The Shri Ram School Aravali

Subject: Economics
Topic (Handout): Profile of Indian Agriculture/ Rural Development
Class: XI

Scope: Rural Credit (need, purpose, and sources); Agricultural marketing: defects and government
measures to improve agricultural marketing; role of cooperatives, agricultural diversification; alternate
farming /organic farming: meaning and importance.
Chapter Outline
1. Agricultural Policy of Rural Development
2. Agricultural Marketing
3. Cooperative Marketing
4. Rural Credit
a. Types of Agricultural Credit
b. Sources of Credit
5. Agricultural Diversification
6. Organic Farming and benefits

AGRICULTURAL POLICIES OR POLICIES OF RURAL DEVELOPMENT

Agricultural policy aimed at raising production and productivity in the agricultural sector, protecting
interest of small and marginal farmers, modernizing agriculture, providing food security to the consumers
and strengthening rural infrastructure.
a. Technological measures: The government has initiated various technological measures to increase
agricultural production and productivity. It includes increased supply of various agricultural inputs
such as extension of irrigation facilities, increased availability of high yielding varieties of seeds,
chemical fertilizers, pesticides etc.
b. Infrastructural Measures: Another measure initiated by the government is the expansion of
Infrastructural facilities. These include credit, storage, transportation, credit, marketing and
agriculture research etc.
✓ Institutional credit facilities have been expanded through cooperatives, commercial banks,
Regional Rural banks, NABARD (National bank of agricultural and rural development)
✓ Storage and Warehousing facilities have been expanded to build up adequate buffer stock and to
provide adequate facilities to farmers.
✓ Various agricultural research institutes have been set up to develop new techniques and to discover
new high yielding varieties of seeds
c. Land reforms: Institutional changes in the agrarian system are known as land reforms. The main land
reforms undertaken are:
✓ Abolition of intermediaries
✓ Tenancy reforms for fixation of rent paid by tenants
✓ Imposition of ceilings on landholdings

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 ✓ Consolidation of landholdings
d. Minimum Support Price and Procurement Price: A government has been fixing the minimum
support price and procurement prices for a number of agricultural commodities like wheat, paddy etc.
MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall
in price during bumper production years. The minimum support prices are a guarantee price for their
produce from the Government.
The major objectives are to support the farmers from distress sales and to procure food grains for
public distribution. In case the market price for the commodity falls below the announced minimum
price due to bumper production and glut in the market, government agencies purchase the entire
quantity offered by the farmers at the announced minimum price.
Sometimes, the government procures at a higher price than the MSP. Here, the price will be referred
as procurement price. Procurement prices are the prices at which the government purchases the
needed quantity of food grains for maintaining the public distribution system and for building up
buffer stocks.
e. Input Subsidies: The government is providing various inputs such as irrigation, fertilisers and power
to the farmers at subsidized rates. The objective of subsidising input is to motivate the farmers to
switch over to modern inputs in agriculture and to increase agriculture production and productivity.

f. Food Security System: The government has built up an elaborate security system in the form of
Public distribution System. Distribution of food grains and other essential goods at low and subsidized
prices through government regulated fair-price shops among poor sections of the society is called the
public distribution system.
It functions through a wide network of fair price shops (FPS). It makes available such essential
commodities as rice, wheat, edible oils, sugar and kerosene against ration cards at lower/subsidised
prices.

g. Rural Employment Programmes: The government has introduced a number of specially designed
poverty alleviation Programmes in the form of rural employment Programmes. These employment
generation schemes can be wage employment or self-employment which increases employment,
increases earning capacities, raise wages and reduce poverty. Some of the poverty alleviation
programmes are:
• Swarna Jayanti Shahari Rozgar Yojna (SJSRY)
• Prime minister’s Rozgar Yojna (PMRY)
• Mahatma Gandhi national Rural employment guarantee Act, (MGNREGA)
• Sampoorna Grameen Rozgar Yojana (SGRY)
• Krishik Shramik Suraksha Yojna (KSSY)
• Food for work programmes
• Training of Rural Youth for self- Employment (TRYSEM)

AGRICULTURAL MARKETING

Marketing of Agriculture involves several activities such as collection and storage of agricultural
goods, their transportation to the marketplace, their grading and standardisation and selling the
produce at lucrative price (profitable price).

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 Agricultural Marketing in India suffers from various shortcomings (defects):
✓ Lack of storage facilities
✓ Low bargaining power
✓ Lack of transport facilities
✓ Malpractices of middlemen
✓ Lack of market information
✓ Lack of credit
Measures taken by the Government to improve Agricultural Marketing System:
a. Establishment of regulated markets: Regulated markets are being established wherein sale and
purchase of agricultural produce is monitored by the marketing committees and transactions are
governed by various rules and regulations. The objective of regulated markets is to make the market
system transparent to eliminate unfair and unhealthy market practices, to reduce market changes., to
enforce the use of standardised weights and to ensure reasonable price to farmers and consumers.
b. Storage and Warehousing facilities: In order to prevent distress sale by the farmers immediately
after the harvesting of crops it is necessary to provide storage and warehousing facilities. The
government has made elaborate arrangements to establish public sector warehouses through two
agencies, namely Central and State Warehousing Corporation of India and Food Corporations of India.
In rural areas rural godowns are constructed.
c. Uniform Standard weights: In order to regulate the system of weights, the government passed the
Standard Weights and Measures Act in 1958, making the use of government - approved weights
compulsory.
d. Grading and Standardisation: The Grading of agricultural products such as rice, wheat, pulses,
coffee, tobacco, oilseeds etc. is done under the provisions of the Agricultural Produce (Grading and
Marketing) Act. The graded goods are stamped with the seal AGMARK. This seal is the hallmark of
quality.
e. Marketing Information: Correct and timely information regarding marketing conditions, price, etc.
can help farmers in planning their production and sales and also ensuring that they get fair prices for
their products. The government collects weekly data on market arrivals, sales prices, etc., on regular
basis. It provides this information to the farmers through public media such as radio, television,
newspapers, etc. The government has also started a scheme of market research and information
network with a view to establish a nationwide information network for speedy collection and
dissemination of price and market situation to farmers.
f. National Agriculture Market (NAM): The present NDA government has started a scheme for setting
up of a NAM. It aims at setting up of a common e-market platform to be deployed in selected regulated
wholesale market in various states. This is helping in bring together different agricultural markets.
g. State Trading in Foodgrains: State trading in foodgrains has been introduced centralise the
movement of foodgrains and also to assist the farmers in securing reasonable prices. State trading is
carried out by the food departments of the central and state governments and also by Food Corporation
of India.

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COOPERATIVE MARKETING

The most important step taken by the government to improve agricultural marketing system is
development of cooperative marketing. These societies collect the surplus produce of the members and
non-members cultivators who are willing to sell their produce, process and grade them, store them,
transport and sell them as and when it is advantageous to sell.

a. Advantages
• It increases the bargaining power of the farmers. These societies bargain collectively with the traders
and are able to get higher prices of the produce of the farmers because of their stronger bargaining
power. This will ensure fair price to the farmers
• The cooperative societies advance loans to farmers to prevent desperate sales of agricultural produce
by farmers.
• These societies have their own storage and warehousing facilities. This prevents damage to
agricultural produce through rats, ants, rain etc.
• They can arrange to have quick and cheap transport facilities. This will reduce transport costs.
• Make arrangement for grading and standardization
• These societies can eliminate middlemen and thereby remove their large profit margin.
• Arrange for a bulk purchase of agricultural inputs at lower price.
• Arrange to get market information about prices, demand and supply and other important information
on regular basis.

b. Progress of Cooperative Marketing

Cooperative marketing generally comprises of three-tier structure-
i. Primary societies at village level
ii. Central marketing societies at district level- deal with primary marketing societies. They purchase
and sell agricultural produce and supply agricultural inputs to farmers through primary marketing
societies
iii. State level marketing societies at the apex- buy and sell produce of district marketing societies and
sell agricultural inputs to them
However, there are certain disquieting features of cooperative marketing in India.
1. The coverage is limited
2. Uneven among states
3. Financial performance is not satisfactory

RURAL CREDIT

a. Types of credit (Need and Purpose)

i. Productive and Unproductive
Productive Credit Unproductive credit
Finance needed by farmers to carry Finance required to meet various types of
productive activity is known as productive consumption expenditures for social and
credit. They help in carrying out production religious purposes and credit taken to meet
and increasing agricultural productivity. the consumption expenditure during the year

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 Productive Credit Unproductive credit
of low incomes of the farmers arising from
failure of crops.
It includes finances taken to purchase seeds, It includes marriages, funerals, litigations,
fertilizers, pesticides, equipments, etc.
expenditure on permanent improvement of
land, digging of wells, fencing the land etc.
They can be repaid from increased income. They can’t be easily paid back.

ii. Short term, medium term and Long-Term credit

Short term Medium term Long term
Funds needed to carry out Funds needed to acquire Funds are needed to make
normal agricultural fixed farm assets i.e., to long term improvement on
operations and unproductive introduce various types of land.
expenditures. improvements on land.
These funds are needed for a These funds cover a period of These funds cover a period of
period up to 15 months. 15 months to 5 years. 5 years to 20 years.
It can be repaid out of the It can be repaid out of the These are repaid over a
current income of the current income of the longer period of time.
farmers. farmers.
Purchase of inputs such as Purchase of animals, repair Purchase of additional land
fertilisers, seeds and to pay of wells and implements. and expensive machines,
wages, rents etc. construction of new wells
and tube wells.

b. Sources of Credit

Institutional
Non-Institutional
(Multi Agency
Approach)

Moneylenders Cooperative
societies

Landlords,
Traders,
Commercial
Banks and
NABARD
commission Regional Rural
Agents banks

State Government
Relatives and land
development
Banks

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 i. Non-Institutional Sources
1. Moneylenders: they comprise professional money lenders and trade cum moneylenders.
2. Landlords and others: Landlords, traders and commission agents also give loans for
productive purposes against their crops. They even force the farmers to sell their produce at
low rates. Farmers generally borrow from their own relatives.
Importance of Non-institutional sources of credit
1. Moneylenders and landlords are prepared to advance loan for productive and unproductive purposes
2. Moneylenders and traders are easily accessible. They live in village and do not have fixed hours of
working
3. There are no procedural formalities, and they are flexible. They are ready to adjust to suit the needs
of the borrower.
4. They do not insist on any collateral (securities).
They exploit poor farmers in the following ways
1. They charge exorbitant interest rates (24%- 50%)
2. They take advantage of the illiteracy of the farmers and manipulate accounts without the knowledge
of the borrowers and give no receipts of repayment.
3. Force to sell agricultural produce at low rates.

ii. Institutional sources

Institutional credit refers to the funds available to the farmers by various institutions namely Cooperative
credit societies, Commercial Banks and Regional Rural banks, State Government and land development
Banks. NABARD etc.
a. Cooperative Credit Societies: these have been started with a view to provide credit for agricultural
operations at low rate of interest. The objective is to provide timely funds at cheaper rates and to
protect farmers from the clutches of moneylenders. The government and NABARD help them in
increasing their financial strength. The two cooperative institutions are:
(i) Cooperative Banks: provide short term and medium loans. These banks have three-tier
structure with the State Cooperative Banks in each state at the apex, District Central
Cooperative Banks at the district level and Primary Agricultural Credit Societies at the village
level.
(ii) Land Development Banks: These are the specialised institutions providing provide long term
loans at moderate rates of 11-12%. LDBs, also known as Land Mortgage Banks, provide long
term credit for various purposes such as redemption of old debts, improvement of land,
purchase of costly agricultural equipments such as tractors, construction of well and so on. Of
late loans are given for activities subsidiary to agriculture such as dairy, farming, fisheries,
sericulture etc.
Shortcomings of the cooperative credit institutions
a) Regional imbalances: there is also the serious problem of uneven growth of cooperative societies. In
different regions. 70 percent of the loans advanced by the societies has been accounted by the eight
sates namely, Maharashtra Gujrat, Tamil Nadu, Andhra Pradesh, Karnataka, Punjab, Haryana and
Kerala and the other states have got only small amount of loans

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b) Inadequate coverage and resources: They have covered only 65 percent of rural population and the
financial resources are also inadequate in relation to the credit requirement of the rural sector. The
bulk of their funds come from external sources such as NABARD and government rather than their
own funds.
c) Overdues: They have been facing the problem of large overdues i.e., recovery of loans and advances.
Unsound lending policies, lack of adequate supervision and lack of effective measures for the recovery
are some of the factors responsible for mounting overdues.
d) Inadequate credit: It provides credit to only a small fraction of rural population. These societies do
not meet credit needs even for productive agriculture activities.
e) Cornering by large farmers: A large part of the fund is cornered by large and rich farmers while the
small and medium farmers are deprived of such funds.
f) Lack of timely credit: A large number of cooperatives have not been able to give timely credit to the
rural poor. They delay in granting credits.

b. Commercial Banks: Commercial banks generally operate as profit business, hence were earlier
confined mainly to urbans areas. However, they have entered the field of rural credit recently,
particularly after the nationalisation of commercial banks in 1969. Commercial banks provide
financial assistance to agriculture, both directly and indirectly. The direct credit by commercial banks
takes the form of short-term and medium-term loans for agricultural operations, i.e. for purchasing
seeds, fertilisers, machinery, tractors, ploughs, construction of wells etc, Commercial banks also
provide loans for allied activities like dairy and poultry farming, bee-keeping, fisheries, etc. The
commercial banks assist agricultural sector indirectly by providing loans to primary credit societies,
and to agencies that distribute seeds, fertilisers and other inputs. To agricultural sector and by giving
loans to electricity boards, FCI etc.

c. Regional Rural Banks: RRB are scheduled commercial banks. However, they differ from
commercial banks because they grant direct loans to the weaker sections of the rural areas for
productive purposes at concessional lending rates. The main objective of RRBs is to provide credit to
the weaker sections of rural areas, particularly the small and marginal farmers, agricultural labourers,
artisans, and small entrepreneurs with the purpose of developing agriculture, trade, commerce,
industries and other productive activities in rural areas. That is why they are regarded as ‘small man’s
bank’. They provide credit to the agriculturalists at lower cost than any other agency in rural areas.
Short note on NABARD:
The most important development in the field of rural credit has been the setting up of the National Bank
for Agriculture and Rural Development NABARD. It took over from RBI all the functions that the latter
performed in the field of rural credit. It is an apex bank for rural credit. NABARD coordinates the rural
financing activities of all institutions engaged in developmental work at the field level. NABARDS’s
refinance is available to State Cooperative Banks, RRBS, commercial banks and other financial
institutions approved by the RBI. NABARD provides loan facilities to State Cooperative Banks for
financing seasonal agricultural operations, marketing of crops, pisciculture activities, production and
marketing activities of cooperative weavers’ societies etc. The three main functions of NABARD are
refinancing, institutional development and inspection of client banks.
Advantages of Institutional Sources
1. Non- exploitative in nature. The basic aim is to raise their productivity so as to maximise their income
2. Rate of interest is low.

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3. Clear cut distinction between short term and long-term loans
4. Integrated with other improvements like purchase of seeds, fertilizers etc.

AGRICULTURE DIVERSIFICATION
Agriculture diversification refers to re-allocation of productive resources such as land, labour, capital,
farm equipment etc. in the agriculture sector into new activities. It may arise from various reasons such
as the need for reducing risk, change in demand, availability of new techniques, change in government
policy, change in relative prices of the agricultural products etc. For example, farmers may take up
livestock farming because of greater demand for animal products like dairy, meat, eggs. Farmers may
switch over to more drought-resistant crops to reduce risk.
It has two aspects:
i. Diversification of crop production i.e. change in crop pattern.
Example may shift from production of food crops like wheat or rice like cotton or oilseeds to the
production of commercial crops
ii. Diversification of productive activity i.e., shift of agricultural labour workforce to other agricultural
and allied activities like livestock, poultry and horticulture.
Advantages:
a. Diversification helps in providing gainful employment and in increasing income of rural poor to
overcome poverty and reduce the risk from agriculture sector.
b. It gives wider choice in the production of a variety of crops or in carrying out different activities by a
particular farmer.

ORGANIC FARMING
Organic farming is the form of agriculture that relies on techniques such as crop rotation, green manure,
compost and biological pest control to maintain soil productivity and control pests on a farm.

Importance/ Benefits of Organic Farming

• Protection of Environment: Organic farming is environment-friendly and ensure protection of

environment, improved soil fertility, better water quality, prevention of soil erosion etc.

• Provision of Healthy and Nutritional Food: Organic farming would promote welfare of the
people by providing healthy, tasty, hygienic food items with higher nutritive values and control
contamination of poisonous chemicals in food, fodder and fibre, which exist in the case of
chemicals used in modern agriculture.

• Improvement in Soil Quality: It will be helpful in improving the quality of soil by using farming
practices such as multiple cropping, crop rotation, organic manures etc.

• Increased Employment Opportunities: A number of studies have revealed that organic farming
requires more labour input than the conventional farming system, hence creating more

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 employment opportunities. Also, it addresses the problem of seasonal unemployment because of
diversification of crops with their different planting and harvesting schedules.

• Inexpensive inputs: Organic farming requires locally produced organic inputs that are cheaper
than costlier inputs such as HYV seeds, chemical fertilizers, pesticides, etc. which is more suitable
for the small and marginal farmers.

Organic agriculture is distinguished from the conventional agriculture based on high yielding varieties
of seeds, chemical, fertilizers, irrigation water, pesticides etc. and on adoption of multiple cropping system

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