Agricultural economics

Department of Economics, Punjabi University, Patiala (Punjab), India. E-mail: 2Assistant Professor, Department of Distance Education, Punjabi University, Patiala (Punjab), India. E-mail: Abstract: A progressive agriculture serves as a powerful engine of economic growth of any country. It helps in initiating and sustaining the development of other sectors of the economy. In view of this, after independence the Government of India adopted a positive approach and specific programmes like new agriculture technology were introduced. Indian farmers being poor were not in a position to buy these expensive inputs.Then the Indian Government started the scheme of subsidies on the purchase of various agriculture inputs to facilitate the farmers. Subsidies are often criticized for their financial burden, on the other hand there is a fear that agriculture production and income of farmers would decline if subsidies are curtailed. The findings indicate that the increasing rate of total subsidies (f ertilizers, electricity and irrigation) is higher than gross cropped area (GCA) during pre, first as well as second phase of liberalization periods.There is a lot of variation to find out the relationship between gross cropped area (GCA) and in total subsidies in zones throughout the study period. The present study suggests that Government should keep aside its motive to please voters or strengthen the vote bank, it should frame rational policy in which small size category farmers, who are not actual beneficiaries of subsidies, could get more and subsides, which they do not want should be withdrawn.Keywords:-agriculture, electricity subsidy, fertilizers subsidies, irrigation subsidy, productivity. I. Introduction The socio – economic structure, which prevailed prior to the British rule in the country, resulted in the organization of self-sufficient villages. It has been maintaining some kind of static equilibrium. The Indian peasant, though not properly educated, has adequate experience of farming systems and he has been dependent on it for the means of living.The Royal commission of Agriculture in India observed that both the methods of cultivation and social organization exhibit that settled order which is characteristic of all countries in which the cultivating peasant has long lived in and closely adapted himself to the conditions of a particular environment. The Indian agrarian economy on the eve of independence was critical in situation. It could be characterized totally primitive, deteriorative and turbulent.After partition, the country is left with 82 per cent of the total population of undivided India as well as only with 69 per cent of land under rice, 65 per cent under wheat and 75 per cent under all cereals. The deficiency of food grains is quite alarming and aggravating at that time (Chahal, 1999). In view of this, after independence tremendous efforts are made to boost the economy through agriculture as one of the tools for development.The Government of India adopted a more positive approach and hence a well definedpolicy of integrated production programmes with defined targets and a proper distribution programme is adopted along with other measures for the overall economic development of the country. Specific programmes like new agriculture technology are introduced to convert agriculture into a successful and prosperous business, to bring more land under cultivation and to raise agriculture production. In India, the adoption of new agricultural technique is costly than that of traditional method of cultivation.In traditional method, inputs are least expensive, on the other hand, inputs in modern technology like high yielding varieties of seeds, fertilizers, farm mechanization and irrigation are very costly and Indian farmers being poor are not in a position to buy these expensive inputs. Then on the recommendations of food grain price committee (Jha Committee), the Government of India started the scheme of subsidie s on purchase of various agriculture inputs to facilitate the farmers (Singh, 1994).Subsidies have occupied agricultural economists for a long time because they are pervasive in agriculture, even though they are often applied in ways that benefit mostly richer farmers, cause inefficiencies, lead to a heavy fiscal burden, distort trade, and have negative environmental effects. Agricultural subsidies can play an important role in early phases of agricultural development by addressing market failures and promoting new technologies (Fan, 2008).All of these subsidies by reducing the prices of the inputs, served in the initial stages of green revolution, as incentives to the farmers for adopting the newly introduced seed-cum-fertilizer technology. These helped in raising the agricultural output, after some time, the amount paid on these subsidies began to rise. The input subsidies have often been accused of causing most harmful effect in terms of reduced public investment in agriculture o n account of the erosion of investible resources, and wasteful use of scarce resources like water and Agricultural Subsidies In India Boon Or Cursewww. iosrjournals. org 41 | Page power. Further, apart from causing unsustainable fiscal deficits, these subsidies by encouraging the intensive use of inputs in limited pockets have led to lowering the productivity of inputs, reducing employment elasticity of output through the substitution of capital for labour and environmental degradation such as lowering of water tables. (Gulati, 2003).In India, at present centre as well as state governments are providing subsidies on fertilizers, irrigation (canal water), electricity and other subsidies to marginal farmers and farmers’ cooperative societies in the form of seeds, development of oil seeds, pulses, cotton, rice, maize and crop insurance schemes and price support schemes etc. Out of these subsidies, the Central Government of India provides indirect subsidies to farmers on the purc hase of fertilizers from 1977, whereas state governments are providing subsidies on irrigation as well as on electricity (Government of Punjab, Agriculture Department, Chandigarh).Review of literature of the past theory and practice is necessary when conducting any research work. Sharma, (1982) examined the impact of agricultural subsidies on national income and agricultural production. For this purpose the author used the time period from 1970-71 to 1981-82 and a general equilibrium model. The study revealed that during this period, agricultural subsidies affected the national income and agriculture production positively. Gupta, (1984) tried to analyse the agricultural subsidies in India from 1970-71 to 1982- 83.The author used linear regression model. The study showed that during this period, the use of agricultural subsidies increased at faster rate but there was a large inter-state disparity. Sharma, (1990) revealed in this study that subsidies have become unsustainable. In orde r to release resources for higher investments in the agricultural sector, large scale price and institutional reforms are needed to relieve the pressure of subsidies on the exchequer. Gulati, (2007)reviewed the trends in government subsidies and investments in and for Indian agriculture.The author suggested that to sustain long-term growth in agricultural production and therefore provide a long-term solution to poverty reduction, the government should cut subsidies of fertilizer, irrigation, Power and credit and increase investments in agricultural research and development, rural, infrastructure and education. Promoting non-farm opportunities are also important. From the above studies, it may conclude that agriculture subsidies are a worldwide phenomenon.Some studies showed the distribution pattern of agriculture subsidies in different countries and in different states of India. Whereas some studies showed the impact of agriculture subsidies on income of farmers of different states of India, on agriculture production, on gross cropped area, on cropping pattern etc. Subsidies are often criticized for their financial burden. Some researchers assert to the extent that these should be withdrawn in a phased manner, such a step will reduce the fiscal deficit, improve the efficiency of resources use, funds for public investment in agriculture.On the other hand, there is a fear that agriculture production and income of farmers would decline if subsidies are curtailed. These are very important issues, which need serious investigation. Subsidies are often criticized for their financial burden. The objectives of the present study are to study the growth and distribution of agricultural subsidies in India, to study the impact of agricultural subsidies in India, to suggest ways and means for giving agricultural subsidies to farmers of India.The present study is related to agricultural subsidies in India from 1980-81 to 2008-09. In this study agriculture subsidies of fertil izers, electricity, irrigation (canal water), seeds, machinery etc. are discussed during pre-liberalisation period (1980-81 to 1985-86), first phase of liberalisation period (1990-91 to 1996-97) as well as during second phase of liberalisation period (2000-01 to 2008-09). For analysing the growth and distribution pattern of agriculture subsidies, five zones i. e.south zone (includes Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Pondicherry, Andaman and Nicobar Islands and Lakshadweep), west zone (includes Gujarat, Madhya Pradesh, Chhattisgarh, Maharashtra, Rajasthan, Goa, Daman and Diu and Dadra Nagar Haveli), east zone (Bihar, Jharkhand, Orissa and West Bengal), north zone (Haryana, Punjab, Uttar Pradesh, Uttaranchal, Himachal Pradesh, Jammu and Kashmir, Delhi and Chandigarh) and north-east zone (Assam, Tripura, Manipur, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram and Sikkim) have been taken.II. Gross Cropped Area in India Land is the fundamental basis for the most of the huma n or natural activities and is one of the major natural resources on earth. Agricultural productivity is entirely dependent on the availability of suitable land (State of Environment Punjab – 2007). In India, there are competing demands of area available for cultivation from increase in rural habitations, forestation, urbanisation and industrialisation.Consequently, gross cropped area in the country has registered a rapid deceleration in its growth over time (Bhalla, 2009). In this section, an attempt is made to analyse the gross copped area (GCA), total subsidies, fertilizers, electricity and subsidies at India as well as zone levels. The gross cropped area (GCA) in India during 1980-81 to 2006-07 is shown in table 1. This table reveals the west zone got topmost position, followed by north zone, south zone, east zone and north-east zone throughout the study period.In India, GCA has shown variations i. e. it has increased from 1,73,324 thousand hectares in 1980-81 to 1,85,403 thousand hectares in 1990-91 and further increased to 1,88,601 thousand hectares in 1996-97, it has declined to 1,86,565 thousand hectares in 2000-01 and further declined to 1,75,678 thousand hectares in 2006-07. As zone-wise analysis shows that in west zone, the GCA has Agricultural Subsidies In India Boon Or Curse www. iosrjournals. org 42 | Page increased from 69,882 thousand hectares in 1980-81 to 75,659 thousand hectares in 1990-91 and further increased to 78,097 thousand hectares in 1996-97 and declined to 72,833 thousand hectares in 2006-07.In north zone, it has increased from 38,806 thousand hectares in 1980-81 to 42,132 thousand hectares in 1996-97 and declined to 39,780 thousand hectares in 2006-07, whereas in south zone, the GCA has increased from 32,363 thousand hectares in 1980-81 to 34,688 thousand hectares in 1990-91 and further increased to 35,333 thousand hectares in 1996-97 and declined to 35,271 thousand hectares in 2000-01 and again increased to 36,368 thousand hectares in 2006-07.In east zone, the GCA has increased from 27,514 thousand hectares in 1980-81 to 28,741 thousand hectares in 1990-91 and declined to 27,416 thousand hectares in 1996-97 and further declined to 20,246 thousand hectares in 2006-07, on the hand the GCA has increased from 4,759 thousand hectares in 1980-81 to 5,163 thousand hectares in 1985-86 and further increased to 6,451 thousand hectares in 2006-07 in north-east zone. Agricultural economics Agriculture is defined as â€Å"the cultivation of land for the purpose of producing food for man, feed for animal and fibre or raw material for industrial companies. It also includes the processing marketing of crops. In other words, it embraces all activities involved in the primary and controlled production of plant and animals, such as fishing, forestry, farming, livestock, poultry and small scale industries connected with processing of agricultural products. The agricultural sector forms the background of Nigeria economy despite concerted effort in industralisation.Agriculture occupies the pride place as the source of livelihood for over 70 percent of the population. It is recognized as a pre-requisite to economic development. With large scale dependence on agriculture for food, raw-material for industries etc, one would expect production to increase, rather it is disheartening to note that this is not the case. Agriculture has suffered some neglect due to lack of investment si nce the inception of oil boom in 1970. In fact, Nigeria is experiencing a decline in the space of agricultural production in general, this situation is causing a great concern to the government.Throughout the 1960s, Agriculture contributed 61. 5%. in the 1970s, it declined miserably be 2. 3%. This decline may be attributed to the domination of the nations export by oil since 1970 which accounted for 57. 6% of total export income and rose steadily, attaining an overwhelming proportion of 98% in 1981. As a result there was an absolute neglect in agriculture to both God (Gross Domestic Product) and export earnings which has been the major factor dictating the need to reactivate our agricultural products.The need for this re-activity and in effort to revamp this sector has been the reason for raising budgetary allocation in recent years to it. It rose from 6% in 1970s to 22% in 1984. this increase acts as incentive and motivation to farmers, but these farmers while engaging in these agr icultural ventures are exposed to a lot of problem like diseases and pest attacks, fire destructions, industrial pollution, machinery breakdown and other problems. To these problems, the farmers need some aids in solving or minimizing them. Finance has been one of themost significant problems in the expansion of agricultural production. This was as a result of the neglect of the agricultural sector following the oil boom of 1970s, when the oil sector become a major aspect of the Nigerian’s foreign exchange earning. This contributed to the inadequate funding of the agricultural sector unlike before the boom. Also the establishment of industries in the urban areas during the 1990 – 1994 National Development plan to boast industrialization drew the rural populace with constitute the farming population to urban cities for search of white color jobs.A stage has reached, that average Nigerians are now underfed. In the words of or P. N. C. Akimbo in 1990 â€Å"The average Ni gerian consumed on the average, some 20. 23 calories per day and 56. 46 grammes of protein per day compared to the food and agricultural organization (FAO)minimum of 21. 91 calaries and 53. 8 grammes of protein. The average Nigerian was and still, is among the worst fed in the world.As a result of these situations; the successive Nigerian Governments showed concern over the decline situation of Agricultural production through policies and programmes aimed at revamping the agricultural production in attempt to encourage increase food production â€Å"The federal Government in 1993 tried the National Accelerated food production in programme (NAFPP) during the General Yakulu Gowon’s regime; Under the leadership of General Obasanjo, the Operation feed the Nation programme â€Å"(OFN) in 1976; Green Revolution came up under President Shehu Shagari and Directorate of food Road and Rural infrastructure under the regime of General Basangida regime. Neither of these measures halted the Agricultural decline or any lasting effect on food production.This is because â€Å"little or no meaningful attempt has been made to change the under developed status of the rural dwellers notwithstanding that these people constitute about 95 percent of the total population engaged in Agricultural in Nigeria. It has been attributed that inadequate funding of agricultural project and programme has contributed in large measures to the government low production of Agriculture in Nigeria, and the government and other financial institutions forms the major sources of finance for Agriculture though policies and programmes. Then what role and impact has the central Bank of Nigeria (CBN) as the bank at the apex of Nigeria Banking system, (Bank of last resort, bank to the government and Banker to other banks)† played to reinforce the government policies or revamp the agricultural sector of the economy.The under – developed characteristic of the Nigerian economy has made the central Bank of Nigeria to be activity involved in the promotion of rapid economic development of other sector especially agriculture through its development roles unlike in developed economics where the role of central Bank is restricted to development of the financial system. According to Dr Belshaw in his book entitled â€Å"Agricultural credit in economically under-developed countries he wrote that â€Å"in respect of agricultural credit, a central Bank has an important part to play by helping to establish, strengthen and promote the extension of commercial banking facilities and agricultural credit institutions. Professor G.Nwankwo also wrote â€Å"it for instance mistaken to think and believe that only the function of a central Bank is to control or regulate the financial system; it was not conoinced nor thought to be an appropriate function that a central Bank also has to the task of developing the financial system if non existed and of organizing and mobilization of reso urces for development. To this end, the central Bank of Nigeria embarked on some programmes and policies to curb the under economic development and low trend in agricultural production. These policies include the following : i. The provision of credit to marketing board for the purchase of some agricultural produce for export.This has become the sole responsibility of the central Bank of Nigeria since May 1968, when the commercial financial still was abolished by the federal Government. ii. The establishment of the Nigeria Agricultural Bank (NAB) in 1976, this Nigerian Agricultural co-operative societies, improve agricultural production and storage facilities and promote marketing of agricultural products through liberal credits to farmers at softer terms. The bank started with a capital of #6 million which has increased to #250 million in 1991 with the CBN contributing 40 percent while the Federal Government has 60 percent share. The functions of the banks includes: grant in of loa ns to small and medium scale farmers. iii.The CBM also used another instrument in financing of agriculture, this is through its credit guidelines contained in its monetary and fiscal policies circulars which required the commercial banks to give preferential treatment to Agriculture. iv. The establishment of Agricultural credit Guarantee scheme fund (ACGSF) in 1977 by both the federal Government and the central Bank of Nigeria. The Act provided #100 million subscribed by the federal government, and the CBN at the ration of 60 percent or #60 million to the federal Government, 40 percent or #40 million to CBN. This is to grantee for loan default made by commercial banks to farmers for Agricultural purposes to the time of 75% of the default. The CBN was also appointed the managing agent of the fund. 2. STATEMENT OF PROBLEMSDespite the various policies and programmes mapped out annually for the economic development of Nigeria with emphasis on Agriculture, the agricultural production lev el remained very low and recently on the decline. Finance has been traced to be the major handicap to the typical Nigeria farmer, inadequacy of modern farming equipment, inputs, basic infrastructure and storage facilities, marketing and distribution system. Then the central Bank of Nigeria – the apex bank has been mandated by the federal Government of Nigeria to find a solution to these problems. Consequently, the central bank of Nigeria through its agencies grant credit for the purpose of agriculture. But was faced with the following problems. – Inadequate public enlightenment – Mismanagement – Technological constraints – Poor land tenure system – Environmental constraints– Above all financial constraints. Identifying financial constraints as the major handicap to increase agricultural production. The federal government increased its spending on agriculture by 12. 7 percent in 1981 as against 6. 5 percent in 1970’s. a total of #8 million was allocated to agriculture during the five years National Development plan 1981 – 85. still not much has been achieved in food production. To this end, the federal Government through the CBN policies and programmes aimed at adequate financing to increase agricultural productivity, for a nation that can not feed herself is said to be economically undeveloped. 3. OBJECTIVE OF THE STUDYThe major objective of this study is to determine and appraise the performance of the central Bank of Nigeria and its agencies to agricultural finance and development. This involves: i. To identify the central Bank of Nigeria policies in relation to Nigeria Agriculture. ii. To evaluate various measures introduced to boost agricultural production and agricultural financing and how this affected the realization of the agricultural goals and iii. To identify the problems associated with the implementation of these policies and suggest solution so as to improve agricultural production. 4 . SIGNIFICANCE OF THE STUDY Unless the cause of a problem is found, any attempt at solving the problem would likely be effort in futility. But when the basic causes of a problem are identified, solution would be easily found.This research work on the impact of central bank of Nigeria policies in relation to Nigeria agriculture would be of immense importance to the policy and credit guideline makers in ascertaining the efficiency of these policies on agriculture in particular and the economy in general. Also from the recommendations and suggestions, the problems and causes of failures in implementation would be taken care of. As the policies involves many financial and other credit institution the research would be of great worth to these institution, for instance, It would help in assessing the performance and cause of default in credit extension under the Agricultural credit Guarantee scheme fund (ACGSF), the Nigerian Agricultural co-operative bank (NACB) Credit and loan system. Th e research work when completed will be of use to the following: -The farmers and Agriculturist -The central bank of Nigeria (Federal Government).-The entire economy -Finally, this work will serve as an addition to the already existing literature and references in the area of policies of central Bank of Nigeria agricultural financing, monetary economics and finance in general. 5. LIMITATION OF THE STUDY The major source of some very vital data on the work of course is the central bank of Nigeria but because of its own policies, the major information areas are not accessible to the public. To this regard, the research has selected the salient roles of the central bank necessary for the research and finically examined and evaluated the effects of these policies in relation to agriculture.It is also very pertinent to state that the scope of this work generally is restricted to the programmes of agricultural financing that are directly under the supervision and control of the central ban k of Nigeria. 6. STATEMENT OF HYPOTHESIS The central bank of Nigeria (CBN) through its policies and programmes has made remarkable impact in Agricultural financing in Nigeria. The central bank of Nigeria (CBN) through its policies and programmes has made no impact in Agriculture financing in Nigeria. The Central Bank of Nigeria (CBN) through its polices and programmes has evaluated various measures introduce to boost agricultural production. The Central Bank of Nigeria (CBN) through its policies and programmes has made no remarkable measure to boost agricultural production. 7. DEFINITION OF TERMSIt is necessary here to introduce operational definition of some concept to be commonly used in this study for better understanding of the study. These terms are as follows. Development: this means the process of sustained increase in both per capital income and total income accompanied by structural modification of the social economic and political environment. Economic growth: This refers to the steady process by which the productive capacity of the economy is increased over time to bring about rising levels of national income. Economic Development: This can be known as nothing less than â€Å"The upward movement of the entire social system or it many be interpreted as the attainment of a number of ideas of modernization such as a rise in productivity, social and economic equal section.Modern knowledge, improved institutions and attitudes and a traditionally co-ordinate systems of policy measures that can remove the host of undesirable conditions in the social system that have perpetuated a state of under development†. Financial Institution: These are institutions either private or public that channels loanable funds from savers to borrowers. Example commercial banks and development banks. Policy: This is a cause oaf action pursed by the government to achieve some development is also a source of raw materials for the teaming industries the product for which mo dern man has virtually become over dependent on†. Butterssing these parts.Enikanselu (1985) stated thus† agriculture besides providing food for the people contributes positively to capital accumulation for the purpose of financing the industrial sector†. He maintained that the role of Agriculture in the economic development of a nation includes providing an initial stage of development, the purchasing power for the industrialization of the economy by supplying the necessary raw – materials for industries. Uka (1986) in his own opinion on the importance of Agriculture to Nigeria economy assert that â€Å"Food is a basic necessity of life; and it is only on a firm basis of food production that virile economy can be founded.Besides, dependent on external sources of food supply has grave instability consequence because it ties the nations independence to the international policies. Writing on the importance of Agriculture and the preferential treatment given to it by the central bank of Nigeria in policy consider eration and allocation, Egba (1978) Stressed that â€Å"since 1969 when the first circular was issued to banks, the CBN has consistently given preferential treatment to agriculture which was included in the broad sector refered to as production†. This preferential treatment covers both the volume of loans allocated to the sector and the interest rate chargeable on such loans.Agriculture provides the greatest avenue for employment, income and food for Nigerian populace. Also the position of agriculture as a source of raw-materials for key industries and a major foreign exchange earner. Thus the government has given such priority to agricultural production because of its realization of the numerous contributions. A highly developed agricultural sector could make to the development of the Nigerian economy Olayade (1986) said â€Å"the agricultural sector provides employment for about 67% of the active population in the count ry. It is abundantly clear therefore that this sector has constituted the back bone of our economy until only recently.