Explain how modernization of Indian agriculture is affected by unfavourable institutional factors with suitable examples.

Land Tenure Systems

Historically, fragmented landholdings and insecure land tenure have been major impediments. The Zamindari system, abolished post-independence, left a legacy of small and marginal farms, making economies of scale difficult to achieve. Even today, land ownership records are often outdated or disputed, hindering access to credit and investment.

• Fragmentation: Average landholding size in India is just over 1.2 hectares (Agricultural Census, 2015-16). This makes mechanization and efficient irrigation challenging.
• Tenancy Issues: A significant portion of cultivated land is under tenancy arrangements, often informal and lacking legal protection. This discourages tenants from making long-term investments in land improvement.

Credit and Financial Inclusion

Access to affordable credit is crucial for adopting modern inputs like high-yielding seeds, fertilizers, and machinery. However, a large proportion of farmers, particularly small and marginal ones, remain outside the formal banking system.

• Limited Reach of Formal Credit: According to the All India Debt and Investment Survey (2018), approximately 52% of agricultural households are indebted, with a significant portion relying on informal sources of credit at exorbitant interest rates.
• Risk Aversion of Banks: Banks are often hesitant to lend to farmers due to perceived risks associated with agricultural income volatility and lack of collateral.
• Crop Insurance Challenges: While schemes like Pradhan Mantri Fasal Bima Yojana (PMFBY) aim to mitigate risk, issues with claim settlement and coverage gaps limit their effectiveness.

Marketing and Supply Chain Infrastructure

Inefficient marketing systems and inadequate supply chain infrastructure lead to significant post-harvest losses and reduce farmers’ income. The lack of direct access to markets and dependence on intermediaries often result in exploitation.

• APMC Regulations: The Agricultural Produce Market Committee (APMC) Acts, while intended to protect farmers, often created monopolies and restricted competition. The recent Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, aimed to address these issues by allowing farmers to sell their produce outside APMC markets.
• Storage Deficiencies: India lacks sufficient cold storage facilities, leading to an estimated 16% post-harvest loss of fruits and vegetables (National Centre for Cold-chain Development, 2019).
• Transportation Bottlenecks: Inadequate rural road connectivity and inefficient transportation systems increase the cost of moving produce to markets.

Irrigation and Water Management

Despite being predominantly an agrarian economy, a significant portion of Indian agriculture remains rain-fed. Inefficient irrigation practices and lack of water management infrastructure contribute to water scarcity and reduced productivity.

• Over-reliance on Groundwater: Excessive groundwater extraction, particularly in states like Punjab and Haryana, has led to depletion of aquifers and increased energy costs.
• Inefficient Canal Systems: Many canal systems suffer from seepage and waterlogging, reducing their efficiency.
• Lack of Participatory Irrigation Management: Effective implementation of Participatory Irrigation Management (PIM) is hampered by lack of awareness and capacity building among farmers.

Research and Extension Services

Weak research-extension linkages and inadequate investment in agricultural research limit the dissemination of new technologies and best practices to farmers.

• Limited Funding for Agricultural Research: Investment in agricultural research as a percentage of GDP has declined over the years.
• Weak Extension Services: The extension system, responsible for transferring technology to farmers, suffers from staff shortages, lack of training, and inadequate infrastructure.
• Lack of Farmer-centric Research: Research often focuses on high-input, capital-intensive technologies, neglecting the needs of small and marginal farmers.