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Crop Insurance

Need for the crop Insurance

Crop Insurance brings a security and stability in Farm Income.

Crop insurance protects farmers' investment in crop production and thus

improves their risk bearing capacity.

Crop insurance facilitates adoption of improved technologies, encourages

higher investment resulting in higher agricultural production.

Crop credit insurance also reduces the risk of becoming defaulter of

institutional credit.

The reimbursement of indemnities in the case of crop failure enables the

farmer to repay his debts and thus, his credit line with the formal financial

institutions is maintained intact

The farmer does not have to go for distress sale of his produce to repay private

debts

A properly designed and implemented crop insurance programme will protect

the numerous vulnerable small and marginal farmers from hardship, bring in

stability in the farm incomes and increase the farm production.

A farmer may grow more profitable crops even though they are risky.

Similarly, farmer may adopt improved but uncertain technology when he is

assured of compensation in case of failure.

This will increase value added from agriculture, and income of the farm family.

Comprehensive Crop Insurance Scheme( CCIS )

In India , the first systematic crop insurance scheme implemented on wider

scale known as Comprehensive Crop Insurance Scheme (CCIS) was introduced

in 1985.


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It was used as a tool to support & stimulate the production of desired

commodities s.a. food grains, pulses, oilseeds.

The scheme covered the crops like rice, wheat, millets, oilseeds and pulses.

The scheme covered all the farmers availing loans from financial institutionsand growing the above mentioned crops.

The scheme was voluntary in nature it was all depends upon the wisdom of the

state Govt to implement in districts where they wanted to operate.

Salient Features of CCIS

Crops covered Paddy, Wheat,Millets,Pulses and Oilseeds

Premium rates

(a) 2 % of sum insured for cereals, millets.

(b) 1 % of sum insured for Oilseeds and

Pulses.

Subsidy to small and marginal farmers 50% of the premium.

.

Farmers Covered:

All farmers availing of crop loans from Co-operative credit Institutions, Commercial

Banks and Regional Rural banks for growing the aforesaid crops in the notified areas.

Area Approach:

The scheme operated in defined area (district,taluka,block) for each crop as

may be notified by crop insurance committee of state Govt.

Nature of Coverage:

All risk coverage.

If actual average yield per hectare of the insured crop determined on the basis

of

Crop cutting experiments in the insured season fell short of specified yield.


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All the farmers growing that crop in the specified area deemed to have

suffered shortfall in their yield

The scheme provided coverage against such contingency.

Limit of Coverage( Sum Insured):

The sum insured per insured farmer was 150 percent of the loan disbursed in

the defined area during the insured season.

Subsequently the sum insured amount was reduced to 100 percent of crop

loan subject to maximum of Rs. 10,000 per farmer per season.

Risk sharing between centre and state government was in the ratio of 2 : 1

Lackings of the CCIS

The scheme covers only loanee farmers, leaving non-loanee farmers who are in

majority.

Covers only food crops, oilseeds and pulses and other crops are left out.

Sum insured was maximum to Rs 10,000

High claims ratio because of low, flat premium rates.

Experimental Crop Insurance Scheme

( ECIS )

During the course the implementation of CCIS a new scheme i.e ESIS was

introduced during rabi 1997-98, subject to review after first cropping season.

ECIS covered all small & marginal farmers, both loanee and non-loanee.

Crops covered Wheat, Paddy, millets,

oilseeds and pulses in 24 selected districts of 8 states.

The entire premium was borne by central and state Govt. in the ratio of 4 : 1

Other features are similar to CCIS.


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National Agriculture Insurance Scheme (NAIS)

In order to make up the lackings of CCIS new scheme called NAIS was

introduced in Rabi 1999-2000 replacing CCIS.

The main objective of the scheme is to protect farmers against crop losses

suffered on account of natural calamities, such as drought, flood, hailstorm,

cyclone, pests and diseases.

Salient Features of NAIS

Coverage of all farmers loanee and non-loanee including share cropper and

tenants.

Coverage of all crops including commercial & horticultural besides food grain

crops & oilseeds.

Basically an all risk insurance , covering natural and non preventable risk.

As against a limit of sum insured Rs 10,000 , sum insured can be as high as 150

percent of average yield.

Experimenting crop losses on individual basis for localized calamities like land

slide flood etc.

As against the flat rates of premium in case of CCIS the premium rates are

actual for commercial and horticultural crops.

Small & marginal farmers are entitled for 50 % subsidy in premium which is

phased in 5 years

Claims over certain limits are borne by Govt. shared equally by centre and

state.

Operational Modalities NAIS

GIC will continue to function as implementing agency for NAIS

NAIS is a multi agency scheme :

Central Govt, State Govt, Financial Institution and GIC will play their roles in

implementation.


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These agencies constitute different committees to implement and monitor the

scheme.

National Agriculture Insurance Scheme (NAIS

The premium rates are:

3.5 per cent (of sum insured) for bajra and oilseeds;

2.5 per cent for other Kharif crops;

1.5 per cent for wheat,

and 2 per cent for other Rabi crops.

In the case of commercial/horticultural crops, actuarial rates are being

charged.

Small and marginal farmers are entitled to a subsidy of 50 per cent of the

premium charged from them, which will be shared 50:50 by the central and

state governments.

The premium subsidy will be phased out over a period of five years.

Presently the scheme is being implemented in 21 states.

Pilot scheme of seed Crop Insurance (PSSCI)

In addition to NAIS the Govt. of India has started a Central Sector Scheme as

PSSCI from Rabi 1999-2000 .

This scheme covers the Breeders Seed and Certified seed of all major crops in

10 states.

This is the first scheme to extend security to seed producers.

PSSCI covers Wheat, Paddy, Maize, Bajri, Jowar, Gram, Red gram, Groundnut,

Soyabean, Sunflower and Cotton


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PSSCI covers the seed crop at field stage, arising out of failure, rejection of

seed crop, loss in expected raw seed , loss of seed crop after the harvest.

Covers loss in germination

Loss in certification stage.

Also covers non preventable risk like flood, drought, cyclone etc.


The sum insured is equivalent to 3 or 5 years average seed yield multiplied by

procurement price/sale price of seed crop.

The premium rates are:

2 per cent (of sum insured) for Wheat and Groundnut

2.5 per cent for Sunflower

3 per cent for Paddy,

3.5 per cent for Jowar.

5 percent for Gram,Redgram,Bajri,maize, Soya bean and Cotton

Premium and claims up to 200 percent of premium will be met by the

Government of India in three years.

Farm Income Insurance Scheme (FIIS)

In order to target the two critical components of a farmers income namely

yield and price thru a single instrument the Govt of India formulated FIIS

introduced in Rabi 2003-04.in 18 districts of 12 states.

This was mainly to protect the income of the farmers by insuring productionand market risk.

Salient features of (FIIS)

Farmers will be protected with a minimum guaranteed income.


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If actual income of the farmer falls short (MSP x Yield) then farmers will be

eligible for compensation to the extent of indemnity from the Agriculture

Insurance Company of India (AICI)

Area approach as in the case ofNAIS for actual yield and price of the insured

crop.

Initially scheme covered Wheat and Paddy only.

Foreign Trade & Agricultural Development

Basics bout India

The new economic policy of the country indicates vast scope for India's

economy and the linking with the global market economy.

It is expected that the benefits of this can percolate in agricultural sector

also.

India has to formulate the short term and long term strategies so that

the benefit is derived fro the opportunities available fro the new

economic policies.

Need to explore and identify the areas potential in different segments ofagricultural sector.. Both internal and external which would promote the

agriculture development.

One of the potential areas is to exploited the possibility of more

agricultural exports.

70 % of population is surviving on Agriculture.

% Contribution ofAgri to GDP is declining but in absolute term it is

increasing.

Restricting our studies to agriculture it is seen that the share of foreign

exchange earnings from agri sector is reducing .

Composition of Agriculture Trade by Board Commodity Group.


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The data for import and export is available for a period of 10 years from 1980

to 1990 and hence the analysis is based on the said data.

Changes in the composition of agro based products in imports and exports are

observed.

Agro exports increased by 1 % as against negligible growth of only 0.06 % in

imports.

The share of different commodities remained more or less same except

marginal changes in few commodities group.

Current Policies and future strategies for Agriculture Trade

Indias agricultural development is taking place within the policy frame work

which is primarily consideration of self sufficiency.

Policies are mainly to maintain the relationship between demand and supply

Efforts are made to accelerate the production of those crops which are not

keeping pace of demand.

Over emphasis on self sufficiency of food may result in inefficient allocation ofresources at the national level.

Composition of Agriculture Trade by Board Commodity Group.

Share of oilseeds and soybean increased from 5.8 % in 1980 to 13.37% of the

total agro exports in 1990.

The increase may be due to both increase in area and production.

The picture in to days situation will reverse as the production of oilseeds and

pulses in reducing.

Share of fruits and vegetables increased from 8.56 to 12.9 % during the same

peruiod.


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Plantation crops like tea, coffee, cocoa and spices have enjoyed their

monopoly in the world export market which also shows declining over the

years.

The exports of tobacco also shows a declining trend over the years.

As regards imports the import of input like fertilizers and other related raw

material have drained the foreign exchange.

The agricultural inputs accounted for almost one third of total agro imports.

Agriculture is supported and subsidized in many countries.

This has resulted major distortion in the world markets thereby undermined

the ability of developing countries to develop in the areas of comparative

advantage.

The countries there is no subsidy element are shifting their allocation of

resources to the advantageous situation.

In India the government intervention in agricultural sector through imposing

quantity and price control over exports/imports of agricultural commodities

and canalizing the export/imports thru public corporations have delinked

domestic and international markets.

Nominal protection Coefficient (NPC) is the ratio of domestic price and the

world reference price of the commodity.

IfNPC is greater than 1 then the Commodity is protected .

If NPC is less than 1 then the commodity is disprotected.

10 years data from 1980 to 90 reveals that :

NPC for wheat, rice and cotton in imports for the above period was less than 1

hence efficient import substitutes.

On the basis of exportable hypothesis rice and wheat are efficient exportable

commodities.

The share of agro-export can be increased by coordinating production and the

export policiees.

World Trade Organization (WTO)


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WTO

WTO entered in to force on 1st January 1995.with Geneva as head quarter.

This is a successor institute of GATT.

All GATT committees were superseded by WTO.

Initially there were four sub- committees as under:

1 Budget, finance and administration

2 Institutional, procedural and legal

3 Trade and environment and

4 Services

WTO ensures that each member country will negotiate with trading partner its

terms of entry in to multinational trading system and market access schedule

for goods and services.

Indian Agriculture andWTO

WTO as mentioned earlier established on 1st January 1995 replacing the GATT.

WTO run by the member Government.

ALLmajor decisions are taken by the members either ministers or officials

There is a conference at least once in two years

About 95 % of the global trade is governed by WTO.

WTO agreements are permanent and ratified by the Parliments of the member

countries.

WTO agreements in areas

WTO set to continue negotiation and bring agreements in following areas.

1. Basic Telecommunications

2. Maritime transport


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3. Financial Services

4. General Agreement on Trades and Services (GATS)

5. Reaffirmation of rule of law and economic relations

6. A reversal of long standing protectionist pratices in agriculture.

7. An extension of rules to multilateral services.

GATT &WTO

WTOs creation in 1995 was a biggest reforms in international trade since

1948.

GATT (institution) was very small and provisional and not even recognized in

law as international organization.

WTO is GATT is plus a lot more.

GATT agreements deals only with trading in goods

WTO agreements covers services and intellectual property as well.

WTO agreements have three (3) main objectives

To help trade flow freely as possible

To achieve further liberalization gradually thru negotiations

To set up impartial means of settling disputes.

Fundamental Principles ofWTO

Non Discrimination

Free trade

Predictable policies

Encouragement to Competition

Extra Provisions for less developed countries

Agreement of Agriculture (AOA)


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AOA of WTO recognizes free and market oriented trading systems in

agriculture.

AOA has the following main features

A Tariffication : Conversion of non tarrif barriers into tariff.

B Market Access: When the tariff is too high market access has to be

maintained

C Domestic Support

i) Aggregate Measure ofSupport : (AMS)

The annual monetory support extended to agriculture sector

AOA of WTO recognizes free and market oriented trading systems inagriculture.

AOA has the following main features

A Tariffication : Conversion of non tarrif barriers into tariff.

B Market Access: When the tariff is too high market access has to be

maintained

C Domestic Support

i) Aggregate Measure ofSupport : (AMS)

The annual monetory support extended to agriculture

sector

The AMS is of two types:

a) Product specific : i.e price support/subsidy given to producers of specific

crop

b)Non product specific support

The total of subsidies on inputs like Power, irrigation, fertilisers and credit.

AMS is calculated on each product receiving market support and based on

price prevailing in base period 1986-88


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If the AMS is exceeding 5 % in case of developed countries(10 % for developing

countries) then

These are to be reduced by 20% over six years from 1995 in case of developed

countries and (13.3 % for developing countries over 10 years)

The AMS to India is still below 10 % in stipulated terms of WTO

Green Box Support: It is given on items which has a minimal impact on trade

e.g. pest and disease control, market intelligence relief from natural disasters .

It is an exempted support.

Blue box support: It is a product limiting subsidy pertains to mainly developed

countries. It is exempted under from reduction commitment under WTO.

The developed countries mainly subsidised their agriculture under blue green

and blue box.

Special and Different treatment Box support :

It includes subsidy on agriculture sector for farm development .

It also includes agriculture input support to low income and resource poor

farmers.

This support is mainly for developing countries & is exempted from reduction

commitment of WTO

( D) Export Competition : WTO members are obliged to reduction

commitments

Developed countries are to reduce the subsidised agricultural exports by 21 %

and value subsidizes by 36 % of average base period from 1986-88 in 6 years.

The developing countries to reduce the same by 14 % and 24 % respectively in

10 years

Agriculture Development Policies

Agriculture during British Rule

The Farmers were growing food crops like Wheat, Paddy etc.


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Commercialization of Agriculture

Encourage exports of raw material and imports of manufactured goods

The farmers were forced thru Zamindars for switch over from food crops to

cash crops like Cotton, Jute, tobacco etc.

The exports of these outputs to Britain was encouraged.

Agriculture after 1951

The first five year Plan 1951-56

Accorded highest priority for agriculture sector to overcome the difficult

situation of food due to partition.

The similar priority was accorded in the successive plans also.

Strategy for agriculture development :

Two major components were considered.

Strategy for Agriculture Development

The two components were as under :

Subsidies on inputs.

Minimum Support Prices for Output.

Agriculture sector provides market for :

a) for fertilizers, insecticides and pesticides

b) for tractor, pump sets etc.

Agriculture is also a source of raw material for agro based industry.

Development of Industry

The nation has made a big investment for setting up of the industry during

various plans.

The development of agriculture largely depends on products like petrolieum,

fertilizers etc.


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Hence there was a inter dependence in the development of agriculture and

the industry.

Cropping Pattern

Cropping Pattern

Distribution of cultivated land among different crops grown in the country.

Cropping pattern is influenced by two factors :

1 Physical factors

2 Economic factors

Factors for Cropping patterns

1 Physical factors:

a )Soil Condition, b ) Extent of rainfall and

c ) type of climate etc.

2 Economic factors

a ) relative prices of agriculture commodities

b )Size of farms

c ) availability of inputs d ) demand condition and (e) Govt. policy regarding

export/import etc.

Small Size Agricultural Holdings

The average of farms have become smaller over the years.

fast growing population has adversely affected the per capita land availability

The trend in the reduction of per capita land availability is shown in the next

slide.


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India at a glance

Sr No Particulars 2005-06

1 Geographical Area ( Millionhect.)

328.73

2 Area under Forest 69.78

3 Area not available forcultivation

42.50

4 Net cropped Area 141.89

5 Gross cropped Area 192.80

6 Area under double cropping 50.91

7 Intensity of cropping in

percentage

135.9 %

8 Gross irrigated Area 82.63

9 % of Gross irrigated area togross cropped area

42.86

10 Foodgrain production inmillion tonnes

217.28

11 Population in India 114.79


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Reasons for fragmentation of holdings


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Law of inheritance

Increase in Population

Decline in joint family system

Rural indebteness

Disadvantages of fragmentation

Loss of cultivable land due to boundries.

Too many boundaries cause disputes.

Leading to litigations.

Instead of investing the precious resource for increasing productivity it is used

for settling the claims.

Low Productivity in Indian Agriculture

As said earlier the agriculture has paid prime attention since first five year plan

and hence the is in crease in the per hectare yield of crops .

This is mainly due to use of modern technology, and the various

schemes/policies implemented by the GOI and the state Govt


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Low Productivity in Indian Agriculture

Yield/ hectre

Crop 1960-61 1970-71 1980-81 1990-

91 2003-04

Rice(kg) 1013 1123 1336 1740 2051

Wheat (kg) 851 1307 1630 2281 2707

Sugarcane(t

onnes)46 48 58 65 59

Cotton (kg) 125 106 152 225 307


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Comparative yield of Principal crops

Country Paddy Wheat Maize Groundnut Scane

India 2929 2583 1667 913 68012

China 6321 3969 4880 2799 85294

Japan 6414 NA NA 2336 NA

U.S.A 6622 2872 8398 3038 80787

Indonesia 4261 NA 2646 NA 1523

Canada NA 2591 7974 NA NA

Vietnam 4105 NA NA 1435 NA

Worldaverage

3845 2711 4313 1336 65680


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Causes ofLow Productivity

( A)Technological factors:

Lack of irrigation facilities

Limited use of fertilizers

Limited area under HYV the area under HYV differs from crop to crop.

Inadequate plant protection schemes

Lack of farm mechanization

Floods and soil erosions

( B ) Institutional factors :

Feudal land relations - Zamindars are Charging high to the tenants.

Small Size holdings

Rural indebteness

Marketing difficulties : inadequate returns.

Green Revolution

It was in 1966 the new agricultural strategy was put in to practice to overcome

the shortages of foodgrains in the country.

This was popularly known as Green revolution in India.

The result of green revolution in terms of increasing production and

productivity is given in the next slide.


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Food grain Production and Productivity in India

Year Production million terms Production per hect.inKgs

1950-51 50.8 522

1960-61 82.0 710

1970-71 108.4 872

1980-81 129.6 1023

1990-91 176.4 1380

1997-98 192.3 1552

1998-99 203.1 1571

1999-2000 208.3 1697

2004-05 206.4


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1. Income tax was introduced in 186o, income tax was subject to taxation.2. The income tax act was passed in 1886, where in the income from other

sources and income from other sources was defined and agri. Income wasexempted.

3. The same was continued till 1935 and amended act introduced in 19354. as per 1935 act agri. Income was exempted from tax5. The issue of taxation is the constitutional issue however the centre has

authorized state government ,agri income was taken in to account for decidingthe rate of income tax, since 1974-75

6. about six states levy the tax on agriculture income especially on plantationcrops

7. It was negligible to the states reveue as tax8. Tax enquiry committee in 1953-54 suggested equity consideration by all states

for tax purpose9. A comprehensive committee was set up in 1972 to recommend the ways and

means by which taxation of income and income will reduce the economicdisparity and promote more efficient use of land and labour resources.

10 The committee suggested that partial integration of agricultural incomes withnon agri income limited for the purpose of deciding the rate of tax.

11 Imposition of agri holding tax was suggested( AHT)12 For rational system of direct taxation the committee recommended the

following criteria :i) It should consider the difference in productivity depending upon

particular crop grown.ii) It should be uniform every where in the country.iii) It should reflect changes in productivity and prices over a period of

time

13 Following features levy of AHTa Divide the country in to agroclimatcc zones

b average yield of last 10 years x relevant average harvest price

c provide development allowance @ 20 % of the rateable value

maximum to Rs 1000

d Actiual tax calculations for AHT : Rateable value of holding-

development allowance. If amount works to Rs X thousand then the

AHT should be X/2

e AHT decreased progressively on small holdings.

Recommendations of the tax reforms committee in 1991 :

A Have agri. Income not exceeding Rs 25000 per annum


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B Have agri. Income not exceeding Rs 28000 per annum

Agriculture development in the country during the last five decades could bedivided into the following phases:

The expansion of net sown area (NSA), irrigated area, development of ruralinfrastructure and land reforms;

high yielding dwarf varieties, agricultural inputs like fertilisers, pesticides andimproved crop production technologies which ushered in the GreenRevolution';

minimum support prices (MSP) and procurement of agricultural commodities, food grains storage and distribution system expanded at the national level;

The thrust on liberalization and globalization.

The impact of these on food production is reviewed in the following pages.

y The century ended with the countrys output of food grains crossing 200million tonnes, a fourfold increase since 196061, mainly due to thesuccess of the green revolution since the 1970s.

y Over years most farmers have shifted to rice and wheat cultivationbecause of the MSP offered by the Government.

y The coarse grain production has remained stagnant.y Although the area under cultivation with food grains has remained

virtually constant since 197071, the yield has increased by 65 %.y India which had to import food grains for some time after

independence, but now it has emerged as a marginal exporter of foodgrains (Ministry of Finance, 2000).

y Agriculture contributes nearly one-fourth of the GDP (Reserve Bank ofIndia, 1999) and provides a livelihood to about two-thirds of all workersin the country (Central Statistical Organisation, 1999).

y Although the %age of land cultivated with food crops that is irrigatedincreased from 24 % in 197071 to 41 % in 199697, the performanceof Indian agriculture still largely depends on monsoon rains.


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y In spite of a fourfold increase in food production since the early fifties,daily per capita net availability of food grains has increased by only 18%, from 395 grams to 467 grams per day (Ministry of Finance, 2000).

y During the 1990s the growth rate of foodgrains production declined to1.9 % per annum from 3.5 % per annum during 1980s.

y Similarly the growth rate of productivity in food grains decelerated to 1.3% as compared to 3.3 % per annum during the 1980s.

y In terms of productivity the country lags behind others. Productionunder various crops over the last five decades and the net availability ofcereals and pulses over the period is shown in Annexure 5.1 and

Annexure 5.2.y The production of kharif food grains during 2006-07 is estimated at

209.2 million tonnes (second advance estimates), which is higher than208.6 million tones estimated during 2005-06.

y The production of rice is estimated at 90.1 million tonnes compared to91.8 million tonnes during the previous year.

y The production of wheat is estimated at 72.5 million tonnes, which ishigher than the previous years production of 69.3 million tonnes.

y The production of coarse cereals is estimated at 32 million tonnes, whichis lower than the previous year's production of 34 million tonnes.

y Sugarcane production is estimated to be higher at 315.5 million tonnes(first advance estimates), as against 281.2 million tonnes during theprevious year.

y It is a matter of concern that massive improvement in food grainavailability, substantial decline in cost of cereals, improved access tosubsidized food grains through Targeted Public Distribution System have

not resulted in elimination of hunger or reduction in under-nutritionespecially in vulnerable groups.

y The production of important crops in three largest food grain producingstates is given in Annexure 5.3.

y Uttar Pradesh, Punjab and Haryana are the major producers of foodgrains in 2004-05.

y Rajasthan, Madhya Pradesh and Gujarat are oilseeds producing states;y major sugarcane producing states are Uttar Pradesh, Maharashtra and

TamilNadu.

y Punjab and Uttar Pradesh rank highest in production of food grains.

y Punjab and Haryana top the yield of food grains.

y It is obvious that there are huge differences not only in area undercultivation but also in yield between states.


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y Improvement in productivity in large states like UP will have a major

impact on food grain availability in the country.

y As there is not such scope in terms of increase in area under cultivation,

an effort to increase productivity has to be given priority over the nextdecade.

y The very success of Green Revolution brought about somemajor problems.

y Many states have attempted to increase production through subsidies oninputs such as power, water and fertilizers, rather than by building newcapital assets in irrigation and power.

y Unsustainable practices like excessive use of water together withimbalanced use of fertilizers especially in the Green Revolution areas ofnorthern and northwestern parts of the country have adversely affectedsoil health and environment.

y Though the consumption of pesticides seems to have declined, becauseof the propagation of the Integrated Pest Management (IPM) approachand the increasing awareness about the hazards of pesticides, theavailability of quality pesticides and pesticide residues in foodstuffs,remained a matter of concern.

y Many of the erstwhile high producing states are experiencing GreenRevolution fatigue. Very little attention is being paid to achieveintegrated farming systems that will ensure sustainable evergreenrevolution essential for appropriate dietary diversification to achievenutrition security .

y To meet all the nutritional needs of the growing population, the countrywill have to produce an extra five million tonnes of food grains annuallyand increase the production of livestock, fish and horticultural products.This has to be achieved in the face of shrinking arable land and farmsize, low productivity, growing regional disparities in productivity anddepletion of the natural resource base. Appropriate steps have to betaken to minimise the potential adverse consequences of globalisationon domestic production, employment and price stability of foodcommodities. In India the productivity has been quite low. The challengeis to take appropriate steps to improve productivity in all the states. Thelow productivity can also be viewed as an opportunity, which can readily


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help the country to increase production without worrying about thecountrys inability to expand the area under cultivation.

y Land available for food grain cultivationhas been dropping steadilyand now is 120million hectare.

y Fragmented holdings of land-the averagesize of holdings decline from

2.63 ha in1960-61 to 1.06 in 2002-03, making itdifficult for farmers tocome out of the poverty trap.

y Restrictive and outdated land laws that do not give farmersflexibility.

y Overdependence on agriculture for employment due to slow growthof non farm sector in villages.

y No new technological breakthrough in terms of high yielding varietiesfor foodgrain crops.

y Soil fatigue due to over exploitation of nutrients and organic matterin intensive cropping areas.

y Nutrient imbalance due to use of improper combination of fertilizers.y Non availability of quality seeds resulting in low seed replacement

rates.y Inadequate or poor harvest management infrastructure at the farm

level.


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Taxation of Agricultural Income

Income Tax treatment on Agriculture Income

Agriculture income is free from income tax as per income tax act in

India. It means income earned from agriculture operation such as the income

from output of the grains is free

Income tax

The reason for exclusion of income tax is to free the farmers from this tax. But

the agriculture income should be taken to consideration while computing

income from non-agriculture.

What is agriculture income?

The following should be treated as agriculture income

1-Any rent received on agriculture land:

Rent received on agriculture land is include in agriculture income hence it is tax

exempted. There must be a direct link between the agricultural land and the receipt of

income by way of rent or other revenue.

2-Income from agriculture operations:

Any income come from agriculture operations including processing of agricultural

produce, raised or received as rent in kind so as to render it fit for the market, or sale

of such produce.

3-Income from Farm House:

Income from farm house also considered agriculture income subject to that building is

situated on or in the immediate vicinity of the land and is used as a dwelling house,store house etc.

4-Income from Nursery operation:

Income from nursery operations also considered agriculture income and it is also

exempted from income tax act in India.


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Points to be remembered

The following should be remembered while computing

the agriculture income

1- There must be a land.

2- The land should be used for agriculture.

3- Land cultivation is necessary.

4- If rent is received on land, the land should be used in agriculture operations only.

5- If the income derived from farm house, the building of the farm house should be

situated on that land only.

6- Ownership:-The ownership is not necessary while computing income from

agriculture as the assesse can be tenant or sub-tenant.

What is included in the Agriculture Income

These includes in agriculture income.

1- Sale of replanted tress.

2- Sale of flowers & seeds.

3- Rent received on agriculture land.

4- Share of profit of a partner from a firm engaged in agricultural operations.

5- Interest on capital received by a partner from a firm engaged in agricultural

operations.

6- Income derived from sale of seeds.


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What is not included in the Agriculture Income

These doesnt includes in agriculture income.

1- Poultry farming.

2- Bee hiving.

3- Dairy farming.

4- Sale of spontaneously grown trees.

5- Purchase of ready crop.

6- Income from producing the salt on land with sea water.

7- Royalty from mines.

8- Butter and cheese making.

9- In the absence of ownership or leasehold rights, income from plantation

companies is either considered interest or non-agricultural income chargeable to tax

10- Rent of agriculture land or farm house for non agriculture purpose like shooting of

films etc

Tax Calculations for Agriculture Income

1 If you have only agricultural income, then the income is not taxable. It is fully

exempt. For example your total agricultural income is Rs.340000 per year and there is

no other source of income. In this case you are not required to pay any tax and file the

tax returns.

2 If you have agricultural income and other sources of income, then you are

required to file the returns and show the agricultural income. Even if the total incomeis below the taxable income.

3 For example your agricultural income is Rs.100000 and the income from other

sources is Rs.50000. The total income is Rs.150000. For the above scenario you need

to file the returns and show the agriculture income


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Tax Calculations ( without Agriculture Income)

Description Amount

Other sources of Income 300000

Agricultural Income 0

Total Income 300000

(-)Deductions under IT 0

Net Taxable Income 300000

(+)Tax @ 0% On TAX FREE Amt Rs. 150,000 0

(+)Tax @10%: 1.5 to 3.0 lakhs on Rs. 150,000 15000

(+)Tax @20%: 3.0 to 5.0 lakhs on Rs. 000,000 0

(+)Tax @30%: On > 5.0 Lakhs on Rs. 000,000 0

Tax Payableon Net Income 15000

(-): Rebate on Agri. Income 000000 0

TAX Payable afterAg.incomerebate 15000

(+)Short term Capital Gains(STCG)Tax-Shares/ MF @15% on000,000 0

(+)LongTerm Capital Gains(LTCG)Tax on Property @20% on

000,000 0

Total Tax (Regular + Capi.Gains) 15000

(+) Edu. cess @ 3% on tax Rs. 15000 450

Net Total Tax Payable. 15400


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Is agriculture land capital asset?

The capital gains are applicable only when you are selling the capital assets.

When you are selling the agricultural land, first you have to decide if it is falling under the capita

assets.

If it is capital assets then you have to pay the tax for the capital gains.

Criteria to consider the Agriculture land

The following points are important to consider while deciding whether the agricultural land is co

under the capital assets:

If the land is is situated within the jurisdiction of a municipality where the population is above

If the land is situated less than 8 kms from the muncipality.

In the above mentioned two situations the land is no considered as agricultural land

Capital gain on land

One can claim exemption form capital gains on Sale ofAgriculture Land by buying Agriculand if the agricultural land which was being used by the assessee or a parent of his for

agricultural purposes at least two years preceding the year in which transfer of the land

place.

If the assessee has, within a period of two years after that date, purchased any other lan

being used for agricultural purposes, then, capital gain to the extent utilised for buying th

agriculture land shall be given.

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