Capital formation in agriculture refers to the addition to the physical stock of infrastructure, resources, and technology in rural areas. This process plays a crucial role in ensuring sustainable agriculture, adopting advanced technology, and making the sector commercially profitable. It involves investments in dams, roads, power plants, land reclamation, and other agricultural infrastructure.
Key aspects and considerations related to capital formation in Indian agriculture include:
- Judicious Use of Natural Resources:
- Capital formation facilitates the judicious use of natural resources for sustainable agriculture practices.
- Adoption of Advanced Technology:
- Investments contribute to the adoption of advanced technology, improving production efficiency in agriculture.
- Ensuring Food Security:
- Capital formation is essential for ensuring food security by creating the necessary infrastructure for increased agricultural production.
- Profitable Commercial Sector:
- It aims to make agriculture a profitable commercial sector by promoting investments in technology, infrastructure, and market development.
- Difference Between Capital Formation for Agriculture and in Agriculture:
- Capital formation for agriculture involves investments in rural roads, factories, and infrastructure that indirectly impact agriculture. Capital formation in agriculture includes direct inputs like irrigation, agro-chemical production, and high-yielding variety (HYV) seeds.
- Government Initiatives:
- The government has increased capital investment in agriculture and allied sectors, rising from 13.5% of GDP in 2004-05 to 20.1% in 2010-11.
- Fiscal pressures necessitate rationalizing subsidies for agriculture, adopting measures like direct benefit transfer (DBT), and allocating more resources for infrastructure.
- Public and Private Sector Investment:
- Both public and private sectors should invest in agriculture, with public sector investments including irrigation works, land reclamation, and afforestation.
- Public sector investments can induce increased private sector investment, known as the ‘crowd in’ effect.
- Government Steps for Capital Formation:
- Initiatives include rural roads, employment programs (Pradhan Mantri Gram Sadak Yojana, MGNREGA), agricultural diversification, strengthening marketing infrastructure, water body restoration, micro-irrigation, and rural credit provisions.
- New fertiliser subsidy regimes and investments in R&D, particularly in biotechnology, are emphasized.
Capital formation is vital for the overall growth and sustainability of the agricultural sector, requiring concerted efforts from both the government and the private sector.
Doubling Farmers’ Income:
The endeavor to double farmers’ income in India is a pivotal policy objective, undertaken to overcome challenges in the agriculture sector and elevate the financial well-being of farmers. The strategic framework for achieving this ambitious target, as devised by the Ashok Dalwai Committee on Doubling Farmers’ Income, revolves around four foundational pillars:
- Increasing Total Agricultural Output:
- The strategy concentrates on enhancing productivity across various crops and horticulture.
- Tangible outcomes are evident in the notable upswing in total output, with foodgrains and horticulture registering substantial growth. For instance, foodgrain production surged from 264 million tonnes in 2014-15 to 291 million tonnes in 2018-19, while fruits and vegetable production rose from 265 million tonnes to 315 million tonnes.
- Ensure Cost-Effectiveness through Efficient Resource Use:
- Initiatives such as the Soil Health Card and micro-irrigation are implemented to curtail the cost of cultivation.
- Micro-irrigation, with an expanded coverage from 7 lakh hectares to 1.2 million hectares per year, proves instrumental in water conservation, cost reduction, and enhanced productivity.
- The introduction of neem-coated urea optimizes nitrogen usage, improves soil health, and results in cost savings for farmers.
- Ensure Remunerative Prices to Farmers:
- Central to this pillar are marketing reforms, including changes in the APMC Act by states, the introduction of eNAM (National Agriculture Market), GrAMs (Gramin Agricultural Markets), and the Model Contract Farming Act of Niti Aayog in 2018.
- Financial Support:
- Financial backing is extended through a range of schemes and initiatives, encompassing:
- The escalation of farmers’ credit volume from ₹8.2 lakh crore in 2014-15 to ₹11.5 lakh crore.
- The PM Fasal Bima Yojana for effective risk management.
- PM Kisan, facilitating a direct transfer of ₹6,000 annually to farmers.
- The Pradhan Mantri Kisan Maan-Dhan Yojana (PM-KMY), a voluntary and contributory old-age pension scheme tailored for Small and Marginal Farmers (SMFs) aged 18 to 40 years.
- Financial backing is extended through a range of schemes and initiatives, encompassing:
These collective endeavors aim to address the multifaceted challenges faced by farmers, ensuring the adoption of cost-effective and efficient agricultural practices, creating viable marketing avenues, and providing essential financial support to augment farmers’ income. The approach is holistic, embracing diverse facets of agricultural production, resource utilization, and overall farmer welfare.
Three significant structural reforms have been introduced in the agricultural sector, specifically in the areas of produce price, sale, and storage, with the potential to yield substantial benefits for farmers:
- Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020:
- Expands the trade areas for farmers’ produce from specific zones to encompass “any place of production, collection, aggregation.”
- Allows electronic trading and e-commerce transactions involving scheduled farmers’ produce.
- Prohibits state governments from imposing market fees, cess, or levies on farmers, traders, and electronic trading platforms for transactions occurring in areas outside traditional trade zones.
- Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020:
- Establishes a legal framework for farmers to engage in pre-arranged contracts with buyers, including provisions for pricing.
- Defines a dispute resolution mechanism to address conflicts that may arise from such agreements.
- Essential Commodities (Amendment) Act, 2020:
- Removes certain food items, such as cereals, pulses, potatoes, onions, edible oilseeds, and oils, from the list of essential commodities.
- Eliminates stockholding limits on agricultural products produced using horticulture techniques, except under “extraordinary circumstances.”
- Requires the imposition of stock limits on agricultural produce only in the event of a significant price surge.
However, the successful implementation of these reforms hinges on addressing challenges and ensuring effective execution through high-quality extension services. This includes providing farmers with the necessary support, information, and resources to navigate and benefit from the new reforms. A key consideration is the need for robust extension services to bridge the gap between policy changes and on-the-ground realities, thereby maximizing the positive impact of these structural reforms on the agricultural sector and the farmers it serves.
FAQs
1. What is capital formation in Indian agriculture?
Capital formation in Indian agriculture refers to the process of increasing the stock of physical and human capital in the agricultural sector. This includes investments in machinery, technology, infrastructure, and human capital such as education and training, aimed at enhancing agricultural productivity and efficiency.
2. Why is capital formation important in Indian agriculture?
Capital formation is crucial for Indian agriculture as it leads to increased productivity, better utilization of resources, and overall economic growth. It enables farmers to adopt modern techniques, machinery, and inputs, resulting in higher yields and improved livelihoods. Additionally, it facilitates the transition from traditional subsistence farming to commercial agriculture, thereby reducing poverty and promoting rural development.
3. What are the key sources of capital formation in Indian agriculture?
The main sources of capital formation in Indian agriculture include government investments in agricultural research and development, subsidies for inputs such as fertilizers and seeds, institutional credit from banks and cooperatives, private investments in agribusinesses, foreign direct investment (FDI) in agriculture, and farmer savings reinvested into their farms.
4. How does capital formation contribute to agricultural modernization in India?
Capital formation plays a vital role in agricultural modernization by enabling the adoption of advanced technologies, mechanization, and improved farming practices. It facilitates the acquisition of modern machinery, irrigation systems, and high-quality seeds, leading to increased efficiency, reduced post-harvest losses, and enhanced agricultural output. Moreover, investments in infrastructure such as rural roads and storage facilities improve market access and enable farmers to fetch better prices for their produce.
5. What challenges does India face in promoting capital formation in agriculture?
Despite its importance, capital formation in Indian agriculture faces several challenges, including inadequate access to credit for small and marginal farmers, insufficient infrastructure, fragmented landholdings, limited adoption of modern technologies, and policy constraints. Addressing these challenges requires comprehensive reforms, including improving rural credit delivery systems, enhancing public-private partnerships, investing in infrastructure development, promoting land consolidation, and incentivizing technological innovation in agriculture.
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