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  • The Agricultural Produce Market Committee (APMC) Act regulates mandis (agricultural markets). States are geographically divided, and mandis are provided at different places within a state.
  • Farmers are compulsorily required to auction their agricultural produce at a mandi. Only licensed traders can purchase from the farmers at the mandi.

Objectives of Mandi System

  • Ensure high prices of agricultural output to farmers: APMCs are required to ensure competition among traders. These traders operating at mandis are expected to purchase the output from farmer through auction.
  • Prevent exploitation of farmers: If a farmer attempts to sell the produce in the open market, he/ she may be forced to sell the output at low rates. On account of perishable nature of agricultural produce, the bargaining power of farmer would be low.

Problems with Old APMC Act

  • Agriculture is a state subject. Thus, various states have passed different APMC acts to regulate agricultural markets. The problems faced on account of APMC laws are as follows:
  • Membership of APMC: State APMCs usually have 10-17 members. These members oversee the functioning of mandis. They are either elected or nominated by the state government as per the APMC acts of a particular state. However, often regular elections are not held and APMCs function under bureaucratic control.
  • Exploitation by traders
  • Cheating with farmers: Traders often delay payments to the farmers. If payment is made in cash, traders arbitrarily deduct some amount from the payment. The payment made to farmers is as low as one-third to one-fourth of the retail prices of agricultural produce. To avoid taxes, traders do not give sale slips to farmers. As a result, farmers do not possess any proof of sale of agricultural produce.
  • Double commission: Middleman or trader charges commission from the farmer as well as the food processors, retailers, etc. On account of double commission, final consumer is also required to pay high prices for agricultural produce. It is alleged that the middleman purchases agricultural produce during the peak season from farmers at throw-away prices and sells to consumers during the lean season at very high prices. Middlemen are expected to make value addition to agricultural produce. However, rarely they possess facilities to do sorting, grading, etc. of the agricultural produce. As a result, post-harvest losses continue to be in the range of 18-40% for various agricultural commodities.
  • Influence on price discovery: The APMC Act requires farmers to sell their produce through auction. However, no auction takes place in mandis. Even if an auction is held, traders have formed informal cartels and deliberately keep the prices low. For food grains, minimum support price serves as the benchmark rate for the purchase of produce. However, for other agricultural commodities such as fruits and vegetables, farmers rely on traders for the determination of prices.
  • Hoarding of agricultural produce: Sometimes traders engage in hoarding of agricultural produce to secure high prices from the retailers. Every transaction is subjected to market tax and mandi fee. Mandi fee is expected to be used for the development of mandi infrastructure such as sorting, grading, storage facility, etc. However, infrastructure development has been slow or negligible in mandis.
  • Issue of license to traders: Only licensed traders can purchase agricultural outputs from farmers. The requirement of license has been kept to ensure that only reliable persons purchase the output from the farmers. For instance, there are certain pre-conditions to secure license such as security deposit and ownership of shop/godown in a mandi. The number of shops/godowns are very limited in a mandi. Often a trader purchases a shop/ godown at very high prices. Further, bribes are given to secure license. As a result, traders (also called commission agents) exploit farmers to recover their investment.


  • The Model APMC Act was published by the central government in 2003. This act was drafted in order to motivate states to bring reforms in their APMC acts. In between 2003 and 2015, 20 states have adopted some reforms suggested under the Model APMC Act.
  • There is tough resistance from traders against the Model APMC Act. Further, the state governments have limited options because open markets for agriculture are not well developed.

Salient Features of Model APMC Act

  • The Model APMC Act permits farmers to sell agricultural produce even outside mandis. Or the same lines, food processors, retailers, etc. can purchase agricultural produce directly from farmers.
  • This act also permits contract farming. Contract farming is an agreement under which a farmer is required to provide agreed quantities of a specific agricultural product and the buyer gives guarantee in advance to purchase his output. In some cases, buyers even support the farmers with agricultural inputs and technology.
  • The act requires establishment of State Agricultural Produce Marketing Standards Bureau. It will have the responsibility of grading, standard assessment, and quality certification of agricultural produce, so that the quality produce can fetch higher prices.
  • The act permits public—private partnership (PPP) in the management and development of agricultural markets, including facilities such as storage, processing, etc.
  • The act also provides for increase in the responsibility of APMC as follows:
    • Complete transparency in the pricing system and transactions taking place in mandis
    • Ensures payment to farmers on the same day (day on which they sell their agricultural produce)
    • Promotes value addition in agricultural produce
    • Promotes PPP to develop mandi infrastructure
    • Publishes data at the mandi entrance about the arrivals of agricultural produce in mandi and the price of agricultural produce

Additional Suggestions to Reform Model APMC Act

  • There are suggestions to exclude horticulture produce from mandis. Within mandis, there are no specific services for storage and processing of horticulture output, leading to high damages in horticultural output. Moreover, middlemen make high commission on horticulture output at the cost of consumers and farmers. Wastage of produce along with high commission leads to higher prices of agricultural produce.
  • E-auction of agricultural produce should be promoted. All mandis should introduce an e-auction platform. E-auction will bring transparency in the determination of prices and would help traders from large geographical locations to participate in the auction.
  • Membership of mandis should be made open. Licence system should be abolished. Only a bank guarantee from traders shall be kept to ensure that the payment of farmers is not affected.

National Agricultural Market

  • e-NAM (National Agricultural Market) is a pan-India electronic trading portal launched by the Ministry of Agriculture and Farmers’ Welfare to facilitate farmers, traders, exporters, and processors with a common platform for trading commodities.
  • As on 1 January 2017, it links 250 APMCs (Agriculture Produce Marketing Committees) from across 10 states. Traders and exporters need to get themselves registered with the portal to access its services. Sixty-nine commodities, including staple food grains, vegetables, and fruits, are currently listed in its list of commodities available for trade.
  • The portal is managed by the Small Farmers’ Agribusiness Consortium (SFAC) appointed by the ministry in association with a group of strategic partners selected for the purpose. The SFAC is the lead promoter of NAM. It is a registered society of the Department of Agriculture, Cooperation and Farmers’ Welfare under the Ministry of Agriculture and Farmer Welfare.


  • Irrigation is the method in which a controlled amount of water is supplied to plants at regular intervals for agriculture. It is used to assist the growth of agricultural crops, maintenance of landscapes, and re-vegetation of disturbed soils in dry areas and during periods of inadequate rainfall. Irrigation techniques depend on the method of water distribution in a field. Various irrigation techniques are as follows:

Surface Irrigation

  • Surface irrigation refers to the flow of water under the influence of gravity or slope of land. Surface irrigation is the most commonly used method of irrigation. However, it suffers from certain problems:
    • It leads to wastage of a lot of water.
    • Overuse of water may lead to water logging.
    • Extensive surface irrigation may lead to unwanted rise in the water table, which may further bring salt deposits in underground water to the roots of the crops, causing damage to crops.
  • Surface irrigation is of the following sub-types:
    • Furrow irrigation
      • Under this type of irrigation, a long narrow trench is made in the field. Further, the trench is given outlets into the fields from which water is continuously supplied to the field.
    • Border strip irrigation
      • Under border strip irrigation, the field is bordered with the help of mud embankments. These embankments enable the water to remain concentrated in a particular area or part of the field.
    • Basin irrigation
      • Basin irrigation involves supply of water to the entire basin. In other words, the water is allowed to cover the whole field. This type of irrigation is used for paddy cultivation.

Localized Irrigation

Localized irrigation is a method of irrigation in which water is distributed through a piped network in a predetermined pattern and applied to plants only in required amounts. Localized irrigation can further be divided into the following:

  • Drip irrigation
    • Drip irrigation is also called trickle irrigation. Under drip irrigation, water is supplied to the roots of the plant, drop by drop, through a network of small-sized pipes. Drip irrigation reduces the consumption water. Drips or small-sized pipes can also be used to deliver fertilizers to plants.
  • Sprinkler irrigation
    • This type of irrigation involves rotation of a sprinkler in the centre of field and distribution of water to the field with the help of sprinklers. Unlike surface irrigation where a large amount of water is concentrate; in a particular part of a field, a sprinkler facilitates distribution of water over a large part of a field.
  • Sub-irrigation
    • Sub-irrigation is also called seepage irrigation. It is used in areas with high water table. It is a method of raising the water table in order to let the soil gather moisture from underground water. This type of irrigation is used in low lands or areas adjoining river valleys.


  • Irrigation in India includes a network of major and minor canals from Indian rivers, groundwater well-based systems, tanks, and other rainwater-harvesting projects for agricultural activities. Of these, groundwater system is the largest. In 2010, only about 35% of the total agricultural land in India was reliably irrigated. About two-thirds of the cultivated land in India is dependent on monsoon.


  • Agricultural credit system is significant because for most of the Indian rural families, savings are inadequate to finance farming and other economic activities. Moreover, there is a time lag between income realization and expenditure in agriculture. Also the non-institutional lenders exploit the illiterate and poor farmers.
  • Thus, the institutional credit system is necessary to support agriculture. In India, a multi-agency approach comprising cooperative banks, scheduled commercial banks, and regional rural banks (RRBs) is used to facilitate credit to the agricultural sector.

Types of Agriculture Credit 

According to purpose of agriculture credit, it can be categorized into two types:

  • Productive: Productive loans- are the loans that are used to support agricultural production, for example purchase of tractor, land, seeds etc. INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE
  • Unproductive: Unproductive credit is used for personal consumption, for example loans for expenditure on marriages, religious ceremonies, etc.

Source of Agricultural Credit in India

There are two broad sources of agricultural credit in India: non-institutional sources and institutional sources.

Non-institutional sources

  • The non-institutional sources constitute around 40% of the total rural credit in India. The important sources of non-institutional credit are as follows:
  • Moneylenders: Moneylenders charge a huge rate of interest and mortgage the property of the cultivators and in some cases even the peasants and members of his family are kept as collateral.
  • Traders, landlords, and commission agents: The agents give credit on the hypothecation of crops. These crops, when harvested, are used to repay loans.
  • Credit from relatives: This credit is generally used for meeting personal expenditure.

Institutional sources

  • The government policy on agricultural credit has been to enhance institutionalization of rural credit The National Bank for Agriculture and Rural Development (NABARD) is an apex institution established in 1982 for rural credit in India. It does not directly lend to farmers and other rural people. It does indirect lending through the following institutions:
  • Rural cooperative credit institutions: Rural credit cooperatives are the oldest and most extensive form of rural institutional financing in India. The rural credit cooperatives may be further divided into short-term credit cooperatives and long-term credit cooperatives.INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE
  • The short-term credit cooperatives provide short-term rural credit and are based on a three-tier structure as follows:
    • Primary agricultural credit societies: These are organized at the village level. The primary agricultural credit societies (PACS) raise capital for the purpose of giving loans and supporting the essential activities of the members such as supply of agricultural inputs at cheap price, improving irrigation on land owned by members, etc. In India, around 99.5% of villages are covered by PACS.
    • District Central Cooperative Banks: These cooperatives are organized at the district level. The PACS are affiliated to the District Central Cooperative Banks (DCCBs). DCCBs coordinate the activities of district central financing agencies, organize credit for PACS, and carry out banking business.
    • State cooperative banks: The DCCBs are further affiliated to state cooperative banks (SCBs), which coordinate the activities of DCCBs and carry out banking business.
  • The long-term credit cooperatives meet long-term credit requirements of farmers and are organized at two levels:
  • Primary cooperative agriculture and rural development banks: These banks operate at the village level as an independent unit. INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE
  • State cooperative agriculture and rural development banks: These banks operate at the state level and have network of branches in different villages.
  • Commercial banks: Commercial banks provide rural credit by establishing their branches in rural areas. The share of commercial banks in rural credit was very meagre till 1969. Subsequently, with the nationalization of 14 major commercial banks in 1969 (followed by another six banks in 1980), they have been given a special responsibility to set up branches for agricultural and allied activities in the country. The major expansion of rural branches took place, and commercial banks introduced the Lead Bank Scheme.
  • However, during the late 1980s, commercial banks suffered huge losses due to the waiving of agricultural loans by the government. The financial liberalization process has necessitated the banks to focus on profitability. The proportion of bank credit (out of the total credit generated by commercial banks) to rural areas, especially small borrowers, has come down steadily.

Lead Bank Scheme

  • The Lead Bank Scheme, introduced in 1969, envisages assignment of lead roles to individual banks (both in the public and private sectors) for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of a given district has generally been entrusted with the lead responsibility for that district. Accordingly, all the districts in the country have been allotted to various banks. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small-scale industries, and other economic activities included in the priority sector in the rural and semi-urban areas.
  • Regional rural banks: These are specialized banks established under the Regional Rural Banks Act, 1976, to cater to the needs of the rural people. RRBs are set up as rural-oriented commercial banks with the low cost profile of cooperatives but with the professional discipline and modern outlook of commercial banks. Increased coverage of districts by RRBs makes them an important segment of the rural financial institutions. The branch networks of RRBs in the rural areas form around 43% of the total rural branches of commercial banks. A large number of branches of RRBs were opened in the un-banked or under-banked areas, providing services to the interior and far-flung areas of the country.
  • However, even after so many years, the market share of RRBs in rural credit has remained low and these banks have suffered huge losses. INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE
  • Micro finance institutions: Banks offer concessional interest rates for rural credit. However, small farmers are unable to access them because of borrower-unfriendly products and procedures, inflexibility and delay, and high transaction costs, both legitimate and illegal. Thus, non-government organizations (NGOs) are providing alternative means to enhance access to credit to the poor since the mid-1970s. Since 1992, the RBI and NABARD encouraged commercial banks to link up with NGOs to establish and finance self-help groups of the poor.

Trends in Agricultural Credit

  • Over time, spectacular progress has been achieved in terms of the scale and outreach of institutional framework for agricultural credit. Some of the major discernible trends are as follows:
  • Increasing dependence on institutional credit
  • One of the major achievements in the post-independent India has been the widening of the spread of institutional machinery for credit and decline in the role of non-institutional sources. The share of institutional credit, which was little over 7% in 1951, increased manifold to over 66% in 1991. However, the latest NSSO Survey reveals that the share of non-institutional credit has taken a reverse swing, which is a cause of concern.
  • Relative share of borrowing of cultivator households from different sources (figures are in per cent)
Sources of credit 1951 1961 1971 1981 1991 2002
Non-institutional 92.7 81.3 68.3 36.8 30.6 38.9
of which money lenders 69.7 49.2 36.1 16.1 17.5 26.8
Institutional 7.3 18.7 31.7 63.2 66.3 61.1
Total 100.0 100.0 100.0 100.0 100.0 100.0

Source: All India Debt and Investment Survey by NSSO


Agency-wise credit flow

  • The analysis of agency-wise credit flow indicates that the cooperative banks were the major source of agriculture credit in 1975-76, constituting around 71% of the total institutional credit. However, in recent years, commercial banks and RRBs recorded impressive growth rates.
  • As a result, in 2006-07, the share of cooperative banks in the total institutional credit flow receded to 20.1% and that of commercial banks advanced to 69.1%. Although the quantum of disbursement from cooperative banks increased, it could not keep pace with commercial banks in enhancing credit flow due to several reasons such as poor recovery of credit. INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE
  • Although the share of cooperative credit is now much lower than that of commercial banks, the reach of cooperative credit societies is much wider. Cooperative credit societies have more than twice the number of rural outlets and four times more accounts than those of scheduled commercial banks and RRBs put together.

Size-wise credit flow

  • Despite impressive growth in direct credit to farmers from scheduled commercial banks, credit disbursement to small and marginal farmers has not been encouraging. Though the number of accounts increased for small farmers, the credit flow favoured richer farmers.

Region-wise credit flow

  • While the share of loans in the total disbursement of credit for agriculture and allied activities was the maximum for the south region, it was the minimum for north-eastern region.

NABARD Initiatives for Rural Development

  • Rural Infrastructure Development Fund: The Rural Infrastructure Development Fund (RIDF) was established in 1995-96 with the major objective of providing funds to state governments and state-owned corporations to develop rural infrastructure such as roads, bridges, irrigation works, soil conservation, flood protection, drinking water, infrastructure for rural education, etc. RIDF was established under NABARD.
  • Kisan Credit Card Scheme: The Kisan Credit Card (KCC) Scheme was introduced in 1998-99 to facilitate short-term credit to farmers. Each farmer is given a KCC. NABARD provides refinance facility to commercial banks and cooperatives to provide credit under this scheme.


  • Lack of guidance to farmers: While finance is a very important factor, it should be complemented with the extension of services in the form of guidance, expertize, and counselling on agricultural issues.
  • Multiplicity of institutions: There is a lack of coordination among the multiple agencies providing credit, and thus, the commercial viability of these agencies is adversely affected in this scenario.
  • Lack of motivation: There is a pressure on banks to improve their financial position and so these banks are now concentrating on selected large borrowers.  INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE
  • Financial exclusion: Despite a large network of institutional credit system, it has not been able to adequately penetrate informal rural financial markets and non-institutional sources continue to play a dominant role in purveying the credit needs of the people residing in rural areas.
  • Procedural delays: There is a problem of considerable delays in the processing of loan applications and collaterals. Thus, farmers continue to rely on non-institutional sources.
  • Poor recovery: Banks avoid rural financing mainly because of poor recoveries. It is ironical that the recoveries position is adverse among rich farmers than among small farmers. The political decisions of waiving off loans are further putting pressures on the financial system.

National Bank for Agriculture and Rural Development

  • NABARD was established in July 1992 as an apex institution to coordinate the activities of organizations engaged in the area of rural credit. It took over from RBI all the functions that the latter performed in the field of rural credit. The functions of NABARD can be divided into three categories:
  • Credit functions: As an apex bank, it is involved in refinancing credit needs of major financial institutions engaged in credit to the rural sector. As stated earlier, NABARD does not directly deal with farmers and other rural people.  INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE
  • Developmental measures: NABARD has been undertaking a number of developmental activities such as providing help to cooperative banks and RRBs to prepare development action plans for themselves, providing financial assistance to cooperatives and RRBs, etc.
  • Supervisory functions: NABARD has been sharing with the RBI certain supervisory functions in respect of cooperative banks and RRBs. It has been entrusted with the statutory responsibility of conducting inspections of SCBs, DCCBs, and RRBs. INDIAN AGRICULTURE I: MARKET-IRRIGATION AND FINANCE


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