Chapter 2 Agricultural Development in India

Chapter 2

Agricultural Development in India

Explain the Role of Agriculture in the Indian Economy.

Agriculture in the Indian economy is decreasing its importance. This is an indicator of economic development. But still it does not mean that the agricultural sector is neglected not it has lost its importance. Beside this decline agriculture plays an important role in Indian economy. Agriculture plays several roles in Indian economy. They are as follows:

1. Share in National Income – The National Income statistics shows that the contribution of agriculture to India’s total national income remains considerable. In 1950-51 agriculture contributed 55.4% of the total national income. With the development of the economy, the share of the other sectors to total national income increased and there is a decline in the agricultural income. In 1970 it was 44.5% and in 1990 it stood at 30.9%. Compared to the economies known for their highly modern agriculture, like Australia, Canada, Denmark and USA the share of agriculture in their total GDP stood at 3%, 3%, 4% and 2% respectively.

2. Share in total Employment – In 1901, 71% of the Indian workers were engaged in agriculture. This share of agriculture in total employment lasted for 1971. But with the development of other sectors there started a setback in agriculture. In 1981 the total workers in agriculture and allied sector were 68.8% and in 1991 they were 66.7%. While the share of agriculture in modern countries like UK and USA are 2% and 3%.

3. Role in Industrial Development – Agriculture plays a vital role in industrial development. This role is manifold as follows:
a) As a source of raw material – Cash crops like oilseed, tobacco, cotton, sugarcane, jute, tea and coffee supply raw material for the industry. During last tow decades (1981 to 2000) all non-food crops have recorded almost 85% growth in quantity produced.
b) Food for industrial workers – Industrial workers are concentrated in industrial area which is urban area and depended upon agriculture sector for their daily requirement of food, milk, eggs, etc.
c) Demand for agricultural product – Many industrial product are directly or indirectly used in agricultural sector. They are manure (fertilizers), machines, pesticides, etc. used directly and from motorcycle to TV sets and electric fans consumed indirectly as to make the lives comfort in agricultural sector.

4. Supply of food and fodder in general – As India is increasing her population day by day; she is solely depending upon agriculture as the source of food. In 1951 India's population was 36 crores and reached over 101 crores during last 50 years. India used to import the food grain till 1969. After Green Revolution India's food production started growing. In 1954 per capita availability of food grain per day was 457 grams reached to 467 grams in 1999.

5. Importance in Exports – Agriculture and allied products occupy an important position in India's exports. In 1960-61 it was Rs.284 crores i.e. 44.23% which shows increase up to Rs.26, 164 i.e. 78% in 1998-99. However over a period of time the export of agricultural produce has been declining which indicates that there is economic growth taking place in India.

6. The Backbone of the Indian Economy – In 1990-91 there were 6.27 lakh villages in India where the main occupation is only agriculture. The electricity, transport and marketing facilities in these villages and the credit and other infrastructure of these villages revolve around agriculture. So it is clear that agriculture provide work to 66.7% of the country’s 27.9 crores of main worker. And it supports 71% of the country’s population. Naturally being the main source of income in India has become the backbone of Indian economy.

7. Role in Economic Development – Indian economy is solely depending upon agriculture. This fact has serious implications for India's economic development. They are as follows:
i) The rate of growth of the economy as a whole depends upon the rates of growth of various sectors in the economy. The agriculture sector is one of the important sectors. It this is depressed it would adversely impact the whole economy.
ii) Agriculture is a labour-intensive occupation and because of small size of land holding, it is not possible to invest heavy capital. In this case the output from the agriculture is very low. But still the small doses of capital invested in agriculture gives the utmost possible output.
iii) Indian industry is overloaded with number of workers. There is no scope to absorb more workers. The place where the working opportunities can make available is only agriculture. This way agriculture plays an important role.
iv) The present position appears to provide increasing export opportunities for certain agricultural products like Basmati rice, turmeric and other herbs, fruits, vegetables, etc. The processing industry based on agriculture has a potential of generating employment.
v) The regional imbalances is one of the persistent characteristic of Indian economy. To rectify this imbalance Union as well as State Government is concentrating on agricultural development.

Productivity of Indian Agricultural

Causes of low productivity of Indian Agriculture.

Agriculture Productivity – Productivity means input output ratio. Low Productivity in agriculture can be judged either as productivity per hectare i.e. Land productivity or productivity per worker ie. Labour productivity. In 1960-51 the average productivity was Rs 500. as against Rs.1700 per worker in large establishments and Rs. 1500 in commerce, transport and communication. In short the labour productivity was the lowest in agriculture. Low productivity means the output is low comparing to the input. In 1998 the per hectare yield of wheat in India was 2583 kilograms per hectare comparing with UK – 7560 kg, France – 7600 kg, China – 3670 kg, is very low. It is true that the productivity of Indian agriculture has improved to a certain extent in the last 50 years. But when we compare our productivity with those in other countries, the picture appears to be miserable one.

Cause of low productivity of Indian Agriculture –

1. Pressure of population on Agriculture – The percentage of people depended upon agriculture as their mean of livelihood was 70% remained stable from 1901 to 1970. In 1901 only 16.3 crores of the people out of 23.6 crores of total population were depended upon agriculture. In 1981 it went up to 48.3 crores out of 64.4 crores with above 70% of total population. This shows a tremendous pressure of population on agriculture.

2. Unfavourable Rural Atmosphere – The overall atmosphere in rural area is unfavorable for an increase in productivity. Illiteracy, ignorance, superstitions, conservativeness and outdated customs are some of the reasons for unfavorable atmosphere. To make the things worse, political rivalries have polluted the atmosphere of villages. All these things keep the productivity of agriculture low.

3. Inadequacy of Non-farm services – Several non-farm services like, provision of finance, technical advice, marketing and so on are inadequate keeps the productivity low. Even today regulated markets are limited and whatever regulated markets are available not function at their fullest efficiency.

4. The small size of agriculture holding – The average size of land holding in India is very small. Out of the total holdings in India, 59% are between 0 to 2.5 acres, while 20% are between 2.5 to 5 acres each. In other words land-holding percentage below 5 acres is 70%. Such small pieces of land prove unproductive.

5. System of Land Tenure – Agriculture has inherited, number of system of land tenure. Landlords own the land and the tiller (cultivator / farmer) labour in it. He pays the landlord. Even though the ‘land for tiller’ was introduced. It has not been implemented properly. There are many intermediaries between the government and the tiller of the land. As the tiller does not own the land, he never pays the attention towards cultivation. So there is less productivity of agriculture.

6. Outdated techniques of production – After Green Revolution the modern techniques of farming is introduced to Indian farmers. Still majority of Indian farmers use the traditional outdated farming techniques. Unless they use the modern farming techniques, the productivity of agriculture is not going to increase.

7. Inadequate irrigation facilities – In spite of huge investments in medium and large irrigation projects during the last five decades, over 2/3^rd of the agricultural land in India is under dry farming depending upon monsoon. Monsoon remains only for four months. The annual rainfall all over India varies from 5 cm to 1250 cm. Obviously there exists the need of irrigation, which results in low productivity of agriculture.

Features of Agricultural Marketing

Marketing is the last stage of production. Agricultural marketing has special features, which have to give special consideration. They are as follows:

1. The Buyers – the buyers of agricultural commodities are of three types. A) Consumers who buy agricultural products for their direct consumption. B) Manufactures who buy agricultural products to use as raw material in manufacturing their own products. C) Buyers who purchase agricultural goods for export to other countries.

2. Vast Geographical area – Agricultural produce is scattered over a vast geographical area. The collection of agricultural produce becomes an important and special problem.

3. Wide Variation in products – There is a wide variation with respect to quantities, qualities and varieties produced. There is variety in the quality of one produce. E.g. wheat can be produced of different qualities, shape and size.

4. Bulk products – Agricultural commodities are most bulky. They require more space compared to their money value. Obviously they require more space and freight in transporting and warehousing.

5. Perishable products – some of the agricultural products are perishable. So they require safe and quick transportation.

6. Seasonal products – Agricultural products are produced in particular seasons. However their consumption continuous for the whole year. The stock of agricultural product is needed preservation. They are released when there is demand.

7. Throwaway prices – Agricultural products are ready all over the country at the same time. Because they are seasonal. As there is bulk production of these commodities. The farmers have to sell it at throwaway prices. This benefits the middlemen, moneylenders to exploit the farmers. As a result he remains poor.

Essentials of Sound Marketing in Global Perspective

1. Graded and Standardized Products – For geographical expansion of the market and for having comparable prices of these products throughout the country, there must be the standardization of products in to various grades. Also there must be quality control for the agricultural products.

2. Adequate Warehousing facilities – As agricultural products consume a huge space for stocking. It is necessary that there should be adequate warehousing facilities. Moreover it is required for the purpose of distribution also.

3. Good Means of Transport – Prompt and efficient transport system is important for the agricultural marketing. Because some of the goods are perishable and some of them acquire a huge space. At the same time the transport system should be cost effective.

4. Market information – Information regarding prices, demand and arrivals at the markets should be readily available to all concerned. This enables the producers to explore more profitable markets and the consumers to find out cheaper or better quality products. This may reduce the market imperfections.

5. Organized Markets – Sound marketing system needs the existence of organized agencies in the market. There is always a danger of middlemen who exploit the farmers. Also the services like credit, warehousing, transportation, and regulation of markets can be efficiently carried out when they are organized.

Defects in Marketing System in India

After independence several steps have been taken to improve the agricultural marketing system. Still there are many defects and shortcomings in the system. They are as follows:

1. Inadequate Transport Facilities – Agricultural marketing requires all the villages to be connected to the main roads, and these roads further to be connected to railways so that all the areas are properly served. In India such kind of network does not exist. Many villages are still not accessible. As agricultural commodities are bulky and therefore, the transport charges do affect the price of these commodities. Therefore a cheap transport system is needed.

2. Inadequate Credit Facilities – Farmers should get the credit facilities over the period between the harvesting and the selling the products. This helps the holding capacity, especially of the small farmers who are weak. Otherwise the farmers are forced to sell their produce at whatever price is ruling at the market. But the credit facilities are inadequate.

3. The long chain of Middlemen – Lack of transport and other facilities resulted into a long chain of middlemen in the agricultural market. Village traders purchase the produce at every door of cultivator at low prices. Moneylenders take advantage of the small farmers. The income of the farmers is unnecessarily reduced. Even in the markets the middlemen like commission agents (arthias) purchases the commodities against paying an advances to the farmers. Exporters and processing firms to have their own agents in the market who rob the farmers.

4. Forced Sales – Indian cultivators are forced to sell their produce at unfavorable places, at an unfavorable time and at unfavorable terms. The main reason for such forced sales are the lack of staying power, the pressing financial requirements and the lack of transport facilities. To repay the loans farmers are forced to sale their produce. 2/3 of total sales of agricultural produce carried out at the village level only.

5. A Variety of Incidental Charges – A wide variety of incidental charges decreases the income of the producers. Besides octroi duties, arhat (commission), tulai (weigh man’s charges), dalali (brokerage), hamali (coolie’s charges), dharmadaya (charity) and other charges by way of tips and gifts to the sweepers, watchmen, dispensary, school, etc. are charged.

6. Malpractices in buying and selling – Indian agricultural markets follow a strange ‘Hatta system.’ In this system buyers and their representatives offer their rates by raising fingers under a piece of cloth. The arhtaia (agent) announces the name of the highest bidder. Another system is auction in the open, which is unscientific. In both the system commission agents and traders cheat the ignorant farmers.

7. Lack of Grading and Standardization – The lack of proper grading of different varieties of agricultural produce is another defect. The arrangements for grading are inadequate. Thus pricing the goods according to grades becomes impossible. As a result the farmer can’t secure a fair price for their product. On the other hand consumer too deprived of getting the good quality in return of their money. This defect becomes serious in the global context.

8. Lack of Organized Agencies – Most of the Indian farmers sell their produce independently. In doing so they meet the powerful intermediaries and merchants and both of them conspire against the farmers.

9. Lack of storage facilities – Storage facilities for agricultural produce are highly inadequate and whatever facilities available are not scientific. Grains are stored in earthen cylinders, mud houses, where produce are exposed to dampness, ants, rats and so on. This problem forces the farmers to dispense their produce immediately after harvest.

10. Lack of market intelligence – Agricultural market is primary market. Farmers don’t know the prices of the agricultural commodities in the primary market as well as secondary market. They depend upon the traders and traders seek their own benefits. In absence of adequate market information, market imperfection persists to the great disadvantage of the individual producers and consumers as well as for the government.

Explain the measures taken by the Government to remove the defects in agricultural marketing.

There are a number of other measures needed to improve the agricultural marketing system in India. Government has taken several steps in removing these defects. They are as follows –

1. Improving Storage Facilities – The provision of storage facilities is an important measure for increasing the staying capacity of the farmers. At the end of March 1978, the Central warehousing Corporation was running 203 general warehouses with a total storage capacity of 29 lakh tones. The National Co-operative Development Corporation has launched a scheme at a cost or Rs. 15 crores to add 20 lakh tones as additional storage capacity. Besides the 15 state warehousing corporations were running 854 warehouses and sub-warehouses at the end of 1975-76 with the total capacity owned by the Food Corporation of India. The total capacity in the country was 186 lakh tones in 1979-80. At present the FCI is constructing a network of godowns in different parts of the country. However, by the end of the year 2000 the total storage capacity is between 3.5 & 4 crores tones. But the stock of food grains with government is 4.5 crores tones. Still government needs to do more in this respect.

2. Use of Standard Weights – there is a need to have an uniform weights and measures throughout the country. In 1959 the Standard Weights Act was passed under which the state governments tried to promote the use of standard weights. But no much progress could be made and with a wide variety of weights and measures with respect to different commodities. This continued till the sixties. In 1957 Government adopted a phased programme of the decimal system beginning with decimal coins. Since 1962 throughout the country it was made compulsory to use metric weights.

3. Provision of credit - The farmers must meet the expenses for their daily requirements of life. At the same time they can have an adequate holding capacity and make the best of market opportunities. Moreover to take the produce to the market, they need credit. Thus credit is important for farmer as well as agricultural marketing system. In the last few years, co-operative credit institutions have made considerable progress.

4. Grading and standardization – The grading of the goods according to quality lead to get good price. It is also necessary to stop mixing inferior goods and cheat producers and consumers by the middlemen in the marketing system. Grading also tend the farmers to grow qualitative produce to fetch good price. For the purpose in 1937 the Agricultural Produce (Grading and Marketing) Act was passed. Under this act a certificate of grades issued to graded goods. After independence, during the planning period, agricultural products were listed as ‘Agmark’ goods. Some of the agricultural produce listed as Agmark are rice, wheat, coffee, tobacco, oilseeds, cotton, etc. Rigorous quality control has been introduced in the fields of export.

5. Betterment of Transport – Means of transport for carrying goods to the market speedily and at a low cost should make available. During the Planning Period rapid progress has been made in this respect. In 1950-51, there were 1.6 lakh kilometers surfaced roads and 2.5 lakh kilometers of unsurfaced roads. In 1995-96, there were 15.7 lakh kilometers of surfaced roads and 18.03 lakh kilometers of unsurfaced roads. In the new Millennium Government of India has launched the ‘Golden Quadrangle’ project. Under which the four metro cities in India would be connected with fast roads track. Cities like Pune and Mumbai are connected with speedways. The length of railways increased from 55.5 thousand kilometers to 62.5 thousand kilometers during this period i.e. 1997-98. The shipping tonnage, which stood at 1.9 lakh tones in 1947 increased to 68.43 lakh tones in 1997-98.
However, to connect 6.27 lakh villages in transport network is the problem persisting yet. Some more five-year plans will require solving this problem.

6. Market inspection, research and training – The Directorate of marketing and Inspection, through its special division, undertakes from time to time the inspection of major agricultural commodities throughout the country. It also conducts research into the various aspects of agricultural marketing. Facilities have also been provided for the training of various categories of personnel at places like Nagpur, Hyderabad, etc. rigorous quality control has to be adopted; but farmers themselves oppose such controls. Such controls are necessary in regard to WTO norms.

7. Market Information – The farmers, buyers and various functionaries at market must be informed about conditions prevailing at the market. Government is attending this aspect. Weekly data on market arrivals, sales, prices, etc. are being regularly collected from about 1300 reporting agencies. Government publishes data on retail prices. Selected agricultural commodity prices are published in newspapers as well as broadcasted on various radio stations. However this information cannot be reached to every farmer in the country. On the other hand farmers never take advantages of such facilities.

8. Setting up of Regulated Markets – Government has taken a very important measure to improve the agricultural marketing. The setting up of regulated markets is the important measure. Today there are more than 7000 regulated markets in the country. And almost 80% of agricultural produce is being sold through these regulated markets. But these regulated markets have their own drawbacks.

9. Organization of Co-operative Marketing – Government has given all possible encouragement to multipurpose co-operative societies which give emphasis on credit and marketing. The primary marketing societies are linked to central marketing societies and further with National Agriculture Co-Operative Marketing Federation (NAFED). National Co-operative Development Corporation (NCDC) established in 1965, plays important role in planning and promoting programmes for the production, processing, storage and marketing of agricultural produce through co-operative channels.

10. Special Commodity Boards – A number of specialized commodity boards have been established for promoting and operating properly the marketing of rubber, coffee, tea, tobacco, spices, coconut, oilseeds, vegetables oils and so on. National Dairy Development Board (NDDB) has successfully organized the marketing of dairy products. In recent years the government of India has set up a number of development councils for special commodities like rice, pulses, jute, cotton, tobacco, oilseeds, sugarcane, etc.

11. Promoting Exports of Agricultural products – Exports in agricultural products is showing increase in recent years. In 1999-2000 the share of agriculture and allied products stood at 14.5% valued at Rs. 26164 crores. Agricultural exports include pulses rice, wheat, cashew nuts, edible oils, etc.

Factors responsible for the small size of land holding

In India the average size of the land holding is very small. Following factors affect the size of land holding and made it small.

1. The pressure of Population – In India seven out of every ten persons live in rural areas. The growth of population in rural areas would be 4 times that in urban areas. It is quite difficult to develop non-agricultural sectors in rural areas. As a result every one tries to get his income from agricultural sector. Naturally the land is divided into small pieces.

2. The Laws of Inheritance – The growing population is not the only cause of smallholding of land. The law of inheritance leads to the division of land holding. Hindu and Muslim laws of succession allows all sons and daughter equal share in ancestral property. As a result the land divides into smaller parts over a few generation.

3. Decline of Joint Family System – The joint family was the characteristic of Indian society. For centuries together agriculture was the main occupation of these joint families. Thus the holding remains large and could fetch the advantages of large-scale production. Because of industrialization joint family broke into nuclear families. This causes the subdivision of holding.

4. Widespread indebtedness of farmers – Indian farmers are well known for their indebtedness. Absences of institutional credit supply farmers depend upon the moneylenders and indigenous bankers. They exploit the farmers for the repayment of loans they have taken. As a result farmers have to surrender their lands to the moneylenders, piece by piece. This causes the fragmentation of land.

5. British System of Law and Judiciary – British rulers introduced various laws and judiciaries in India. They established the hierarchy of judicial courts. The major defect of this judiciary system is delay in justice as it has many chances for appealing in higher courts. Thus it has become costly affair. Indian farmers involved in the dispute tend to either sell or mortgage their lands to meet the court expenditures. Thus the British system of laws and judiciary helped the fragmentation of land.

6. Decline of handicraft and village industries – in the later half of 19^th century India experienced the decline of handicraft and village industries. The large-scale production with the help of machines was one of the reasons. Commodities were made available which was produced with machines in rural areas. This resulted de-industrialization in rural areas. Obviously agricultural sector is the only source of income for rural population. It resulted the large agricultural land broken into small pieces.

Explain the problems of Uneconomic Holdings.

The small size of land holding relates to the productivity and profitability of the agricultural sector. Prof. Amartya Sen has summed up the whole controversy about the productivity and the relationship with the size of the farm. Per acre productivity of the land decreases with the size of the land i.e. smaller the size, greater the productivity and vice-versa. But if modern and capital intensive techniques of production are used, the productivity and profitability will increase with the size. In India, the landholding is small. It is called the uneconomic holding. These smallholdings create several problems. They are as follows.

1. Continuation of poverty – Because of uneconomic holding the farmers is not in a position to have surplus. Whatever is produced is used for self-consumption. There remains no additional income, which can be utilized for land improvement. Eventually a stage comes when the soil gets incapable of producing anything worthwhile. Further fragmentation forced the cultivators to sell their lands. This increases the landless labours.

2. Continuation of inefficient methods and techniques – Growth in productivity can be increased with the modern techniques and methods of agriculture. But to serve this purpose the size of holding must be large. Otherwise the investment proves uneconomical. As the landholding in India is small there is no scope of investment as such. Hence the traditional farming methods are used.

3. Physical constraints on mechanism – Very smallholding can not afford the mechanization. Even physically it is not possible. Some holdings like those in the Konkan region or hilly areas are so small that farmers cannot use even a bullock-driven plough.

4. Wasteful and costly – Farming with small and fragmented landholdings is wasteful and costly in many ways. Many smallholdings are divided into small fragments at two different sides of the villages. The farmer cannot supervise all the pieces simultaneously. He has to waste is time and energy in traveling from one piece to another piece of land. There is wastage of land under bunds, boundaries and the access ways. In India about 12% of the land is wasted under boundaries and access ways.

5. Exploitation and misery – small agricultural producers are dependent upon the mercy and goodwill of the large landowners. These landlords have all the political, social and economic power to exploit these masses. They are forced to work for such landlords. Small landholders are trapped in the chronic poverty where there is no escape. These small peasants are gradually transformed to tenant farmers and sharecroppers, then landless labours then job-hunters and finally the slum-dwellers on the outskirts of the modern city.

Explain the problems of adoption of new methods and mechanization.

The transformation of agriculture form the traditional nature to the modern commercial one involves changes in inputs, methods, technology and attitudes or approach. The new methods and mechanization include high yielding varieties of seeds, irrigation, pesticides and insecticides, chemical fertilizers and machinery. But there are problems in adopting new methods and mechanization. They are as follows –

1. Uncertainties - The root of problems for adopting the new methods and mechanization is uncertainties the farmers feel. All the improved methods require investment and require assured water supply. Indian farming has to depend almost wholly on rains. Rains may or may not be sufficient. They may or may not come in time. Weather conditions, market prices and other factors are all uncertain. So Indian farmers rarely dare to adopt the new methods and mechanization.

2. Survival motives – Because of small size whatever Indian farmers produce is only sufficient for his consumption. There is no leftover of the produce so that he could sell it out and make money. Many times nature is adverse to him. He and his family starve in this condition. To satisfy the hunger is the only motive for him. Even though the new methods of farming are promising he finds risk in adopting them. At this stage he never shifts himself from the traditional technology and cropping pattern with which he is familiar.

3. Lack of adequate insurance – Many programmes were launched for popularizing the new methods and techniques. But they failed as farmers avoid taking risks. To make them accept the risks there must be a support of adequate insurance cover. Some of these risks are imaginary but many are real. What is required is understandings of the major role played by risk and uncertainty and give the farmers assurance to overcome them with proper insurance facilities.

4. Lack of assured water supply – A country like India where monsoon brings rains. Monsoon is uncertain in timings and quantum. Moreover it is not distributed evenly. Some parts get heavy rainfall and some are rain-shadow areas. When a modern technique is adopted it involves a time schedule of watering the plants. It is highly difficult to serve this need in a country like India. An alternative to this situation is irrigation. It is very costly matter and even if it is done large areas remain no irrigated.

5. Lack of supplementary services – Prof. Griffin has pointed out, ”If peasants sometimes appear to be unresponsive or hostile to proposed technical changes, it is probably because the risks are high, the returns to the cultivator are low or because credit facilities and marketing outlets are inadequate and the necessary inputs including knowledge are missing.” Thus quality seeds, pesticides, insecticides, fertilizers, transport, marketing system, etc. are the necessary supplementary services. These help in building confidence for the use of modern methods.

6. Alien contents – With the seeds, some quality food is not accepted in India. Cattle with emotions kept till their death but not sold out to butcher. In such circumstances cattle farm for butchery is highly unacceptable concept. A country like India where majority population is vegetarian may not accept poultry, piggery, and goatary as the supporting to agriculture. But day-by-day things are changing.

7. Knowledge and skills - Many times modern techniques and particularly machines are not suitable or affordable in the Indian environment. A proper alteration should be made according to the local conditions and requirements. In case of failure of a machine, farmer should know the technology and could repair them. There must be a set up to repair those gadgets.

8. Fear of unemployment – Over mechanization may lead to unemployment is a fear factor in the Indian mentality. Indian agriculture is already overburdened with the disguised unemployment. Mechanization may put extra pressure upon it. So mechanization must be well-planned phased programme with provisions of rehabilitation of the displaced workers.

9. Disadvantages at markets – A small, uneducated and poor farmer, while buying inputs like machines, seeds, fertilizers, etc. is always being cheated in the market. His bargaining power is extremely low. A common sense prompts him not to go for the modern tools and techniques available in the market and tempt him to adopt the traditional ways of farming.

10. Social and systemic constraints – Majority of farmers are small landholders. They are on the mercy of moneylenders and landlords. These small peasants are voiceless. Even if government has given many facilities like subsidies, credit facilities, etc. the small farmer is far away from them. The landlords or the large holders take all the benefits of the various schemes. Red tapism and malpractices in beurocracy make the farmers to neglect those facilities. He never turns up to these schemes.

This problem can be concluded with Prof. Todaro’s words. “Peasant farmers do act rationally and are responsive to economic incentives and opportunities. Where innovation and change fail to occur, we should not assume that peasants are stupid, irrational or conservative; instead we should examine carefully the environment in which the small farmer operates for the particular institutional or commercial obstacles which may be blocking or frustrating constructive change.”

Explain the nature of the problems of agricultural Credit.

The Rural Credit survey Committee (1954) has classified the credit for agriculture into three types.

A) Short Term Credit up to the period of 90 days and used for purchase of seeds, repairs of implements, for annual operations and payment of wages.

B) Medium term credit for a period of 15 months to 5 years used for improvement of land, repairing of the wells, purchase of implements and power cattle, etc.

C) Long-term credit for the period exceeding 5 years and extended up to 15 or 20 years, used for purchase of heavy machinery like tractors, digging of wells, purchase of additional land, etc.

Above-mentioned classification of agricultural credit can give us the idea of credit needs. But meeting these needs becomes a problem because of following features.

1. Requisition of cheap, adequate and timely supply of credit – Agricultural sector in LDC like India requires a credit at low rate of interest. The productivity of agricultural sector is low. It is not in a position to raise the productivity high. So the cost of borrowing must be low. Private moneylender and profit-oriented institutions may not offer such a cheap credit to agriculture. Alternatively, government and co-operative credit institutions must come up to help the needy farmers. But the coverage of such agencies is limited and several agricultural needs remain unsatisfied. Moreover timely credit facilities (i.e. most of the agricultural credit required at a specific time,) must be made available.

2. Small farmers and landless labours – Large landholders can mortgage their land and meet their credit needs. But the problem with the small landholder remains unsolved. In India 3/4^th of the landholdings are small landholdings. They have nothing to offer as a security. They are the persons who need these credit facilities the most.

3. Uncertainty covering credit requirements – Another aspect of this credit problem is the uncertainty of its requirement. In the industrial sector the demand can be forecasted and the plan for borrowing can be prepared. Even banks also sanction loans to these proposals. But in agriculture everything is uncertain and no precise assessment of credit needs and repayment capacity is possible. So banks hesitate to give credit facilities to agricultural sector.

4. Government policies – In 1979 Government of India, subsided agricultural loans worth Rs. 17000 crores. The nationalized banks issued these loans suffered a lot. As a result banks, especially commercial bank put the agricultural credit into a blacklist. Since then the problem is persisting. The various decisions taken by government in regards with agricultural loans may change and differ from time to time. The credit institutions have fear in their mind that anytime government may subside all the loans they have given to agriculture.

Problems of Institutional Credit

In LDC like India several efforts were made to create an institutional structures for meeting the credit needs of agriculture. These institutes are

1. Government – The Government itself came forward to extend loans to farmers. The rate of interest at these loans is very low.

2. Co-operative institutes – In India co-operative institutes plays a vital role in financing agricultural sector.

3. Commercial banks and other institutions – Besides government and co-operative societies, commercial banks and institutions also entered into the field of agricultural credit.

All these institutions play an important role in agricultural credit. However, institutional credit encounters the following problems. They are as follows.

1. Proper Security – The various institutions giving credit requires proper security on the bases of which the loans are given. However majority of the farmers are not in a position to provide such securities. They find it difficult to take loans from them.

2. Procedural Delays – One of the essential requirements of agricultural credit is that it requires credit at a particular time. On the other hand in case of institutional credit there is a lot of paper work and procedures to be followed. This leads to the delay in sanctioning the loans.

3. Uncertain recovery – Due to uncertainty in agriculture the repayment of loans is also uncertain. In the event of crop failures, arrears to on increasing. When the loans are not repaid, it difficult to give them the new loan.

4. Benefits to big landlords – Many farmers are the small holders and they cannot offer their land as the mortgage. The benefit of institutional finance goes to the big landlords. They can offer their land as the mortgage and make arrangements of the repayment. Thus the poor farmer is far away from the institutional finance.

5. Inadequate coverage – The financial institutes find it difficult to open branches in each and every village. Due to this there is an inadequate coverage of institutional credit. Many times there are regional imbalance in such coverage.

6. Other factors – The small farmers, who are illiterate, have lack of confidence finds it difficult to approach to the institutions for agricultural credit. These small farmers prefer to approach moneylenders who are informal and friendlier. They give the loans to farmers for many nonproductive purposes like marriages.

7. Mismanagement of cooperatives – The government has tried to promote co-operatives in various sectors. This includes commercial banks, co-operative societies, which have been set-up to provide agricultural credit. However most of these co-operatives are mismanaged and they are also running in losses. Due to this they are not in a position to provide the required agricultural credit.

These are the various problems of institutional credit to agriculture.

Chapter 1 Economic Development and Economic Growth

Chapter 1

Introduction

Economic Development and Economic Growth

Define and explain Economic Development and Economic Growth.

OR

Explain the meaning of Economic Development.

Very often the terms economic growth and economic development are used interchangeably, suggesting that they both mean the same thing. In fact, they are different from each other.

Economic Development:

There are two views defining and explaining Economic Development. They are a) Traditional Economic View and b) The New Economic View.

a) Traditional Economic View: In this view economist considered two facts. A) All modern developed industrial nations were once undeveloped agrarian societies. B) The then latest experience had shown that the war-torn economies of Europe could rebuild and modernize their economies in a matter of a few years. They could do it because of the Marshall Plan under which U.S. provided a massive financial and technical assistance to them. Prof. Rostow, constitute a ‘theory about economic growth.’ According to Rostow, all societies pass through the five stages of economic development, viz. a) the traditional society b) the preconditions for take-off c) take-off into self-sustaining growth iv) the drive to maturity and v) the age of high mass consumption. For the take-off of the economy needs several requirements. One of them is domestic and foreign savings to generate investment.

Under the Traditional Economic View, economic development is defined as follows: ‘Economic development is a process whereby an economy’s real national income increases over a long period of time.’ (Meier and Baldwin 1957)

According to Meier and Baldwin the ‘process’ implies an operation of certain forces over a long period and represent certain changes. These changes are divided into two parts a) Changes in factor supplies b) Changes in the structure of demand. Most of the changes in factor supplies need investments.

b) The New Economic View: The Third World countries were a part of a highly integrated and complex international system and that the best development policies also can be nullified by external forces over which the less developed countries have no control. This gave birth to a more recent approach that attempts to combine economic and institutional factors into a social system model of development.

The new approach is called the ‘international-structuralist’ model. This has two major streams of thought. One is the Neo-Marxist view that highlights the exploitation of poor countries by the rich countries. The second view blames the inappropriateness of advice given by international agencies and other experts. Both these streams reject the exclusive emphasis on the growth of GNP. This new approach wants more emphasis to be placed on the needed structural and institutional reforms so as to eradicate absolute poverty, provide growing employment opportunities reduces income disparities and raise the levels of living of the masses. The new economic view goes beyond narrow economic criteria.

Definition of Economic Development under the new view is as follows:

‘Development must therefore be conceived of as a multi-dimensional process involving changes in structures, attitudes and institutions as well as the acceleration of economic growth, the reduction of inequality and eradication of absolute poverty.’(Michael Todaro)

The above definition suggests that the whole social system has to go through the process of economic development. This process involves several changes, which enable the system to move from a situation widely though to be unsatisfactory to a condition of life regarded a better.

Economic Growth:

Prof. Simon Kuznet defines economic growth as follows:

‘It is a long-term rise in capacity to supply increasingly diverse economic goods to its population, this growing capacity being based on advancing technology and the institutional and ideological adjustments that it demands.’

This definition suggests –

1. Indicator of economic growth is the increase in the capacity of the economy to produce goods and service.

2. An advance technology is necessary for this long-term growth of capacity,.

3. Growth calls certain adjustments, both institutionally and ideologically.

Distinction between Economic Development and Economic Growth

Several authors have reversed the term ‘development’ for the growth-process in developing countries, while the term ‘growth’ is used in the context of advanced or developed countries. There is some logic in doing so. The fact that the problems of underdeveloped countries are concerned with the development of unused resources, even though their uses are well known. The problems of advanced countries on the other hand are related to growth, since most of the resources are already known and developed to a considerable extent.

Definitions - Prof. Simon Kuznet defines economic growth as follows:

‘It is a long-term rise in capacity to supply increasingly diverse economic goods to its population, this growing capacity being based on advancing technology and the institutional and ideological adjustments that it demands.’

Michael Todaro defines economic development as follows:

‘Development must therefore be conceived of as a multi-dimensional process involving changes in structures, attitudes and institutions as well as the acceleration of economic growth, the reduction of inequality and eradication of absolute poverty.’

These two terms can be distinguished as follows

Qualitative v/s quantitative – Economic growth is related to a quantitative sustained increase in output and income. Increase in GNP is a broad indicator of growth. Economic development, on the other hand, is related to qualitative changes in the economy. These changes include the nature of wants, the quality of goods, tastes of consumers and so on.

Labour Force – Economic growth is accompanied by an expansion of labour force, consumption capital and volume of trade. Growth implies such a quantitative expansion. Economic development, on the other hand, tries to analyze and explain the qualitative changes in wants, goods, incentives and institutions.

Structural changes – Economic growth is accompanied by certain structural changes. E.g. workers may shift from agriculture to industry or urbanization may accompany growth. Economic development describes the underlying determinants of growth. The change in attitude of labour is important. E.g. agricultural labour shifted to urban industry. Here we can find the change in attitude of labour.

Income and other variables – Economic growth there is a continuous increase in income. E.g. The increase in annual income by some percent comparing to previous year, can be called growth. On the other hand in economic development beside increase in income, several variables are also considered. e.g. government policy, social changes, industry, etc.

Difference in concept – Economic development includes economic growth. In a way, the term economic development is broader than the term economic growth. The countries having high rate of economic growth may not be called economically developed countries. Thus there can be growth without development, but development without growth is not possible.

Conclusion – In the words of Prof. Kindleberger, ‘Economic growth means more output, while economic development implies both more output and changes in the technical and institutional arrangements by which it is produced and distributed.’

Que. State the Indicators or Characteristics of Economic Development.

We must have some measures or some characteristics to judge whether economic development is taking place. Prof. Simon Kooznets, a Nobel Prize winner economist has mentioned six characteristics of the process of economic development through which almost all the modern developed nation have gone. These can serve as indicators of economic development. These characteristics can be classified into three types given below:

I] Aggregate economic variables	1. High rates of per capita output and population growth.
	2. High rates of increase in Factor Productivity
II] Structural transformation variables	3. High rates of structural transformation
	4. High rates of social and ideological transformation
III] Factors affecting the international spread of growth	5. International economic outreach
	6. International factor and product flows

A. Indicators mentioned by Prof. Kooznets –

1. High rates of per capita output and population growth – Economic development includes the process of economic growth. Economic growth is there when the per capita output is increasing at a high rate. Even if the total output is increasing it is possible that the per capita output has not increased. This will be a situation when the population is also growing at a high rate along with the output. In such a situation it will not lead to economic development. Based on the output the income level will vary in different countries. The countries of the world can be divided into -
a) High-income economies – An average income is more than US$ 25000. And the countries are USA, Canada, etc.
b) Middle-income economies – An average income of about US$ 2000. And the countries are China, Iran, South Africa, etc.
c) Low income economies – An average income of less than US$ 500. And the countries are India, Pakistan, Kenya, etc.

Thus the per capita income in a country helps to indicate whether economic development is taking place or not.

2. High rates of increase in Factor Productivity – Productivity refers to the input and output ratio of the various factors of production. It has been noticed that the main reason for high level of output is the high rate of productivity increase. In the developed countries use of scientific and modern methods of production and manufacture helps to increase the productivity level. On the other hand in the LDCs, the use of unscientific and outdated methods leads to low productivity. Prof. Kooznet has claimed that more than half of the growth of per capita GNP is due to the growth in productivity.

3. High rates of structural transformation – A high rate of structural transformation is the third characteristic of the historical growth record of the present day. Economic growth requires structural transformation or changes. One such change is the gradual shifts away from agricultural to non-agricultural activities. A further shift from industry to services is observed in the advanced and mature stage of development. Another change is in the scale or average size of the unit of production. A third shift is away from rural agricultural and allied employment of labour to the urban manufacturing and urban-oriented service sectors.

4. High rates of social political and ideological transformation – Economic development means not only economic growth but also a change in attitude and social behaviour. Such changes are an ingredient of development as well as causes of economic growth. That is why they can be viewed as indicators of economic development. There must be equality of status, opportunities, wealth and levels of living in a value of a modern society. Such a social, political and ideological transformation is not only shown by urbanization but urbanization acts as booster for such a transformation because, urbanization leads to division of labour, specialization and extension of the markets. It involves more costs on transportation; it causes a change in the basic pattern of life and facilitates modernization.

5. International economic outreach – Rapid economic growth was observed in a few European countries. These countries reached out to the rest of the world for raw materials, cheap labour and markets for their manufactured products. This outreach was made possible by means of the increased power of modern technology, especially in the field of transport and communications. These outreach activities mean ‘even-increasing interdependence among nations because of the potential of closer contact and because of the sharing of an increasing number of nations of one and the same transnational stock of knowledge.’

6. International factor and product flows – The growing interdependence of nations is a cause and consequence of international factor and product flows. The migration of men and flow of capital to Asia, Africa and the new World from developed nations was a remarkable feature of the last century. In modern world, transfer of technology, foreign investments and international migrations play an important part in accelerating the rate of economic development. Therefore they can be taken as an indicator of development.

These are the indicators mentioned by Prof. Kooznets. But there are some more indicators.

7. Increase in the real GNP – An increase in the economy’s real national income over a long period of time is taken as a measure of economic growth. Such economic growth is required for economic development. So it is taken as an indicator of development. Increase in national income means there is an increase in country’s total output of final goods and services in real term at stable prices. But this has following limitations:
a) This measure does not take into account the changes in population.
b) It cannot reflect the externalities or social costs of development including loss to environment, pollution, overcrowding of cities, etc.
c) it tells us nothing about the distribution of income.

8. Welfare – Economic welfare is measured by considering the flow of goods and services. But this has following limitations:
a) What weight age be given b) What composition be judged to be better, c) How goods are produced d) How to measure tastes, etc. are problems which place severe limitation.
In spite of this consumption pattern and changes in it can be viewed ans an index.

9. Social Indicators – Economic development is a much wider concept. Several social indicators have been suggested. These include health, nutrition, education, employment, consumption pattern, social security, etc. such indicators describe the quality of life..

10. Other indicators – Capital formation is another indicator. In advanced economies there is high capital output ratio. Changing structure or imports and exports can also serve as an indicator. An underdeveloped country imports manufactured goods and exports raw materials and primary products. Use of energy is another indicator. In developed countries there is high-energy consumption.

All these and many more indicators can be mentioned. But for the sake of simplicity of calculation, understanding and objectivity, economists as well as U.N. Organization very frequently use GNP per capita as the ready reckoner of development.

Meaning of the Term ‘Less Developed’

Some Terms

First World - The advanced capitalist countries. USA, UK, etc.

Second World - The Socialist countries. Mainly USSR

Third World – The African, the Asian and the Latin American member countries of the U.N. who achieved independence mostly after the Second World War are called collectively the Third World.

An Undeveloped country – A country, which has no prospects of development. The Antarctic and Arctic regions can be called undeveloped.

Developing country – A country that is not stagnant (still / without progress) and is undergoing the process of development.

Underdeveloped country – A country that has potentialities (possibilities) of development.

Less Developed Country – A country, which is not as developed as the mature advanced countries.

Characteristics of the Indian Economy as a less Developed Economy

Indian economy displays a number of characteristics, which proclaim that the Indian economy is a less develop economy. The characteristics are as follows.

1. A Dualistic Economy – When contradictory things come together it is called as dualism. There are the four key elements of dualism. They are as follows. a) Low per capita real income, b) low level of capital per person, c) high incidence of mass poverty and d) the existence of a dual society where outdated organizational methods, production techniques and attitudes co-exist with modernism. This characteristic of dualism is found in India. We find both modern i.e. Urban-based market economy and the traditional sector i.e. Agro-based economy in India. The dualism is found in various sectors of the economy. In agricultural sector, some plantations and farms are managed professionally with modern methods of production, accounting and marketing. At the same time the vast area of agriculture follows traditional methods.
In the industrial sector, along with modern industries, there exist a number of cottage and village industries. In transport sector, there are planes, trains, buses, and cars along with bullock-carts, and wheelbarrows and animals used for transport. In finance, indigenous bankers and moneylenders co-exist with modern banks. This dualism has continued to exist over the last 50 years and the gap between the two sectors appears to be widening.

2. Widespread poverty – ‘Poverty is defined as deprivation (lack) in well-being.’ This means that poor people who are living in poverty are lacking behind in attaining their well-being. In a country like India poverty is a multi-dimensional deprivation. There are various dimensions of poverty.
a) Income poverty or material deprivation – Income level or level of consumption expenditure, per capita is used to find out the number and percentage of people below the poverty line. The average income level in India is very low. More than 75% of the Indian poor live in rural areas.
b) Health and education – Healthy living and education are very important goals for human development. They help people to overcome material or income poverty. In India the health facilities are poor. The life expectancy (hope) is low, and there is high infant mortality.
Similarly education facilities are poor. As a result many people are illiterate. Illiteracy is more in female. Also there are number of dropouts from the school.
c) Vulnerability (helplessness) and exposure to risk – Due to poverty there is a problem of vulnerability. This is observed in the general helplessness among the poor people. Such people have lack of insecurity and protection from violence, crime, etc. This is specially observed in India among agricultural workers. It is also observed in respect to women.
d) Voicelessness and powerlessness - Due to such vulnerability the people find themselves voiceless and powerless. No one is ready to listen their problems. As a result even if the democracy is there the opinion of the poor does not matter. They are not able to take part in decision-making.

3. Predominance of Agriculture – Agriculture, animal husbandry, poultry, dairy and such other allied occupations constitute ‘primary sector.’ In the process of evolution of economic activity, primary sector was the first to be developed. Industry as a secondary sector emerged next and at last the tertiary sector as the service sector. The contribution of each sector in economy is important. As a less developed country, India has a large contribution of primary sector in the economy. It is more than one-fourth of the national product. The share of agriculture in India’s Gross Domestic Product (GDP) is 28% while the world average for low-income economies is 27%.
The pre-dominance of agriculture in India does not mean that the agriculture sector is developed. It only indicates its importance. In fact the productivity of agriculture in India is very low.

4. Low levels of Living – A reasonable standard of living is expected to be available to a human being and its absence means low level of living. The comparison of low level of living is not with the rich countries but with the richer sections in the same country. The most standard indicator of low level of living is ‘low per capita income’. But there are other indicators too.
a) Low per capita income – The per capita income in India according to the World Development Report is about US $450. Whereas in the developed country like USA it is $30000.
b) Other quality of life indicators –Nutrition, mother and the child’s care, basic education, drinking water and sanitation are the most basic needs. In respect of these, where advanced countries have achieved almost 100% success, in India the level of achievement is much lower.

5. Pressure of population – Rapid growth in population puts pressure on Indian economy. India’s population in 1921 stood at 25 crores. In 1951 it grew at 36.1 crores and in 2001 it was 101.2 crores. Very soon India will be ranked first, as she has high growth rate of population. The figures of dependent on agriculture in the year 1951 and 2001 are 25.3 crores and 62.7 crores which reduces the average holding of agricultural land to 3.5 acres.
The number of working population has only doubled during the period of 50 years; but at the same time the number of unproductive consumers has gone up from 20.6 crores in 1951 to 69 crores in 2001; while working population was 15.5 crores & 32.3 crores respectively. In other words the dependency burden has increased from 57% to 70%.
With growing population, when job opportunities are not growing, the obvious result is swelling number of the unemployed. According to planning commission the backlog of unemployment in 1951 was 5 lakhs inflated high to 75 lacks in 2001.
The metro cities are swollen with a large number of slum area leading towards the overburden to drinking water, medical facilities, transportation, dwellings, education, etc.
The number of children below 14 years have grown from 14.4 crores to 34.7 crores during second half of the 20^th century.
The most horrifying aspect of population pressure is that the per capita availability of grain land, which was 0.21 hectares in 1960, came down to 0.10 hectares in 1999.

6. Low rate of Capital formation – Capital formation takes place out of the savings of the society. In all LDCs, due to low levels of income, the rate of domestic saving is low. Naturally, the rate of capital formation is also low. Technological advancement all over the world shows necessity of increasing capital-intensive techniques of production. This means that with passage of time, the capital required per worker would goon increasing. In the interest of economic growth, the rate of capital formation must keep growing. The savings in terms of money are converted into real capital i.e. steel, cement, machinery, etc. which can be used for producing consumer’s goods. The total of such goods is called economy’s capacity to produce and counted as the rate of capital formation. In India we cannot see the appropriate picture.

7. Deficiencies in Infrastructure – India has got a great potential for development. In spite of richness of resources, she suffers from highly inadequate infrastructure facilities. Transport, communication, power-supply, water supply, banking and credit facilities, etc. are the various infrastructures.
India consumes 32 times less per capita electricity than the Americans. Almost one fifth i.e. 25% of electricity produced is lost in transmission and distribution. Countries like China and Japan has this wastage are only 8% and 4% respectively.
During the last 50 years, India has made quite a good progress in respect of infrastructure development, but the rate of growth is low in relation to demand.

8. Widespread chronic unemployment – Unemployment in developed countries is structural, cyclical or temporary. Due to change in technology or due to change in the structure of economy or due to shortfall of demand resulting from recession or depression, people are thrown out of employment. But the problem of unemployment in India is altogether different. Here people are unemployed because – a) There is shortage of capital i.e. there are workers but no machines to work with. b) Lack of infrastructure facilities new production units can’t be started. c) People who are unemployed are unskilled and uneducated.

9. Poor quality of Human Resources – Human resources of a country is the real strength of the economy, since human resources are the motive force of all economic activity. Even though India has got a huge amount of human resources it is very poor in quality. Poor quality of life means low efficiency, low levels of motivation to work and low productivity. In India there is a great difference between men and women workers. So greater the inequality, lower the Gender Development Index which results in poor quality of Human Resources.

10. Low lever of World or Global Competitiveness – Competitiveness means the ability of a national economy to achieve sustained high rates of economic growth, on the basis of suitable economic policies, institutions and other economic characteristics. After adopting the economic reforms and accepting globalization as the main aspect of economic policy, World or Global competitiveness has become a very important parameter for judging a country’s capacity to sustain economic growth. As there is low productivity and low level of technology in LDCs, it affects World or Global competitiveness. In over all ranking of Global competitiveness India is ranked at 52 while Singapore is at the first and USA is at the second rank.

11. Disparities, inequalities and imbalances – For rapid economic growth with sustainability and competitiveness, the socio-economic order must be just and balanced. India displays wide disparities, inequalities and imbalances.
Besides the economic disparities, social inequality and cultural diversity is another major characteristic of Indian society. This has a great impact upon the Indian economy.

The above-mentioned characteristics prove that India cannot be counted as modern countries even though she has progressed her in past 50 years. India is a Less Developed Country.