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- The basic object of the Right to Information Act is to empower the citizens, promote transparency and accountability in the working of the Government,contain corruption, and make our democracy work for the people in real sense.
- It goes without saying that an informed citizen is better equipped to keep necessary vigil on the instruments of governance and make the government more accountable to the governed. The Act is a big step towards making the citizens informed about the activities of the Government.
The Right to Information (RTI) Act, was operationalised in October 2005. The RTI Act was seen as a powerful tool for citizen empowerment.
The Act also showed an early promise by exposing wrongdoings, such as
a) in the organisation of the Commonwealth Games,
b) the allocation of 2G spectrum and
c) coal blocks.
However, experts believe that it now faces multiple challenges.
- Experts believe that although the Act was path-breaking in many respects, it did not give adequate authority to the Information Commissions to enforce their decisions.
It is important to note that apart from awarding compensation to an applicant for any loss suffered, the commissions can direct public authorities to take the steps necessary to comply with the Act, but are helpless if such directions are ignored.
- Although, it must be acknowledged that if an officer fails to fulfil his duty, the commission can either impose a maximum penalty of ₹25,000 or recommend disciplinary action against him. However, this deterrent works only when the piece of information lies at the lower levels.
- This deterrent is ineffective in many cases where information relates to higher levels of government. As a consequence, implementation of decisions taken by the commissions, remains a weak link.
A Look at the Recent Proposed Amendments:
- Experts believe that the Right to Information (Amendment) Bill 2018 attempts to dilute the independence of Central and State Information Commissioners besides giving undue powers to the Government of the day to appoint Commissioners with uncertain term, status and salary. They further assert that the Bill intends to defeat very purpose of RTI Act 2005 besides being an affront to federalism enshrined as basic feature of Indian Constitution.
- The government proposes to do away with the equivalence of the Central Information Commissioners with the Election Commissioners. The basis for doing so that has been sighted is that that the two have different mandates.
- The government proposes to replace the existing fixed five-year tenure of the Information Commissioners with a tenure as may be prescribed by it. Experts believe that this would make the tenure subject to political interference. This would be detrimental to the independence and authority of the Information Commissions.
- Experts believe that the RTI Act struck a balance between privacy and transparency by barring the disclosure of personal information if it has no relationship to any public activity or would cause unwarranted invasion of privacy.
- However, in this regard, we must take note of the the Justice Srikrishna Committee recommendations as well. The Justice Srikrishna Committee has proposed an amendment that would broaden the definition of ‘harm’. Experts believe that this broadened definition of ‘harm’ would restrict disclosure of personal information even where it may be clearly linked to some public activity.
- It is important to also note that the Central and State Information Commissions have been functioning with less than their prescribed maximum strength of eleven. This is primarily due to an undue delay on appointing commissioners. For instance, the Central Information Commission (CIC), currently having seven members, will have only three by the end of the year if no appointments are made.
- This leads to delay in disposal of cases, which is compounded by the backlog in the High Courts, where a number of decisions of the commission are challenged. This happens invariably in high-profile cases. For example, the CIC’s decision in 2007 to cover Indraprastha Gas Ltd. under the Act was stayed by the Delhi High Court, and the stay continues to operate.
Reason for Clogging of the System:
- It is important to note that the clogging of the RTI system is also because a number of applicants, usually disgruntled employees of public institutions, ask frivolous queries.
Further, their applications have unfortunately continued to exist alongside those of numerous RTI activists who have done commendable work, who often risk their life and limb.
- Moreover, Section 4 of the RTI Act requires suo motu disclosure of a lot of information by each public authority. However, such disclosures have remained less than satisfactory. Thus, the CIC has had to repeatedly direct regulators of the banking sector to disclose information on the wrongdoings of banks.
This was done so as to enable the public to make informed choices about their dealings with various banks.
- In one specific case, the CIC had to direct the disclosure of the list of private persons who travelled with the Prime Minister, at government expense, during his foreign visits. Experts believe that such information should have been disclosed suo motu by the government.
A Few Specifics:
Recently, Information Commissioner Prof. Mr. Sridhar Acharyulu wrote to senior-most Commissioner Yashovardhan Azad, highlighting several deficiencies in the Bill. The letter was marked to all his fellow Commissioners, and also proposes that all of them come together to seek withdrawal of the Bill.
Here are a few excerpts and assertions from his letter:
- Sub-section (5) of section 13 of the RTI Act provided that the salaries and allowance and other terms and conditions of service of the Chief Information Commissioner (CIC) and Information Commissioners shall be same as that of the Chief Election Commissioner (CEC) and Elections Commissioners, respectively.
- Similarly, sub-section (5) of Section 16 of the Act provides that the salaries and allowances and other terms and conditions of service of the State Chief Information Commissioner (SCIC) and State Information Commissioners (SIC) shall be the same as that of the EC and the Chief Secretary to the State Government, respectively.
- The salaries and allowances and other terms and conditions of service of the CEC and EC are equal to a Judge of the Supreme Court, therefore, the CIC, IC and SCIC, SICs become equivalent to a judge of the Supreme Court in terms of their salaries and and allowances and other term and condition of service.
- The Bill not only proposes to weaken the transparency regulator but enables the central government to encroach upon the sovereignty of the State Governments. While the RTI Act of 2005 insulated Information Commissioners from political vagaries, the Bill of 2018 makes them subject to it. The Central Government will prescribe the term and salary of the Commissioners by issuing notifications from time to time. This means that the Government need not go to Parliament to amend RTI Act, but it can simply issue a notification either to reduce or increase the term of a particular batch of Commissioners and their salary.
Observations made by Minister for PMO, Jitender Singh:
Over and above this, it is also important to point out the following observation made by the Minister for PMO, Jitender Singh.
His observation is as below:
“The functions being carried out by the Election Commission of India and Central and State Information Commissions are totally different. The Election Commission is a constitution body established by clause (1) of article 324 of the Constitution and is responsible for the superintendence, direction and control of the preparation of the electoral rolls for, and the conduct of, all election to Parliament and to the Legislature of every State and of election to the office of President and Vice President held under the Constitution. On the other hand, the Central Information Commission and State Information Commissions are statutory bodies established under the provision of the Right to Information Act, 2005. Therefore, the mandate of Election Commission of India and Central and State Information Commissions are different. Hence their status and service conditions need o be rationalised accordingly”.
- In conclusion, the RTI Act continues to render tremendous service in providing information to citizens. Although its aim is not to create a grievance redressal mechanism, the notices from Information Commissions often spur the public authorities to redress grievances.
- Finally, thirteen years of the Act’s functioning have given us enough experience to hold a public debate on making it more effective.
Brief Note on India-Bhutan relations:
- Diplomatic relations between India and Bhutan were established in 1968 with the appointment of a resident representative of India in Thimphu. Before this our relations with Bhutan were looked after by our Political Officer in Sikkim.
- The basic framework of India- Bhutan bilateral relations was the Treaty of Friendship and Cooperation signed in 1949 between the two countries, which was revised in February 2007.The India-Bhutan Friendship Treaty not only reflects the contemporary nature of our relationship but also lays the foundation for their future development in the 21st century.
- There are a number of institutional mechanisms between India and Bhutan in areas such as security, border management, trade, transit, economic, hydro-power, development cooperation, water resources. There have been regular exchanges at the Ministerial and officials level, exchanges of Parliamentarian delegations to strengthen partnership in diverse areas of cooperation.
- Development of hydropower in Bhutan has been the centre-piece of the bilateral cooperation. It is an exemplary win-win partnership: surplus power generated from the hydroelectric projects (HEPs) is exported to India providing Bhutan a steady stream of revenue and providing Indian an assured supply of clean power.
- India is Bhutan’s largest trade and development partner, and source of supplies of most of the essential commodities imported by Bhutan. As Bhutan prepares its people for the information technology age, it is reaching out beyond its traditional sectors of agriculture and hydropower to expansion in tourism, IT, and education, and it offers considerable potential for mutually beneficial economic and business partnership.
- Major exports from India to Bhutan are mineral products, machinery and mechanical appliances, electrical equipments, base metals, vehicles, vegetable products, plastics and articles. The major items of import from Bhutan are electricity, ferro- silicon, Portland cement, dolomite, carbides of calcium carbides of silicon, cement clinkers, timber and wood products, potatoes, cardamom and fruit products.
- Experts believe that the results of Bhutan’s general election will have significant repercussions for South Asia.
- The first round of the elections were held in September, 2018.
- This round has already delivered a surprise verdict, with the ousting of the incumbent People’s Democratic Party.
- Currently, the two parties that are left in the fray represent opposites in terms of their experience. It was the Druk Nyamrup Tshogpa, that won the maximum number of votes in the first round this year (2018).
- The Druk Phuensum Tshogpa, on the other hand, won the first Bhutanese elections in 2008. The Druk Phuensum Tshogpa maintains a strong traditional base.
A Few Trends that have been Observed:
- The first round of the results also threw up some glaring trends.
- While the ordinary voter favoured the PDP, ultimately the postal ballots, used by government officials and their families as well as military personnel, swung the vote in the other direction.
- Another trend, which may be disquieting for whichever party comes to power, is that votes in the first round of elections were polarised between more prosperous Western Bhutan and less developed Eastern Bhutan.
- To illustrate this further, we need to take a few examples: The DPT, for example, won all but one constituency in the east, while winning only two in the west; the DNT and PDP won seats only in the western half.
- Experts believe that the vertical split doesn’t just denote a development divide, it points to a feeling of discontent in a country generally known as a whole for its Gross National Happiness quotient.
- Regardless of which party wins on the 18th of October, 2018, India-Bhutan ties are expected to be accorded their customary priority.
- It must be noted that Bhutan’s monarch, Jigme Khesar Namgyel Wangchuck, retains a considerable influence over the nation’s foreign policy. Along with his father, and predecessor as king, he has consistently stressed his commitment to the bilateral relationship between India and Bhutan.
- Further, the ‘China factor’ will be closely watched for its impact, a year after the India-China standoff on the Bhutanese Doklam plateau.
- In conclusion, this year marks the 50th anniversary of formal relations between India and Bhutan, built on cultural ties, mutual strategic interests, and India’s role in building roads and assisting in hydropower projects that became the mainstay of the Bhutanese economy.
- “Larger Background”: This particular section talks about the broader background of the issue, taking into consideration specific points that may have been featured in previous editions of The Hindu. The thought process behind including this section is to give a ‘storyline’ approach to an aspirant when he/she goes through this topic.
- “Editorial Analysis”: This particular section gives an insight towards the specific points covered in the specific editorial that is the subject of our study.
- “The Way Forward/Concluding Remarks”: This sections gives aspirants concluding points that are taken from the article in question as well as some forwarding looking points taken from other articles, as and when required.
The important aspect to note here is that the issue being discussed in the news assumes priority over just the article.
- Infrastructure Leasing & Financial Services Ltd. (IL&FS) was set up in 1987 by the legendary M.J. Pherwani (former chairman of Unit Trust of India, National Housing Bank, etc.) to finance and promote infrastructure projects in the country.
- This holding company is now a financial behemoth with assets of over Rs. 1,15,000 crore and a debt of Rs. 91,000 crore.
- IL&FS Finance, which is a group company of the holding IL&FS company, defaulted in late August on a commercial paper repayment. This development was followed by a default by IL&FS on repayment of a Rs. 1,000 crore deposit to Small Industries Development Bank of India (SIDBI).
- Pursuant to this, a series of defaults by the holding company and group outfits followed. These defaults ran into the weeks leading up to the annual general meeting of IL&FS on September 29, 2018.
- Infrastructure Leasing & Financial Services Ltd. (IL&FS) is listed as “systemically important” by the Reserve Bank of India. The company has over Rs. 1,15,000 crore of assets and Rs. 91,000 crore of debt. Thus, it is too big to fail. This is further underlined by the fact that interlinkages between IL&FS and other financial sector entities such as banks, mutual funds and infrastructure players are too strong and the company would have taken them all down with it if it were allowed to fail.
A Note on IL&FS:
- IL&FS is a holding company that operates through 169 other companies.
- These 169 other companies are either subsidiaries, group companies or joint ventures with others. It has been in the past and is currently as well, associated with landmark projects.
- A few among these projects include the tunnel under the Zoji La Pass, Delhi-Noida toll bridge, Gujarat International Finance Tec-City (GIFT) and a host of road, power, water and port projects.
- Three of IL&FS’group companies are listed on the stock markets.
- These group companies are IL&FS Investment Managers Ltd., IL&FS Engineering and Construction Company Ltd. and IL&FS Transportation Networks Ltd.
- IL&FS was originally promoted by the Central Bank of India, Unit Trust of India and HDFC. Orix Corporation of Japan, Abu Dhabi Investment Authority, LIC and SBI joined in as co-promoters later.
How did this crisis take place?
Essentially, the company borrowed many times its equity. This figure is rumoured to be between 10-18 times its equity. This money was borrowed to fund its infrastructure projects, most of which bring in returns over 20-25 years.
To compound matters, IL&FS’s borrowings were all repayable in the short to medium-term of roughly 8-10 years.
The chokepoint for IL&FS came from the fact that its projects were stalling and not being completed due to various reasons. These reasons ranged from:
- statutory approvals not coming in
- problems of land acquisition and
- projects simply becoming unviable as it happened in the case of power plants.
Further, with returns from these projects not coming in, IL&FS was forced to borrow more. Lenders pulled the plug leading to trouble for IL&FS.
It is important to note that assets and receivables were exaggerated in the financial statements and the top managers took home large pay-outs and continued to pay dividends to shareholders despite the financial situation. An investigation has been ordered by the Serious Fraud Investigation Office.
A Look at Certain Specifics:
- Recently, the Centre moved to supersede the Board of Directors.
- The decision to change the management has ushered in the appointment of experienced people, such as Uday Kotak, who has rich experience in the finance sector; G.C. Chaturvedi, former bureaucrat and non-executive chairman of ICICI Bank; and G.N. Bajpai, former chairman of the Securities and Exchange Board of India and the Life Insurance Corporation. It is believed that these appointments should lend confidence to lenders and investors.
- The Life Insurance Corporation of India is the largest shareholder in IL&FS with a 25.34% stake, followed by Orix Corporation of Japan with 23.54%.
- The Centre has explicitly stated its intent, which is to “ensure that needed liquidity is arranged for IL&FS from the financial system”.
- By doing so, the Centre has sent out an unambiguous message to the markets that it will not allow the company to fail.
- It is believed that any rescue plan for the company obviously had to begin with replacing the existing management that was responsible for mismanaging its affairs.
- Currently, the problem appears to be one of liquidity and not solvency.
- It is believed that this is a classic case of over-leveraging, and an asset-liability mismatch caused by funding projects of 20-25 years payback period with relatively short-term funds of 8-10 years.
Certain Questions that Remain:
- In conclusion, there are some important questions that need to be answered.
- If IL&FS was a systemically important company, how did its over-leveraging escape the notice of the Reserve Bank of India?
- What did the periodic inspections of the company by RBI reveal? How did the developing situation pass the attention of shareholders? Did they look the other way since their dividends were serviced?
- Finding answers to these questions is as important as rescuing IL&FS.
- Finally, it is felt that there is a need for long-term finance sources for infrastructure projects.
- Currently, the LIC and some insurance companies are the only domestic sources and they too do not lend beyond 10 to 12 years.
- Thus, the Centre and the RBI should look at ways to deepen the debt markets where infrastructure players can borrow long-term.
- Moreover, it also needs to be analysed as to how a company listed as “systemically important” managed to fly under the radar with misgovernance. It is important to note that the debt pile-up due to over-leveraging did not happen overnight.
A Deeper Insight:
- Experts believe that much before the crisis at Infrastructure Leasing & Financial Services (IL&FS) came out into the open last month, mutual funds were comfortably holding bonds – commercial paper, debentures, structured obligation – issued by the company amounting to nearly Rs. 3,500 crore.
- Further, IL&FS was a tiny part of the overall debt exposure of mutual funds to NBFCs and other brokerages, which was pegged at Rs. 11.25 trillion as on September 30, 2018.
- This is a little over 51% of the total assets under management (AUM) — Rs. 22.04 trillion — of mutual funds in India.
- However, everything changed when two IL&FS group entities were downgraded early in September that directly put around Rs. 1,000 crore worth of debt papers at risk.
- Since this development, questions have been repeatedly raised about the quality of assets that fund houses are holding and whether they need to act on them.
Why weren’t red flags raised?
It is important to note that while all fund houses have an internal valuation policy for debt instruments, it typically gets triggered only after a security is downgraded by rating agencies such as CRISIL and ICRA.
- Once the instruments fall below investment grade, it is the call of the fund houses to value it. It is the Securities and Exchange Board of India (SEBI) which mandates that once a non-government security falls below investment grade, it has to be valued at a discount of 25% to its face value.
- Although there is a valuation policy in place, a fund house can choose to decide whether or not it wants to gradually mark down the asset or just write it off.
- Fund houses typically choose to write it off when the downgrades or defaults are swift and sudden.
- It is important to note that any mark-down or write-off impacts the net asset value (NAV) of the scheme and hence fund houses prefer to gradually mark down securities where there is a risk of delay in payment or even default.
Why is the rescue important?
- It is important to note that on a standalone basis, the IL&FS may constitute a small portion of the overall debt assets of mutual funds, but a default creates a ripple effect for all NBFCs.
- Such a ripple effect is created for all NBFCs as the cost of funds goes up with mutual funds becoming wary of buying such securities.
- According to industry players, NBFCs have already seen the cost of funds going up by 20-30 basis points in the last one month. A direct quantifiable impact is visible in the stock markets wherein many of the listed NBFCs have seen their value erode by more than 50%, compared to their recent highs.
- In conclusion, it is important to note that if IL&FS had been allowed to collapse, it would have impacted the whole NBFC industry. It would have hit sectors such as:
- housing finance,
- capital market fund raising,
- margin financing and even
- retail loans to a large extent.
It is important to note that a recent report by the government sent to the Ministry of Corporate Affairs (MCA) said a default by IL&FS could have significant repercussions, including widespread redemption pressures, sell-off in the debt market, liquidity crunch and 1,500 smaller NBFCs shutting shop for lack of adequate capital.
The government further said that avoiding a default would require a combination of measures of asset sales, restructuring of some liabilities and fresh infusion of funds by investors and lenders. Currently, the RBI is believed to be looking at strengthening the regulatory framework to avoid asset liability mismatches by NBFCs.
A Look at the Current State of Affairs:
- A new board of Infrastructure Leasing & Financial Services (IL&FS) was appointed by the Centre on October 1, 2018. This was done after it secured the approval of the National Company Law Tribunal (NCLT) to supersede the previous board.
- The previous board was accused of ‘mismanagement’ and ‘compromise of corporate governance norms,’ leading to financial issues.
- The State Bank of India, which also happens to be the country’s largest lender, has also stepped in to support with liquidity as it decided to triple its target for loan purchase from NBFCs to Rs. 45,000 crore for the current financial year.
- The government also stepped in to address the governance issues at IL&FS.
- Based on a report of the Ministry of Corporate Affairs, which indicated serious deficiencies in IL&FS, the holding company, and its subsidiaries, the government moved the National Company Law Tribunal to dismantle the board and bring in new members to avoid a collapse.
- The board is expected to submit a resolution plan by October 31, 2018.
Who’m does the board comprise of?
- The stewardship of the new board, has been entrusted to Uday Kotak, executive vice-chairman & managing director of Kotak Mahindra Bank.
- Mr. Kotak will join hands with Vineet Nayyar, who has been named vice-chairman & managing director.
- Vineet Nayyar had played a role in the rescue of Satyam Computer Services after its founder Ramalinga Raju admitted to a massive accounting fraud.
- The newly constituted board also includes former banking secretary G.C. Chaturvedi and former SEBI chairman G.N. Bajpai.
- G.N. Bajpai had also served as chairman of Life Insurance Corporation of India, which is also the largest shareholder in IL&FS.
- Nand Kishore and Dr. Malini Shankar have been roped in as the other directors, while C.S. Rajan’s name was added on October 3, 2018 after seeking fresh approval from the NCLT.
- Experts believe that the default of Infrastructure Leasing & Financial Services (IL&FS) on several of its debt obligations over the last couple of months has raised serious questions about how regulators missed the growing debt pile of a systemically important financial institution.
- Crucially, the IL&FS saga has also exposed the underlying weaknesses in the non-banking financial company (NBFC) sector as a whole which has depended heavily on low-cost, short-term debt financing to sustain its shaky business model.
- Currently we observe that both international and domestic interest rates continue to rise. As a consequence to this, the stocks of NBFCs have been punished as investors expect the profit margins of these companies to come under pressure as their borrowing costs rise.
- Added to this, there is the further risk of NBFCs being unable to roll over their short-term debt in case of a severe credit crunch in the aftermath of the IL&FS saga. Experts believe that this is a more serious risk.
- Experts believe that the steep crash of shares of Dewan Housing Finance Ltd. has been the defining moment of the present crisis.
- Currently, we see that the Reserve Bank of India, the National Housing Bank and the State Bank of India decided last week to increase the supply of liquidity in the market to keep interest rates under control.
- We have also observed that the RBI has urged NBFCs to make use of equity rather than debt to finance their operations. This is apart from the government’s decision to replace IL&FS’s management and commitment to providing the company with sufficient liquidity.
- Experts believe that the prolonged supply of low-cost funds to the NBFC sector also creates the risk of building an unsustainable bubble in various sectors of the economy.
- Experts further assert that the defaults associated with any such bubbles will eventually only affect the loan books of lenders.
- There is a concern with State bailouts as well. It is feared that State bailouts could also fuel the problem of moral hazard as other financial institutions may expect a similar lifeline in the future.
The Way Forward:
- Experts believe that policymakers should try to focus on taking steps to address structural problems that contributed to the crisis. This includes steps necessary to widen the borrower base of NBFCs which have been banned from accepting deposits. This step would allow NBFCs to tap into more reliable sources of funding and avoid similar liquidity crises in the future.
- The biggest challenge for the IL&FS board is to raise funds in quick time so that fresh defaults can be avoided.
- One possible way to get money is to sell assets.
- However, a more permanent way of getting funds is to raise equity capital.
- Capital can be raised through a rights issue.
- It is important to note that the proposal for a rights issue was mooted by the previous board too, but they were unable to convince the large shareholders.
- Another option is to sell stakes to a new promoter. Again, that was also mooted by the previous board, but some existing shareholders could not agree on valuations. So the new board has its task cut out.
- As Uday Kotak, the newly appointed chairman of IL&FS, indicated, the crisis is much bigger and more complex than it was initially thought.
- An example to illustrate this is the fact that the new board found that there are 348 entities in the group, significantly larger than the 169 entities it was aware of. This itself underscores the task at hand.
- It is also to be seen if the new board, which the government has thrown its weight behind, could convince the shareholders for more fund infusion.
- October 16 is observed as the World Food Day to mark the creation of the United Nation’s Food and Agriculture Organisation (FAO) in 1945
- The world body envisions a “zero hunger world” by 2030
- It’s important to understand the role of science and technology in ushering the Green Revolution, which ensured food security in India
- Today, similar innovations in biotechnology hold the promise to provide nutrition security
Impact of Green Revolution
- While the country’s population has grown by more than four times, from 330 million in 1947 to 1.35 billion in 2018, India’s wheat production has increased by over 15 times in roughly the same period — from about 6.5 MMT in 1950-51 to 99.7 MMT in 2017-18
- India contributes about 13 per cent of the world wheat production, next only to China whose share is about 17 per cent
- Rice production has shot up by about 5.5 times — from 20.6 MMT in 1950-51 to 112.9 MMT in 2017-18
- India has a 23 per cent share in world rice production, next only to China whose share is about 29 per cent
- India is also the largest exporter of rice in the world
Challenge of nutritional security
- Notwithstanding its foodgrain surpluses, the country faces a complex challenge of nutritional security
- FAO’s recent publication, The State of Food Security and Nutrition in the World, 2018 estimates that about 15 per cent of the Indian population is undernourished
- More than 38 per cent of Indian children aged below five years are stunted and 21 per cent suffer from wasting
Factors behind malnutirition
- Poor diet
- Unsafe drinking water
- Poor hygiene and sanitation
- Low levels of immunisation and education, especially that of women
Solutions for reducing malnutrition
- Latest innovations in biotechnology that fortify major staples with micronutrients like vitamin A, zinc and iron can be game changers
- Globally, the HarvestPlus programme of the Consultative Group on International Agricultural Research (CGIAR) is doing a lot of work in this direction
- In India, the group has released the iron-rich pearl millet
- The Indian Council of Agricultural Research has independently released zinc and iron-rich wheat, rice, and pearl millet in 2016-17
- This could possibly lead to the next breakthrough in staples, making them more nutritious
- This seems to be the beginning of a new journey, from food security to nutritional security
- Innovations in biofortified food can alleviate malnutrition only when they are scaled up with supporting policies
- This would require increasing expenditure on agri-R&D and incentivising farmers by linking their produce to lucrative markets
- From farm subsidies to farm loan waivers, the Indian government spends crores on farmer welfare, but these efforts will be inadequate unless they can tackle an increasingly daunting barrier: lack of land.
- The provisional figures from the latest agriculture census reveals how land—the most critical input for agriculture is getting more fragmented.
Declining Land Holdings in India
- Since the first agriculture census over 45 years ago, the number of farms in India has more than doubled from 71 million in 1970-71 to 145 million in 2015-16,
- However the average farm size more than halved from 2.28 hectares (ha) to 1.08ha.
- Smaller, more numerous farms have been driven by rural population growth.
- This relationship is a reflection of India’s inheritance pattern, which leads to farms divided between multiple heirs.
- Between 1970-71 and 2010-11, the number of farms increased by 194%, almost exactly in line with rural population, which increased by 189%.
Regional Variations in Land Holding
- Within India though, there is significant variation in farm sizes. With an average size of 5ha, Nagaland is home to India’s largest farms.
- Punjab and Haryana, two states known for their agricultural output, also have larger farm sizes (3.6ha in Punjab and 2.2ha in Haryana).
- The majority of India’s farms (86%) are less than 2ha. The bulk of which are located in the poorer states such as Uttar Pradesh and Bihar.
Paradox of better Cultivation
- The Indian experience shows that small farmers are more productive than large farmers.
- Small farmers use more inputs (such as fertilizers), use their land more intensely (planting more crops) and adopt more technology.
- Yet, despite this efficiency, farm incomes remain poor.
- It is the poor returns to farming—despite intensive efforts put in by farmers—that lie at the root of India’s farm crisis, and the recent farm angst.
Income- Farm size Proportionality
- Given household sizes in rural India, small farms struggle to generate enough income for everyone in a household and often lack alternative sources of income.
- A 2016 study which uses the NSSO 2003 and 2013 surveys of farmers to show how farm size is an important determinant of income.
- It found that in 2013, for marginal farmers(less than a hectare of land), household consumption exceeded net monthly income of less than ₹ 5,500 from both farming and non-farming activities.
- Using the 2015-16 census data, this would mean nearly 100 million farming households would struggle to make ends meet.
- Examining farmer incomes between 2003 and 2013, they find that incomes grew the least for marginal farmers and growth of incomes was proportional to the size of a farm.
Land Consolidation: Is it a Feasible Solution?
- One obvious solution to small farm sizes will be consolidating land into larger farms by enabling land leasing.
- However, this can be a complex and costly process, made more difficult by the lack of accurate land records.
- As a report by PRS Legislative Research has highlighted, land records in India are poorly maintained and do not reflect ground realities.
- It pointed out that, despite most states computerizing and digitizing land records, as of 2017, spatial data had only been verified in 39% of villages.
- This is particularly problematic for small farmers who, without accurate land records, cannot access credit or secure insurance.
- Economists agree that improving land records, investing in research and development, providing local rural non-farm employment opportunities and building better rural infrastructure are policies that can help small farmers.
- India’s farmers are not alone in these struggles.
- A 2016 study estimated that around 84% of the world’s farms are less than 2ha.
- While many of these small farms face the same challenges, some small farmers, such as those in China, have been more successful in securing sustainable livelihoods.
- In all such light, doubling farmer’s incomes is a reality only for the largest land-owning group.
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