UPSC CSE Mains Syllabus: GS-3- Major crops cropping patterns in various parts of the country, different types of irrigation and
irrigation systems storage, transport and marketing of agricultural produce and issues and related
constraints; e-technology in the aid of farmers.
Agriculture Infrastructure Fund & Agri-Futures
Agriculture Infrastructure Fund (AIF):
- Government had launched the Rs 1 lakh crore Agriculture Infrastructure Fund (AIF) to be used over the next four years.
- This fund will be used to build post-harvest storage and processing facilities, largely anchored at the Farmer Producer Organisations (FPOs).
- This can also be availed by individual entrepreneurs.
- The fund will also be used to provide loans, at concessional rates, to FPOs and other entrepreneurs through primary agriculture credit societies (PACs).
- NABARD will steer this initiative in association with the Ministry of Agriculture and Farmers Welfare.
- The implication of this for the Central government budgetis not going to be more than Rs 5,000 crore over four years in terms of interest subvention subsidy.
- The creation of the AIF presumes that there is already large demand for storage facilities and other post-harvest infrastructure.
Impacts of AIF:
- The fund is a major step towards getting agri-markets right.
- The government had earlier issued three ordinances related to the legal framework of agri-markets with a view to bringing about some degree of liberalisation.
- These ordinances relate to amendments in the
- Essential Commodities Act
- allowing farmers to sell their produce outside the APMC mandis
- encouraging farming contracts between farmers, processors, exporters and retailers.
- Changes in the legal framework are a necessary condition.
- Creating post-harvest physical infrastructure is as important as the changes in the legal framework. The AIF will help fill this gap.
- Its positive impact will be evident in due course, depending upon how fast, and how earnestly, the states, FPOs, and individual entrepreneurs implement the reforms initiated by the Centre.
- There is no doubt that more and better storage facilities can help farmers avoid distress selling immediately after the harvest, when prices are generally at their lowest.
- But small farmers cannot hold stocks for long as they have urgent cash needs to meet family expenditures.
- Therefore, the value of the storage facilities at the FPO level could be enhanced by a negotiable warehouse receipt system: FPOs can give an advance to farmers, say 75-80 per cent of the value of their produce at the current market price.
- But FPOs will need large working capital to give advances to farmers against their produce as collateral.
- Unless NABARD ensures that FPOs get their working capital at interest rates of 4 to 7 per cent — like farmers get for crop loans — the mere creation of storage facilities will not be enough to benefit farmers.
- Currently, most FPOs get a large chunk of their loans for working capital from microfinance institutions at rates ranging from 18-22 per cent per annum.
- At such rates, stocking is not economically viable unless the off-season prices are substantially higher than the prices at harvest time.
The future of the agri-futures markets:
- A vibrant futures market is a standard way of hedging risks in a market economy. Several countries — be it Chinaor the US — have agri-futures markets that are multiple times the size of those in India.
- The value of traded contracts on agri-futures in the NCDEX).
- In terms of volume, the number of contracts traded was much higher in China and US.
- In the past, government policy on futures has been too restrictive and unpredictable.
- A rise in agri-prices would often result in the banning of agri-futures.
- Most Indian policymakers look at agri-future markets as dens of speculators.
- These markets are blamed for any abnormal price rise or fall.
- As NABARD forms 10,000 FPOs and creates basic storage facilities through the AIF, it should devise a compulsory module that trains FPOs to use the negotiable warehouse receipt system and navigate the realm of agri-futures to hedge their market risks.
- Government agencies in commodity markets — the Food Corporation of India (FCI), National Agricultural Cooperative Marketing Federation of India (NAFED), State Trading Corporation (STC) — should increase their participation in agri-futures. That is how China deepened its agri-futures markets.
- The banks that give loans to FPOs and traders should also participate in commodity futures as “re-insurers” of sorts for the healthy growth of agri-markets.
- Finally, government policy has to be more stable and market friendly.
The bottom line is that India needs to not only spatially integrate its agri-markets (one nation, one market) but also integrate them temporally — spot and futures markets have to converge. Only then will Indian farmers realise the best price for their produce and hedge market risks.
POSSIBLE UPSC MAINS QUESTION: