Economic Reforms: Economics | Indian Economy (Prelims) by Shahid Ali - UPSC PDF Download

Economic Reforms

• The process of economic reforms was launched on 23 July 1991 in response to a fiscal and Balance of Payment crisis.
  
• The crisis was immediate by the first Gulf War (1991) which had two –ve impacts:
  (i) Increased oil prices led to faster use of Forex Reserve in a short period
  (ii) Private remittance from the Indians working in the Gulf region fell down fast
• The Balance of Payment crisis also reflected deeper problems of rising foreign debt, a fiscal deficit of over 8% of GDP and a hyperinflation (13%) situation.
• Under the IMF’s Extended Fund facility Programme, member countries get external currency support from the fund to mitigate their Balance of Payment crisis but on certain conditions.

IMF’s Conditions

• Devaluation of the rupee by 22%
• Drastic reduction in peak import tariff (130 to 30%)
• Excise duty (now CENVAT) to be hiked by 20% to neutralize the revenue shortfalls due to custom cut
• All govt expenditure to be cut down by 10% annually

The land policies of different states faced several controversies. In some state the reform measures were biased in favour of th big land owners who could wield their political influence. However, agrarian reform in India had set a healthy socio-economic structure in the rural areas.

The reforms have been undertaken along the following lines

• Abolition of zamindars and other intermediaries (jagirdars, inamdars, malgujars, etc) between the/state and the cultivator;
• Tenancy reforms and the reconstruction of the land ownership system;
• Fixation of ceiling on holdings and distribution of surplus land among the landless;
• Reorganization of agriculture through consolidation of holding and prevention of further fragmentation; and
• Development of co-operative farming and co-operative village management systems.

Review of Land Reform Measures

Reasons for Low Progress of Land Reforms

The task force on agrarian relations set up by the Planning Commission to appraise the progress and problems of land reforms, identified the following reasons for the poor performance of land reform measures.

Lack of political will

In the context of the socio-economic conditions prevailing in the country, no tangible progress can be expected in the field of land reforms in the absence of requisite political will. The sad truth is that this crucial factor has been wanting. In no sphere of public activity in our country since independence has had such a big gap between precept and practice i.e. between policy pronouncement and actual execution.

Absence of pressure from below

Except in a few scattered and localized pockets, practically allover the country, the poor peasants and agricultural workers are passive, unorganized and inarticulate. The basic difficulty in our situation arises from the fact that the beneficiaries of land reforms do not constitute a homogeneous social or economic group.

Negative attitude of the bureaucracy

Towards the implementation of land reforms, attitude of bureaucracy has been generally lukewarm and indifferent. This is, of course, inevitable because, as in the case of men who wield political power, those in the high echelons of the administration also are either big land- owners themselves or have close nexus with big land- owners.

Legal hurdles

Legal hurdles also stand in the way of land reforms. The task force categorically states: "in a society in which the entire weight of civil and criminal laws, judicial pronouncements and precedents, administrative procedure and practice is thrown on the side of the existing social order based on the inviolability of the private property, an isolated law aiming at the restructuring of the property relation in the rural area has little chance of success. And whatever little chance of success was there, completely evaporated because of the loopholes in the laws and protracted legislations". 

Absence of correct and up-to-date land records

The absence of correct and complete land records further added a good deal of confusion. It is because of this that no amount of legislative measures could help the tenant in the court unless he could prove that he is the e actual tenant. This he could only do if there were reliable, and up-to-date records of tenants.

The main reason for the unsatisfactory state of affairs are 

• Many of the areas in the country have never been cadastrally surveyed,
• In some areas where cadestral surveys were done for a  long time, no resurveys have been taken,
• No machinery, of any kind, existed for maintaining village records,
• Even where records were kept by government officials, there is no uniform system, and
• It has been found that even official records in many cases have not been correct.

Lack of financial support

Lack of financial support plagued the Land Reform Act from the beginning. No separate allocation of funds was made in the fifth plan for financing land reforms. Many states declined to include even expenditure of such essential items like preparation of records of rights in their plan budget. The state plans which are nothing but aggregate of expenditure programmes hardly made any reference to land reforms. Whatever funds were needed for finalizing of this programme had to be provided in non-plan budgets. It is because of this that the expenditure for land reforms was always postponed. or kept to ' the minimum.

Land reforms have been treated as an administrative issue

The implementation of land reforms is not an administrative issue, it is more of a political issue. Therefore, it is necessary to strengthen the political will for implementing land reforms. The task force of the Planning Commission in a very forthright manner states: "it should, however, be clearly understood that the mere setting up of an efficient administrative machinery will not by itself lead to any substantial improvement unless the political and economic hurdles operating against the programme are removed."

Green Revolution in India

Components of Green Revolution

High Yielding Varieties of Seeds (HYV) 

• One of the basic pre- requisite of technical changes is the high yielding variety of seeds (HYV). With this programme it becomes possible to lead intensive agriculture. It was, thus, during mid-sixties that the high yielding variety of wheat was evolved. Since then a number of HYV seeds of wheat, paddy, maize, and bajra have been developed and widely distributed throughout the country. 
• In 1966-67, only 1.89 million hectares of land had been brought under HYV seeds which rose to 56.18 million hectares in 1986-87. During 1991-92, the area under high yielding varieties of seeds was 64.7 million hectares which rose to 79.0 million hectares in 2000-01.

Chemical Fertilizers

• The use of chemical fertilizer is another reason promoting for accelerating the growth of agricultural output in the short period. In this regard, National Commission on Agriculture has rightly said, "It has been the experience throughout the world that increased agricultural production is related to increased consumption of fertilizers. Since 1950-51 Indian fertilizer industry has continuously expanded.
• The total production capacity which was 0.31 million tonnes in 1950-51 has reached to 9.04 million tonnes in 1990-91 and further to 15.23 million tonnes in 2002-03, As regards the consumption of fertilizers it was only 0.13 million tonnes at the beginning of the First five year plan.
• The consumption of fertilizers increased from 5.51 million tonnes in 1980-81 to 12.9 million tonnes in 1990-91. In 2001-02, consumption was recorded to be 17.3 million tonnes.

Irrigation

• Water along with HYV seeds and fertilizer forms a significant input, to raise agricultural production. Thus, availability of water is possible either from rain or surface flow or below ground. In India, availability of irrigation is highly scanty and more than 70 per cent of agriculture is dependent on rainfall.
  The rainfall is confined to few months i.e., June to September. 
• Moreover, rainfall in most parts of the country is very low, where, it is high, and the available soil moisture is not adequate to support multiple cropping. Hence, there is an urgent need for providing assured supplies of irrigation.

Pesticides

• It has been estimated that about 10 per cent crop is damaged every year due to defective and inadequate plant protection measures. The adoption of HYV has strengthened the need of such measures because it is conducive to the growth of the plant population.
• In order to meet these problems, central insecticides laboratory with its two branches at Hyderabad and Bombay and two regional centres at Kanpur and Chandigarh continue to augment efforts to ensure pesticides to cultivators.

Credit Facilities

• Farmers have been getting more credit facilities. Previously, farmers have to depend on money lenders for their credit requirements. But now most of the credit needs are filled by credit institutions. Thus, with the availability of cheap credit, farmers are in position to use improved seeds, fertilizers, machines etc. They have also arranged for minor irrigation facilities.

Impact of Green Revolution on Indian Economy

The green revolution has two types of effects on Indian economy, namely, (a) economic effects and (b) sociological effects.

Economic Effects

Increase in agricultural production and productivity

• Due to adoption of HYV technology the production of food grains increased considerably in the country. The production of wheat has increased from 8.8 million tones in 1965-66 to 184 million tones in 1991-92. The productivity of other food grains has increased considerably. It was 71% in case of cereals, 104% for wheat and 52% for paddy over the period 1965-66 and 1989-90.
  The index number of productivity on agriculture (Base -1969 - 70) increased from 88.9 in 1965-66 to 156 in 1991-92 indicating an increase of about 100% in productivity over the period.
• Though the food grain production has increased considerably but the green revolution has no impact on coarse cereals, pulses and few cash corps. In short the gains of green revolution have not been shared equally by all the crops.

Employment

The new agricultural technology has created more amounts of employment opportunities in the agricultural sector. The new technology is early maturing and makes multiple cropping possible.

Market Orientation 

The new technology has made the farmers market-oriented. Due to excess production the farmers have to go to the market for selling their surplus production.

Forward and Backward Linkage

Due to new technology the demand for industrial products like fertilizers, pesticides and insecticides increased which gave rise to industrialization of the economy. Similarly due to excessive production more employments were created in the tertiary sector like transportation, marketing and storage.

Sociological Effects

Personal inequalities

Due to Green Revolution the income of rich farmers increased considerably whereas the poor farmers couldn't reap any benefit. Hence in Punjab it led to concentration of wealth, income and assets with the rich farmers on the one hand and gradual pauperization of the rural poor. This led to a class conflict between the rich and the poor farmers. The small and marginal farmers were deprived of enjoying the gains of new technology.

Regional Inequality

The new technology was successfully implemented in the wheat-producing belt of the country whereas the rice producing zones were not at all affected by this Green Revolution. Hence the disparity between the two regions increased considerably. Father Green Revolution became successful in irrigated areas whereas in the rained belt the new technology couldn't be properly implemented.

 Positives

• Increase in Production / yield.
• Advantage to farmers: this includes their economic situation improving, even small and marginal farmers (although they were late in joining) getting better yield, control on many insects and pests, mechanizing improved working conditions.
• Better land use by employing two and three crop pattern
• better scientific methods applied as per requirement of farms.
• New seeds have been developed with better yield and disease fighting capability.

 Negative

• Degradation of land: Due to change in land use pattern and employing two and three crop rotation every year land quality has gone down and yield has sufferred.
• Degradation of land part 2: Due to heavy chemical fertilizer inputs land has become hard and carbon material has gone down.
• Weeds have increased: Due to heavy crop rotation pattern we do not give rest to land nor we have time to employ proper weed removal system which has increased weeds.
• Pest infestation has gone up: Pests which we used to control by bio degradable methods have become resistant to many pesticides and now these chemical pesticides have become non effective.
• Loss of bio diversity: Due to heavy use of chemical pesticides, insecticides and fertilizers we have lost many birds and friendly insects and this is a big loss in long term.
• Chemicals in water: These chemicals which we have been using in our farms go down and contiminate ground water which effect our and our children health.
• Water table has gone down: Water table has gone down due to lack of water harvesting systems and now we have to pull water from 300 to 400 ft. depth which was 40 to 50 feet earlier.
• Loss of old seeds: We have started using new seeds and lost old once since new once give better yield but due to this we have lost many important geens in these seeds.

Minimum support price

The price at which the government purchases crop from the farmers, whatever may be the price of the crops.
The MSP was announced by the govt for the first time in 1966-67 for the wheat in the wake of the Green Revolution and extended harvest, to save the farmers from depleting profits.

• Since then the MSP regime has been extended for many crops.
• MSP is announced every year for a number of crops

Main objectives

• To prevent fall in prices in the situation of over production
• To protect the interest of farmers by ensuring them a minimum price for their crops in the situation of a price fall in the market
• MSP is announced on the recommendation of the : Commission for Agriculture Cost & Prices (CACP)” which takes into consideration the inputs costs and favourable returns to the farmers.

Agricultural Credit and Insurance

Kisan Credit Card

• Launched in 1998 to provide short-term credit
• Simple, flexible procedures
• Helps buy seeds and fertilizers at farmer’s convenience
• Operated by major nationalized banks
• Includes personal accident insurance coverage

National Agricultural Insurance Scheme (NAIS) / Rashtriya Krishi Bima Yojana (RKBY)

• Launched in 2008
• Provides insurance coverage in the event of failure of crop due to natural causes, pests and diseases
• Covers food crops, oilseeds, sugarcane, cotton and potato
• Joint programme of Central and State governments
• 50% subsidy for small and medium farmers
• Implemented by Agriculture Insurance Company of India (combination of NABARD and other nationalized insurance companies)

Livestock Insurance Scheme 

• Launched in 2005
• Provides protection to farmers and cattle rearers against loss due to animal death
• Covers crossbred and high yielding cattle and buffaloes
• Fully funded by the Central government
• 50% subsidy
• Implemented by livestock development boards of each state

Rainfall Insurance / Varsha Bima 

• Launched in 2004
• Provides protection against anticipated shortfall in crop yield due to deficit rainfall
• Implemented by Agriculture Insurance Company of India Ltd. (AIC)

Weather Based Crop Insurance Scheme (WBCIS) 

• Launched in 2003
• Provides protection against loss due to adverse weather conditions including rainfall, frost, temperature etc
• Jointly funded by Central and State governments
• Up to 50% subsidy

Agricultural Marketing

Other Schemes

Pradhan Mantri Kisan Samman Nidhi (PM-KISAN):

• Provides direct income support to small and marginal farmers.
• Eligible farmers with up to 2 hectares of land receive Rs. 6,000 per year in three instalments.
• Operates through Direct Benefit Transfer mechanism to beneficiaries' bank accounts.
• Aims to promote farmers’ financial well-being and sustain their livelihoods.

National Mission for Sustainable Agriculture (NMSA):

• Aims to increase agricultural output, particularly in rainfed areas.
• Focuses on integrated farming, water usage efficiency, soil health management, and resource synergy.
• Addresses dimensions of water use efficiency, nutrient management, and livelihood diversification.
• Implements various schemes including Rainfed Area Development (RAD), Soil Health Management (SHM), Sub Mission on Agro-Forestry (SMAF), Paramparagat Krishi Vikas Yojana (PKVY), Soil and Land Use Survey of India (SLUSI), National Rainfed Area Authority (NRAA), Mission Organic Value Chain Development in North Eastern Region (MOVCDNER), National Centre of Organic Farming (NCOF), and Central Fertilizer Quality Control and Training Institute (CFQC&TI).

National Scheme on Welfare of Fishermen:

• Provides financial support for various purposes including housing construction, community halls, and drinking water access.
• Assists fishermen during lean periods through a savings cum relief component.

Rashtriya Krishi Vikas Yojana– Beneficial Approach for Transformation of Agriculture and Allied Sector (RKVY-RAFTAAR):

• Aims to enhance farming profitability by empowering farmers and encouraging entrepreneurial ventures.
• Establishes agribusiness incubators (ABI) and reinforces existing ones as Raftaar-ABI (R-ABI).
• Provides infrastructure, equipment, and staff to support agricultural innovation and entrepreneurship.

In the 2023-2024 Budget, the government launched several flagship schemes/programs:

• Atmanirbhar Clean Plant Programme: Led by the National Horticulture Board, this program aims to improve the quality of horticulture crops in India, promote exports in the sector, and focus on enhancing crop yields, environmental preservation, and resilient plant varieties.
• Transition to Natural Farming: The government plans to support one crore farmers in transitioning to natural farming over the next three years. This will involve establishing 10,000 Bio-Input Resource Centres to produce micro-fertilizers and pesticides, forming a decentralized national system.
• PM Matsya Sampada Yojana Sub Scheme: With an investment of ₹6,000 crores, this sub-scheme aims to enhance the operations of fishermen, fish vendors, and micro and small enterprises. It aims to improve value chain efficiencies, expand market access, and promote overall growth in the fisheries sector.
• Digital Public Infrastructure for Agriculture: To support farmer-centric solutions and the development of agricultural technology startups, a digital public infrastructure will be established. This open-source and interoperable resource aims to foster innovation and inclusivity in the agricultural sector.