inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.It is the percentage change in the value of the Wholesale Price Index (WPI) on a year-on year basis. It effectively measures the change in the prices of a basket of goods and services in a year. In India, inflation is calculated by taking the WPI as base.

Formula for calculating Inflation=

(WPI in month of current year-WPI in same month of previous year)
————————————————————————————– X 100
WPI in same month of previous year

Inflation occurs due to an imbalance between demand and supply of money, changes in production and distribution cost or increase in taxes on products. When economy experiences inflation, i.e. when the price level of goods and services rises, the value of currency reduces. This means now each unit of currency buys fewer goods and services.

It has its worst impact on consumers. High prices of day-to-day goods make it difficult for consumers to afford even the basic commodities in life. This leaves them with no choice but to ask for higher incomes. Hence the government tries to keep inflation under control.

Contrary to its negative effects, a moderate level of inflation characterizes a good economy. An inflation rate of 2 or 3% is beneficial for an economy as it encourages people to buy more and borrow more, because during times of lower inflation, the level of interest rate also remains low. Hence the government as well as the central bank always strive to achieve a limited level of inflation.

Various measures of Inflation are:-

• GDP Deflator
• Cost of Living Index
• Producer Price Index(PPI)
• Wholesale Price Index(WPI)
• Consumer Price Index(CPI)

There are following types on Inflation based on their causes:-

• Demand pull inflation
• cost push inflation
• structural inflation
• speculation
• cartelization
• hoarding

Various control measures to curb rising inflation are:-

• Fiscal measures like reduction in indirect taxes
• Dual pricing
• Monetary measures
• Supply side measures like importing the shortage goods to meet the demand
• Administrative measures to curb hoarding, Cratelization.

Tax Reforms in India

Sience 1990 ie the liberalization of Indian economy saw the beginning of Taxation reforms in the nation. The taxation system in the nation has been subjected to consistent and comprehensive reform. Following factors arise the need for tax reforms in India:-

• Tax resources must be maximized for increased social sector investment in the economy.
• International competitiveness must be imparted to Indian economy in the globalized world.
• Transaction costs are high which must be reduced.
• Investment flow should be maximized.
• Equity should be improved
• The high cost nature of Indian economy should be changed.
• Compliance should be increased.

Direct & Indirect Tax Reforms

Direct tax reforms undertaken by the government are as follows:-

• Reduction and rationalization of tax rates, India now has three rates of income tax with the highest being at 30%.
• Simplification of process, through e-filling and simplifying the tax return forms.
• Strengthening of administration to check the leakage and increasing the tax base.
• Widening of tax base to include more tax payers in the tax net.
• Withdrawal of tax exceptions gradually.
• Minimum Alternate Tax (MAT) was introduced for the ‘Zero Tax’ companies.
• The direct tax code of 2010 replace the outdated tax code of 1961.

Indirect tax reforms undertaken by the government are as follows:-

• Reduction in the peak tariff rates.
• reduction in the number of slabs
• Progressive change from specific duty to ad valor-em tax.
• VAT is introduced.
• GST has been planned to be introduced.
• Negative list of services since 2012.

Subsidies- Cash Transfer of Subsidy Issue.

A subsidy is a benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.

Direct Cash Transfer Scheme is a poverty reduction measure in which government subsidies and other benefits are given directly to the poor in cash rather than in the form of subsidies.

It can help the government reach out to identified beneficiaries and can plug leakages. Currently, ration shop owners divert subsidised PDS grains or kerosene to open market and make fast buck. Such Leakages could stop. The scheme will also enhance efficiency of welfare schemes.

The money is directly transferred into bank accounts of beneficiaries. LPG and kerosene subsidies, pension payments, scholarships and employment guarantee scheme payments as well as benefits under other government welfare programmes will be made directly to beneficiaries. The money can then be used to buy services from the market. For eg. if subsidy on LPG or kerosene is abolished and the government still wants to give the subsidy to the poor, the subsidy portion will be transferred as cash into the banks of the intended beneficiaries.

It is feared that the money may not be used for the intended purpose and men may squander it.

Electronic Benefit Transfer (EBT) has already begun on a pilot basis in Andhra Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal, Karnataka, Pondicherry and Sikkim. The government claims the results are encouraging.

Only Aadhar card holders will get cash transfer. As of today, only 21 crore of the 120 crore people have Aadhar cards. Two other drawbacks are that most BPL families don’t have bank accounts and several villages don’t have any bank branches. These factors can limit the reach of cash transfer.

Recent Trends in Indian Economy: Role of Foreign Capital, FDI

FDI refers to capital inflows from abroad that are invested in or to enhance the production capacity of the economy. Despite globalization, the essential role of foreign direct investment (FDI) in economic development has not changed.

Foreign Direct Investment (FDI) plays an important role in global business. It can provide a firm with new marketing channels, cheaper production facilities, access to technology transfer, product, skills and financing. With the advent of globalization and strong governmental support, foreign investment has helped the Indian economy grow tremendously. India has continuously sought to attract investment from the world’s major investors. In 1998 and 1999, the Government of India announced a number of reforms designed to encourage and promote a favorable business environment for investors. Foreign investments in the country can take in the form of investments in listed companies i.e., Foreign Institutional Investors’(FIIs) investments, investments in listed/unlisted companies other than through stock exchanges i.e., through the foreign direct investment or private equity/foreign venture capital investment route, investments through American Depository Receipts (ADR), Global Depository Receipts (GDR), or investments by Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) in various forms.

ROUTES OF FOREIGN INVESTMENT INFLOW
DIRECT INVESTMENT
I) Equity
(a) Government (SIA/FIPB)
(b) RBI
(c) NRI
(d) Acquisition of shares
(e) Equity capital of
(f) Unincorporated bodies
II) Re-invest Dearing
III) Other capital
INDRECT INVESTMENT
(I) GDRs/ADRs
(II) FIIs
(III) off-shore funds and others

Main advantages of FDI are:-
1. Inflow of Foreign Capital. Capital base of domestic country increases.
2. Increase in tax revenue.
3. Boost economy by GDP growth.
4. Increase competition, productivity and efficiency.
5. Large employment opportunities -FDI in retail will create lakhs of jobs.
6. Inflow of technology, expertise and know how.
7. Infrastructure facilities improve and it will bring growth and prosperity.
8. Reduce cost of production. Prices of products will come down. This will tame inflationary pressure in the economy.
9. Increase in international trade.
10. High quality products that will help them develop local businesses and industries.
11. Decrease in food wastage: Today a major chunk of the food that is almost 30%, 40% of the produce is wasted in transportation. A lot of grains are also wasted in the government storage and go-downs. The government has made it compulsory to invest 50% of the investment in the development of infrastructure in logistics. Thus it will become critical to save a lot in storage and logistics. More investments in the end to end supply chain and world class cold storage facilities.
12. Benefits to the farmers: Farmers were long been left behind and squeezed between the price raise. Worldwide the big retail giants buy the produce directly from the farmers eliminating the middle men and offering them at least 15% – 20% higher prices then they get.
13. Increase in Forex reserves: As per Government’s proposal in increasing the FDI in retail the each retail giant is supposed to invest a minimum of 100 million dollars. Each retail giant is expected to open atleast 15 stores across India and to open each
14. Better consumer choice: Since most of the retail giants work on a large scale, they have large number product varieties which generally the kirana stores in your neighbourhood are not able to store. Better options and offers to the consumer.
15. Reduction in food inflation: The increase in FDI will create stronger competition among the retailers and will eliminate the middle man, which will eventually help in reducing food prices and the stocks will help in reducing the supply constraint.
16. Increase in economic growth by dealing in various international products.
17. Billion dollars will be invested in Indian retail market.
18. FDI in defence sector will reduce imports; improve country’s capacity to produce defence equipment locally and save foreign money. Definitely, it will create employment opportunities. It will give them a hope that Indian defence equipment will become globally competitive. High technology and expertise will flow to the country.

Multinational Corporations

MNC may be defined as a company, which operates in number of countries and has production and service facilities outside the country of its origin. They are also called Trans National Company (TNC) Their activities have both good and bad impacts on the economy. They take decisions on a global context or basis. Their maximum profit objectives take no account of the reactions produced in the countries felling in their orbit. They operate in different institutional forms Some are: Subsidiaries companies wholly owned by MNC in other countries Subsidiary company enter into joint venture with a company another company Agreement among companies of different countries regarding production and discussion of market.

Role of MNC’s

1. Promotion of Foreign Investment:

MNCs can bridge the gap between the requirements of foreign capital for increasing foreign investment in India.The liberalized foreign investment pursued since 1991, allows MNCs to make investment in India subject to different ceilings fixed for different industries or projects.

2. Non-Debt Creating Capital inflows:

The direct foreign investment by multinational corporations represents non-debt creating capital inflows we can avoid the liability of debt-servicing payments. Moreover, the advantage of investment by MNCs lies in the fact that servicing of non-debt capital begins only when the MNC firm reaches the stage of making profits to repatriate Thus, MNCs can play an important role in reducing stress strains and on India’s balance of payments (BOP).

3. Technology Transfer:

Transfer high sophisticated technology to developing countries which are essential for raising productivity of working class and enable us to start new productive ventures requiring high technology is possible due to mnc’s. Whenever, multinational firms set up their subsidiary production units or joint-venture units, they not only import new equipment and machinery embodying new technology but also skills and technical know-how to use the new equipment and machinery.

4. Promotion of Exports:

With extensive links all over the world and producing products efficiently and therefore with lower costs multinationals can play a significant role in promoting exports of a country in which they invest.

5. Investment in Infrastructure:

With a large command over financial resources and their superior ability to raise resources both globally and inside India it is said that multinational corporations could invest in infrastructure such as power projects, modernisation of airports and posts, telecommunication.

The investment in infrastructure will give a boost to industrial growth and help in creating income and employment in the India economy. The external economies generated by investment in infrastructure by MNCs will therefore crowd in investment by the indigenous private sector and will therefore stimulate economic growth.

Food Security & Public Distribution System(PDS)

WHO Defines Food security to exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life.
Food security has three interlinked contents such as :-

1. Availability of food,
2. Access to food and
3. absorption of food.

Food security is a multidimensional concept covering even the  micro level household food security,energy intakes and indicators of malnutrition.

Major components of food security are:-

1. Production and Procurement
2. Storage
3. Distribution

Indian Agriculture is rightly called as a gamble with Monsoon, variability in food production and rising population creates food insecurity in the nation and worst effected are the downtrodden section of the society.

While India has seen impressive economic growth in recent years, the country still struggles with widespread poverty and hunger. India’s poor population amounts to more than 300 million people, with almost 30 percent of India’s rural population living in poverty. The good news is, poverty has been on the decline in recent years. According to official government of India estimates, poverty declined from 37.2% in 2004-05 to 29.8% in 2009-10.

Need for Self-Sufficiency:

India suffered two very severe droughts in 1965 and 1966. Food Aid to India was restricted to a monthly basis by USA under the P.L. 480 programme.  The Green Revolution made a significant change in the scene. India achieved self-sufficiency in food grains by the year 1976 through the implementation of the seed- water-fertilizer policy adopted by the Government of India.

Food grain production increased four-fold during 1950-51 and 2001-2002 from 51 million tons to 212 million tones. The country is no longer exposed to real famines. But the regional variation in the success of Green Revolution which was chiefly limited to northern- Western states has lead to the divide in the nation. Evergreen revoloution and Bringing green revolution to eastern India is the need of the hour.

Green revolution was focused on wheat and rice and thus the production of pulses was stagnant.

National Food Security Mission comprising rice, wheat and pulses to increase the production of rice by 10 million tons, wheat by 8 million tons and pulses by 2 million tons by the end of the Eleventh Plan (2011-12). The Mission is being continued during 12th Five Year Plan with new targets of additional production of food grains of 25 million tons of food grains comprising of 10 million tons rice, 8 million tons of wheat, 4 million tons of pulses and 3 million tons of coarse cereals by the end of 12th Five Year Plan.
The National Food Security Mission (NFSM) during the 12th Five Year Plan will have five components

(i) NFSM- Rice;

(ii) NFSM-Wheat;

(iii) NFSM-Pulses,

(iv) NFSM-Coarse cereals and

(v) NFSM-Commercial Crops.

Government through Public Distribution System has tried to counter the problem of food insecurity by providing the food grains through fair price shops.

The central Government through Food Corporation of India has assumed the responsibilities of  procurement,storage,transfer and bulk allocation of food grains to state governments.

The public distribution system (PDS) has played an important role in attaining higher levels of the household food security and completely eliminating the threats of famines from the face of the country, it will be in the fitness of things that its evolution, working and efficacy are examined in some details.

PDS was initiated as a deliberate social policy of the government with the objectives of:

1. i) Providing foodgrains and other essential items to vulnerable sections of the society at resonable (subsidised) prices;
2. ii) to have a moderating influence on the open market prices of cereals, the distribution of which constitutes a fairly big share of the total marketable surplus; and

iii) to attempt socialisation in the matter of distribution of essential commodities.

The focus of the Targeted Public Distribution System (TPDS) is on “poor in all areas” and TPDS involves issue of     35 Kg of food grains per family per month for the population Below Poverty Line (BPL) at specially subsidized prices. The TPDS requires the states to Formulate and implement :-

1. foolproof arrangements for identification of poor,
2. Effective delivery of food grains to Fair Price Shops (FPSs)
3. Its distribution in a transparent and accountable manner at the FPS level.

Export Import (EXIM) Policy  of India

Export Import Policy or  Exim Policy or Foreign Trade Policy is a set of guidelines and instructions related to the import and export of goods.

Various Objectives of Exim Policy are :-

• To facilitate sustained growth in exports from India and import in India.
• To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods scheme required for augmenting production and providing services.
• To enhance the technological strength and efficiency of Industry Agriculture industry and services, thereby improving their competitive strength while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality.
• To provide clients with high-quality goods and services at globally competitive rates. Canalization is an important feature of Exim Policy under which certain goods can be imported only by designated agencies. For an example, an item like gold, in bulk, can be imported only by specified banks like SBI and some foreign banks or designated agencies.

The new five year Foreign Trade Policy, 2015-2020 provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the “Make in India” vision of our Hon’blc Prime Minister. The focus of the government is to support both the manufacturing and services sectors, with a special emphasis on improving the ‘ease of doing business’.

Merchandise Exports from India Scheme (MEIS):-To offset infrastructural inefficiencies and the associated costs of exporting products produced in India giving special emphasis on those which are of India’s export interest and have the capability to generate employment and enhance India’s competitiveness in the world market.With the aim in making India’s products more competitive in the global markets, the scheme provides incentive in the form of duty credit scrip to the exporter to compensate for his loss on payment of duties.

Service Exports from India Scheme (SEIS) :-Service Provider of eligible services shall be entitled to Duty Credit Scrips at notified rates.

Export Promotion Capital Goods (EPCG) scheme allows import of capital goods including spares for pre production, production and post production at zero duty.

Other Specific steps taken for the developement of international trade are:-

• Trade Facilitation & Ease Of Doing Business
• DGFT as a facilitator of exports/imports
• Niryat Bandhu – Hand Holding Scheme for new export / import entrepreneurs
• Online Complaint Registration and Citizen’s Charter
• Monitoring System
• Issue of e-IEC (Electronic-Importer Exporter Code)
• e-BRC
• MoU with State Governments for sharing of e-BRC data
• Exporter Importer Profile
• Reduction in mandatory documents required for Export and Import
• Online Inter-ministerial consultation
• Facility of online filing of applications
• Facility to upload documents by Chartered Accountant / Company Secretary / Cost Accountant
• Electronic Data Interchange (EDI)
• Message Exchange with Community partners
  (a) Message Exchange with Customs
  (b) Message Exchange with eBiz
  (c) Message Exchange with Banks
  (d) Message Exchange with EPCs
• Encouraging development of Third Party API
• Forthcoming e-Governance Initiatives
• Free passage of Export consignment
•  No seizure of export related Stock
• 24 X 7 Customs clearance
• Single Window in Customs
• Self-Assessment of Customs Duty
• Authorised Economic Operator (AEO) Programme
• Prior filing facility for Shipping Bills
• Cutting down delay in filing of Export General Manifest (EGM) for duty drawback
• Facility of Common Bond / LUT against authorizations issued under different EP Schemes
• Exemption from Service Tax on Services received abroad
• Export of perishable agricultural Products
• Time Release Study (TRS)
• Towns of Export Excellence (TEE)

12 Finance Commission

The Twelfth Finance Commission  was appointed under the chairmanship of C. Rangarajan on November 1, 2002 to make recommendations regarding the distribution between the Union and the States of net proceeds of shareable taxes, the principles which should govern the grants- in-aid of the revenues of States from the Consolidated Fund of India and the measures needed to augment the Consolidated Fund of a State to supplement the resources of local bodies in the State on the basis of the recommendations made by the Finance Commission of the State.

Recommendations of the Twelfth Finance Commission

Restructuring public finances

• Centre and States to improve the combined tax-GDP ratio to 17.6 per cent by 2009-10.
• Combined debt-GDP ratio, with external debt measured at historical exchange rates, to be brought down to 75 percent by 2009-10.
• Fiscal deficit to GDP targets for the Centre and States to be fixed at 3 per cent.
• Revenue deficit of the Centre and States to be brought down to zero by 2008-09.
• Interest payments relative to revenue receipts to be brought down to 28 per cent and 15 per cent in the case of the Centre and States, respectively.
• States to follow a recruitment policy in a manner so that the total salary bill, relative to revenue expenditure, net of interest payments, does not exceed 35 per cent.
• Each State to enact a fiscal responsibility legislation providing for elimination of revenue deficit by 2008-09 and reducing fiscal deficit to 3 per cent of State Domestic Product.
• The system of on-lending to be brought to an end over time. The long term goal should be to bring down debt-GDP ratio to 28 per cent each for the Centre and the States.

Sharing of Union tax revenues

•  The share of States in the net proceeds of shareable Central taxes fixed at 30.5 per cent, treating additional excise duties in lieu of sales tax as part of the general pool of Central taxes. Share of States to come down to 29.5 per , when States are allowed to levy sales tax on sugar, textiles and tobacco.
• In case of any legislation enacted in respect of service tax, after the notification of the eighty eighth amendment to the Constitution, revenue accruing to a State should not be less than the share that would accrue to it, had the entire service tax proceeds been part of the shareable pool.
• The indicative amount of overall transfers to States to be fixed at 38 per cent of the Centre’s gross revenue receipts.

Local bodies

• A grant of Rs.20,000 crore for the Panchayati Raj institutions and Rs.5,000 crore for urban local bodies to be given to States for the period 2005-10.
• Priority to be given to expenditure on operation and maintenance (O&M) costs of water supply and sanitation, while utilizing the grants for the Panchayats. At least 50 per cent of the grants recommended for urban local bodies to be earmarked for the scheme of solid waste management through public-private partnership.

Calamity relief

•  The scheme of Calamity Relief Fund (CRF) to continue in its present form with contributions from the Centre and States in the ratio of 75:25. The size of the Fund worked out at Rs.21,333 crore for the period 2005-10.
  The outgo from the Fund to be replenished by way of collection of National Calamity Contingent Duty and levy of special surcharges.
• The definition of natural calamity to include landslides, avalanches, cloud burst and pest attacks.
  Provision for disaster preparedness and mitigation to be part of State Plans and not calamity relief.

Grants-in-aid to States

•  The present system of Central assistance for State Plans, comprising grant and loan components, to be done away with, and the Centre should confine itself to extending plan grants and leaving it to States to decide their borrowings.
• Non-plan revenue deficit grant of Rs.56,856 crore recommended to 15 States for the period 2005-10. Grants amounting to Rs.10,172 crore recommended for the education sector to eight States. Grants amounting to Rs.5,887 crore recommended for the health sector for seven States. Grants to education and health sectors are additionalities over and above the normal expenditure to be incurred by States.
• A grant of Rs.15,000 crore recommended for roads and bridges, which is in addition to the normal expenditure of States.
• Grants recommended for maintenance of public buildings, forests, heritage conservation and specific needs of States are Rs. 500 crore, Rs.1,000 crore, Rs.625 crore, and Rs.7,100 crore, respectively.

Fiscal reform facility

•  With the recommended scheme of debt relief in place, fiscal reform facility not to continue over the period 2005-10.

Debt relief and corrective measures

•  Central loans to States contracted till March,2004 and outstanding on March 31, 2005 amounting to Rs.1,28,795 crore to be consolidated and rescheduled for a fresh term of 20 years, and an interest rate of 7.5 per cent to be charged on them. This is subject to enactment of fiscal responsibility legislation by a State.
• A debt write-off scheme linked to reduction of revenue deficit of States to be introduced. Under this scheme,
  repayments due from 2005-06 to 2009-10 on Central loans contracted up to March 31,2004 will be eligible for write- off.
• Central Government not to act as an intermediary for future lending to States, except in the case of weak States,
  which are unable to raise funds from the market.
• External assistance to be transferred to States on the same terms and conditions as attached to such assistance by external funding agencies.
• All the States to set up sinking funds for amortization of all loans.
• States to set up guarantee redemption funds through earmarked guarantee fees.

Others

•  The Centre should share ‘profit petroleum’ from New Exploration and Licensing Policy (NELP) areas in the ratio of 50:50 with States where mineral oil and natural gas are produced. No sharing of profits in respect of nomination fields and non-NELP blocks.
• Every State to set up a high level committee to monitor the utilization of grants recommended by the TFC.
  Centre to gradually move towards accrual basis of accounting.

Source:Ministry of Finance

Poverty Alleviation Schemes

• Poverty alleviation programmes can be in form of employment generation programmes or social assistance programmes so that different dimensions of poverty are addressed.
• At present there are three centrally sponsored employment programmes in operation
  • MNREGS: Rural, wage employment
  • SGSY: Rural, self-employment
  • SJSRY: Urban, self and wage employment
• MNREGS
  • 2006
  • Launched in 200 most backward districts in the first phase. At present 619 districts are covered under the NREGS
  • During 2008-09, 4.51 crore households were provided employment under the scheme
• Swarnajayanti Gram Swarozgar Yojana
  • 1999 after restructuring the Integrated Rural Development Programme (IRDP) and allied programmes, viz., Development of Women and Children in Rural Areas (DWCRA), Training of Rural Youth for Self-Employment (TRYSEM), Supply of improved tool-kits to rural artisans (SITRA), Ganga Kalyan Yojana (GKY) and Million Wells Scheme (MWS)
  • Self-employment programme for rural poor
  • Objective is to bring the assisted swarozgaris above the poverty line by providing them income generating assets through bank credit and government subsidy
  • Centre: State – 75:25; 90:10 for NE states
• Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
  • It is a unified centrally sponsored scheme launched a fresh in lieu of the erstwhile urban poverty alleviation programmes, viz, Nehru Rozgar Yojana (NRY), PM’s Integrated Urban Poverty Eradication Programme (PMIUPEP), and Urban Basic Services for the Poor (UBSP)
  • Revamped in 2009
  • Self-employment + Wage employment

• The revamped SJSRY has 5 components
  • Urban Self-Employment Programme (USEP)
  • Urban Woman Self-help Programme (UWSP)
  • Skill Training for Employment Promotion amongst urban poor (STEP-UP)
  • Urban Wage Employment Programme (UWEP)
• Pradhan Mantri Jan Dhan Yojana (PMJDY):-National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.
• Pradhan Mantri Sukanya Samriddhi Yojana (PMSSY)
• Pradhan Mantri MUDRA Yojana (PMMY):-To create an inclusive, sustainable and value based entrepreneurial culture, in collaboration with our partner institutions in achieving economic success and financial security.
• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
• Pradhan Mantri Suraksha Bima Yojana (PMSBY)
• Atal Pension Yojana (APY)
• Pradhan Mantri Fasal Bima Yojana (PMFBY)
• Pradhan Mantri Gram Sinchai Yojana (PMGSY)
• Pradhan Mantri Garib Kalyan Yojanaye (PMGKY)
• Pradhan Mantri Jan Aushadhi Yojana (PMJAY)
• Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDUGKY)
• Pradhan Mantri Ujjwala Yojana
• Rajasthan Mission on Skill and Livelihoods
• End to end computerization of PDS
• Bhamashah Yojana
• Primary Health Centre (PHC) Scheme

Role of World Bank, IMF WTO & other Important International Organisations in world Economy

The International Bank for Reconstruction and Development (IBRD), commonly referred to as the World Bank, is an international financial institution whose purposes include assisting the development of its member nation’s territories, promoting and supplementing private foreign investment and promoting long-range balance growth in international trade.

The World Bank was established in December 1945 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. It opened for business in June 1946 and helped in the reconstruction of nations devastated by World War II. Since 1960s the World Bank has shifted its focus from the advanced industrialized nations to developing third-world countries.

Organization and Structure:

The organization of the bank consists of the Board of Governors, the Board of Executive Directors and the Advisory Committee, the Loan Committee and the president and other staff members. All the powers of the bank are vested in the Board of Governors which is the supreme policy making body of the bank.

Capital Resources of World Bank:

The initial authorized capital of the World Bank was $ 10,000 million, which was divided in 1 lakh shares of $ 1 lakh each. The authorized capital of the Bank has been increased from time to time with the approval of member countries.Member countries repay the share amount to the World Bank in the following ways:

1. 2% of allotted share are repaid in gold, US dollar or Special Drawing Rights (SDR).
2. Every member country is free to repay 18% of its capital share in its own currency.
3. The remaining 80% share deposited by the member country only on demand by the World Bank.

Objectives:

The following objectives are assigned by the World Bank:

1. To provide long-run capital to member countries for economic reconstruction and development.

1. To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium and balanced development of international trade.

1. To provide guarantee for loans granted to small and large units and other projects of member countries.

1. To ensure the implementation of development projects so as to bring about a smooth transference from a war-time to peace economy.

1. To promote capital investment in member countries by the following ways;

(a) To provide guarantee on private loans or capital investment.

(b) If private capital is not available even after providing guarantee, then IBRD provides loans for productive activities on considerate conditions.

Functions:

World Bank is playing main role of providing loans for development works to member countries, especially to underdeveloped countries. The World Bank provides long-term loans for various development projects of 5 to 20 years duration.

The main functions can be explained with the help of the following points:

1. World Bank provides various technical services to the member countries. For this purpose, the Bank has established “The Economic Development Institute” and a Staff College in Washington.

1. Bank can grant loans to a member country up to 20% of its share in the paid-up capital.

1. The quantities of loans, interest rate and terms and conditions are determined by the Bank itself.

1. Generally, Bank grants loans for a particular project duly submitted to the Bank by the member country.

1. The debtor nation has to repay either in reserve currencies or in the currency in which the loan was sanctioned.

1. Bank also provides loan to private investors belonging to member countries on its own guarantee, but for this loan private investors have to seek prior permission from those counties where this amount will be collected.

The major roles of the International Monetary Fund are as follows:

1. To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
2. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
3. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
6. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.“Articles of Agreement: Article I—Purposes,” International Monetary Fund

World Trade Organization(WTO

The important objectives of WTO are:

1. To improve the standard of living of people in the member countries.
2. To ensure full employment and broad increase in effective demand.
3. To enlarge production and trade of goods.
4. To increase the trade of services.
5. To ensure optimum utilization of world resources.
6. To protect the environment.
7. To accept the concept of sustainable development.

Functions:

The main functions of WTO are discussed below:

1. To implement rules and provisions related to trade policy review mechanism.
2. To provide a platform to member countries to decide future strategies related to trade and tariff.
3. To provide facilities for implementation, administration and operation of multilateral and bilateral agreements of the world trade.
4. To administer the rules and processes related to dispute settlement.
5. To ensure the optimum use of world resources.
6. To assist international organizations such as, IMF and IBRD for establishing coherence in Universal Economic Policy determination.

Concept of Developing, Emerging and Developed countries.

In 1978, the World Bank, for the first time, constructed an analytical country classification system. The occasion was the launch of the World Development Report. Annexed to the report was a set of World Development Indicators (WDI), which provided the statistical underpinning for the analysis. The first economic classification in the 1978 WDI divided countries into three categories: (1) developing countries, (2) industrialized countries, and (3) capital-surplus oil-exporting countries. Developing countries were categorized as low- income (with GNI/n of US$250 or less) and middle-income (with GNI/n above US$250).

Major Characteristics of Developing Countries are:-

1.  Lower per-capita income
2.  Low levels of human capital
3. High levels of poverty and under-nutrition
4. Higher population growth rates
5. Predominance of agriculture and low levels of industrialization
6. Low level of urbanization but rapid rural-to-urban migration
7. Dominance of informal sector
8. Underdeveloped labor, financial, and other markets.

Major Characteristics of Emerging Countries are:-

1. the small size of the economy,
2. GNP/Capita much lower than in developed countries,
3. a reduced opening for accepting foreign investors,
4. a high volatility of the exchange rate which implies greater risk in trading.

Major Characteristics of Developed Countries are:-

1. Average income per capita of the population is generally high.
2. Education level of high average population.
3. Life expectancy of the population average height.
4.  Population growth rate per year is relatively small.
5. The death rate per year is relatively small population.
6. Life-style market economy.
7. His wide and varied field.
8. Economic activity in most industry sectors, as well as export commodities.
9. The majority of the population lives in cities.
10. Relatively high level of population health.

Indian Economy in global Scenario

The global macroeconomic landscape is currently chartering a rough and uncertain terrain characterized by weak growth of world output. The situation has been exacerbated by;
(i) declining prices of a number of commodities, with reduction in crude oil prices being the most visible of them,
(ii) turbulent fnancial markets (more so equity markets), and
(iii) volatile exchange rates.

These conditions refect extreme risk-aversion behaviour of global investors, thus putting many, and in particular, commodities exporting economies under considerable stress.

Even in these trying and uncertain circumstances, India’s growth story has largely remained positive on the strength of domestic absorption, and the country has registered a robust and steady pace of economic growth in 2015-16 as it did in 2014-15. Additionally, its other macroeconomic parameters like infation, fscal defcit and current account balance have exhibited distinct signs of improvement. Wholesale price infation has been in negative territory for more than a year and the all-important consumer prices infation has declined to nearly half of what it was a few years ago.

However, weak growth in advanced and emerging economies has taken its toll on India’s exports. As imports have also declined, principally on account of reduced prices of crude oil for which the country is heavily dependent on imports, trade and current account defcits continue to be moderate. Growth in agriculture has slackened due to two successive years of less-than-normal monsoon rains. Saving and investment rates are showing hardly any signs of revival. The rupee has depreciated vis-à-vis the US dollar, like most other currencies in the world, although less so in magnitude. At the same time, it has appreciated against a number of other major currencies. Given the fact that the government is committed to carrying the reform process forward, aided by the prevailing macroeconomic stability, it appears that conditions do exist for raising the economy’s growth momentum and achieving growth rates of 8 per cent or higher in the next couple of years.

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Objectives of Monetary Policies are:-

•  Accelerated growth of the economy
• Balancing saving and investments
• Exchange rate stabilization
• Price stability
• Employment generation

Monetary Policy could be expansionary or contractionary;  Expansionary policy would increase the total money supply in the economy while contractionary policy would decrease the money supply in the economy.

RBI issues the Bi-Monthly monetary policy statement. The tools available with RBI to achieve the targets of monetary policy are:-

• Bank rates
• Reserve Ratios
• Open Market Operations
• Intervention in forex market
• Moral suasion

Repo Rate- Repo rate is the rate at which the central bank of a country (RBI in case of India) lends money to commercial banks in the event of any shortfall of funds. In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.

Reverse Repo Rate is the rate at which RBI borrows money from the commercial banks.An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.The amount specified as the CRR is held in cash and cash equivalents, is stored in bank vaults or parked with the Reserve Bank of India. The aim here is to ensure that banks do not run out of cash to meet the payment demands of their depositors. CRR is a crucial monetary policy tool and is used for controlling money supply in an economy.

CRR specifications give greater control to the central bank over money supply. Commercial banks have to hold only some specified part of the total deposits as reserves. This is called fractional reserve banking.

Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement that the commercial banks in India require to maintain in the form of gold, government approved securities before providing credit to the customers.its the ratio of liquid assets to net demand and time liabilities.Apart from Cash Reserve Ratio (CRR), banks have to maintain a stipulated proportion of their net demand and time liabilities in the form of liquid assets like cash, gold and unencumbered securities. Treasury bills, dated securities issued under market borrowing programme and market stabilisation schemes (MSS), etc also form part of the SLR. Banks have to report to the RBI every alternate Friday their SLR maintenance, and pay penalties for failing to maintain SLR as mandated.

Current Status

• It is the largest and fastest growing sector globally contributing to the global output and employing more people than any other sector
• Why has services sector grown?
  • Increase in urbanisation, privatisation and more demand for intermediate and final consumer services
  • Availability of quality services is vital for the well being of the economy
• Service sector in India accounts for more than half of India’s GDP.
• Key service industry in India: health and education
  • A robust healthcare system will help create a strong and diligent human capital who in turn can contribute productively to the nation’s growth
• Marked increase in services sector growth in the post liberalisation period
• Account for 55.2 % share of GDP
• Grows annually by 10%
• Contributing to about a quarter of total employment, high share of FDI inflows, over one third of total exports and recording a very fast growth of 27.4 pc through the first half of 2010-11.
• The ratcheting of the overall growth rate (CAGR) of the Indian economy from 5.7% in the 1990s to 8.6 pc during 2004-05 to 2009-10 was to a large measure due to the acceleration of CAGR in the services sector from 7.5 pc in the 1990s to 10.3 pc in 2004-05 to 2009-10.
• Services sector growth has been around 10 pc since 2005-06

Contribution of Services sector to Indian economy

• Share in GDP
  • 1950-51: 30.5 pc
  • 2009-10: 55.2 pc
  • If construction is included (RBI and WTO method): 63.4 pc
• CSO Classification
  • Trade, hotels and restaurants (16.3 of national GDP)
  • Transport, storage and communication (7.8 of GDP)
  • Financing, insurance, real estate and business services (16.7)
  • Community, social and personal services (14.4)
• Services trade surplus: USD 54 bn (2008-09)
  • USD 35.7 bn (2009-10)
• China (10.5%) followed by India (8.9%) remain the two fastest growing economies in top 12 countries.
• Statewise
  • States such as Delhi, Chandigarh, Kerala, Maharashtra, Bihar, Tamil Nadu and West Bengal have shares equal to or above all-India share of services in the GDP

FDI in Services

• 44 pc of FDI inflows between 2000 and 2009 were in the services sector (construction excluded)
  • Of this financial and non-financial companies have attracted the largest FDI
• Not all sectors are fully open for FDI. Reforms are needed.
• FDI in retail <do detailed>
  • FDI in single brand retail is permitted upto 51%. Now 100 pc.
  • FDI in multi-brand retail is being debated
  • Permitting FDI in retail in a phased manner beginning with the metros and incentivising existing retailer to modernise could help the interests of consumers as well as farmers
  • FDI in retail in bring in latest technology and supply chain management in the country
  • The move for FDI in retail has been opposed on the ground that the move could result in widespread closure of small time shops.
  • The way out could be lay down strict rules of operation for foreign retail chains
    • Include requirement of local procurement
    • This will also lead to stabilising prices by cutting out the middlemen
  • FDI in insurance
    • There is a proposal to raise the FDI cap in the insurance sector from the current 26 pc to 49 pc.
    • A bill for this has been pending before the Parliament
    • Some new sectors in insurance should be opened up – like health insurance
    • This will enable India export super speciality hospital services and medical tourism
    • Withdraw FDI restrictions on foreign re-insurance companies. This will help India access the global re-insurance businesses
  • Banking
    • There is a scope for attracting large investments from abroad
    • Currently 74% investment is allowed.
    • There is 10 pc limit on voting rights in respect of banking companies
    • FDI in banking should be seen in the context of overall financial stability
  • New Areas for FDI
    • Railways
      • Rakesh Mohan Committee on infrastructure had recommended throwing up the entire railway sector open to private investment
      • The finance ministry paper (2010) suggested 26 FDI in railways which can help overcome the current drought in investment in the railways
    • Shipping
      • India’s shipping tonnage is inadequate, accounting for mere 1.17% of global registration
      • The share of India’s vessels in carriage of India’s overseas trade had dropped from 40% in late 1980s to about 9.5% in 2008-09
    • Accountancy, legal services, healthcare and education services

Way Forward

• Retain the country’s competitiveness in those services sectors where it has already distinguished such as IT and ITeS
• The next task is to make foray into some traditional realms such as tourism and shipping where other nations have already established themselves.
• Make serious inroads into globally traded services in still niche areas for India such as financial services, healthcare, education, accountancy, legal and other business services where the country possesses a huge domestic market but has also displayed signs of making a dent in the global market.
• This requires
  • Reciprocal movements on the part of India in opening up its own market, liberalising FDI not only to improve the infrastructure but also to absorb the best practices that are so universally acclaimed.
  • Set up strong institutional bodies in the form of regulatory agencies to take care of both domestic and international interests in case when market-distorting moves are made by either party.
• Non-equity modes of engagement could be used to bypass the political difficulties in reforms

The Government of India has adopted a few initiatives in the recent past. Some of these are as follows:

• The Government of India plans to significantly liberalise its visa regime, including allowing multiple-entry tourist and business visas, which is expected to boost India’s services exports.
•  The Government of India announced plan to increase the number of common service centres or e-Seva centres to 250,000 from 150,000 currently to enable village level entrepreneurs to interact with national experts for guidance, besides serving as a e-services distribution point.
• The Central Government is considering a two-rate structure for the goods and service tax(GST), under which key services will be taxed at a lower rate compared to the standard rate, which will help to minimize the impact on consumers due to increase in service tax.
• The Government of India plans to take mobile network to nearly 10 per cent of Indian villages that are still unconnected.
• The Government of India has proposed provide tax benefits for transactions made electronically through credit/debit cards, mobile wallets, net banking and other means, as part of broader strategy to reduce use of cash and thereby constrain the parallel economy operating outside legitimate financial system.
• The Reserve Bank of India (RBI) has allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and has also allowed white label ATMs to tie up with any commercial bank for cash supply.

Money supply is the entire stock of currency and other liquid instruments in a country’s economy as of a particular time. The money supply can include cash, coins and balances held in checking and savings accounts.

Money Supply can be estimated as narrow or broad money.

There are four measures of money supply in India which are denoted by M₁, M₂, M₃ and M₄. This classification was introduced by the Reserve Bank of India (RBI) in April 1977. Prior to this till March 1968, the RBI published only one measure of the money supply, M or defined as currency and demand deposits with the public. This was in keeping with the traditional and Keynesian views of the narrow measure of the money supply.

M1 (Narrow Money) consists of:

(i) Currency with the public which includes notes and coins of all denominations in circulation excluding cash on hand with banks:

(ii) Demand deposits with commercial and cooperative banks, excluding inter-bank deposits; and

(iii) ‘Other deposits’ with RBI which include current deposits of foreign central banks, financial institutions and quasi-financial institutions such as IDBI, IFCI, etc., other than of banks, IMF, IBRD, etc. The RBI characterizes as narrow money.

M₂. which consists of M₁ plus post office savings bank deposits. Since savings bank deposits of commercial and cooperative banks are included in the money supply, it is essential to include post office savings bank deposits. The majority of people in rural and urban India have preference for post office deposits from the safety viewpoint than bank deposits.

M₃. (Broad Money) which consists of M₁, plus time deposits with commercial and cooperative banks, excluding interbank time deposits. The RBI calls M₃ as broad money.

M₄.which consists of M₃ plus total post office deposits comprising time deposits and demand deposits as well. This is the broadest measure of money supply.

High powered money – The total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money. It consists of currency ( notes and coins in circulation with the public and vault cash of commercial banks) and deposits held by the Government of India and commercial banks with RBI. If a memeber of the public produces a currency note to RBI the latter must pay her value equal to the figure printed on the note. Similarly, the deposits are also refundable by RBI on demand from deposit holders. These items are claims which the general public, government or banks have on RBI and are considered to be the liability of RBI.

RBI acquires assets against these liabilities. The process can be understood easily if we consider a simple stylised example. Suppose RBI purchases gold or dollars worth Rs. 5. It pays for thr gold or foreign exchange by issuing currency to the seller. The currency in circulation in the economy thus goes up by Rs. 5, an item that shows up on the liabilityside of RBI’s Balance sheet. The value of the acquired asset, also equal to Rs. 5, is entered under the appropriate head on the Assets side. Similarly, the RBI acquires debt bonds or securities issued by the government and pays the government by issuing currency. It issues loans to commercial banks in a similar fashion.

1. Role of Commercial Banks
2. Issue of NPA
3. Financial Inclusion

A Commercial bank is a type of financial institution that provides services such as accepting deposits, making business loans, and offering basic investment products

There is acute shortage of capital. People lack initiative and enterprise. Means of transport are undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles and promoting economic development. The role of a commercial bank in a developing country is discussed as under.

1. Mobilising Saving for Capital Formation:

The commercial banks help in mobilising savings through network of branch banking. People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of the few rich. By mobilising savings, the banks channelize them into productive investments. Thus they help in the capital formation of a developing country.

1. Financing Industry:

The commercial banks finance the industrial sector in a number of ways. They provide short-term, medium-term and long-term loans to industry.

1. Financing Trade:

The commercial banks help in financing both internal and external trade. The banks provide loans to retailers and wholesalers to stock goods in which they deal. They also help in the movement of goods from one place to another by providing all types of facilities such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. Moreover, they finance both exports and imports of developing countries by providing foreign exchange facilities to importers and exporters of goods.

1. Financing Agriculture:

The commercial banks help the large agricultural sector in developing countries in a number of ways. They provide loans to traders in agricultural commodities. They open a network of branches in rural areas to provide agricultural credit. They provide finance directly to agriculturists for the marketing of their produce, for the modernisation and mechanisation of their farms, for providing irrigation facilities, for developing land, etc.

They also provide financial assistance for animal husbandry, dairy farming, sheep breeding, poultry farming, pisciculture and horticulture. The small and marginal farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas are provided financial assistance through the regional rural banks in India. These regional rural banks operate under a commercial bank. Thus the commercial banks meet the credit requirements of all types of rural people. In India agricultural loans are kept in priority sector landing.

1. Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess sufficient financial resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities and also increase the demand in the economy.

1. Financing Employment Generating Activities:

The commercial banks finance employment generating activities in developing countries. They provide loans for the education of young person’s studying in engineering, medical and other vocational institutes of higher learning. They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business. Such loan facilities are being provided by a number of commercial banks in India. Thus the banks not only help inhuman capital formation but also in increasing entrepreneurial activities in developing countries.

1. Help in Monetary Policy:

The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.

A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.According to RBI, terms loans on which interest or installment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.

However, in terms of Agriculture / Farm Loans; the NPA is defined as under:

• For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is not paid for 2 crop seasons , it would be termed as a NPA.
• For Long Duration Crops, the above would be 1 Crop season from the due date.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has provisions for the banks to take legal recourse to recover their dues. When a borrower makes any default in repayment and his account is classified as NPA; the secured creditor has to issue notice to the borrower giving him 60 days to pay his dues. If the dues are not paid, the bank can take possession of the assets and can also give it on lease or sell it; as per provisions of the SAFAESI Act.

Reselling of NPAs :- If a bad loan remains NPA for at least two years, the bank can also resale the same to the Asset Reconstruction Companies such as Asset Reconstruction Company (India) (ARCIL).  These sales are only on Cash Basis and the purchasing bank/ company would have to keep the accounts for at least 15 months before it sells to other bank. They purchase such loans on low amounts and try to recover as much as possible from the defaulters. Their revenue is difference between the purchased amount and recovered amount.

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.

Government of India has launched an innovative scheme of Jan Dhan Yojna for Financial Inclusion to provide the financial services to millions out of the regulated banking sector.

Various program’s for financial inclusion are:-

• Swabhimaan Scheme: under the Swabhimaan campaign, the Banks were advised to provide appropriate banking facilities to habitations having a population in excess of 2000 (as per 2001 census) by March 2012.
• Extention of  the banking network in unbanked areas,
• Expansion of Business Correspondent Agent (BCA) Network
• Direct Benefit Transfer (DBT) and Direct Benefit Transfer for LPG (DBTL)
• RuPay, a new card payment scheme has been conceived by NPCI to offer a domestic, open-loop, multilateral card payment system which will allow all Indian banks and financial Institutions in India to participate in electronic payments.
• Pradhan Mantri Jan-Dhan Yojana (PMJDY) was formally launched on 28th August, 2014. The Yojana envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension. The beneficiaries would get a RuPay Debit Card having inbuilt accident insurance cover of Rs.1.00 lakh. In addition there is a life insurance cover of Rs.30000/- to those people who opened their bank accounts for the first time between 15.08.2014 to 26.01.2015 and meet other eligibility conditions of the Yojana.

•  Public Finance

  Public finance is the study of the role of the government in the economy. It is the branch of economics which assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.

  It includes the study of :-

  • Fiscal Policy
  • Deficits and Deficit Financing
  • Fiscal Consolidation
  • Public Debt- Internal and External debt

  Fiscal policy relates to raising and expenditure of money in quantitative and qualitative manner.Fiscal policy is the use of government spending and taxation to influence the economy. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty. The role and objectives of fiscal policy gained prominence during the recent global economic crisis, when governments stepped in to support financial systems, jump-start growth, and mitigate the impact of the crisis on vulnerable groups.

  Historically, the prominence of fiscal policy as a policy tool has waxed and waned. Before 1930, an approach of limited government, or laissez-faire, prevailed. With the stock market crash and the Great Depression, policymakers pushed for governments to play a more proactive role in the economy. More recently, countries had scaled back the size and function of government—with markets taking on an enhanced role in the allocation of goods and services—but when the global financial crisis threatened worldwide recession, many countries returned to a more active fiscal policy.

  How does fiscal policy work?

  When policymakers seek to influence the economy, they have two main tools at their disposal—monetary policy and fiscal policy. Central banks indirectly target activity by influencing the money supply through adjustments to interest rates, bank reserve requirements, and the purchase and sale of government securities and foreign exchange. Governments influence the economy by changing the level and types of taxes, the extent and composition of spending, and the degree and form of borrowing.

  Deficit financing, practice in which a government spends more money than it receives as revenue, the difference being made up by borrowing or minting new funds.

  Fiscal consolidation is a term that is used to describe the creation of strategies that are aimed at minimizing deficits while also curtailing the accumulation of more debt. The term is most commonly employed when referring to efforts of a local or national government to lower the level of debt carried by the jurisdiction, but can also be applied to the efforts of businesses or even households to reduce debt while simultaneously limiting the generation of new debt obligations. From this perspective, the goal of fiscal consolidation in any setting is to improve financial stability by creating a more desirable financial position.

  The public debt is defined as how much a country owes to lenders outside of itself. These can include individuals, businesses and even other governments.public debt is the accumulation of annual budget deficits. It’s the result of years of government leaders spending more than they take in via tax revenues.

• Mainstay of Indian Economy
• Since independence, undergone a change from being the sector contributing the highest share to the GDP to one contributing the lowest share.
• Agriculture is a state subject.
• GDP contribution (Agriculture and allied sector)
  • 5 pc in 1950-51
  • 7 pc in 2008-09 and 14.6 pc in 2009-10. It was 19 pc in 2004-05. (2004-05 prices)
  • Agricultural GDP grew by 0.4 pc in 2009-10 and -0.1 pc in 2008-09.
• Employment
  • 9 pc in 1961
  • 9 pc in 1999-2000
  • 2 pc in 2008-09
  • 1999-2000: Number at 237.8 million
• GCF
  • Share in total GCF 2009-10: 7.7 pc (2004-05 prices)
  • GCF as % of agricultural GDP: 2007-08 – 16.3, 2008-09(P) – 19.67, 2009-10(QE) – 20.3
  • GCF as % of total GDP: 2007-08 – 2.69, 2008-09P – 3.09, 2009-10QE – 2.97
• Contributes to agricultural growth and industrial demand
• Contributed 10.59 pc of total exports in 2009-10.
• Due to the large number of workforce in this sector, the growth of agriculture is a necessary condition for inclusive growth.
• Food grains production
  • Highest in 2008-09: 234. 47 mn t
  • 2009-10: 218.11 mn t

Agriculture and Industry

• Agriculture as
  • Supplier of wage goods to the industrial sector
  • Provider of raw materials
  • Consumer of agricultural capital goods produced by industry
• Stagnation in agriculture
  • Get data on CAGR

Land Reforms

• Great scarcity and uneven distribution of land
• Focus of agricultural policies in the initial years was on institutional changes through land reforms
• Two objectives of land reforms in India
  • To remove the impediments to agriculture that arise due to the character of agrarian structure in rural areas
  • To reduce or eliminate the exploitation of tenants/small farmers
• Four main areas of land reforms in India
  • Abolition of intermediaries (zamindars)
  • Tenancy reforms
  • Land ceilings
  • Consolidation of disparate land holdings
• Economic arguments for land reforms
  • Equity
  • Small farms tend to be more productive than large farms
  • Owner cultivated plots of land tend to be more productive that those under sharecropped tenancy
• Abolition of zamindari was successful while the other three areas of land reforms met with limited success
• Operation Bargha. Also, LR in Kerala
• Regional trends in LR
• Effect of land reforms
  • On tenants
    • Absentee landlordism declined
    • Tenancy declined. In some cases, tenants were evacuated from the land.
    • In some cases there was a drift of tenants into landless
    • Where tenants had not been evicted, tenancy was pushed underground
  • On equity
  • On productivity
  • On agrarian power relations
• The National Commission on Farmers has placed the unfinished agenda in land reform first in its list of five factors central overcome an agrarian crisis
• Way forwards
  • Land reforms that make tenancy legal and give well defined rights to tenants, including women, are now necessary

Technology and Green Revolution

• In the early 60s India faced several crises
  • It had to fight two wars: Pakistan and China
  • Severe drought in 1965 and 1966
  • US was using PL-480 food supply as a means to twist India’s arms to meet US interests
• This called for an overhaul of the agricultural strategy and the need to be self-sufficient in food production
• Three phases of green revolution
  • 1966-1972
  • 1973-1980
  • 1981-1990
• 1966-1972
  • C Subramaniam and MSS
  • 1965: Agricultural Prices Commission and Food Corporation of India set up
  • Introduction of HYV seed of wheat from Mexico created by CIMMYT
  • Under the new agricultural policy, the spread of HYVs was supported by public investments in fertilisers, power, irrigation and credit
  • Food grain production shot up
    • 1966-67: 74 mt
    • 1971-72: 105 mt
  • India became nearly self-sufficient in food grains
  • What led to the increased production?
    • Favourable pricing policy led to adequate incentives
    • National research system proceeded to indigenise the new seeds to tackle their shortcomings
    • Availability of inputs including canal water, fertilisers, power and credit
    • Subsidies
    • Role of credit began to be important after 1969
  • 1973-1980
    • This phase saw many challenges
    • Consecutive droughts in 1972-73
    • Oil shock
    • Production fell. Imports began again.
    • Thereafter, government increased fertiliser subsidies
    • Groundwater irrigation increased in  importance
    • HYV technology extended from wheat to rice
  • 1981-1990
    • 1986
      • Rice prod: 63.8 mt (1964: 37)
      • Wheat prod: 47 mt (1964: 12 mt)
    • Even when the ‘worst drought of the century’ struck in 1987, food needs could be adequately met due to buffer stocks
    • HYV technology spread eastward to states like West Bengal and Bihar
    • The impact of HYV technology had started to plateau however
    • Input subsidies kept on increasing
    • 1991: Input subsidy was 7.2 pc of agricultural GDP
  • What was the impact of highly regulated policies on agriculture?
    • There were barriers on pricing, movement and private trading of agricultural produce
    • The external sector was burdened with various tariff and non-tariff barriers to agricultural trade flows
    • The overvalued rupee produced an anti-export environment for agriculture
    • High protection to industry produced high industrial prices and adverse terms of trade for agriculture, reducing the relative profitability of the primary sector
  • What was the aim of agricultural pricing in pre-reform era?
    • Ensure inexpensive food for consumers
    • Protect farmers’ incomes from price fluctuations
    • Keep the balance of payments in check
  • Agriculture in post-reform era
    • Impact: 1. Growth in PCI led to an increase in food demand and also diversification. Terms of trade between agricultural and industrial prices improved in favour of agriculture
    • Increased profitability has led to increase in private investments which are now double the public investment in agriculture.
    • Growth rates
      • 1980s: 3 pc
      • 1990s:
      • 2000s:
      • Tenth Plan: 2.47 pc (as against 7.77 pc of overall economic growth)
    • This has however not translated into reduction of poverty
    • There has been an increase in both urban and rural inequality
  • Deceleration in agricultural growth
    • Declined during 90s
    • Deceleration in the growth of area, production and yield
    • Food production of Rabi crops has off late equalled the Kharif crops. This has to an extent reduced the over dependence on monsoon and imparted some stability to agricultural production
    • Area-wise, the deceleration was more in case of the Indo-Gangetic region
  • The instability in agricultural growth is more in states with high percentage of rain-fed areas
  • Acreage: declining trend in most crops during the period 1995-96 to 2004-05
  • Productivity: sharp decline (1995-2005). Healthy performance of cotton and maize though

Major factors affecting growth potential

• Lack of long term policy perspective
  • No long term strategy for agricultural development
  • National Agricultural Policy was announced only in the year 2000
  • Sectoral priority to industry from the second FYP
  • Weaknesses of policies followed for agricultural development
    • Policies provided little incentives for the farmers as the prices were depressed and the sector was disprotected vis a vis other sectors of the economy
    • Inward-looking policies
    • Excessive price based focus than non-price factors like water, infrastructure, R&D, extension services etc
  • Investment in Agriculture and Subsidies
    • There have been cutbacks in agricultural investment and extension, but not in subsidies
    • Agricultural subsidy as pc of GDP:
    • Public investment in agriculture declined from 4 pc of agriculture GDP in 1976-1980 to
    • Subsidies on fertiliser, power and irrigation have contributed to soil degradation
    • It is important to reduce subsidies and increase public investment in crucial areas such as soil amelioration, watershed development, groundwater recharge, surface irrigation and other infrastructure
    • Public Sector GCF in agriculture stood at less than Rs 50 bn at 1993-94 prices
    • It is imperative to reduce these subsidies for stepping up public investment in agriculture
    • After 2003, the investments have started to increase. In  2006-07 public sector GCF was 3.7 pc of agricultural GDP and  total GCF was 12.5 pc of agricultural GDP
    • Three areas should get priority in public investments
      • Rural roads
      • Electricity
      • Irrigation projects
      • <all three of them are under Bharat Nirman project>
    • Complimentarity between public and private sector capital formation in agricultural sector. Public sector can create infrastructure while the private investment is essential for short term asset building mainly in the areas of mechanisation, ground levelling, private irrigation etc
  • Lagging research and development efforts
    • After the green revolution, there has been no major breakthrough in agricultural research. GM is a promising area but its safety has not yet been conclusively established.
    • Poor productivity in India compared to other countries and even compared to world average
    • India, however, has the largest public agricultural research establishment in the world. ICAR and agricultural universities
    • India spends only 0.3 pc of agricultural GDP for research as compared to 0.7 pc in other developing countries and 2-3 pc in case of developed countries.
    • There is hardly any scope for expansion of area. Hence, productivity must increase to keep up with the increasing demand. R&D has a lot of role to play here
    • New varieties of seeds need to be developed suited to different regions of the country
    • The research system should be responsive to the changing needs and circumstances
  • Technology generation and dissemination
    • Fixed land. Hence technology
    • Focus on yield as well as sustainable use of land
    • Focus should be on specific requirements of each agro-climatic region
    • Ned to develop much stronger linkages between extension and farmers
  • Rising soil degradation and over-exploitation of groundwater
    • Around 40 pc of Indian’s total geographical area are officially estimated as degraded
    • Soil health is deteriorating in Punjab and Haryana
  • Degradation of natural resources
  • Subsidies vis-a-vis investments and farm support systems
  • Agriculture’s terms of trade and farm price volatility
    • Ensure rapid development of backward farm linkages
  • Summary: Need to correct the policy bias against agriculture, make higher investments, develop new varieties of seeds, conserve natural resources like land and water and provide incentives to the farmers to adopt modernisation

Some Issues in Indian Agriculture

• Low public investment
• Halt in the modernization of agriculture
• Agricultural indebtedness
• Farmer suicides
• Agricultural imports and future markets

Subsidies

• Talk about bringing urea under the Nutrient Based Subsidy (NBS) system and decontrolling its prices
• Downsides
  • Fertilizer subsidy touched almost 1 lakh crore in 2008-09
  • Promotes overuse of fertiliser and thereby catalysing soil degradation
  • As a result, agricultural production in the bread baskets of the country has stagnated, posing a threat to the food security of the country
  • Drylands do not receive the benefit of crores of subsidy given in fertilizers

Government Intitiatives

• Green Revolution
• National Policy on Agriculture, 2002
• National Policy for Farmers, 2007
  • Major policy provisions include provisions for asset reforms, water use efficiency, use of technology, inputs and services like soil health, good quality seeds, credit, support for women etc
  • Focus on millets as well

Agriculture during the 11^th plan

• Flagship schemes
  • Rashtriya Krishi Vikas Yojana
  • National Food Security Mission
  • National Horticulture Mission (2005-06)
  • Integrated Scheme of Pulses, Oilseeds and Maize
  • Technology Mission for Integrated Development of Horticulture in North-east and Himalayan States (2001-02)
  • National Mission for Sustainable Agriculture
  • National Mission on Micro Irrigation was launched in 2010 in addition to the earlier Micro Irrigation Scheme launched in 2006
  • National Bamboo Mission
• Avg growth of 2.03 pc against the Plan target of 4 pc per annum.
• For sustainable and inclusive growth
  • Must focus on the small and marginal farmers as well as female farmers
  • Group approach should be adopted so that they can reap economies of scale
  • Bring technology to farmers
  • Improving efficiency of investments
  • Diversifying while also protecting food security concerns
  • Fostering inclusiveness through a group approach
• Irrigation
  • Envisages creation of an additional potential of 16 mn ha
  • Bharat Nirman aims to bring an additional 1 crore ha of land under irrigation by 2012
  • Accelerated Irrigation Benefits Programme still on

Irrigation

• 45 pc of nearly 175 mn ha of cropped area is irrigated
• Trends
  • Nearly trebled from 24 mn ha in 1953-64 to 75 mn ha in 1998-99
  • It accounts for the largest part of total investments in the agricultural sector
  • Importance of ground water as an irrigation source has also increased considerably
• Uneven access
  • Inter-regional variance
  • Inequality in access within the farming population
• Areas of concern
  • Depletion of ground water
  • Environmental concerns
  • Costs
• Steps to take
  • Improving water use efficiency
  • Water governance
  • Economic incentives for efficient use
• Govt Schemes
  • Accelerated Irrigation Benefits Programme was started during 1996-97. It extends assistance for the completion of incomplete irrigation schemes
• In 11^th FYP – refer previous section

Way Forward

• Second green revolution (?)
• Relook at all the issues offering forward and backward linkages in the agricultural production cycle
• Focus on oilseeds, pulses and coarse cereals
• Coarse cereals: high nutrition, can be grown in dry areas, enhance fertility of soil in rotation
• PDS should be reformed: coarse cereals should also be provided through PDS
• Timely availability of credit at affordable costs
• Wider extension of insurance facilities to the farm sector
• Water and irrigation infrastructure
• Drip irrigation
• Organic manures should be popularized and their commercial production encouraged
• Educate farmers about technology and agricultural techniques

Food Security

• Food security should also incorporate nutritional security. This requires emphasising the increase in production of pulses, fruits, vegetables, poultry and meat.
• Interpreted broadly
• Includes nutritional security which particularly incorporates maternal health and infant health due to the involvement of the nutritional aspect
• Also covers employment security (?)
• Affordability, accessibility and availability
• Food security seeks to address all the three dimensions of hunger: chronic, hidden and transient
• It also is the first step towards inclusive development

Public Distribution System

• High procurement prices

Irrigation

• The total irrigation potential in the country has increased from 81.1 mn hectares in 1991-92 to 108.2 mn hectares in March 2010.
• 1996-97: Accelerated Irrigation Benefit Programme initiated
• Reservoir Storage Capacity: 151.77 billion cubic metres

Agricultural Pricing

• To ensure
  • Remunerative prices to growers
  • Encouraging higher investment and production
  • Safeguard the interest of consumers by making sure that adequate supplies are available
• It also seeks to evolve a balanced and integrated price structure in the perspective of the overall needs of the economy

Investment in Agriculture

• FAO estimates that global agricultural production needs to grow 70 pc by 2050 in order to meet projected food demand
• Hence investment should grow by a whopping 50 pc
• In India, public investment in agriculture has witnessed a steady decline from the 6^th FYP onwards
• Share of investment in agriculture has been between 8-10 pc
• Most of this has gone into current expenditure in the form of increased output and input subsidies
• Though private sector investment has been increasing, it has not proved to be enough
• Decreased public spending in creation of supporting infrastructure in rural areas has discouraged private investment in this sector
• Some of the measures could be
  • Investment in general service like R&D, education, marketing and rural infrastructure
  • Increased investment in rainfed areas
  • Private sector participation
  • Increased investment for sustainable development

WTO and Agriculture

• Uruguay Round multilateral trade negotiations were concluded after 7 years of negotiation in December 1993
• The WTO Agreement on Agriculture was one of the main agreements which was negotiated
• Agreement on Agriculture contains provisions in three broad areas of agriculture
  • Market Access
  • Domestic Support
  • Export Subsidies
• Market Access
  • This is the most important aspect of the negotiation because all countries restrict market access while only few have export subsidies and domestic support
  • This includes tariffication, tariff reduction and access opportunities
  • Tariffication means that all NTTBs should be withdrawn (such as quotas, minimum export prices etc)
  • Adopts a single approach using a tiered formula
  • Single approach: everyone except LDCs have to contribute by improving market access for all products
  • Sensitive products: All countries can list some sensitive products and are allowed flexibility in the way these products are treated, although even sensitive products have to see ‘substantial improvements’ in market access.
  • Special and differential treatment
    • Purpose: for rural development, food security and livelihood security
    • Specifically, special treatment is to be given to developing countries in ‘all elements of the negotiation’, including ‘lesser’ commitments in the formula and long implementation period
    • Special products: developing countries will be given additional flexibility for products that are specially important for their food security, livelihood security and rural development.
    • Special Safeguard Mechanisms: is intended to provide contingent protection to poor farmers in developing countries from negative shocks to import prices or from surges in imports. [Safeguards are contingency restrictions on imports taken temporarily to deal with special circumstances such as a sudden surge in imports. AoA has special provisions on safeguards. In agriculture safeguards, (unlike normal safeguards) can be triggered automatically when import volumes rise above a certain level or if prices fall below a certain level; and it is not necessary to demonstrate that serious injury is being caused to the domestic industry]
  • AoA requires (from 1995)
    • 36% average reduction by developed countries, with a minimum per tariff line reduction of 15% over six years
    • 24% average reduction by developing countries with a minimum per tariff line reduction of 10% over ten years
  • Domestic Support (subsidies)
    • AoA structures domestic support into three categories
      • Green Box
      • Amber Box
      • Blue Box
    • Green Box
      • Non (or minimal) trade distorting subsidies
      • They have to be government funded and must not involve price support
      • They tend to be programmes that are not targeted at particular products and include direct income supports for farmers that are not related to current production levels or prices. They also include environmental protection and regional developmental programmes. These subsidies are therefore allowed without limits
    • Amber Box
      • All domestic support measures considered production and trade fall into the amber box
      • These include measures to support prices, or subsidies directly related to production quantities
      • These supports are subject to limits which are allowed: 5% of total production for developed countries, 10% for developing countries
      • Reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support” (Total AMS)
    • Blue Box
      • This is the “amber box with conditions” – conditions designed to reduce distortion
      • Any support that would normally be in the amber box, is placed in the blue box if the support also required farmers to limit production
      • At present there are no limits on spending on blue box subsidies.
    • Export subsidies
      • Developed countries are required to reduce their export subsidy by 36% (by value) or 21% (by volume) over the six years
      • For developing countries the % cuts are 24% (by value) or 14% (by volume) over 10 years
    • India’s commitment
      • As India was maintaining QRs due to balance of payments reasons (which is a GATT consistent measure), it did not have to undertake any commitments in regard to market access
    • In India, exporters of agricultural commodities do not get any direct subsidy. Indirect subsidies are given

Food Processing

• Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries
• Ministry of Food Processing indicated the following segments within the Food Processing industry:
  • Dairy, fruits and vegetable processing
  • Grain processing
  • Meat and poultry processing
  • Fisheries
  • Consumer foods including packaged foods, beverages and packaged drinking water
• Industry is large and has grown after 1991. However, of the country’s total agriculture and food produce, only 2 per cent is processed.
• FP has 9% share in manufacturing
• Structure
  • 42 pc: Unorganised
  • 33 pc: SSI
  • 25 pc: Organised

Constraints & Drivers of Growth
Changing lifestyles, food habits, organized food retail and urbanization are the key factors for processed foods in India, these are post-liberalization trends and they give boost to the sector.
There has been a notable change in consumption pattern in India. Unlike earlier, now the share and growth rates for fruits, vegetables, meats and dairy have gone higher compared to cereals and pulses. Such a shift implies a need to diversify the food production base to match the changing consumption preferences.
Also in developed countries it has been observed that there has been a shift from carbohydrate staple to animal sources and sugar. Going by this pattern, in future, there will be demand for prepared meals, snack foods and convenience foods and further on the demand would shift towards functional, organic and diet foods.
Some of the key constraints identified by the food processing industry include:

• Poor infrastructure in terms of cold storage, warehousing, etc
• Inadequate quality control and testing infrastructure
• Inefficient supply chain and involvement of middlemen
• High transportation and inventory carrying cost
• Affordability, cultural and regional preference of fresh food
• High taxation
• High packaging cost

In terms of policy support, the ministry of food processing has taken the following initiatives:

• Formulation of the National Food Processing Policy
• Complete de-licensing, excluding for alcoholic beverages
• Declared as priority sector for lending in 1999
• 100% FDI on automatic route
• Excise duty waived on fruits and vegetables processing from 2000 – 01
• Income tax holiday for fruits and vegetables processing from 2004 – 05
• Customs duty reduced on freezer van from 20% to 10% from 2005 – 06
• Implementation of Fruit Products Order
• Implementation of Meat Food Products Order
• Enactment of FSS Bill 2005
• Food Safety and Standards Bill, 2005
• Mega Food Parks

Apart from these initiatives, the Centre has requested state Governments to undertake the following reforms:

• Amendment to the APMC Act
• Lowering of VAT rates
• Declaring the industry as seasonal
• Integrate the promotional structure

Plan Schemes

During the 10th Plan, the Ministry implemented Plan schemes for Technology Upgradation/Modernization/Establishment of Food Processing Industries, Infrastructure Development, Human Resource Development, Quality Assurance, R&D and other promotional activities.

In the 11^th Plan, it has been proposed to continue assistance to the above schemes with higher levels of assistance. In the 11^th Plan, the Ministry proposes to launch a revamped Infrastructure Scheme under which it will promote setting up of Mega Food Parks, cold chain infrastructure, value added centres and packaging centres. The Mega Food Park Scheme will provide backward and forward linkages as well as reliable and sustainable supply chain. The emphasis will be on building strong linkages with agriculture and horticulture, enhancing project implementation capabilities, increased involvement of private sector investments and support for creation of rural infrastructure to ensure a steady supply of good quality agri/horticulture produce. It will provide a mechanism to bring farmers, processors and retailers together and link agricultural production to the market so as to ensure maximization of value addition, minimize wastages and improve farmers’ income. The Mega Food Park would be a well-defined agri/horticultural-processing zone containing state of the art processing facilities with support infrastructure and well established supply chain. The primary objective of the proposed scheme is to facilitate establishment of integrated value chain, with processing at the core and supported by requisite forward and backward linkages. It is envisaged that the implementation of the projects would be assisted by professional Project Management Agencies (PMA) from concept to commissioning. In 11^th Plan it is planned to support establishment of thirty (30) Mega Food Parks in various parts of the country.

Vision 2015 on Food Processing Industries

A vision, strategy and action plan has also been finalized for giving boost to growth of food processing sector. The objective is to increase level of processing of perishable food from 6% to 20%, value addition from 20% to 35% and share in global food trade from 1.6% to 3%. The level of processing for fruits and vegetables is envisaged to increase from the present 2.2% to 10% and 15% in 2010 and 2015 respectively. The Cabinet has approved the integrated strategy for promotion of agri-business and vision, strategy and action plan for the Food Processing Sector, based on the recommendations made by the Group of Ministers (GOM).

Integrated Food Law

An Integrated Food Law, i.e. Food Safety and Standards Act, 2006 was notified on 24.8.2006. The Act enables in removing multiplicity of food laws and regulatory agencies and provide single window to food processing sector. Ministry of Health & Family Welfare has been designated as the nodal Ministry for administration and implementation of the Act.

National Institute of Food Technology Entrepreneurship & Management (NIFTEM)

The Ministry has set up a National Institute of Food technology Entrepreneurship & Management (NIFTEM) at Kundli (Haryana). The Institute will function as a knowledge centre in food processing. Certificate of Incorporation of NIFTEM as a section 25 Company under the Companies act 1956 has been obtained.

SWOT Analysis of Food–Processing Industry
Strengths

• Abundant availability of raw material
• Priority sector status for agro-processing given by the central Government
• Vast network of manufacturing facilities all over the country
• Vast domestic market

Weaknesses

• Low availability of adequate infrastructural facilities
• Lack of adequate quality control and testing methods as per international standards
• Inefficient supply chain due to a large number of intermediaries
• High requirement of working capital.
• Inadequately developed linkages between R&D labs and industry.
• Seasonality of raw material

Opportunities

• Large crop and material base offering a vast potential for agro processing activities
• Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield projects
• Rising income levels and changing consumption patterns
• Favourable demographic profile and changing lifestyles
• Integration of development in contemporary technologies such as electronics, material science, bio-technology etc. offer vast scope for rapid improvement and progress
• Opening of global markets

Threats

• Affordability and cultural preferences of fresh food
• High inventory carrying cost
• High taxation
• High packaging cost

Subsidies

Fertilizer Policy:    Urea is the only fertilizer under statutory price control.  Government of India has introduced nutrient based subsidy with effect from 1st April, 2010 in respect of phosphatic and potassic  fertilizers. Under the policy, subsidy is based  on the nutrient (N,P,K and S) content of the  decontrolled P and K fertilizers. Price of Urea has been increased by 10% while price of other subsidized fertilizers are being maintained around current levels. Additional subsidy on micronutrients has been introduced on Boron and Zinc, to begin with.  In order to promote the concept of balanced use of fertilizers and to encourage use of micronutrients, several fertilizers fortifed with Boron and Zinc have been incorporated in the Fertilizer (Control) Order, 1985.