational corporations : Multinational corporations (MNCs) are huge industrial

organizations having a wide network of branches and subsidiaries spread over a number
of countries
 Globalization : Globalization means integrating national economy with that of the world

1. Explain the trend in international trade in agricultural commodities
a. Commodity agreements
b. Agribusiness
c. Market Access
d. Domestic support
3. Discuss about various types of commodity agreement
4. Analyse the role of WTO in promoting trade in agriculture
5. Examine the issues in liberalisation of International Trade in Agriculture

121
6. Explain the advantages and disadvantages of MNCs in agriculture
7. Explain the positive and negative consequences of Globalisation on India’s agriculture
8. Discuss the impact of WTO on Indian agriculture

B: (i) False (ii) True (iii) False (iv) True (v) True

1) Agarwal, A.N. Indian Economy. New Delhi: Wishwa Prakasam, New Age International (P)
Ltd., Publishers (1999). Ag
2) Balakrishnan P, Golait R, Kumar P (2008)Agricultural growth in India since

1991.Development Research Group, Study No. 27, Department of Economic Analysis
&Policy. Reserve Bank of India: Mumbai
3) Bhalla GS (2007) Indian agriculture since Independence. National Book Trust:New Delhi
4) Bhalla GS, Singh G (2012) Economic liberalization and Indian agriculture. Sage: New
Delhi
5) Desai, R.G. Agricultural Economics. Sadhu and Singh, Agricultural Problems in India.
Chunawalla, S.A. Marketing Principles and Practice.
6) Memoria, C.B. and Joshi. Principles and Practice of Marketing in India. New Delhi:
Allahabat, Kitab Mahal Publication (1975).
122
MODEL QUESTION PAPER
MASTER OF ARTS IN ECONOMICS
FIRST YEAR
FIRST SEMESTER
Elective Paper - I
Time: Three hours Maximum: 80 marks
Part A – (10x2 = 20 marks)

Answer any ten questions, each in 50 words.
1. Define Agricultural Economics.
2. What is meant by Farm Budgeting?
3. State various modes of rural transport.
4. State the features of rural credit.
5. What is meant by agro-based industries?
6. What is meant by poultry farming?
7. State the importance of livestock resources.
8. What is meant by shifting of cropping pattern?
9. State different kinds of agricultural subsidies.
10. List out the importance of capital formation.
11. State different types of commodity agreements.
12. What is meant by Agreement on Agriculture?

123
Part B – (5 x 6 = 30marks)
Answer any five questions, each in 250 words
13. Explain the nature and scope of Agricultural Economics.
14. Explain the types of Farm Budgeting.
15. Explain the types of rural credits.
16. Explain the nature of rural unemployment.
17. Examine the factors affecting the productivity of Live Stock.
18. State the significance of capital formation.
19. Discuss the advantages of MNCs in agriculture.
Part C – (3 x 10 = 30 marks)
Answer any three questions, each in 500 words
20. Explain the causes for the shift in the supply the curve of agricultural products.
21. Discuss various sources of rural credits.
22. Bring out the importance of Live Stock sector.
23. Examine the significance of technology to the advancement of agriculture.
24. Discuss the consequences of Globalisation on Indian agriculture.

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Dr. K. Jothi Sivagnanam

© UNIVERSITY OF MADRAS, CHENNAI 600 005.

Diversification of Rural Economic Activities: Livestock economics - Livestock resources

Agricultural Growth in India: Recent trends in agricultural growth in India - Inter-regional

Agriculture and External Sector: International trade in agricultural commodities -

1. Sadu and Singh – Fundamentals of Agricultural Economics.

2. C.B. Mamoria - Agricultural Economics.

Sl.No. Title Page

1. Agricultural Production and Productivity 001

2. Economics of Rural Infrastructure 024

3. Diversification of Rural Economic Activities 054

4. Agricultural Growth in India 079

5. Agriculture and External Sector 101

AGRICULTURAL PRODUCTION AND

 Understand the meaning and scope of Agricultural Economics

 Explain resource and efficiency in traditional Agriculture

 Understand Production Function Analysis in Agriculture

 Apply Cost and Supply Curves:

 Explain Farm Budgeting and its types

 To understand Advantages of Farm Budgeting

 Explain Cost-type and Concepts

 To understand Supply Response of Individual Crops and Aggregate Supply

1.2 Definition and Scope of Agricultural Economics

1.3 Resource and Efficiency in Traditional Agriculture

1.4 Production Function Analysis in Agriculture

1.4.1 Diminishing Returns in Agriculture

1.4.2 Increasing Returns in Agriculture

1.4.3 Constant Returns in Agriculture

1.5 Factor Combination and Resource Substitution

1.6 Cost and Supply Curves

1.9 Farm Budgeting

1.9.1 Types of farm budgeting

1.9.2 Advantages of Farm Budgeting

1.10 Cost-type and Concepts

1.11 Supply Response of Individual Crops and Aggregate Supply

1.13 Key Words

1.14 Review Questions

1.15 Answers to Check Your Progress

1.16 Suggested Readings

1.2 Definition and Scope of Agricultural Economics

According to Snodgrass and Wallace

“Agricultural economics is an applied phase of the social science of economics

Nature of Agricultural Economics

Micro as well as Macro

Static as well as Dynamic

Applied science or Pure science

Agricultural economics is classified as an applied science as it is concerned with the

Scope of Agricultural Economics

The scope of agricultural production economics as quoted by Taylor “Agricultural

Principles applied in Agricultural Production Economics

1. Law of equi-marginal return

2. Law of diminishing return

3. Law of opportunity cost

5. Law of comparative advantage

6. Principle of combining enterprises

7. Cost concepts and principles

1.3 Resource and Efficiency in Traditional Agriculture:

1.4 Production Function Analysis in Agriculture

1.4.1 Diminishing Returns in Agriculture