Government Policies in Agriculture Sector

Agriculture Finance in India: A Brief History

Agricultural finance in India has evolved significantly since independence to address the needs of farmers and promote inclusive rural growth. The journey can be divided into key phases:

Phase I (1951–1969): Laying the Foundation

1st Five-Year Plan (1951): Agriculture received top priority, and the focus was on increasing institutional credit access for farmers.
National Credit Council (1968): Emphasized expanding commercial bank credit to agriculture and small industries.
Bank Nationalization (1969): 14 major banks were nationalized to expand rural banking infrastructure, increasing rural/semi-urban branch penetration.

Phase II (1970–1990): Institutional Expansion and Rural Focus

Lead Bank Scheme (1969): Allocated one bank per district to coordinate rural credit delivery.
Priority Sector Lending (PSL): Mandated that a portion of bank credit be directed towards agriculture and allied sectors.
Regional Rural Banks Act (1976): Established RRBs to serve credit needs of rural and marginal farmers.
NABARD (1982): National Bank for Agriculture and Rural Development was created to support agriculture and rural development through refinancing and development functions.
Service Area Approach & Annual Credit Plans (1989): RBI’s initiative to allocate specific geographical areas to banks and improve credit planning and coverage.

Phase III (1991–Present): Reform, Innovation & Financial Inclusion

Narasimham Committee Reforms (1991): Focus on operational efficiency and financial soundness of banks.
Farm Loan Waiver (1990): Marked the first major nationwide waiver to address farmer distress.
Rural Infrastructure Development Fund (RIDF) (1995–96): Created under NABARD to finance rural infrastructure projects like roads, irrigation, and warehousing.
SHG-Bank Linkage Programme (1992): NABARD’s flagship microfinance initiative linking Self Help Groups with formal credit institutions. It became the world’s largest microfinance programme.

Major Schemes and Developments (Post-2000s)

Kisan Credit Card (KCC) Scheme (1998): Introduced to simplify credit access for farmers. It offers working capital loans for crop cultivation and allied activities.
Interest Subvention Scheme (2006–07): Provides subsidized crop loans to farmers with an additional interest discount for timely repayment.
Financial Inclusion Initiatives (Post-2010): Use of Aadhaar, Jan Dhan Yojana, and mobile technology helped streamline Direct Benefit Transfers (DBT) and ensured better credit delivery to farmers.
Livelihood and Enterprise Development Programme (LEDP) (2015–16): Promotes sustainable rural livelihoods through enterprise training for SHG members.
Agri Infrastructure Fund (2020): A ₹1 lakh crore fund to develop post-harvest infrastructure and farmer-centric projects.

Recent Developments (2023–2024)

Increase in Collateral-Free Loan Limit (2024):
- RBI raised the limit for collateral-free agricultural loans from ₹1.6 lakh to ₹2 lakh, easing credit access for small and marginal farmers amid inflation and rising input costs.
Digitization & KCC Integration with Jan Dhan & PM-KISAN:
- Government aims to ensure universal KCC coverage among PM-KISAN beneficiaries.
Focus on Technology-Driven Credit Delivery:
- Emphasis on AI and remote sensing technologies for crop monitoring and credit risk assessment.
NABARD’s New Digital Initiatives:
- Projects for Geo-tagging, Credit Monitoring, and Digital Farmer Profiles to optimize agricultural lending.

Conclusion

Agricultural finance in India has evolved from state-led institutional building to a tech-driven, inclusive system. Despite improvements in credit delivery and rural infrastructure, timely, adequate, and affordable credit remains a critical need. Going forward, a synergy of financial inclusion, institutional reforms, and digitization is key to empowering India’s farmers and achieving sustainable rural development.

Farmer Producer Organisations

In the vast landscape of Indian agriculture, where over 85% of farmers are small and marginal, Farmer Producer Organisations (FPOs) have emerged as a game-changing idea. Imagine a farmer with one acre of land trying to bargain in a mandi or access credit from a bank — tough, right? Now imagine the power of collective strength where thousands of such farmers come together, pool resources, and deal directly with buyers, processors, and markets. That’s the magic of FPOs.

🌱 What Exactly Is an FPO?

A Farmer Producer Organisation (FPO) is a collective of farmers who join hands to improve their access to inputs (like seeds and fertilizers), technology, credit, and markets. Legally, an FPO can be a producer company, cooperative society, or even a section 8 company under the Companies Act.

These organisations are not just about buying and selling together — they’re about changing the way farmers work, think, and earn.

💡 Why Are FPOs So Important?

Small and marginal farmers often lack:

Bargaining power in the market
Access to quality inputs and credit
Infrastructure for storage or processing

With an FPO, they get:

✅ Economies of scale
✅ Collective bargaining
✅ Value addition (branding, processing)
✅ Better price realization
✅ Formal market access

It’s essentially “farmers first” capitalism — and it’s working.

🏛️ The Government’s Big Push: 10,000 FPO Scheme

In February 2020, the Government of India launched an ambitious Central Sector Scheme to form and promote 10,000 FPOs by 2027-28.

🔹 Budget: ₹6,865 crore

🔹 Implementing Agencies:

SFAC (Small Farmers’ Agribusiness Consortium)
NABARD
NCDC (National Cooperative Development Corporation)
States can also nominate their own agencies.

The scheme follows a cluster-based approach, promoting “One District One Product” to encourage specialization, branding, and export.

📈 Big Milestone: Mission Accomplished!

Fast forward to March 2025 — and the government has already met its target of forming 10,000 FPOs.

But wait, there’s more.

According to recent data, over 35,000 FPOs have been formed since 2020. That’s a clear sign of how well this idea has taken off — with support pouring in not just from the government but also from private stakeholders.

💻 Digital India Meets Agriculture: FPOs on ONDC

In a revolutionary step, nearly 5,000 FPOs have been onboarded onto the Open Network for Digital Commerce (ONDC).

What does this mean?

FPOs can now sell their produce online directly to consumers across India.
Eliminates middlemen.
Improves margins for farmers.
Connects rural India with digital commerce.

This is agriculture entering the e-commerce era!

🛠️ Tools and Incentives for FPOs

To make sure FPOs don’t just exist but thrive, the government has included:

Equity grants to strengthen financial base
A ₹1,000 crore Credit Guarantee Fund managed by NABARD
Cluster-Based Business Organizations (CBBOs) to guide and support FPOs at the ground level

⚠️ The Roadblocks Ahead

Despite the progress, FPOs face several challenges:

Lack of awareness and literacy among farmers
Limited managerial skills and leadership
Inadequate infrastructure
Difficulty in accessing affordable credit

Also, recently, a Draft National Policy on Agricultural Marketing (Nov 2024) stirred debates, with some states fearing it would centralize control and revive elements of the repealed farm laws.

🔍 The Way Forward

To ensure FPOs remain farmer-centric, we need:

✅ Continued handholding support and capacity building
✅ Strong market linkages and integration with e-NAM and ONDC
✅ Simplified access to credit and digital tools
✅ A focus on infrastructure and value-chain development

And most importantly, policy reforms must always aim to empower farmers, not just benefit corporates.

🧾 In Conclusion

The Swaminathan Commission had rightly emphasized the need for farmer-centric, sustainable, and income-enhancing agricultural policies. FPOs bring that vision to life.

They’re not just a scheme — they’re the beginning of a new era in Indian agriculture: where farmers own the value chain, not just contribute to it.

✍️ For UPSC aspirants, FPOs are a must-know topic under agriculture, economy, and governance. Expect it in GS3, Essay, or even Ethics (collective empowerment, social justice).

Essential Commodities Act, 1955

The Essential Commodities Act (ECA) was enacted in 1955 to ensure the availability of essential commodities at fair prices.
It empowers the central government to regulate the production, supply, distribution, and pricing of commodities declared “essential”.
The objective is to protect consumers from shortages and abnormal price rises due to hoarding and black marketing.

Commodities under ECA

The list of commodities includes:
- Drugs, fertilisers, pulses, edible oils, and petroleum products.
The Centre can add or remove items based on the supply situation.
The Act also allows fixing the Maximum Retail Price (MRP) of packaged goods declared essential.

How It Works

When the Centre identifies supply shortages or price surges, it can notify stockholding limits on that commodity.
States implement these limits and monitor compliance through inspections.
Wholesalers, retailers, importers, and processors must not stock beyond the limits.
Violators are required to offload the excess stock into the market.
States may choose not to impose the stock limit, but once they do, compliance is mandatory.

Key Amendment: The Essential Commodities (Amendment) Act, 2020

Part of the Farm Laws 2020, the ECA was amended to liberalize agricultural trade and encourage private investment.
Key changes:
- Stock limits will not apply to processors, exporters, and value chain participants unless:
  - There is a 100% increase in retail price of horticultural produce, or
  - A 50% increase in non-perishable agri-food items.
- Aims to differentiate storage from hoarding.
- Intended to attract private sector investment in agri-infrastructure like cold chains and warehouses.

Criticism & Economic Survey Observations

Economic Survey 2019–20 and later reports argue that ECA is outdated:
Overuse of ECA leads to increased price volatility, not stability.
It creates uncertainty for traders and disincentivizes investment in storage and cold chain infrastructure.
Fails to distinguish between hoarding and genuine storage—especially important in agri-supply chains.
The Act was framed during an era of food insecurity and rationing (1950s), not suited to the modern surplus-oriented agricultural economy.
Example: In 2019, ECA was invoked to impose stock limits on onions after kharif crop loss due to floods. Instead of stabilizing prices, it led to greater volatility and disrupted supply chains.

Importance of the ECA

Still relevant during extraordinary situations:
- War, natural disasters, pandemics, or severe inflation.
Helps curb hoarding and black marketing in crisis situations.
Empowers the government to:
- Intervene quickly to ensure supplies,
- Stabilize prices for consumers,
- Take legal action against errant traders.

Conclusion

While the Essential Commodities Act, 1955 has historically played a vital role in protecting consumers and preventing hoarding, it needs rationalisation and reform in the context of a liberalised, surplus-driven economy. The 2020 Amendment is a step in this direction, aiming to balance consumer interest with the need for private sector participation and infrastructure development in agriculture.

Way forward:

Ensure targeted and minimal use of ECA in normal times.
Encourage investment in agri-logistics and warehousing without fear of regulatory overreach.
Maintain flexibility to invoke ECA during emergencies while ensuring transparency and accountability.

Agricultural Trade in India

Agricultural Imports and Exports

Major Agricultural Imports

Pulses – India imports large quantities to meet domestic demand.
Edible Oils – India is the world’s largest importer due to a wide demand-supply gap.
Fresh Fruits & Nuts – Includes apples, almonds, and cashew nuts, especially from the U.S., West Asia, and Africa.

Major Agricultural Exports

Cereals – India is a leading exporter of basmati and non-basmati rice.
Spices – Turmeric, chili, cumin, etc., have strong global demand.
Cotton & Textile Raw Material – India ranks high among global cotton exporters.
Meat & Animal Products – Buffalo meat is a key export.
Sugar – Exported depending on production surpluses and government policy.

Export-Import Trends

Share in Overall Trade:
- Agricultural exports constitute ~11.9% of total merchandise exports (2021–22).
- Agricultural imports remain modest at around 4–5% of total imports.
Recent Policy Trends:
- Export restrictions (e.g., rice, wheat, sugar) are imposed to control domestic inflation.
- Government is promoting diversification towards processed foods, oilseeds, and horticulture for global markets.

Impact of Liberalization on Agriculture

Advantages

Technology Transfer:
- Exposure to global markets has encouraged adoption of best practices, e.g., drip irrigation, greenhouse farming, hybrid varieties.
Mechanization & Modern Inputs:
- Liberalized trade enabled access to advanced machinery and agro-chemicals.
Improved Credit and Infrastructure:
- Greater access to financial institutions, foreign investment, and expansion of food processing industry.
Enhanced Global Market Access:
- WTO integration increased India’s agri-export potential.

Disadvantages

Price Volatility:
- Exposure to global markets has increased susceptibility to international price shocks, affecting income stability for Indian farmers.
Reduced Agricultural Subsidies:
- WTO commitments and liberal economic policies have led to rationalization of input subsidies, especially on fertilizers and energy.
Neglect of Traditional Practices:
- The shift towards yield-maximization has led to unsustainable farming practices, increasing soil degradation and chemical usage.
Testing Ground for Hazardous Inputs:
- Instances like Endosulfan use in Kerala highlight regulatory gaps allowing banned substances to be used in India.

Recent Developments

Export Diversification Drive: India is now focusing on exporting horticultural products, millets, processed foods, and organic produce, particularly to the U.S., EU, and Gulf nations.
Reducing Import Dependence:
- The government aims to double edible oil production by 2030–31 to reduce reliance on palm oil imports.
PLI Scheme for Food Processing: Promotes investment and value addition in the agricultural sector.

Conclusion

Liberalization has transformed Indian agriculture by opening up new markets and introducing modern practices. However, it has also brought challenges like market volatility, environmental degradation, and pressure on small farmers. A balanced strategy focusing on sustainability, infrastructure, farmer welfare, and regulatory reforms is crucial to ensuring long-term gains from agricultural trade liberalization.