Paper-3, Booklet-3, Economic Development

STEPS TAKEN TO OCNTROL THE CRISIS NPAs story is not new in India and there have been several steps taken by the GOI on legal, financial, policy level reforms. In the year 1991, Narsimham committee recommended many reforms to tackle NPAs. Some of them were implemented.  The Debt Recovery Tribunals (DRTs) – 1993 To decrease the time required for settling cases. They are governed by the provisions of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993. However, their number is not sufficient therefore they also suffer from time lag and cases are pending for more than 2-3 years in many areas.  Credit Information Bureau – 2000 A good information system is required to prevent loan falling into bad hands and therefore prevention of NPAs. It helps banks by maintaining and sharing data of individual defaulters and willful defaulters.  Lok Adalats – 2001 They are helpful in tackling and recovery of small loans however they are limited up to 5 lakh rupees loans only by the RBI guidelines issued in 2001. They are positive in the sense that they avoid more cases into the legal system.  Compromise Settlement – 2001 It provides a simple mechanism for recovery of NPA for the advances below Rs. 10 Crores. It covers lawsuits with courts and DRTs (Debt Recovery Tribunals) however willful default and fraud cases are excluded.  SARFAESI Act – 2002 The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 – The Act permits Banks / Financial Institutions to recover their NPAs without the involvement of the Court, through acquiring and disposing of the secured assets in NPA accounts with an outstanding amount of Rs. 1 lakh and above. The banks have to first issue a notice. Then, on the borrower‘s failure to repay, they can: 1. Take ownership of security and/or 51

2. Control over the management of the borrowing concern. 3. Appoint a person to manage the concern. Further, this act has been amended last year to make its enforcement faster.  ARC (Asset Reconstruction Companies) The RBI gave license to 14 new ARCs recently after the amendment of the SARFAESI Act of 2002. These companies are created to unlock value from stressed loans. Before this law came, lenders could enforce their security interests only through courts, which was a time-consuming process.  Corporate Debt Restructuring – 2005 It is for reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back.  5:25 rule – 2014 It is also known as, Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries. It was proposed to maintain the cash flow of such companies since the project timeline is long and they do not get the money back into their books for a long time, therefore, the requirement of loans at every 5-7 years and thus refinancing for long term projects.  Joint Lenders Forum – 2014 It was created by the inclusion of all PSBs whose loans have become stressed. It is present so as to avoid loan to the same individual or company from different banks. It is formulated to prevent the instances where one person takes a loan from one bank to give a loan of the other bank.  Mission Indradhanush – 2015 The Indradhanush framework for transforming the PSBs represents the most comprehensive reform effort undertaken since banking nationalization in the year 1970 to revamp the Public Sector Banks (PSBs) and improve their overall performance by A-B-C-D-E-F-G. 52

A-Appointments: Based upon global best practices and as per the guidelines in the companies act, separate post of Chairman and Managing Director and the CEO will get the designation of MD & CEO and there would be another person who would be appointed as non-Executive Chairman of PSBs. B-Bank Board Bureau: The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for the appointment of Whole-time Directors as well as non- Executive Chairman of PSBs C-Capitalization: As per finance ministry, the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore out of which 70000 crores will be provided by the GOI and the rest PSBs will have to raise from the market. D-De-stressing: PSBs and strengthening risk control measures and NPAs disclosure. E-Employment: GOI has said there will be no interference from Government and Banks are encouraged to take independent decisions keeping in mind the commercial the organizational interests. 53

F-Framework of Accountability: New KPI (key performance indicators) which would be linked with performance and also the consideration of ESOPs for top management PSBs. G-Governance Reforms: For Example, Gyan Sangam, a conclave of PSBs and financial institutions. Bank board Bureau for transparent and meritorious appointments in PSBs.  Strategic debt restructuring (SDR) – 2015 Under this scheme banks who have given loans to a corporate borrower gets the right to convert the complete or part of their loans into equity shares in the loan taken company. Its basic purpose is to ensure that more stake of promoters in reviving stressed accounts and providing banks with enhanced capabilities for initiating a change of ownership in appropriate cases.  Asset Quality Review – 2015 Classify stressed assets and provisioning for them so as the secure the future of the banks and further early identification of the assets and prevent them from becoming stressed by appropriate action.  Sustainable structuring of stressed assets (S4A) – 2016 It has been formulated as an optional framework for the resolution of largely stressed accounts. It involves the determination of sustainable debt level for a stressed borrower and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.  Insolvency and Bankruptcy Code Act-2016 It has been formulated to tackle the Chakravyuaha Challenge (Economic Survey) of the exit problem in India. The aim of this law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner and for maximization of value of assets of such persons and matters connected therewith or incidental thereto.  Pubic ARC vs. Private ARC – 2017 This debate is recently in the news which is about the idea of a Public Asset Reconstruction Companies (ARC) fully funded and administered by the government as mooted by this year‘s Economic Survey Vs. the private ARC as advocated by the deputy governor of RBI Mr. Viral 54

Acharya. Economic survey calls it as PARA (Public Asset Rehabilitation Agency) and the recommendation is based on a similar agency being used during the East Asian crisis of 1997 which was a success.  Bad Banks – 2017 Economic survey 16-17, also talks about the formation of a bad bank which will take all the stressed loans and it will tackle it according to flexible rules and mechanism. It will ease the balance sheet of PSBs giving them the space to fund new projects and continue the funding of development projects. CONCLUSION The need of the hour to tackle NPAs is some urgent remedial measures. This should include:  Technology and data analytics to identify the early warning signals.  Mechanism to identify the hidden NPAs.  Development of internal skills for credit assessment.  Forensic audits to understand the intent of the borrower. Even the recently appointed SUNIL MEHTA COMMITTEE suggested a five pronged strategy to fight NPAs – PROJECT SASHAKT:  Bad loans of up to Rs. 50 crore will be managed at the bank level, with a deadline of 90 days.  For bad loans of Rs.50-500 crore, banks will enter an inter-creditor agreement, authorizing the lead bank to implement a resolution plan in 180 days, or refer the asset to NCLT.  For loans above Rs.500 crore, the panel recommended an independent AMC, supported by institutional funding through the AIF. The idea is to help consolidate stressed assets.  For the resolution of SMEs, the committee suggested the setting up of a steering committee by banks for formulating and validating the schemes, with a provision for additional funds. 55

BANK RECAPITALISATION Bank recapitalisation refers to a process where the Central government and RBI infuse capital into Public Sector Banks to help them meet the NPA crisis. The target for the year is announced annually. This year, they plan to infuse Rs. 2.11 trillion capital, through 3 sources: 1. Recapitalisation bonds – Rs. 1.35 trillion 2. Budgetary allocation – Rs. 180 billion 3. Fund-raising from the markets - Rs. 580 billion This sum is more than one-third the tier I or core capital (equity plus reserves) of public sector banks (PSBs) and the equivalent of about 1.25% of gross domestic product (GDP). This could give the banking system a good breathing time to enhance its credit portfolio and restore value out of the NPA accounts. Also, it will give enough time to undertake governance reforms and clean up the internal system. Though recapitalisation will help bail out banks from the crisis, and also prevent USA-like situation of 2008 Goldmann Sachs crisis, it has some drawbacks:  The taxpayers‘ money has been simply pumped in just to keep PSBs alive. Using good money to write off bad money is never a healthy practice. Common man is made to pay for the corruption by a few.  This measure is not going to result in the recovery of bad loans.  It is a very temporary solution and only treats symptoms and not what causes these symptoms.  The IBC (Insolvency and Bankruptcy Code) is only a ploy to extend favours to big corporates to escape from their liability at the cost of the public exchequer. It is labelled as inefficient and incompetent. If banks would have recovered these loans, their interest revenue would have been more; and they would have generated capital internally out of the profit.  The proposed recapitalisation bonds are likely to add to the fiscal deficit. 56

CONCLUSION In the last three years, banks have written off Rs. 1,88,287 crore. We have to bear in mind that when banks lose money or when the government recapitalise PSBs, it is all people‘s money and out of public savings kept in trust in the banks. People‘s money should be for people‘s welfare and not to fund corporate default or to recapitalise the banks to adjust these bad loans. This capital infusion is a welcome step but there are issues that should have been dealt with first. The good part is that after putting this capital, the government‘s equity would be close to 70-80% in each PSB. The government could make a huge profit by selling this equity after improving the management of PSBs. Recapitalisation could give the banking system a good breathing time to enhance its credit portfolio and restore value out of the NPA accounts. But, other measures like strict regulation, Prompt Corrective Action, Capital Conservation Buffer, senior bank management and their terms of service, etc should be used alongside recapitalisation to prevent its use in future, because it should only be a last resort measure. 57

MERGER/CONSOLIDATION OF BANKS Consolidation of PSBs is not a new idea. Back in 1991, when PSBs had over 90% of the market share, the Narasimham Committee recommended a three-tier banking structure by merging PSBs, which lead to a count of three large banks that would have international presence, about 8–10 national banks, and several regional banks. PJ Nayak Committee in 2014 had also suggested that government either merge or privatize state-owned banks. Even, the Economic Survey pointed out that constant failure of banks to provide credit to both emerging and existing industries has resulted in stagnation in the economic growth of the nation. Recently, several banks have been merged by the government given their perceived benefits and increasing crisis in the banking sector:  Recent merger of Vijaya Bank and Dena Bank with Bank of Baroda.  In April 2017, 5 associate banks were merged with SBI – State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala.  Bhartiya Mahila Bank was also merged along with RBI.  Government also initiated amalgamation of Regional Rural Banks under Phase 3 consolidation, bringing them down from 56 to 38. RATIONALE BEHIND BANK CONSOLIDATION  To protect weak PSBs from loss - thereby securing customers and financial system.  Absence of international level bank - with only one bank in the list of top 50 largest banks in the world understates the global clout we share in present scenario.  Bigger banks would also be able to adhere to BASEL III norms.  Problem of credit lending, based on the twin balance sheet crisis, can be checked by the formation of bigger banks.  Bigger banks with diverse portfolios have lesser chances of failure since it is unlikely that different sector of an economy will face a crisis at a same time. 58

PROCEDURE An application for merger is submitted by the concerned banks to the Central Registrar of Cooperative Societies (CRCS). A copy of the application is also sent to Reserve Bank of India (RBI) along with valuation report and information relevant for consideration of the scheme of merger. The RBI then examines the scheme in respect to the interests of depositors and conveys its decision to the CRCS. ADVANTAGES CHALLENGES  With number of PSBs coming down after  A complex merger with a weaker and under- merger – capital allocation, performance capitalized PSB would stall the bank‘s milestones, and monitoring would become recovery efforts as the weaknesses of one easier for the government. bank may get transferred and the merged entity may become weak.  Large banks through consolidation of PSBs will have large balance sheets which can  There would be number of human resources meet credit needs of growing Indian issues such as difficulty in adapting to new economy. emerging culture, discontent due to far-flung transfers etc.  It will also build capacity in PSBs to raise resources without depending on the state  Customer retention would become 59

exchequer. problematic as there might be lack of  The banking entities formed after merging comfort in banking with larger parent bank.  Bigger banks may follow monopolistic PSU banks will be able to absorb financial behavior with increased market power – shocks better. resulting in neglect of local needs.  Economies of Scale - Merger of banks will  Amalgamation of balance sheet of PSBs will result in better scale efficiency due to rise in only impact NPA cosmetically, without customer base, increased market reach. actually working on NPA recovery. This  Wider bouquet of products services for will further divert the process of NPA customers would result in decreased risk in resolution. lending capital.  Increased Operational Efficiency - A synergistic relationship would optimally use one another's network, customer base and access to low cost deposits.  Organizational restructuring would lead to better managerial efficiency and also provides scope of learning best practices of each constituent entity.  Global Bank - Stronger and globally competitive banks would provide increased choices to the stakeholders. CONCLUSION Dual regulation by the Ministry of Finance and RBI on PSBs often results in paralysis in decision making – which makes consolidation of banks a redundant measure if they are not given power to act swiftly, as pointed by PJ Nayak. Governance of public banks needs to be improved before making any significant change in any emerging architecture. Bigger banks offer more resilience to the banking sector but overlooking bigger red flags like strong credit appraisal and risk control system would do little help in creating robust banks. Therefore, due focus on ensuring a strong foundation of PSBs is important. 60

INDEPENDENCE OF RBI – SECTION 7 The debate over the independence of RBI may have been rekindled only in the recent past, but the debate is as old as the central bank itself. Recently, deputy governor of Reserve Bank of India (RBI), Viral Acharya chose to deliver a strong message on the importance of the central bank‘s independence. It brought to light the tension between the central bank and the government on the current issues of setting up of an independent payments regulator outside RBI, blame game on Nirav Modi scam and government‘s choice of directors on the central bank board. The RBI always has had its disagreements with the government, mostly in private and rarely in public, when it comes to its autonomy in setting the monetary policy, regulating banks, managing the rupee value in the foreign exchange market, and even debt management function. In the late 50s, the fourth RBI Governor under Jawaharlal Nehru's prime ministership, Benegal Rama Rau exited abruptly when the then finance minister encroached into RBI's turf by levying some taxes. The 22nd Governor D Subbarao had a public spat with two finance ministers over the direction of interest rates. Raghuram Rajan, a predecessor of incumbent Governor Urjit Patel, always showed the mirror to the government, which was not appreciated by the current government. NEED FOR THE INDEPENDENCE OF CENTRAL BANKS  The basic difference between the approach of a government and central bank is that the latter is not bound by short-term targets. Use of the bank‘s powers of money creation and setting the cost of money for short-term benefits can be disastrous for the economy. So it calls for independence of central banks.  Governments driven by electoral calculations will favour lowering of interest rates just before elections to provide a short-term boost to growth even if it comes at the cost of long-term inflation. Thus, there is a risk that monetary policy would become volatile, and lose credibility and effectiveness. In such circumstances, it becomes imperative to ensure the autonomy of the central bank.  The government will always want the economy to grow at a faster rate. But it‘s the job of the central bank to function as a check and balance so that the economy remains on a sustainable growth path.  Therefore, it is important that central banks have the institutional capability to take independent decisions in order to be able to maintain price and financial stability. 61

ISSUES BETWEEN RBI AND GOVERNMENT  Easing Norms of Prompt Corrective Action o The government has asked the RBI to give exemption to power companies under the PCA framework. o The government wants RBI to ease lending rules under PCA, as it could help reduce pressure on MSME through credit availability. o RBI has said that such move will jeopardize all efforts of dealing with country‘s Non- Performing Asset (NPA) crisis.  Section 7 of RBI Act of 1934 o The government which is a stakeholder in 21 public sector bank is issuing the direction to RBI, the regulator of banks. o This section empowers the government to issue directions to RBI in public interest. o The section states that directions must be issued after consultation with RBI governor.  RBI Surpluses o Every year RBI earns interests from the domestic and foreign bonds it holds. This income is used in running the operation of RBI and rest is accrued as surplus. Out of this surplus, RBI holds some amount to itself as equity capital to maintain its creditworthiness and pays the rest to the government. o The government is of the opinion that RBI should pay more dividend reasons being that the building up of buffers such as the Contingency Fund and Asset Reserve by the RBI has been far in excess of what is required to maintain creditworthiness. o RBI, on the other hand, says that increasing the dividend payment to the government can prove to be inflationary as there will be more money in the market and may harm the RBI‘s major task of macroeconomic stability. 62

CONCULSION The tussle between RBI and government can impact the image of India as a stable market as investors require long-term policy consistency, such interference in the working of RBI can impact investment in the Indian economy. Thus it is necessary that the government should respect the mandate given to RBI as a regulator of the banks. On the other hand, it must also be understood that constitutionally RBI is not independent, it is a part of the government, thus accountable to people. The independence of the central bank is maintained as it has positive externalities on the economy. The autonomy must also come with accountability. Thus it can be said that by invoking section 7 of RBI Act 1934, the government is acting within power given to it under the act. But, such extreme steps should be avoided and issues resolved amicably. Board meetings of the RBI having representatives of both sides have taken positive steps towards rsolution. 63

NON-BANKING FINANCE COMPANIES/SHADOW BANKS The non-banking financial companies are registered under the Companies Act, 1956 or 2013 and deal in the business of loans and advances, investments in bonds/shares/debentures/stock and other marketable securities i.e. lease, hire-purchase, insurance business, but do not include any institution which is principally engaged in the business of agricultural activity, purchase of any goods and services (other than securities), industrial activity and sale/purchase/construction of immovable property. There are two kinds of NBFCs — Deposit-taking NBFCs are registered with the Reserve Bank of India, can accept the public deposits and must comply with its regulations; and Non-deposit taking NBFCs. NBFCs are the largest net borrowers of funds from the financial system, with gross payables (loans) of around Rs 717,000 crore and gross receivables of around Rs 419,000 crore in March 2018. A breakup of gross payables indicates that the highest funds were received from banks (44%), followed by mutual funds (33%) and insurance companies (19%). DIFFERENCE BETWEEN BANKS AND NBFCs BASIS NBFCs BANKS Meaning They provide certain banking It is government authorized financial services without holding Bank intermediary which provides banking Regulated under License. services to the public. Demand deposit Companies Act 2013 Banking Regulation Act 1949 FDI Can be accepted Cannot be accepted Payment and Allowed upto 100% Allowed upto 74% for private bank settlement system Not part of the system An integral part of the system Maintenance of reserve ratios Not required Mandatory Transaction services Cannot be provided by them Can be provided by them 64

Deposit insurance Not available Available facility IMPORTANCE OF NBFCs  NBFCs play an important role in promoting inclusive growth in the country, by catering to the diverse financial needs of bank excluded customers.  NBFCs do play a critical role in participating in the development of an economy by providing a fillip to transportation, employment generation, wealth creation, bank credit in rural segments and to support financially weaker sections of the society.  Emergency services like financial assistance and guidance are also provided to the customers in the matters pertaining to insurance.  NBFCs in India include not just finance companies, but also a wider group of companies that are engaged in investment, insurance, chit fund, nidhi, merchant banking, stock broking, alternative investments etc. as their principal business.  NBFCs being financial intermediaries are supposed to play a supplementary role to banks. NBFCs, especially those catering to the urban and rural poor — including the micro-finance institutions (NBFC-MFIs) and asset finance companies — have a complementary role in the financial inclusion agenda of the country.  Further, some of the big NBFCs — infrastructure finance companies — are engaged in lending exclusively to the infrastructure sector, and some are into factoring business, thereby giving a fillip to the growth and development of various sectors.  NBFCs are a form of shadow banking. The total loans from NBFCs of Rs. 5.46 trillion are 20% of banking credit itself.  The year on year rise of total banking credit is 2.6%, whereas, loan by NBFCs has risen by 41%.  As of March 2018, there were 11,402 NBFCs registered with the RBI, of which 156 were deposit accepting NBFCs (NBFCs-D), and 249 systemically important non-deposit accepting NBFCs (NBFCs-ND-SI). 65

WHAT IS THE CRISIS?  Mutual fund companies have invested in NBFC. Banks have lent to NBFC on the basis of commercial papers (an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories and meeting short-term liabilities).  They are usually prohibited from taking deposits so fund themselves with debt. They are big enough to damage India‘s entire financial system. Mutual funds, which are sold to the public, have $55bn of exposure to them, or 11% of total assets under management.  Conventional banks have loaned $70bn to shadow banks, the equivalent of two-fifths of the former‘s core capital.  Even if a full crisis does not erupt shadow banks may be forced to shrink. When combined with the rising NPAs of state banks that would mean that 75% of India‘s financial system is on crutches.  Borrowing short and lending long is a high-risk game as the IL&FS collapse amply manifests. Generally, NBFC invest in companies with long gestation period, like infrastructural projects where returns come in 12-14 years, while they take capital through short term funds such as mutual funds which entail early repayments within 3-4 years, thereby getting caught in a trap of high risks. This is known as asset-liability mismatch in the operations of NBFCs.  There is a huge mistrust in the financial market with mutual funds and banks are reluctant to lend to NBFCs. In spite of reports of solid capital ratios, there is a great deal of apprehension about the possible time-bombs buried in their balance sheets. For months now, NBFCs have been facing a liquidity crunch.  Defaults by such NBFCs are fatal enough to damage India‘s entire financial system with mutual funds - which are sold to the public - having $ 55 billion of exposure to them, or 11% of total assets under management.  Further, because of erosion of credibility of debt payment, their stocks have suffered majorly. There were more than 200 subsidiaries in case of IL&FS which brought considerable management problem, further worsening the status of NBFCs. 66

WAY FORWARD  NBFCs should be under greater supervision of the RBI with better regulatory mechanism. Since, they deal with a substantial portion of credit of the market, they cannot be left unregulated. This would ensure that they are not lending beyond their means.  Instead of bringing all the NBFCs under supervision, effort must be made to focus on the Systemically Important NBFCs, which are around 250.  Adequate funding is necessary to make NBFCs a viable platform for investment in various developmental projects. Consequently, the first step would be to strengthen the banking sector. CONCLUSION Now, the central bank has pumped a huge amount of liquidity into the system over the last eight months. It has also eased some norms to give NBFCs more room in fundraising. But some market players continue to blame tight liquidity for not being to raise funds and then lend. This doesn‘t look good for NBFCs as there is a fear of demand destruction. The market share that had moved to NBFCs may go back to banks, which have since raised capital. Axis Bank has done so and HDFC Bank plans to raise Rs. 50,000 crore. 67

INDIA’S NEW GDP SERIES India has shifted to a new GDP series. The organisation responsible for calculating national income – CSO (Central Statistical Organisation) – adopted a new series based on the year 2011-12 instead of the previous 2004-05.The Central Statistics Office (CSO) uses the estimates from the results of Quinquennial Employment and Unemployment Surveys (EUS) of National Sample Survey Organisation (NSSO), which are conducted once in every five years, for revising the base years of national accounts statistics once in every five years. So in essence, two things changed in the new series, the base year as well as the database. Change of base year is a common occurrence and is done to take into consideration the changing times and the outlook of the economy. The new numbers show that India's economic growth rate for 2005-06 to 2011-12 averaged at 6.7%. The previous numbers had put the average growth rate during the UPA rule at 7.75%. OTHER CHANGES INTRODUCED  Implementation of International Guidelines (SNA 2008).  Estimation by different institutional sectors.  Valuation of GVA at basic prices – GVA is defined as the value of output less the value of intermediate consumption.  GDP is now calculated at market prices, not factor cost.  Research & Development expenses treated as part of Capital Formation.  Reserve Bank of India treated as a Non-Market Enterprise.  Financial Intermediation Services Indirectly Measured (FISIM) computed using Reference Rate method.  Use of Enterprise Approach.  Modified Labour Input Method. 68

 Use of Sales tax indicator for unincorporated trade instead of Gross Trading Income (GTI) index.  Use of Sector specific CPIs used (Health, Education, Transport& Communication).  Use of MCA 21 database.  New series of WPI & CPI in lieu of CPI-AL/IW.  Inclusion of stock brokers, stock exchanges, asset management companies, additional mutual funds and pension funds, regulatory bodies like SEBI, PFRDA & IRDA in Financial sector.  Improvements in coverage of local bodies and autonomous institutions. RESULTS OF THE CHANGE  A higher growth rate in 2014-15 will help the government achieve a better fiscal deficit and current account deficit ratios calculated as a percentage of GDP.  The change in method of calculation has brought Indian GDP calculations more in line with global practice. For example, IMF‘s world economic outlook projections are not based on factor costs. This used to create confusion in the past, with IMF‘s projections turning out to be very different from the Government‘s.  The base year change ensures that the products and services included in the GDP calculation do remain contemporary and reflect the present state of the economy. For instance, the latest change in base year from 2004-05 to 2011-12 has included the recycling industry which didn‘t figure in the earlier GDP computations.  There is more incentive for the Government to raise indirect taxes and reduce subsidies. This may have an impact on sectors such as agriculture which receive a lot of subsidy.  Foreign /domestic investors may view India in more favourable light due to increase in GDP. 69

CONCLUSION The objection to this method is that the GDP figures can be manipulated by changing subsidy disbursals or raising taxes. The experts have had mixed opinions on this news, with some claiming that this will adversely affect the growth numbers while others maintaining a marginal effect would be seen at best. The severe doubts are raised from the different corner on the reportage of the MCA database and its reliability and credibility. Also, unlike previous regimes, the government has not made the methodology of the GDP calculation public, raising doubts over its accuracy and validity. 70

LAND REFORMS IN INDIA Land reforms in India usually refer to redistribution of land from the rich to the poor. Land reforms are often connected with re-distribution of agricultural land and hence it is related to agrarian reforms too. Land reforms include regulation of ownership, operation, leasing, sales, and inheritance of land (indeed, the redistribution of the land itself requires legal changes). THE PRE-BRITISH SCENARIO Traditionally, in India before the coming of the British, private ownership of land was an unfamiliar idea. Land was generally owned by the village community collectively. A proper land revenue system was initiated by Todar Mal during the reign of Akbar. Under this system, land was measured, classified and rent was fixed accordingly. When the leash of power went into the hands of the British, a sea-change was seen in the pattern of ownership of land in India. BRITISH RULE PERMANENT SETTLEMENT OF BENGAL/ ZAMINDARI SYSTEM Lord Cornwallis introduced the Permanent Settlement in 1793. Under this system, a class of landlords called Zamindars was created whose responsibility it was to pay a fixed rent to the government for the lands they owned. They gave out parcels of land to farmers who became their tenants. Their title to the land was hereditary. What was intended as a system beneficial for all parties concerned soon turned out to be exploitative. In addition, several layers of intermediaries were created between the Zamindar and the tenants adding to the burden. Another system was called the Jagirdari system which was similar to the Zamindari system. RYOTWARI SYSTEM Under this system, the proprietor of land gave the rent and taxes directly to the government in the absence of any middlemen. This started in Madras and was later adopted in Bombay as well. MAHALWARI SYSTEM This system was introduced by William Bentinck‘s government under which landlords were responsible for the payment of revenue to the State. These landlords or Zamindars had a whole 71

village or a group of villages under their control. The Mahalwari system prevailed in UP, the North Western Province, Punjab and parts of Central India. Outcomes of landowning systems during the colonial era  Extreme peasant indebtedness due to sky-high tax rates.  Creation of a class of a rich few who mostly exploited the poor peasant.  Peasants lived in constant fear of eviction.  Poverty was entrenched into the farmer class. These systems created, at the time of independence, a class of landlords who owned large swathes of land and innumerable peasants who owned nothing and lived in dire poverty and misery. 7% of the landowners owned 54% of land. In contrast, only 6% of land was owned by 28% of landowners (with marginal and sub-marginal holdings). POST-INDEPENDENCE The major objectives of land reform package, as identified in the Eighth Plan, are: i. Restructuring of agrarian relations to achieve an egalitarian structure; ii. Elimination of exploitation in land relations; iii. Actualization of the goal of ―land to the tiller‖; iv. Improvement of socio-economic conditions of the rural poor by widening their land base; v. Increasing agricultural production and productivity; vi. Facilitating land-based development of rural poor; and vii. Infusion of a great measure of equality in local institutions. In fine, growth and social justice are the basic objectives of land reform measures. 72

Land reforms in India comprise largely of: 1. Abolition of intermediaries. 2. Ceilings on holdings and distribution of surplus land among the landlords. 3. Consolidation of holdings and prevention of their further fragmentation and 4. Tenancy reforms to regulate fair rent and provide security to tenure, alongwith ownership rights for tenants. 5. Cooperative farming After Independence, attempts had been made to alter the pattern of distribution of land holdings on the basis of four types of experiments: 73

LAND REFORMS GOVERNMENT EFFORTS Abolition of Zamindari Abolition Act - By 1972, laws had been passed in all the intermediaries States to abolish intermediaries. All of them had two principles in common - abolition of intermediaries between the state and the Ceiling on cultivator and the payment of compensation to the owners. But there landholding was no clear mention about just and equitable compensation. Therefore, the Zamindari Abolition Act was challenged in the High Courts and the Supreme Court. So, amendments were passed in the Parliament to legalise the abolition of landlordism. By 1961-62, ceiling legislation had been passed in all the States. The levels vary from State to State, and are different for food and cash crops. In order to bring about uniformity, a new policy was evolved in 1971. The main features were: a. Lowering of ceiling to 28 acres of wet land and 54 acres of un- irrigated land b. A change over to family rather than the individual as the unit for determining land holdings lowered ceiling for a family of five. c. Fewer exemptions from ceilings d. Retrospective application of the law for declaring benami transactions null and void; and Land consolidation e. No scope to move the court on ground of infringement of fundamental rights The Land consolidation program required granting of one consolidated land to the farmer, which is equal to the total land holdings in different scatters under the farmer possession, to solve the problem of land fragmentation. Main aim is to increase productivity of land and make agriculture remunerative. The success story in this regard is rather disappointing. One of the reasons for the tardy progress of this aspect of land reforms is that small farmers have a strong fear that consolidation favours large farmers. That is why the threat of eviction of tenants from land out of consolidation is the greatest. 74

Tenancy reforms Tenants in India are classified into  Occupancy Tenants: They enjoy permanent right over land and cannot be evicted easily.  Tenants at will: They do not enjoy any right over land and can be evicted by the landlords anytime. Therefore, to protect the tenants at will and subtenants, the tenancy reforms are passed by the various state governments: Cooperative farming  Regulation of rent – maximum rent is determined by legislation. Though centre lays down a formula, maximum rent varies among states.  Security of tenure - With a view to ensuring security of tenure, various State Governments have passed laws which have three essential aims 1) Ejectment does not take place except with the provisions of law, 2) the land may be taken over by the owners for personal cultivation only, and 3) in the event of resumption the tenant is assured of the prescribed minimum areas.  Ownership rights - Towards this end, the Government has taken three measures: (1) declaring tenants as owners and requiring them to pay compensation to owners in suitable installments (2) acquisition of the right of ownership by the State on payment of compensation and transfer of ownership to tenants and (3) the states' acquisition of the landlords' rights bring the tenants into direct relationship with the States. In West Bengal due to the ―Operation Barga‖ maximum sharecroppers were given ownership of land. Cooperative farming is advocated to solve the problem of sub-divisions of land holdings. The idea was to make farming profitable for small and marginal farmers having small pieces of land, without fears associated with land consolidation, because ownership doesn‘t change. Other benefits include:  Pooling of farms helps in increasing production, and the farmers can have more produce to sell in the markets after taking out their subsistence need.  Cooperative farming also helps in mechanisation of agriculture, because of more funds now available rather than individually. 75

RECENT LAWS FOR COMPLETING THE UNFINISHED AGENDA OF LAND REFORMS  DRAFT LAND REFORMS POLICY, 2013 The Ministry of Rural Development released a Draft National Land Reforms in 2013. The Policy seeks to address several land related issues such as inequity in access to land, especially for marginalised communities; inefficient land usage; and poor dispute resolution mechanisms. Key features of the Draft Policy are:  National land use plan: The central government must create a national land use plan based on information from tehsils, districts, regions and states.  Assignment of land to landless: State governments must evolve comprehensive policies for the assignment of land to the landless.  Land rights for Scheduled Castes, Scheduled Tribes and nomadic communities: The states shall review existing law and policies pertaining to the alienation/transfer of land belonging to Scheduled Castes, Scheduled Tribes and nomadic communities and take necessary steps for removing constraints.  Land for nomads: The central government must enact a Right to Minimum Land Holding Act through which every nomadic family will be entitled to at least five acres of cultivable land.  Land rights for women: Several suggestions have been made to improve women‘s access to land including homestead land distribution only in the woman‘s name rather than joint titles with husbands, granting ‗group land titles‘ to groups of women, among others.  Dispute resolution: State governments shall establish an authority at the sub district level and a tribunal at the state level for land related dispute resolution. Land Tribunals at the state level will function as fast track courts to resolve land disputes.  Modernisation of Land Records: The Policy recommends establishing a National Authority for Computerisation of Land Records and State Authorities for Computerisation of Land Records to enable modernisation of land records.  Training: Training centres at the national, state and district level must be established or identified to provide training in land administration and management to concerned officials.  Monitoring and evaluation: All state governments are required to establish a State Land Rights Commission (SLRC) to review the progress made by state governments on the realisation of land rights. A Land Reforms Unit must be established in every State Academy for Administration. The central government must establish a monitoring mechanism for this policy under the Department of Land Resources, Ministry of Rural Development. 76

 RIGHT TO FAIR COMPENSATION AND TRANSPARENCY IN LAND ACQUISITION, REHABILITATION & RESETTLEMENT ACT, 2013  The Act provides for land acquisition as well as rehabilitation and resettlement. It replaces the Land Acquisition Act, 1894.  The process for land acquisition involves a Social Impact Assessment survey, preliminary notification stating the intent for acquisition, a declaration of acquisition, and compensation to be given by a certain time.  Compensation for the owners of the acquired land shall be four times the market value in case of rural areas and twice in case of urban areas.  In case of acquisition of land for use by private companies or public private partnerships, consent of 80 per cent of the displaced people will be required. Purchase of large pieces of land by private companies will require provision of rehabilitation and resettlement.  The provisions of this Act shall not apply to acquisitions under 16 existing legislations including the Special Economic Zones Act, 2005, the Atomic Energy Act, 1962, the Railways Act, 1989, etc.  CHANGES MADE IN THE 2015 AMENDMENT INCLUDE: The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015 seeks to Amend the Act of 2013 (LARR Act, 2013): The Bill creates five special categories of land use: 1. defence, 2. rural infrastructure, 3. affordable housing, 4. industrial corridors, and 5. infrastructure projects including Public Private Partnership (PPP) projects where the central government owns the land The Bill exempts the five categories from provisions of the LARR Act, 2013 which requires the consent of 80 per cent of land owners to be obtained for private projects and that of 70 per cent of land owners for PPP projects, and also Social Impact Assessment. The Bill brings provisions for compensation, rehabilitation, and resettlement under other related Acts such as the National Highways Act and the Railways Act in consonance with the LARR Act. 77

CRITICAL ANALYSIS Five facts, gleaned from the 2011-12 agricultural census and 2011 socio-economic caste census, summarise the failure of India‘s land reforms:  No more than 4.9% of farmers control 32% of India‘s farmland.  A ―large‖ farmer in India has 45 times more land than the ―marginal‖ farmer.  Four million people, or 56.4% of rural households, own no land.  Only 12.9% of land marked for takeover from landlords was taken over by December 2015.  Five million acres was given to 5.78 million poor farmers by December 2015.  30 states and Union Territories have registered reduction in the average size of land holdings. Mizoram is the lone exception. Reasons for failure of land reforms can be enumerated as follows:  Land is a state subject, so different states have different levels of progress in this regard. The union can only provide model acts, which need to be legislated by the states separately.  Outdated land records and no computerization, despite Digital India Mission. Even, incentive schemes based on landholding like PM-KISAN are failing due to the same reason.  Tribal areas prefer community holding and don‘t have individual land records for reforms. Even, practices like jhum cultivation in the Northeast, create hurdles.  Bureaucratic apathy leads to tardy implementation. Even, political will is lacking.  Powerless Panchayats and NGOs fail to create pressure for implementation of land reforms, for equitable distribution and better productivity. CONCLUSION In order to achieve success, the Asian Development Bank has recommended a strategy on these lines; political commitment at the top, administrative preparedness including the improvement of the technical design of enactments, the provision of financial resources and the streamlining of the organisational machinery of implementation, creation of necessary supporting service for the beneficiaries and finally the organisation of beneficiaries themselves. In this background, the following suggestions may be considered for improvement; breaking up the landlord-tenant nexus, effective implementation of ceiling legislation and distribution of surplus land and simplifying legal procedures and administrative machinery and lastly the potential beneficiaries should be made aware of the programmes. 78

AGRICULTURE CROPPING PATTERNS Crop pattern refers to the proportion of area under different crops at a particular period of time. India is a geographically and physiographically diverse country, resulting into a wide variety of crps being grown in India, as shown below: FACTORS AFFECTING CROPPING PATTERN Geographical Factors  Type of soil e.g. black soil in Deccan plateau is good for cotton Economic Factors  Type of climate – In the summers where temperature is high tropical crops like- Gaur, Bajara while in winter temperate crops like mustard, wheat is grown.  Type of rainfall e.g. In the dry regions where the rainfall is scanty and/uncertain, more dependence on rain fed crops like coarse cereals. Water logging areas cultivate rice.  Type of topography e.g. tea is grown on gentle slopes  Price and Income Maximization: The variation in the inter-crop prices led to shifts in acreage as between the crops. The maintenance of a stable level of prices for a crop provides a better incentive to the producer to increase the output than what a very high level of price does, if there is no uncertainty of this level being maintained over a number of years.  Farm Size: There is a relationship between the farm size and the cropping pattern. The small farmers are first interested in producing food grain for their requirements. Small holder therefore devotes relatively small acreage to cash crops than large holders.  Insurance against Risk: The need to minimize the risk of crop failures explains diversification in a farm  Availability of irrigation: Irrigation: irrigation availability led to cultivation of rice in arid areas of Punjab and Haryana. Lack of irrigation in Bundelkhand region led to cultivation of coarse cereals more.  labour availability: major reason of tea plantations succeeding in Darjeeling and not in Himachal Pradesh was availability of labour from Up and Bihar and not in HP 79

 Subsistence farming Historical factors  Plantations introduced by British  Tenure – Under the crop sharing system, the landlord has a dominant voice in the choice of the cropping pattern and this helps in the adoption of income maximising crop adjustments. Government Policies  The legislative and administrative policies of the government may also Social factors affect the cropping pattern. Food Crops Acts, Land Use Acts, intensive schemes for paddy, for cotton and oilseeds, subsidies affect the cropping pattern.  MSP – farmers shifting to wheat, rice  Green Revolution – skewed cropping pattern in Northern India towards wheat and rice from coarse cereals and pulses  Food habits also play a role – East and South India prefers rice as staple food while it is wheat in North India. 80

IRRIGATION SYSTEMS Irrigation is described as the artificial application of water to the land or soil. It is the substitute or supplement of rainwater with another source of water. It is used in dry areas and during periods of insufficient rainfall. It is considered as basic infrastructure and vital input required for agricultural production. Given that Indian agriculture is largely rain-fed, irrigation plays a crucial role in agriculture productivity and food security. TYPES OF IRRIGATION There are different types of irrigation practised to improve crop yield. These include:  Surface Irrigation - In this system, no irrigation pump is involved. Here, water is distributed across the land by gravity.  Localized irrigation - In this system, water is applied to each plant through a network of pipes under low pressure.  Sprinkler irrigation - Water is distributed from a central location by overhead high-pressure sprinklers or from sprinklers from the moving platform.  Drip Irrigation - In this type, drops of water are delivered near the roots of the plants.  Centre Pivot Irrigation - In this, the water is distributed by a sprinkler system moving in a circular pattern.  Sub-irrigation - Water is distributed through a system of pumping stations gates, ditches and canals by raising the water table.  Manual Irrigation - This a labour intensive and time-consuming system of irrigation. Here, the water is distributed through watering cans by manual labour. METHODS OF IRRIGATION Irrigation can be carried out by two different methods: Traditional Methods and Modern Methods TRADITIONAL METHODS In this method, irrigation is done manually. Here, a farmer pulls out water from wells or canals by himself or using cattle and carries to farming fields. This method can vary in different regions. 81

The main advantage of this method is that it is cheap. But its efficiency is poor because of the uneven distribution of water. Also, the chances of water loss are very high. Some examples of traditional system are pulley system, lever system, chain pump and dhekli. Among these, the pump system is the most common and used widely. The traditional methods of irrigation also include the following: Check Basin Method It is one of the best methods of irrigation for levelled fields. The field is divided into basins according to the water capacity. A small drain connects the basin. The basin size is as per the water inflow. The topmost place in the field is the main source of water. This method does not require any technique. Also, it is rather inexpensive. It prevents soil erosion as the rainwater stays in the basin. A large area can be efficiently irrigated by this method. Furrow Irrigation Furrow irrigation is very prominent in crops planted in rows. ‗Dol‘ (meaning: to sprout) is formed along the sides of the rows and the water flows between two ‗Dols‘. If the furrow is filled, there is no need to provide water again. It is comparatively cheap but is labour intensive. Food crops planted in large areas get a huge amount of water by this method. Strip Irrigation The fields are divided into strips of different sizes. The strips are constructed according to the slope. The structure of the land determines the size of the strips. It is an easy irrigation method and requires less labour. Basin Irrigation Method A raised platform is created around the trees and bushes. They are then connected with drains. This method is useful for irrigating trees and bushes and not suitable for crops. However, a lot of water is wasted in this method. This is how water from the lakes, wells, and canals is carried to irrigate the fields. The traditional methods are cheaper and require less labour, but are quite inefficient. Therefore, modern methods of irrigation are implemented for better yields. 82

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MODERN METHODS The modern method compensates the disadvantages of traditional methods and thus helps in the proper way of water usage. The modern method involves two systems:  Sprinkler system  Drip system Sprinkler System A sprinkler system, as its name suggests, sprinkles water over the crop and helps in an even distribution of water. This method is much advisable in areas facing water scarcity. Here a pump is connected to pipes which generate pressure and water is sprinkled through nozzles of pipes. Drip System In Drip system, water supply is done drop by drop exactly at roots using a hose or pipe. This method can also be used in regions where water availability is less. IMPORTANCE OF IRRIGATION The importance of irrigation can be explained in the following points: 1. Insufficient and uncertain rainfall adversely affects agriculture. Droughts and famines are caused due to low productivity. Irrigation helps to increase productivity even in low rainfall. 2. The productivity on irrigated land is higher as compared to the un-irrigated land. 3. Multiple cropping is not possible in India because the rainy season is specific in most of the regions. However, the climate supports cultivation throughout the year. Irrigation facilities make it possible to grow more than one crop in most of the areas of the country. 4. Irrigation has helped to bring most of the fallow land under cultivation. 5. Irrigation has stabilized the output and yield levels. 6. Irrigation increases the availability of water supply, which inturn increases the income of the farmers. CONCLUSION Irrigation should be optimum because even over-irrigation can spoil the crop production. Excess water leads to waterlogging, hinder germination, increased salt concentration and uprooting because roots can‘t withstand standing water. Thus the proper method is to be used for the best cultivation. 84

AGRICULTURE MARKETING Agricultural marketing has an important role to play in the overall agricultural development. It provides economic security to farmers by way of fair and remunerative compensation for agricultural produce. At the same time, it ensures affordable and accessible food products to consumers thereby reducing the inflation. Keeping in view the role of agricultural marketing in Indian agriculture, the government has taken various steps for its harmonious development: Agriculture Produce Marketing Committee Regulation (APMC) Act. All wholesale markets for agricultural produce in states that have adopted the Agricultural Produce Market Regulation Act (APMRA) are termed as ―regulated markets‖. With the exception of Kerala, J & K, and Manipur, all other states have enacted APMC Act. However, regulated markets had some drawbacks such as:  Under this regulation, no exporter or processor could buy directly from farmers. It discouraged processing and exporting of agricultural products.  Under the act, the state Government could only set up markets, thus preventing private players from setting up markets and investing in marketing infrastructure. 85

 Formation of cartels with links to caste and political networks resulting in price variations.  An increased number of middlemen formed a virtual barrier between the farmer and the consumer.  The licensing of commission agents in the state regulated markets has led to the monopoly of the licensed traders acting as a major entry barrier for new entrepreneurs.  The fragmentation of markets within the State hinders the free flow of agro- commodities from one market area to another and multiple handling of agri-produce and multiple levels of mandi charges end up escalating the prices for the consumers without commensurate benefit to the farmer. Solution: Amendments in APMC Acts  Consequently, the inter-ministerial task force on agricultural marketing reforms (2002) recommended the APMC Act be amended to allow for direct marketing and the establishment of agricultural markets by the private and co-operative sector to provide more efficient marketing and creating an environment conducive to private investment.  In response, the Union Ministry of Agriculture proposed a model act on agricultural marketing in consultation with State governments for adoption by the States. (Here, you should note that agriculture is a state subject and hence Central government can only give guidelines. It is within the powers of state government to decide whether to make amendments or not.) Model APMC Act 2003 – Salient features:  As per the act, the State is divided into several market areas, each of which is administered by a separate Agricultural Produce Market Committee (APMC) which impose its own marketing regulation (including fees).  Apart from that, legal persons, growers, and local authorities are permitted to apply for the establishment of new markets for agricultural produce in any area.  There will be no compulsion on the growers to sell their produce through existing markets administered by the Agricultural Produce Market Committee (APMC). 86

 Separate provision is made for notification of ‗Special Markets‘ in any market area for specified agricultural commodities.  Provision for Contract Farming, allowing direct sale of farm produce to contract farming sponsor from farmer‘s field.  Single point levy of market fee on the sale of notified agricultural commodities in any market area.  Provision made for resolving disputes arising between private market/ consumer market and Market.  Provides for the creation of marketing infrastructure from the revenue earned by the APMC. Further reform in the agriculture marketing scenario led to the development of e-National Agriculture Market (e-NAM): The motivation for a unified market platform can be traced to the Rashtriya e-Market Services (ReMS), an initiative of Karnataka State Agricultural Marketing Board with National e-Markets Limited (NeML), erstwhile National Commodity and Derivatives Exchange (NCDEX) Spot Exchange. NAM, announced in Union Budget 2014-15, is a pan-India electronic trading portal which seeks to connect existing APMCs and other market yards to create a unified national market for agricultural commodities. Features of NAM:  NAM is a ―virtual‖ market but it has a physical market (mandi) at the back end.  NAM creates a unified market through online trading platform both, at State and National level and promotes uniformity.  The NAM Portal provides a single window service for all APMC related information and services.  While the material flow of agriculture produce continues to happen through mandis, an online market reduces transaction costs and information asymmetry. 87

However, in order for a state to be part of NAM, it needs to undertake prior reforms in respect of  A single license to be valid across the state.  Single point levy of market fee.  Provision for electronic auction as a mode of price discovery. Though rural development and agriculture marketing are focus areas of economic development today, some challenges still remain:  The model APMC act that promoted the participation of private sector has not been implemented by all the states and the monopoly of APMC continues.  Information asymmetry continues.  High potential of exploitation of farmers in case of contract farming. Eg: recent case of Lays dispute with potato farmers.  Lack of internet connectivity in rural areas hampers utility of platforms like e-NAM etc.  Lack of cold storage facility and other post harvest infrastructure makes farmers vulnerable. CONCLUSION In current days of mass production and marketing which is being replaced by customer-based or market-driven strategies, an effective marketing extension service is the need of the hour. This has added significance in the light of post-WTO scenario. If the Indian farmers have to withstand the possible onslaught of international competitors, both in domestic as well as overseas markets, agricultural marketing services have to be strengthened. 88

FOOD PROCESSING INDUSTRY Food Processing includes process under which any raw product of agriculture, dairy, animal husbandry, meat, poultry or fishing is transformed through a process (involving employees, power, machines or money) in such a way that its original physical properties undergo a change and the transformed product has commercial value and is suitable for human and animal consumption. It also includes the process of value addition to produce products through methods such as preservation, addition of food additives, drying etc. with a view to preserve food substances in an effective manner, enhance their shelf life and quality. SIGNIFICANCE The Food Processing Industry (FPI) is of enormous significance as it provides vital linkages and synergies that it promotes between the two pillars of the economy, i.e. agriculture and industry.  Employment Generation: It provides direct and indirect employment opportunities, because it acts as a bridge between Agriculture and Manufacturing.  Doubling of farmers‘ income: With the rise in demand for agri-products there will be commensurate rise in the price paid to the farmer, thereby increasing the income.  Reduce malnutrition: Processed foods when fortified with vitamins and minerals can reduce the nutritional gap in the population.  Reduce food wastage: UN estimates that 40% of production is wasted. Similarly, NITI Aayog estimated annual post-harvest losses of close to Rs 90,000 crore. With greater thrust on proper sorting and grading close to the farm gate, and diverting extra produce to FPI, this wastage could also be reduced, leading to better price realisation for farmers.  Boosts Trade and Earns Foreign exchange: It is an important source of foreign exchange. For e.g. Indian Basmati rice is in great demand in Middle Eastern countries.  Curbing Migration: Food Processing being a labour intensive industry will provide localized employment opportunities and thus will reduce the push factor in source regions of migration. 89

 Curbing Food Inflation: Processing increases the shelf life of the food thus keeping supplies in tune with the demand thereby controlling food-inflation. For e.g. Frozen Safal peas are available throughout the year.  Crop-diversification: Food processing will require different types of inputs thus creating an incentive for the farmer to grow and diversify crops.  Preserve the nutritive quality of food and prolongs the shelf life by preventing them from spoilage due to microbes and other spoilage agents,  Enhances the quality and taste of food thereby bringing more choices in food basket  Enhances consumer choices: Today, food processing allows food from other parts of the world to be transported to our local market and vice versa. STATUS OF FOOD PROCESSING IN INDIA  India is the world's second largest producer of fruits & vegetables after China but hardly 2% of the produce is processed.  In spite of a large production base, the level of processing is low (less than 10%). Approximately 2% of fruits and vegetables, 8% marine, 35% milk, 6% poultry are processed. Lack of adequate processable varieties continues to pose a significant challenge to this sector.  India's livestock population is largest in the world with 50% of the world's buffaloes and 20% of cattle, but only about 1% of total meat production is converted to value added products.  More than 75% of the industry is in unorganized sector.  Processing can be delineated into primary and secondary processing. Rice, sugar, edible oil and flour mills are examples of primary processing. Secondary processing includes the processing of fruits and vegetables, dairy, bakery, chocolates and other items.  Most processing in India can be classified as primary processing, which has lower value- addition compared to secondary processing. There is a need to move up the value chain in processed food products to boost farmer incomes. For instance, horticulture products, such as fruits and vegetables, carry the potential for higher value-addition when compared to cereal crops.  At present, India‘s agricultural exports predominantly consist of raw materials, which are then processed in other countries, again indicating the space to move up the value chain. 90

CHALLENGES TO ITS GROWTH  Majority of the population has low-income levels and cannot afford processed foods.  The high cost of packaging pushes up the cost of the processed items and thereby makes them out of reach of the common man.  Transport (both road and railways) and communication are poor.  There are no reliable cold storage chains, which are necessary for temperature sensitive foods like fruits & vegetables, ice creams etc.  Extensive use of fertilizers, pesticides and other chemicals has raised concerns about the quality of food which should be looked into. Further, protection is needed from unfair and hazardous practices such adulteration.  Care should be taken as processed foods may not be nutritionally balanced and may pose a health risk especially for children unless fortified. This could trigger a negative perception regarding processed foods and could likely impact the economic gains made by this sector.  Low value-added in processing: There is major fragmentation of food processing capacity, with a large unorganized segment and widespread use of primitive processing. This results in lower value-addition at the processing stage, especially from a nutritional point of view.  Limited ability to control quality and safety: The sheer number of players, especially in the large unorganized segment, involved in the food value-chain, makes implementation of quality and safety norms difficult. This has led to practices such as milk adulteration and use of carbide for fruit ripening becoming more widespread.  Low consumer awareness: Consumer awareness is a critical aspect of an improved nutritional situation in the country. Consumers currently lack awareness of several nutritional and food safety and quality aspects. GOVERNMENT INITIATIVES 1. PMKSY (Pradhan Mantri Kisan SAMPADA Yojana) The objective of PMKSY is to supplement agriculture, modernize processing and decrease agri- waste. It is an umbrella scheme incorporating ongoing schemes. Under PMKSY the following schemes are to be implemented: 91

 Mega Food Parks The primary objective of the MFPS is to provide modern infrastructure facilities for the food processing along the value chain from the farm to the market. It will include creation of processing infrastructure near the farm, transportation, logistics and centralized processing centers. The main feature of the Scheme is a cluster based approach. The scheme will be demand-driven and will facilitate food processing units to meet environmental and safety standards. 92

 Integrated Cold Chain, Value Addition and Preservation Infrastructure.  Creation/Expansion of Food Processing/Preservation Capacities.  Infrastructure for Agro Processing Clusters.  Scheme for Creation of Backward and Forward Linkages.  Food Safety & Quality Assurance Infrastructure.  Human Resources and Institutions. 2. Foreign Direct Investment (FDI) policy: FDI up to 100%, under the automatic route is allowed in food processing industries. 3. Agricultural and Processed Food Products Export Development Authority (APEDA) – an apex organization under the Ministry of Commerce and Industry – focusses on ‗export‘ of scheduled products. 4. Operation Green In the budget speech of 2018-19, a new Scheme ―Operation Greens‖ was announced on the line of ―Operation Flood‖, with an outlay of Rs.500 crore to promote Farmer Producers Organizations, agri- logistics, processing facilities and professional management. It seeks to stabilize the supply of Tomato, Onion and Potato (TOP) crops and to ensure availability of TOP crops throughout the country round the year without price volatility. The Ministry of Food Processing Industries has launched the scheme. NAFED will be the Nodal Agency to implement price stabilisation measures. 93

CONCLUSION Food processing has numerous advantages which are specific to Indian context. It has capacity to lift millions out of poverty and malnutrition. Government should develop industry in a way keeping in mind the interests of small scale industry along with attracting big ticket domestic and foreign investments. The entire food value chain in India is controlled by multiple ministries, departments and laws. A comprehensive policy will ensure that various initiatives across the departments are aligned to the overall goal of ensuring availability, awareness, affordability, access, quality and safety of food. The target of ensuring food security for more than a billion people requires a concerted effort by all stakeholders including government and the food processing industry. In addition to private players and government, industry bodies and academia will also have a crucial role in the success of these initiatives. 94

PUBLIC DISTRIBUTION SYSTEM The Public distribution system (PDS) is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution. PDS evolved as a system of management of scarcity through distribution of food grains at affordable prices. PDS is operated under the joint responsibility of the Central and the State Governments:  The Central Government, through Food Corporation of India (FCI), has assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the State Governments. The centre procures food grains from farmers at a minimum support price (MSP) and sells it to states at central issue prices. It is responsible for transporting the grains to godowns in each state.  The operational responsibilities including allocation within the State, identification of eligible families, issue of Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc., rest with the State Governments. States bear the responsibility of transporting food grains from these godowns to each fair price shop (ration shop), where the beneficiary buys the food grains at the lower central issue price. Many states further subsidise the price of food grains before selling it to beneficiaries. Under the PDS, presently the commodities namely wheat, rice, sugar and kerosene are being allocated to the States/UTs for distribution. Some States/UTs also distribute additional items of mass consumption through the PDS outlets such as pulses, edible oils, iodized salt, spices, etc. EVOLUTION OF PDS IN INDIA  PDS was introduced around World War II as a war-time rationing measure. Before the 1960s, distribution through PDS was generally dependant on imports of food grains.  It was expanded in the 1960s as a response to the food shortages of the time; subsequently, the government set up the Agriculture Prices Commission and the FCI to improve domestic procurement and storage of food grains for PDS.  By the 1970s, PDS had evolved into a universal scheme for the distribution of subsidised food. Till 1992, PDS was a general entitlement scheme for all consumers without any specific target. 95

 The Revamped Public Distribution System (RPDS) was launched in June, 1992 with a view to strengthen and streamline the PDS as well as to improve its reach in the far-flung, hilly, remote and inaccessible areas where a substantial section of the underprivileged classes lives.  In June, 1997, the Government of India launched the Targeted Public Distribution System (TPDS) with a focus on the poor. Under TPDS, beneficiaries were divided into two categories: Households below the poverty line or BPL; and Households above the poverty line or APL.  Antyodaya Anna Yojana (AAY): AAY was a step in the direction of making TPDS aim at reducing hunger among the poorest segments of the BPL population. A National Sample Survey exercise pointed towards the fact that about 5% of the total population in the country sleeps without two square meals a day. In order to make TPDS more focused and targeted towards this category of population, the \"Antyodaya Anna Yojana‖ (AAY) was launched in December, 2000 for one crore poorest of the poor families.  In September 2013, Parliament enacted the National Food Security Act, 2013. The Act relies largely on the existing TPDS to deliver food grains as legal entitlements to poor households. This marks a shift by making the right to food a justiciable right. ISSUES/CONCERNS  Identification of beneficiaries: Studies have shown that targeting mechanisms such as TPDS are prone to large inclusion and exclusion errors. This implies that entitled beneficiaries are not getting food grains while those that are ineligible are getting undue benefits.  Leakage of food grains: (Transportation leakages + Black Marketing by FPS owners) TPDS suffers from large leakages of food grains during transportation to and from ration shops into the open market. In an evaluation of TPDS, the erstwhile Planning Commission found 36% leakage of PDS rice and wheat at the all-India level.  Issue with procurement: Open-ended Procurement i.e., all incoming grains accepted even if buffer stock is filled, creates a shortage in the open market. 96

 A performance audit by the CAG has revealed a serious shortfall in the government‘s storage capacity. Given the increasing procurement and incidents of rotting food grains, the lack of adequate covered storage is bound to be a cause for concern.  The provision of minimum support price (MSP) has encouraged farmers to divert land from production of coarse grains that are consumed by the poor, to rice and wheat and thus, discourages crop diversification.  Environmental issues: The over-emphasis on attaining self-sufficiency and a surplus in food grains, which are water-intensive, has been found to be environmentally unsustainable. Procuring states such as Punjab and Haryana are under environmental stress, including rapid groundwater depletion, deteriorating soil and water conditions from overuse of fertilisers. It was found that due to cultivation of rice in north-west India, the water table went down by 33 cm per year during 2002-08. PDS REFORMS Shanta Kumar Committee had recommended reforms in the PDS system to reduce leakages and corruption. Even the SC-appointed Wadhwa Committee found that certain states had implemented computerisation and other technology-based reforms to TPDS, which helped plug leakages of food grains during TPDS. In times of digitalisation and e-governance, even the PDS system can be reformed using high-end technology for better service delivery:  Digitisation of ration cards allows for online entry and verification of beneficiary data and online storing of monthly entitlement of beneficiaries, number of dependants, offtake of food grains by beneficiaries from FPS, etc.  Computerised allocation to FPS allows for quick and efficient tracking of transactions and also computerises allocation, web-based challans, etc. This brings more transparency.  Issue of smart cards in place of ration cards, which store data such as name, address, biometrics, BPL/APL category and monthly entitlement of beneficiaries and family members. It makes verification easier and prevents counterfeiting.  Use of Global Positioning System (GPS) technology to track movement of trucks carrying food grains from state depots to FPS.  SMS based monitoring by citizens so they can register their mobile numbers and send/receive SMS alerts during dispatch and arrival of TPDS commodities.  Use of web-based citizens' portal like public grievance redressal, toll free number for complaints or suggestions, etc. 97

OTHER ALTERNATIVE APPROACHES Recently, debate has begun, to replace public distribution of food grains with direct transfer of the amount to the beneficiaries‘ account via DBT, or issue of food coupons, to minimise corruption and leakages. ALTERNATIVE ADVANTAGES DISADVANTAGES PDS  Insulates beneficiaries from  Low offtake of food grains from inflation and price volatility. each household.  Ensures entitlement is used for  High leakage and diversion of food grains only. subsidised food grain.  Well-developed network of FPS  Adulteration of food grain. ensures access to food grains  Lack of viability of FPS due to even in remote areas. low margins. DBT / CASH  Cash in the hands of poor  Cash can be used to buy non- TRANSFER increases their choices. food items.  Cash may relieve financial  May expose recipients to price constraints faced by the poor, volatility and inflation. make it possible to form thrift  There is poor access to banks and societies and access credit. post offices in some areas.  Administrative costs of cash transfer programmes may be significantly lesser than that of other schemes.  Potential for making electronic transfer. FOOD COUPONS  Household is given the freedom  Food coupons are not indexed for to choose where it buys food. inflation; may expose recipients  Increases incentive for to inflation. competitive prices and assured  Difficult to administer; there quality of food grains among PDS have known to be delays in stores. issuing food coupons and  Ration shops get full food grains reimbursing shops. from the poor, no incentive to turn the poor away. 98

CONCLUSION In its report on State finances, the Reserve Bank of India (RBI) has advised States that are planning to shift to cash transfer to be cautious while effecting the migration. Economic survey 2016-17 also highlighted the need for more caution and better infrastructure while replacing subsidised PDS supplies with DBT. Strengthening of the existing TPDS system by capacity building and training of the implementing authorities along with efforts to plug leakages is the best way forward. It can be further strengthened by the increased public participation through social audits and participation of SHGs, Cooperatives and NGOs in ensuring the transparency of PDS system at ground level. To enhance the nutritional level of masses, bio-fortified foods need to be distributed through the PDS that will make it more relevant in the backdrop of prevalent malnutrition in India. 99

INDUSTRY INDUSTRIAL POLICY Industrial policy is the government action to influence the ownership & structure of the industry and its performance. It takes the form of paying subsidies or providing finance in other ways, or of regulation. It includes procedures, principles (i.e., the philosophy of a given economy), policies, rules and regulations, incentives and punishments, the tariff policy, the labour policy, government‘s attitude towards foreign capital, etc. OBJECTIVES The main objectives of the Industrial Policy of the Government in India are:  to maintain a sustained growth in productivity;  to enhance gainful employment;  to achieve optimal utilisation of human resources;  to attain international competitiveness; and  to transform India into a major partner and player in the global arena. IMPORTANT INDUSTRIAL POLICIES IN INDIA SINCE INDEPENDENCE  INDUSTRIAL POLICY RESOLUTION OF 1948 It defined the broad contours of the policy delineating the role of the State in industrial development both as an entrepreneur and authority. It made clear that India is going to have a Mixed Economic Model. The Industries (Development and Regulation) Act was passed in 1951 to implement the Industrial Policy Resolution, 1948. 100