IFFCO Foundation Bulletin Vol.2 No.1 June 2014 Edition

1
Dr Uttam Gupta Perspectives
Abstract
The article traces the evolution of the fertilizer policy in India from the 1960’s to present
date. It is an attempt to explore the policy narratives and external and internal factors that
have shaped fertilizer policy in India today. Upon understanding the challenges and the
compulsions that have shaped the fertilizer policy decisions in India and its influence on
agriculture pricing, the author makes some recommendations that can battle some of the
challenges that Indian agriculture policy makers face today.
Keywords: Fertilizer policy, fertilizer pricing, fertilizer subsidy, cash transfer, food security,
agriculture, small and marginal farmers.
Fertilizers – Key to Food Security and Sustainable Agriculture
Food security is of paramount importance to meet the growing food needs of an ever
increasing population. Not having sufficient domestic production of food to meet requirement
of 1.25 billion plus and still expanding will not only put a huge burden on scarce foreign
exchange resources but can also expose us to exploitation in global market. Hence a strong
case can be made for strategic interventions to facilitate the achievement of this goal.
Agriculture has a share of around 15% in gross domestic product (GDP) and nearly 60% of
population derives its livelihood from it. Industry and services sectors too depend heavily
on it for their rapid and sustained growth. Therefore, agriculture needs to grow rapidly not
only for ensuring food security but also for giving a boost to economic growth and increase
income of millions of farmers and India’s entire population.
Land – a key asset for growing food - has been ever diminishing thanks to increasing
population and increasing diversion for urbanization, infrastructure and industry. There
was an over whelming consensus that these issues must be tackled on a priority basis. The
overriding objective of the policy narrative was ‘How to get more from every unit of land?’
The contemporary ministries and implementing agencies latched on to new technology
that combined use of HYV seeds, fertilizers and irrigation to give higher crop yield.
Fertilizers provide the much needed plant nutrients viz., N, P & K and a host of secondary
& micro-nutrients that make HYV work. Irrigation gives the much needed ‘moisture’ for
process of flowering and grain making.
1
Dr Uttam Gupta (31st Aug 1953) is an Indian author, columnist and expert on a wide range of subjects like
Fertilizers; Oil & Gas; Power; Intellectual Property Rights or IPRs; Agriculture, World Trade Organiza-
tion WTO agreements, Crop protection etc. which are critical to sustainable economic development. His
website is www.uttamgupta.com. He can be reached at uganalyst@gmail.com
Fertilizer Industry in India – Challenges and Way Forward
Dr Uttam Gupta1

2
Given the background of agriculture and farming, it was a daunting challenge to:
(i) make farmers accept new technology
(ii) make required quantity of fertilizers available
(iii) ensure that farmers can afford to pay.
While, objective (i) was job of extension machinery, (ii) & (iii) were essentially a function
of policy.
UNFOLDING POLICY ENVIRONMENT
Fertilizer Price Control and Subsidy
Since production of fertilizer is highly energy and capital intensive, in an inflationary
environment, its cost is unavoidably high. On the other hand, 83% of the farmers are small
& marginal who cannot afford to pay high price. If, fertilizer is priced high, farmers won’t
buy.And, if price is kept low, that would make supplies unviable. Government resolved the
dilemma by controlling maximum retail price (MRP) at a low level and assuring to producers
a price that helped them remain viable. The difference was reimbursed as subsidy.
The producer prices and subsidy were administered through a scheme unique to fertilizers
viz., Retention Price Scheme (RPS). Based on the recommendations of high power Marathe
committee, RPS was implemented for urea in 1977; for DAP & other complex fertilizers in
1979 and for SSP in 1982.
RPS had phenomenal success. Fertilizer consumption increased dramatically supported by
increase in production in 80’s. The trend was sustained in 90’s.
However, the Scheme came under attack on account of increase in subsidy per se; without
analyzing its causes. The main causes were increase in cost of feedstock and other inputs
on one hand and virtually no increase in MRP on the other besides increase in production
and consumption.2
Policy back flips for Phosphorus (P) & Potassium (K) Fertilizers
In 1991, faced with an economic crisis, India had to approach International Monetary Fund/
World Bank who insisted on elimination of fertilizer subsidy within 3 years as a precondition
for extending financial support. Accordingly, in August 1992, DAP3
/complex fertilizers &
SSP4
were decontrolled and subsidy abolished. However, a month there after, subsidy was
resurrected under a new incarnation viz., ad-hoc concession. Controls on MRP too were
revived albeit indirectly.
2
For insights in to nuances of RPS, amendments from time to time, associated problems and its contribution,
refer to my articles on my website link as under:http://www.uttamgupta.com/category/fertilizers/retention-
price-scheme-rps/
3
Diammonium Phosphate
4
Single Super Phosphate

3
From April 1, 2010, all decontrolled fertilizers are covered by Nutrient Based Scheme
(NBS). Under NBS, government fixes ‘uniform’subsidy per nutrient N,P,K and Sulfur and
producers have freedom to fix MRP as well. However, on June 26, 2013, government
decided to fix ‘reasonable’ MRPs and manufacturers charging higher will be deemed to be
‘profiteering’ from the scheme.
The violations are penalized by way of denying subsidy to the extent of deviation of MRP
actually charged from the ‘reasonable’ MRP or even exclusion of concerned product from
purview of NBS. This is tantamount to taking away flexibility to fix MRP albeit indirectly.5
Continued Price Control on Urea
MRP of urea has been under control all thru. Producers are assured of ‘Retention Price’
(RP) and excess of this over net realization from sale at controlled MRP reimbursed as
subsidy. However, manner of determination of RP has undergone several changes; from
erstwhile unit-based RPS to New Pricing Scheme (NPS) viz.,
Stage I (2003-04)
Stage II (2004-05) & (2005-06)
Stage III (October 1, 2006 to March 31, 2010); which stands extended till date.
Meanwhile, early this year, government revised fixed charges after a gap of 12 years (these
were last revised in 2002-03).
In 2012, an Empowered Group of Ministers (eGoM) decided that Urea should also be
brought under NBS and producers given freedom to fix retail prices on the same lines as
the extant scheme for decontrolled P & K fertilizers. However, government is yet to act on
this recommendation.
Mechanism for Subsidy Payment
Subsidy payments are made to manufacturers to enable them sell fertilizers at price lower
than cost of production and distribution. 85-90% of the subsidy amount is paid to
manufacturer on ‘receipt of material in district’. From November 2012, these payments are
on confirmation of receipt of fertiliser by the retailer. Balance 10-15% amount is released
on receipt of confirmation from the state regarding sale to farmers.
In Budget for 2012-13, the Government had announced tracking movement of fertilisers
from retailer to farmers and linking part of subsidy payment to manufacturers to the sale of
fertilisers to farmers by retailers. In the mid-year economic analysis of 2012-13, finance
ministry came out with a blueprint on modalities for implementing the Budget announcement.
Pilot projects in 10 districts spread over nine states were to be launched.
5
For a comprehensive account of policy changes in the P&K segment, amendments from time to time and
their implications, pl refer to my articles on my website link as under:
http://www.uttamgupta.com/category/fertilizers/concession-scheme-for-p-k/

4
After successful implementation in these 10 districts, cash subsidy will be transferred to
farmers in the next phase fromApril 1, 2013. Concurrently, tracking movement of fertilisers
was be rolled out in the whole country. The Department of Finance (DoF) has developed a
mobile and web application, a mobile Fertiliser Monitoring System (m-FMS) that provides
information about stock position, sale and receipt of fertiliser till the last retail point.
While, tracking system has been put in place, government is yet to implement direct subsidy
transfer to farmers.6
Policy for New Investment in Urea
With effect from September 4, 2008, Government had put in place a policy for new
investment in urea sector. The policy prescribed methods for determining retention price
(RP) for various categories viz., additional urea from revamp of existing units; expansion
of existing units; green field projects etc. Revival of Food Corporation of India (FCI) I &
Hindustan Fertilizer Corporation Limited (HFC) group of plants was also covered under
this policy.
Meanwhile, considering mute response to the above policy (only 2 million tons urea capacity
was added through revamp of existing units), in 2012 government came up with a new
version of Urea Investment Policy (UIP). This went through a process of amendment in the
following year and in early 2014, the Cabinet approved an amended UIP.
The amended UIP assures investors in new green field projects and revival projects of sick
public sector units of FCI & HFC a price linked to import parity price (IPP) with a floor (F)
US$ 305 per ton and ceiling (C) US$ 335 per ton.
The prices correspond to gas price of up to US$ 6.5 per mbtu. Beyond this level, for each
$ increase in gas price up to US$14 per mbtu, ‘F’ and ‘C’ would increase by US $ 20 per
ton each. For increases beyond US$14 per mBtu, only ‘F’ price would apply albeit with
full protection for the gas cost.7
Feedstock and other Raw Materials in Fertilizer Production
The urea industry in India is heterogeneous with plants based on a variety of feedstock viz.,
naphtha, fuel oil/LSHS, gas. However, in view of its superior characteristics such as higher
efficiency and being a much cleaner/environment friendly fuel, gas is the predominant
feedstock. Currently, it accounts for around 80% of urea capacity. Supply of gas is regulated
in accordance with priority for allocation laid down by government from time to time.
6
For insights in to the dynamics of how a scheme of direct cash transfer would work, its positives and
government’s stance, pl refer to my articles on my website link as under:
http://www.uttamgupta.com/category/fertilizers/targeting-subsidies/
7
For details on new urea investment policy (UIP), its implications with especial reference to impact on
investment & growth of industry, pl refer to my articles on my website link as under:
http://www.uttamgupta.com/fertilizers/the-urea-investment-policy-quagmire/
http://www.uttamgupta.com/fertilizers/urea-investment-policy-flop-show-yet/

5
In P&K fertilizers, plants are based on a variety of raw materials viz., imported phosphoric
acid and imported ammonia; domestic phosphoric acid and imported ammonia etc. SSP
plants are based on imported rock phosphate (supplemented by domestic rock where
available) and imported sulfur.
Controls on Movement & Distribution
From 1973, government controlled movement and distribution of all fertilizers under the
Essential CommoditiesAct (ECA). In 1992, concomitant with removal of price control and
abolition of subsidy on P & K fertilizers, movement and distribution controls were also
withdrawn. However, controls on urea continued alongside price control.
From 2003, there has been some liberalization in the urea segment as well. Up to 50% of
urea production is subject to movement and distribution control. However, states allocate
entire quantity of urea arrivals – both regulated and unregulated & track up to district level.
Urea import is allowed only through designated State Trading Enterprises (STEs) like
Mineral and Metal Trading Corporation Limited (MMTC), State Trading Corporation of
India Limited (STC), Indian Potash Limited (IPL) etc.
Even though, P&K fertilizers are free from movement and distribution control, however,
20% of this material is under movement control to service underserved areas. Import of
these fertilizers is under Open General Lisence (OGL) and companies are free to import.
The same holds for raw material such as rock sulfur, phosphoric acid used in the manufacture
of these fertilizers.8
Major challenges facing fertilizer industry
At 15% of GDP of US$ 2 trillion, the value of agriculture produce is around US$ 300
billion. During the last decade, agriculture grew at 2.5-3% per annum. However, for 12th
five year plan (2012-13 to 2016-17), Government has a set a growth target of 4% which
needs to be sustained in future as well.
Urgent Need to Bridge Increasing Demand-supply Gap
In view of ever decreasing land area under cultivation and reduction in average size of
holding, such high growth can be achieved only by substantially increasing productivity of
land. That can come about only through increase in fertilizer use and its efficient
management. But, the Indian fertilizer industry is far from having the requisite capability
to meet this challenge.
During the last one-and-a-half decade or so, hardly any investment has been made for
adding to indigenous urea production capacity. As a result, out of a total demand of 30
8
For a detailed account of how controls on distribution and movement evolved and their nexus with changing
pricing policy and subsidy environment, pl refer to my articles on my website link as under:
http://www.uttamgupta.com/category/fertilizers/distribution-controls/

6
million tons, around 8 million tons is met from imports. Of domestic production of 22
million tons, around 80% or 17 million tons is based on gas. Over 30% of the gas requirement
is met from imported LNG.
In phosphate and potash, acute lack of natural resources leads to high dependence on imports
which makes Indian industry highly vulnerable. Thus, we depend on imports to the extent
of 85-90% in phosphates, 95% in sulphur and 100% in potash. The value of imports –
finished fertilizer and raw materials/intermediates – is a staggering US$ 16 billion
(2012-13).
The high import dependence often leads to our exploitation in international market which
is cartelized by a few suppliers. For instance, during 2012-13, we were paying $ 400 per
ton for MOP. Due to break-up of Russian-Belarus cartel in July, 2013 (it controls 40% of
global potash market), the price dropped to a low of around US$ 320 per ton. But, one is
not sure how long these lower levels will last as efforts are already on to resurrect the
cartel.
Ballooning Subsidy and Under/delayed Payments
From a very modest level of Rs 266 crores in 1977-78, fertilizer subsidy increased to Rs
4389 crores in 1990-91 and by 1998-99 it had crossed Rs 10,000 crore. In another decade
down the line, by 2008-09 it had zoomed to Rs 100,000 crores mark. After some reduction
in following 3 years, during 2012-13, it again crossed Rs 100,000 crores. During 2014-15
too, it is expected to hover around this tantalizing figure.
During the last two-and-a-half decade from 1990-91 to 2014-15, fertilizer subsidy has
increased 25 times. Ironically, this is also the period coinciding with economic reforms
when the government has consistently harped on fiscal consolidation with special emphasis
on reining in subsidies including subsidy on fertilizers. This demonstrates the existence of
a total disconnect between what was preached and what was actually done.
The founding fathers of unit-specific Retention Pricing Scheme (RPS) did not contemplate
such a scenario. They intended the scheme to be a ‘pooling’ mechanism whereby fertilizer
plants whose retention prices (RP) was lower than realization from sale at controlled price
would contribute to pool. Units whose RP was higher would receive money. This was not
just theoretical. During initial years, RP of some plants viz., Gujarat State Fertilizer and
Chemicals (GSFC), Baroda; IFFCO, Kalol; HFC, Namrup were lower than MRP and they
were contributing to pool. This poses an important question which is what factors caused
such problems.
The genesis of the problem lies in steep increase in the price of feedstock/fuel and other
inputs even as the government kept a tight leash on retail price of fertilizers. Between 1981
and 2012, urea price increased from Rs. 2,350 to Rs. 5360 per tonne, or 2.2 times. In
contrast, price of gas went up from Rs0.32 per cubic metre to Rs 8.4 per cubic metre, or 26
times. The price of naphtha went up from around Rs 600 per tonne to Rs 50,000 per tonne,
or 83 times.

7
This led to a widening gulf between cost of production and realisation from sales at controlled
price. Juxtaposed with increasing quantum of production per se, this led to skyrocketing
subsidy. The above mentioned fundamental causes behind increasing subsidy were never
addressed in a credible and consistent manner. Despite this scenario, fiscal compulsions
led the Government to prioritise subsidy reduction.
During last 2 decades or so, mandarins in Finance Ministry have taken recourse to financial
engineering that involved inter alia under-provision in Budget & postponing payments.
Whereas, in 90s, under-provision used to be in Rs. 500–2000 crores range, in first decade
of 21st century and now in to second which runs in to several thousand crores.
In 2008-09, budget allocation was close to Rs. 50,000 crores short of requirement. In
2011-12, under-provision was around Rs 17,000 crores. In 2012-13, this doubled to Rs
32,000 crores and in 2013-14, this was around Rs. 38,000 crores. For 2014-15, interim
budget has allocated Rs. 68,000 crores. After meeting roll-over from previous year, only
Rs 30,000 crores will be left barely adequate to cover payment for three months till June
2014.
Under-provision leads to suspension of payments, liquidity crunch and pushes plants to
brink of closure. In 90s, manufacturers faced suspension in last quarter of a fiscal. Now,
this happens much earlier e.g., from start of second quarter. Given government’s continuing
obsession with fiscal deficit red lines, under-provisioning for subsidy will continue to
dominate the policy narrative.9
Increasing Imbalance in Fertilizer Use
In order to get maximum crop yield from fertilizer use and yet, maintaining soil health it is
imperative that farmer applies all the 3 major nutrients Nitrogen (N), Phosphorus (P) and
Potassium (K) in the right mix. As a rule of thumb, agronomists recommend their use in a
ratio of 4:2:1; ideally it has to be customized to soil and crop specific situations.
Unfortunately, by making fertilizers carrying P & K very expensive and urea - main source
of N - artificially cheap, government policies have led farmers to apply excess of N and
less of P & K. That led to increasing imbalance and the ratio at one point had gone up to
8.5:3.1:1 (1998-99). The current ratio at 8.2:3.2:1 (2012-13) remains heavily imbalanced.
All along, urea has been treated as a holy cow. In 1992, when, P and K fertilisers were de-
controlled, urea was not. The latter remained under RPS, which has since been rechristened
as NPS. For two decades, we have lived with different policy dispensations for urea on one
hand, and P & K fertilisers on the other. These work at cross purposes. While NPS/RPS for
urea encourages excessive use, NBS for P and K discourages their use.
9
For insights in to how obsession with fiscal consolidation per se has led to shortfall in allocation for
fertilizer subsidy and financial squeeze on industry, pl refer to my articles on my website link as under:
http://www.uttamgupta.com/category/economic-outlook/fiscal-deficitsubsidies/
http://www.uttamgupta.com/fertilizers/fertilizer-bonds-a-manifestation-of-deeper-malaise/

8
This has skewed NPK fertiliser-use ratio towards urea, therefore progressively worsening
the overall soil nutrient imbalances and also effecting crop yields. However there seems to
be a lack of remedial action in this respect.
An Empowered Group of Ministers (eGoM) had earlier recommended deregulating urea
prices and bringing it under the nutrient-based subsidy (NBS) regime. A Committee of
Secretaries (CoS) was, then, asked to work out the modalities of the plan, which is now
practically shelved.
Due to continued dithering over coverage of urea under NBS and its MRP virtually frozen,
NBS for P&K fertilizers which was hailed as a revolutionary reform has boomeranged.
This is due to government’s stance of either drastically reducing subsidy on P&K fertilizers
or at best keeping it unchanged. This has spiked their prices 3-4 times since 2010 even as
urea MRPincreased by meagre 10 per cent. This has aggravated farmer’s preference towards
urea due to resultant imbalance in price ratio.10
Shortage of Gas and its High Price
Gas is the predominant feedstock in production of fertilizers in India. Gas based plants
account for about 80% of total urea production capacity of 22 million tons. Fertilisers get
top priority in gas allocation. LPG is at number two and power gets the third slot. These
priorities were reiterated by empowered group of ministers (eGoM) in its meeting held in
July, 2013.
Yet, requirements of fertiliser plants are far from fully covered. Against requirement of 42
million standard cubic meter per day (mmscmd), they get 31 mmscmd including 15 mmscmd
from KG-D6 fields operated by Reliance Industries (RIL) and 16 mmscmd from ONGC/
OIL. The balance 11 mmscmd is met from imported LNG (liquefied natural gas).
Under a policy directive from the government, in 2012-13, five fuel-oil and naphtha-based
plants were restructured and switched over to gas. They need 5 mmscmd, thus increasing
the uncovered gap to 16 mmscmd. This much gas which represents about 30% of requirement
is met from imported LNG. The situation is likely to deteriorate in years ahead.
As regards price, prior to 2007 fertilizer manufacturers were getting gas from ONGC/OIL
under administered price mechanism (APM) at basic price of US$ 2.5 per million Btu
(British thermal unit) plus marketing margin, transport charges, taxes and duties. In 2007,
eGoM while approving a price of US$ 4.2 per mBtu chargeable on supplies from KG-D6,
recommended that this be made applicable on supplies from ONGC/OIL as well.
Meanwhile, based on recommendations of Dr. Rangarajan Committee in June 2013, the
government approved a new structure of gas pricing that would result in doubling of price
to US$ 8.4 per mBtu from April 1, 2014. This was despite strong opposition from fertilizer
department (besides power) who brought out serious implications of hike. This will increase
10
For an analysis of fertilizer policies moving in opposite directions and implications for imbalance in
fertilizer use, pl refer to my article on my website link as under:
http://www.uttamgupta.com/fertilizers/fertilisers-policies-pull-in-opposite-directions

9
urea subsidy by about Rs. 10,400 crores annually.
A Parliament’s Standing Committee (PSC) in its August, 2013 report had also strongly
objected to cabinet decision. The committee wanted government to re-consider Rangarajan
formula taking in to account cost of production approach. Yet, new pricing guidelines were
notified on Jan 10, 2014. However, their implementation has been kept on hold in view of
general elections and model code of conduct till May 16, 2014. The matter is now active
consideration of present NDA government.
Meanwhile, in the Gas Sales Purchase Agreement (GSPA) for supplies from KG-D6,
Reliance Industries Limited (RIL) has proposed that government fixed rate will be charged
on Gross Calorific Value (GCV) basis instead of current practice of charging on Net Calorific
Value (NCV). It also moots marketing margin of US$ 0.135 per mBtu on GCV basis. Thus,
fertilizer units will have to pay US$ 0.935 per mBtu extra on account of switch from NCV
to GCV. This will increase subsidy by another around Rs 2600 crores annually.11
ADDRESSING THE CHALLENGES & WAY FORWARD
Need for a long-term and stable policy for urea
Growth of fertilizer industry in India at the desired pace is hamstrung due to lack of a
conducive, long-term and stable policy. Way back in 2000, the Expenditure Reforms
Commission (ERC) had given a road map for wholesome reforms of fertilizers sector.
Beginning 2001-02, implementation of ERC recommendations would have led to full
decontrol by 2005-06 with proviso for subsidy to be given directly to the poor small and
marginal farmers.
The road map envisaged a complete overhauling of the structure of fertilizer industry in a
calibrated manner to include inter alia gradual increase in MRP of urea to eventually attain
a level at which domestic manufacturers could compete with imported urea; pricing of
feedstock on Import Parity Basis (IPP); switch-over of all Naphtha and fuel oil based plants
to gas and removal movement and distribution controls.
Unfortunately, none of the proposed changes have seen fruition. In the last 12 years, Urea
MRP was increased only once inApril 2010 that too by mere 10%. Currently, at an abysmal
low of Rs. 5360 per ton, the price is less than half the production cost of most efficient gas
based unit and less than one-fourth cost of imported urea. The cost of some naphtha based
plants is nearly 8 times the MRP.
While, introduction of New Pricing Scheme (NPS) in 2003 was intended to be a precursor
to uniform pricing, the reality is even today each of 30 operating units gets a specific price.
NPS is a new incarnation of erstwhile unit-wise RPS. Urea Investment Policy (UIP)
reinforces this trend by prescribing different price bands for various categories of investment
viz., new Greenfield; revamp of existing plants; revival of FCI/HFC sick plants; brown-
11
For a comprehensive account of changes in structure and methodology of gas pricing and implications
for fertilizer subsidy, pl refer to my articles on my website link as under:-
http://www.uttamgupta.com/category/oil-gas/

10
field projects.
The current highly segmented and differentiated approach to pricing of urea must give way
to uniform pricing. The government should implement without further delay the eGoM
recommendation for NBS for urea on same lines as for P&K fertilizers. Thus, all units will
be entitled to a uniform subsidy on per kg N benchmarked to import parity price (IPP) of
urea. As for P&K, urea manufacturers will be free to fix the MRP.
Once NBS is in place, much of the incentives to target different segments will eventually
disappear. We will have ‘certainty’of policy environment thus enabling big-ticket investment
in capacity creation and reduced dependence on imports. Additional benefits will flow by
way of reduction in cost, huge saving in subsidy and enhanced efficiency of fertilizer use
by farmers.
There is no need for a separate new Urea Investment Policy (UIP). All manufacturing units
should be governed by the same policy dispensation. Even so, an earlier version of UIP that
came in 2008 with more or less similar contours as present policy failed to enthuse investors.
The latter too has not generated much interest despite being on the table for over 2 years
now.
The real reason for lack of investor interest is continuing uncertainty of the policy
environment, acute shortage of domestic gas and its high price and substantial under-
provisioning for subsidy resulting in delayed payments and even under-payments. If these
are addressed then, there won’t be any need for special packages to attract fresh investment.12
Need to Streamline Policy for P&K Fertilizers
The biggest stumbling block in the way of promoting balanced fertilizer use thus far, has
been different policy dispensations for decontrolled P&K fertilizers and urea working at
cross-purposes with each other. The adoption of NBS for urea on the same lines as for
P&K will remove this glaring anomaly.
However, this fundamental change in policy by itself will not generate required impulses
for reducing imbalance. The government needs to follow it up by adjusting subsidy on urea
in a manner such that the ratio of DAP/complex price to urea and MOP to urea is brought
down to reasonable levels from the current high of 3.5 times and 3 times respectively.
Ever since NBS for decontrolled P & K fertilizers was introduced 4 years ago, a number of
anomalies have crept in its implementation. The biggest irritant is fixation of so called
‘reasonable’ MRP, requiring manufacturers to submit cost data, identifying potential
deviations from these benchmarks and penalizing them by denial of subsidy etc. This
tantamount to resurrection of control on these fertilizers through the backdoor.
The real merit of NBS was that it allowed flexibility to manufacturers to set prices which
was taken away vide the DoF office memorandum of June, 2013. While, this may have
12
For details on how NBS for urea will help attract investment, reduce imbalance in fertilizer use and rein
in subsidy, pl refer to my article on my website link as under:
http://www.uttamgupta.com/fertilizers/urea-pricing-government-must-walk-the-talk/

11
been prompted by some fall guys charging more than an amount justified by reasonable
cost, they can to be punished through market forces. Government can also do necessary
surveillance, call for details from those found over-charging and penalize them instead of
subjecting the entire industry to avoidable harassment.
The government should shed its current mind-set of cutting corners merely to save some
subsidy here and there. Whenever, there is drop in international price, the subsidy amount
is cut. Considering that already the retail prices of P& K fertilizers are at an elevated level,
the government should as a matter of utmost caution not reduce subsidy and allow the
benefit of reduction in international price or rupee appreciation etc to be passed on to
farmers through reduction in MRP.13
Right Pricing of Domestic Gas and Ensuring Adequate Supply
For arriving at price applicable to all domestic gas, Rangarajan formula takes average of
hub prices in USA and Europe and further averages these with net-back price of imported
Liquefied Natural Gas (LNG) in to India. The new price – to be revised quarterly – is
expected to be US$ 8.2-8.4 per mBtu. The formula is disingenuous.
Due to tight global demand-supply balance and India’s heavy dependence on import, current
LNG prices are exploitative. Net-back from its supplies to India and Japan is way above
US$ 10 per mBtu. Since, two sets are clubbed; formula leads to steep increase in price to
US$ 8.4 per mBtu. True, domestic production needs to be incentivized. But, to argue this
will come only by giving operators today’s extortion price is not tenable.
Much of global trade in gas takes place at hub prices. These prices are reasonable and
adequately protect supplier’s interest? On the other hand, price of imported LNG is an
aberration and must not be included for determining producer’s price in India.
The oil minister, Mr Veerappa Moily recently opined ‘if US$ 8.4 per mBtu is not granted,
domestic production will not increase and we would continue to import LNG at US$ 16
plus’. This seems to be an alarmist remark. It poses a deep conundrum and puts the decision
maker in a catch – 22 situation.
In June, 2013 meeting of the Cabinet, fertilizer and power ministers had strongly opposed
the steep hike. Later, Finance Minister had promised to give concession to both sectors.
There seems to been no credible explanation for increasing price, especially when these
two use nearly 75% of domestic gas consumption.
Rangarajan formula based price is also out of sync with prevailing prices in other countries
viz., US$ 2.6 per mBtu in Russia; US$ 3.5-4 per mBtu in USA and US$ 1.5 per mBtu in
UAE.
Other principle is production cost plus reasonable return. For domestic gas supplies from
13
For insights in to how DoF memorandum of June, 2013 has meant virtual return of license raj for
decontrolled P&K fertilizers, pl refer to my article on my website link as under:-
http://www.uttamgupta.com/fertilizers/fertilisers-back-to-the-licence-raj/

12
ONGC/OIL, this was used for determining producer price as per Kelkar formula till 2007
but abandoned thereafter. Even PSC had asked government to re-consider its decision and
examine cost of production. In this regard, a close look at some facts is in order.
Initially, oil ministry/DGH had approved capital expenditure of US$ 2.4 billion for 40
mmscmd in 2004. In 2007, this was hiked to US$ 8.8 billion for enhanced output 80 mmscmd.
In 2011, this was reduced to US$ 5.6 billion. 1 mmscmd equals 10,000 million kcl. @ US$
1 per mBtu or US$ 4 per mKcl (4 mBtu=1 mkcl), value of 1 mmscmd is US$ 40,000 or 0.04
million. This will yield US$ 14.6 million annually (.04×365). If, fields produce 80 mmscmd
– as committed under PSC – total revenue would be US$ 1168 million (14.6×80).
Even at US$ 1 per mBtu, entire US$ 5.6 billion could be recovered in less than 5 years
(5600/1168) (production commenced in 2009). Though, actual production was less than 80
mmscmd, outcome would be even better as price allowed was more than 4 times at US$ 4.2
per mBtu. In this backdrop, and entire investment already fully amortized, even if price is
retained at US$ 4.2 per mBtu, operator would make handsome profits.
Clearly, structure of gas pricing that UPA government wanted to put in place is flawed. It
neither adopts market based principle nor follows global benchmark. And, it does not
consider cost of production approach. A viable pricing system must reconcile concerns of
both producers and users.
Whether, one considers global benchmarking or production cost, there is no justification
for increasing gas price beyond the current level of US$ 4.2 per mBtu. Further, in line with
the practice followed all along, the price must continue to be on NCV basis (instead of
GCV propounded by RIL).
The new government should take all necessary steps including removal of all regulatory
hurdles to ensure availability of sufficient quantity of domestic gas to fully meet the
requirements of the fertilizer industry.14
Reining in Subsidy and Reforming Payments System
Subsidy depends primarily on cost of feedstock/fuel and other raw materials on one hand
and selling price of fertilizers on the other. Since, gas is the predominant feedstock in urea
production, if only its price can be fixed at reasonable level and availability of domestic
gas assured in full at this price, that will make a huge dent on subsidy. Besides, bringing up
urea MRP under NBS can also yield substantial saving.
At present, imported urea comes at a much higher price than cost of domestic production
from gas based plants at prevailing price of US$ 4.2 per mBtu. This is testified by the fact
that on import of around 8 million ton annually which is nearly one-third of domestic
14
For insights in to the flaws in methodology adopted for pricing of gas and logic for retaining price
at existing level, pl refer to my articles on my website link as under:
http://www.uttamgupta.com/oil-gas/gas-pricing-plunder-camouflaged-incentive/
http://www.uttamgupta.com/fertilizers/rilbpniko-exploit-fault-line-rangarajan-formula-bonanza/
http://www.uttamgupta.com/oil-gas/debate-should-gas-prices-be-raised-as-per-rangarajan-plan/
http://www.uttamgupta.com/oil-gas/kg-d6-gas-fiasco-defending-indefensible

13
production of 22 million tons, the subsidy outgo is more or less the same. Consequently,
giving a boost to domestic production based on reasonable gas cost will further reduce
subsidy.
Government should make adequate provision in the budget to ensure timely payment of
subsidy dues in full to the manufacturers. The practice of deferring substantial amounts
year-after-year, issue of bonds in lieu of subsidy or manufacturers being asked to take
loans from banks under so called ‘special banking arrangement’ must be shunned. These
subject them to avoidable huge losses through discounted sale of bonds or interest cost.
The election manifesto of Bharatiya Janata Party (BJP) promises to bring about a
fundamental change in the way subsidies henceforth will be administered.This is abundantly
clear from its focus on ‘DELIVERY’ instead of ‘Doles’, a hallmark of erstwhile UPA
regime.
Instead of the current approach of giving subsidy through fertilizer manufacturers to lower
retail prices to farmers – which distorts markets, throttles competition, prone to leakages/
misuse and breeds inefficiencies – the government may consider the possibility of giving
money directly to farmers.
This will be a revolutionary reform that will change the fertilizer landscape - all its segments
N, P & K – in a way to yield rich dividends for all stakeholders viz., farmers, industry, tax
payer etc.
In 2012- 2013, government had promised to cover fertilizers under its direct benefit transfer
(DBT) scheme and also done a trial run in 10 districts. Even the IT-enabled infrastructure
for tracking movement of fertilizers up to the farmers level is in place. This project must be
scaled up soon.15
Joint Ventures in Countries well endowed with resources for Fertilizer Production
with Buy-back Agreement
Efforts to increase domestic production capacity using indigenous feedstock need to be
supplemented by supply of urea from joint ventures (JV) set up in countries with abundant
reserves of gas and where gas is priced much cheap.
We need to build on the success of the JV in Oman where IFFCO and KRIBHCO are equal
equity partners with Oman Oil Company (OOC).
Since, such JVs will be accompanied by buy-back agreement to bring production to India,
implications with regard to compliance with our obligations under WTO need to be carefully
analysed. The government should come up with a concept paper to guide appropriate course
of action by stakeholders in both public and private sector to explore such opportunities.
15
For insights in to the dynamics of how a scheme of direct benefit transfer would work, its positives and
government’s stance, pl refer to my articles on my website link as under:
http://www.uttamgupta.com/agriculture-foodgrain/cash-transfers-food-for-thought/
http://www.uttamgupta.com/fertilizers/lets-not-delay-direct-cash-transfer-of-subsidy/

14
Considering the vulnerabilities in P&K segment where India depends on import to the
extent of 85-90% in phosphate and 100% in potash, government should also encourage
setting up of JVs in countries where raw materials are available in abundance.16
16
For insights in to the issues that need to be addressed for bringing fertilizers from JV under buy-back
agreement in the context of India’s commitment under WTO, pl refer to my article on my website link as
under:
http://www.uttamgupta.com/wp-content/uploads/2013/05/Joint-venture-urea-project-in-Oman-Buyback-
agreement-needs-a-fresh-look.pdf

15
Daman Prakash Special Article
“Investments in agriculture are important to increase food security. The channels
are complex and multiple. Rising productivity increases rural incomes and lowers
food prices, making food more accessible to the poor. Other investments, such as,
improved irrigation and drought-tolerant crops, reduce prices and income variability
by mitigating the impact of a drought. Productivity gains are key to food security in
countries with foreign exchange shortages or limited infrastructure to import food.”
– World Bank Development Report 2008.
Abstract
Cooperatives have played an important role in agriculture in developing countries the
Asia- Pacific Region. Voluntary associations like cooperatives and farmer organizations
have helped small and marginal farmers to gain access to technology, market. This paper
attempts to explore the role of cooperatives and farmer organizations in boosting the food
and nutrition security of the rural poor in Asia-Pacific Region.
Background
The Asia-Pacific Region accounts for nearly half the world’s population. India and China
together are home to over 75% of the Region’s population. A majority of people in Asia
depends upon land and agriculture for their livelihood.
Agriculture continues to be the engine of economic growth in most developing countries of
the Region. The success of the Green Revolution was experienced in severalAsian countries
where the rapid adoption of modern agricultural technology resulted in dramatic gains in
productivity. However, despite significant achievements in food production, problems of
food and nutrition security, poverty alleviation and regional imbalances still persist.
1
Dr Daman Prakash is the Director of Rural Development and Management Centre. Previously worked as
Senior Consultant with the IFFCO Foundation. Served the International Cooperative Alliance-Regional
Office for Asia and the Pacific [ICA ROAP] since 1962 in various capacities and retired in 2002 as its
Director. Served in Indonesia as Chief Technical Advisor of the ILO/UNDP and ILO/SWISS Projects on
Rural Cooperatives [KUD] Management Development, Training and Education [1981-88]; Served in Sri
Lanka as Senior Consultant to the ICA/Swedish Cooperative Teachers’ Training Project [1978-81]; He
has been awarded “Life-Time Achievement Award in Cooperatives-2012” by the World Peace Research
and Development Foundation, and “National Award on Cooperation” by Bhutti Weavers’ Cooperative
Society, and National Award by Government and Cooperative Movement of Nepal-March 2014. He can
be contacted at damanprakash@yahoo.co.in, and, damanprakash01@gmail.com
The Role of Farmers’ Organisations and Cooperatives in Food
and Nutrition Security of Rural Poor in Asia-Pacific*
Dr Daman Prakash1
Senior Consultant, NEDAC

16
Experience shows [especially from the Japanese and Korean agricultural sector] that the
strength of small farmers lies in group mobilisation for meeting diverse agricultural needs
including land leasing, accessing inputs, pooling resources, sharing information, agro-
processing/marketing of produce and above all credit and thrift groups for consumption
and production loans.
Dependence on Agriculture
Agriculture plays a significant role in national economies and a considerably large number
of people depend on agriculture. In 2008, for instance, 66.8% of the total land was under
agriculture in Bangladesh, 56.9% in the case of India while only 12.7% was the case in
Japan. In China also just 13.1% of the total land was under agriculture. On an average
15.9% of the total land was under agriculture in Asia-Pacific region. 58% of agricultural
land was irrigation in the case of Bangladesh, 54.4% in Japan and the lowest, 14.8% was in
the case of the Philippines. On an average 37.9% of agricultural land was under irrigation
in the Region, which has improved from 32.6% in 1998. 93% of the national population in
Nepal was involved in agriculture, 62% in China and just 2.4% in the case of Japan. The
regional average was 49.8% in 2008 as against 55.1% in the year 1998 which indicates that
more people were moving out of agriculture. As to the status of agricultural production
indices in Asia during 1998-2008, 3.9% was the highest in Bangladesh [moving from 84%
to 135 in 2008 index], 3.7% in the Philippines [moving from 89 in 1998 to 132 index in the
year 2008] while the regional index was 3.0% growth.
As to key commodity food grains [wheat and paddy rice] there has been a steady growth in
the region. Wheat production has gone up considerably. However, the regional production
has been just 0.8% growth in wheat. In the case of paddy rice, there has been a considerably
growth in the case of the Philippines [5.2% during the period 1998-2008]. While Bangladesh
achieved 3.3% growth, the regional average has been 1.3%. The increase in the production
of paddy rice in 3.1% in Thailand, 2.7% in Sri Lanka and just -0.6% in Japan.
Source: World Development Report-2008. World Bank. “Agriculture for Development”
Table-1 : Percentage of Population below the Poverty Line
Country Year Rural Urban National
Bangladesh 2000 53.0 36.6 49.8
China 1998 4.6 <2 4.6
India 1999-00 30.2 24.7 28.6
Japan - - - -
Nepal 2003-04 34.6 9.6 30.9
Philippines 1997 50.7 21.5 36.8
Sri Lanka 1995-96 27.0 15.0 25.0
Thailand 1998 - - 13.6

17
Table-III: Population, Annual Growth and Density of People per Sq Km
Country
Population
Million 2006
Av Annual % Growth
2000-06
Density per Sq. Km.
2006
Bangladesh 144 1.9 1,109
China 1,312 0.6 141
India 1,110 1.5 373
Japan 128 0.1 350
Nepal 28 2.1 193
Philippines 85 1.8 284
Sri Lanka 20 0.4 306
Thailand 65 0.9 127
Country
Total. Million
2003-2005
Av. Annual % Growth
1990-2005
% of total Population
2003-2005
Bangladesh 104.8 1.6 75.3
China 784.5 -0.4 60.5
India 771.9 1.4 71.5
Japan 43.8 -0.3 34.3
Nepal 22.5 1.8 84.7
Philippines 31.1 -0.1 38.1
Sri Lanka 16.5 1.1 84.8
Thailand 43.3 0.8 67.9
Table-IV: Exports-Imports
Country
Exports
US$ M.2006
Imports
US$ M.2006
FDI
US$ M.2005
External Debt
US$ M.2005
Bangladesh 12,050 16,100 802 18,935
China 969,073 791,614 79,127 281,612
India 120,168 174,376 6,598 123,123
Japan 647,137 577,472 3,214 -
Nepal 760 2,100 2 3,285
Philippines 47,028 51,980 1,132 61,527
Sri Lanka 6,860 10,226 272 11,444
Thailand 130,575 128,600 4,527 52,266

18
Table-V : Arable Land and Permanent Cropland and Hectare per
Capita Agricultural Population
Country
Arable Land &
Permanent Cropland
1000 ha.
Ha. per capita [agri.
population]
2003-04
Year
Bangladesh 8,417 0.1 1996
China 115,632 0.1 2004
India 169,583 0.3 1991
Japan 4,714 1.2 1995
Nepal 2,484 0.1 2002
Philippines 10,700 0.4 2002
Sri Lanka 1,916 0.2 NA
Thailand 17,687 0.6 1993
A look at the analysis made by the World Bank on some of the countries in the Region
shows that 49.8% of the national population of Bangladesh lives below the poverty-line,
followed by the Philippines [30.9%], Nepal [30.9%], India [28.6%], Sri Lanka [25.0%]
Thailand [13.6%] and China [4.6%], [see Table-I].
Table-II indicates the percentage of rural population of the national population [2003-
2005]. The highest %age of rural population is in Sri Lanka [84.8%], followed by Nepal
[84.7%], Bangladesh [75.3%], India [71.5%], Thailand [67.9%], China [60.5%], the
Philippines [38.1%] and Japan [34.3%].
During 2006, the density of population per sq km was the highest in Bangladesh [1109
with an annual growth rate of 1.9%], followed by India [373 with annual growth rate of
1.5%], Japan [350 with growth rate3 of 0.1%], Sri Lanka [306 with the growth rate of
0.4%], the Philippines [284 with growth rate of 1.8%], Nepal [193 with the growth rate of
2.1%], China [141 with a growth rate of 0.6%], Thailand [127 with growth rate of 0.9%].
See Table-III.
The figures go to affirm and confirm that a large number of rural populace needs to be
taken care of in issues relating to food security. The population is on the rise while the
production and productivity remain static or showing downward trends on account of high
level of urbanization. It has also been observed that a fewer number of younger people get
into the farming business.
Need for Enhancing Agricultural Production
In the developing countries, food production has to increase by 100 per cent. The challenge
is tremendous in terms of doubling food production under existing constraints such as
changing climate conditions, degradation of land, scarcity of natural resources, as well as
lack of infrastructure and financing, urban migration, ageing farming population, and
changing dietary habits and food consumption.

19
Nearly 70 per cent of the world’s total poor were living in the South and South Asian
countries. In all the countries population grew rapidly during the second half of the century.
These countries faced acute shortages of food during the early ‘sixties and early `seventies
and were the focus of world attention due to frequent occurrence of food shortages. These
shortages were met by the large food imports through food aid or otherwise.
With only a few exceptions by the mid ‘eighties most of these countries succeeded in
recording significant increases in their food production through the widespread adoption
of new seed-fertilizer technology and none of these faced serious food shortages by the
type experienced by them during the earlier period. Despite these successes, these countries
face some formidable problems in the matter of providing adequate and stable food security
to their people.
Possible Roadblocks in overcoming Food Insecurity
Some of the steps which need to be taken care of are the following:
- First, despite satisfactory trend rates of growth, the per capita food and calorie
availability remains highly inadequate in most of the countries;
- Second, these countries have not been able to find an appropriate solution to the
problem of wide year to year fluctuations in their food output. Carrying of large reserves
practiced by China and India is quite costly;
- Third, despite higher growth rates achieved in food production, these countries have
not been able to devise fool proof mechanisms for providing access to food to a large
number of poor who live in these countries. Most of these countries have initiated
special employment and income-generating programmes for improving the purchasing
power of the rural and urban poor. Nevertheless, the problem of malnutrition remains
serious;
- The fourth serious problem is that in spite of higher production; many of these countries
had to import large quantities of food grains over the years. China, Malaysia and
Indonesia have been importing food. The surpluses originating in the region are not
sufficient to meet the import demand of some of the rapidly growing Asian countries;
- Fifth, rising import and domestic prices of food grains are bound to adversely affect
the poor and vulnerable sections in these countries;
- Sixth, currently many of these countries including China and India are undergoing a
process of economic liberslisation. Liberalisation is aimed at integrating the domestic
economies with the world economies; and
- Finally, there is much greater scope for collaboration among the Asian countries in
the matter of food security.
Massive Investment in Agriculture Needed
Developing countries need to double the food production by 2050 in order to feed the
growing population. According to the Director-General of FAO, “A production increase of
this magnitude will require the developing world alone to invest over 200 billion US dollars

20
per year in agriculture till 2050, of which almost 120 billion US dollars would have to be
invested in the Asia-Pacific Region alone”. Raising agricultural productivity can be done
by improving crop management, expanding the use of modern varieties, strengthening rural
infrastructure and improving post-harvest technologies.
According to the Asian Development Bank [ADB], the Asia-Pacific region is home to the
largest number of poor, and is one of the most vulnerable regions against the impacts of
climate change and economic shocks. The region is also the largest supplier and consumer
of food. It is home to a dynamic food and agriculture industry that is providing an increasing
range of affordable food products. Thus, what the region does for its food security will
resonate around the world.
Given the complex nature of these challenges, the key factors that enable or disable food
security can be addressed through an increased level of collaboration, harmonization and
action by governments, the private sector including the academic and the civil society
organisations, particularly the small farmers. Moreover in Asia, millions of small farmers
and their families remain poor and malnourished and they continually have to contend with
low yield, difficult access to credit, high costs of inputs, low prices for their products, and
comparatively little support from their governments, not to mention typhoons, floods and
other natural calamities.
A broad and well-considered framework has already been laid down under the United
Nations Millennium Development Goals. [see Annexe-I].
Improving agricultural productivity to benefit the rural poor: There are strong, direct
relationships between agricultural productivity, hunger, poverty, and sustainability. Growing
sufficient food will require people to make changes such as increasing productivity in
areas dependent on rainfed agriculture; improving soil fertility management; expanding
cropped areas; investing in irrigation; conducting agricultural trade between countries; and
reducing gross food demand by influencing diets and reducing post-harvest losses.
The UN Millennium Development Goals are one of the initiatives aimed at achieving food
security in the world. In its list of goals, the first Millennium Development Goal states that
the UN “is to eradicate extreme hunger and poverty”, and that “agricultural productivity is
likely to play a key role in this if it is to be reached on time”. “Of the eight Millennium
Development Goals, eradicating extreme hunger and poverty depends on agriculture the
most.
It is recognized that cooperatives and producer organisations are key partners in ending
hunger and poverty. More and more farmers are getting organized to enable them to have
economies of scale in the market and get better access to agricultural support services such
as information, communication, input and output markets, natural resources, from local to
international levels.
Strong cooperatives and other producer organisations are able to overcome many of the
obvious difficulties faced by them. Cooperatives have the advantage of the total support
from their members. Cooperative organisations are autonomous and democratically
managed. Cooperatives, especially the agricultural cooperatives offer a variety of services.

21
Members participate in the process of decision-making. They are the owners and managers
of their own institutions.
Role of Cooperatives and Farmers’ Organisations
in Food Security and Livelihood
Cooperatives are present in all countries and all sectors, including agriculture, food, finance,
health care, marketing, insurance and credit. It is estimated that one billion individuals are
members of cooperatives worldwide, generating more than 100 billion jobs around the
world. Agricultural and food cooperatives are already a major tool against poverty and
hunger.
Cooperatives in the Asia-Pacific Region are the main players in the chain of food security
and livelihood [Figure-I]:
Figure-I: Cooperatives as main players in the chain of
Food Security and Livelihood
FARMER-PRODUCERS
Food Processors
National Agricultural Marketing Federation
National Food Stocks
Food Procurement CentresPrimary Agricultural Cooperative Society
State Agricultural Marketing Federations
District Marketing Federations
Consumers
The farmer-producer, as a member of the agricultural cooperative, sells his products e.g.,
wheat, rice, fruits and vegetables, to his cooperative society. The agricultural cooperative
sells the products to two channels – one to the marketing federations, and the other to the
national food stock agencies. The national food agencies supply the products to the market
and food processors which distribute the final products to the consumers. Cooperatives are
the main players in food chain and a sure factor in maintaining food prices.
Cooperatives being member-owned, member-managed democratic and autonomous socio-
economic organisations are better placed to provide all kinds of services to their members.
A number of examples from the Asia-Pacific Region can safely be cited which go to prove
that agricultural cooperatives, on their own and in concert with their respective governments,
have been playing a significant role in providing food security and livelihood of farming
community in the Region. Even in economically-developed countries like Japan, agricultural
cooperatives contribute to the wellbeing of member-farmers. Agricultural cooperatives or
farmers’organisations are the sure rallying institutions for the members at the village level.

22
Cooperatives – Pillars of Agricultural Development and Food Security
Agriculture, including farming, forestry, fisheries and livestock, is the main source of
employment and income in rural areas, where the majority of the world’s poor and hungry
people live.Agricultural cooperatives play an important role in supporting men and women
small agricultural producers and marginalized groups by creating sustainable rural
employment.
Producer cooperatives offer men and women smallholders market opportunities, and provide
them with services such as better training in natural resource management, and better access
to information, technologies, innovations and extension services. In several countries, FAO
provides quality seeds and fertilizers to farmers and agricultural cooperatives and works
with them in applying more suitable and productive farming practices.
Initiatives in ensuring Nutritional Security
Three significant examples can be citied in this connection.
[I] Cooperative Vocational Groups as a means to ensure Food and Social Security –
Experiences of Thailand
A number of methods are employed in various countries to empower people, especially
women belonging to cooperatives, to enhance their food and social security. Agricultural
cooperatives in Thailand have undertaken a bold step in promoting an integrated initiative
under the banner ‘One Village One Product’[OTOP]. The agricultural cooperatives provide
guidance and technical support to their women members to undertake economic activities
to enhance to improve their social and economic security and status.
What is ‘One-Village One-Product’?: “One-Village-One-Product” [in Thailand it is called
‘One-Tambun One-Product-OTOP] [Tambun means a village in Thai language] concept of
Japan is worth a mention. The concept, after its successful implementation in Japan, has
been adopted by various countries in the Region with appropriate modifications e.g., China,
Indonesia, Malaysia, Philippines, Thailand and the United States. The guiding principles
of the Movement are: [i] Going local yet global; [ii] Independence and Creativity; and [iii]
‘One Village-One Product’ movement as a human resources development activity.
Logic of the Concept: The logic is straightforward. The main aim is rural development
and job creation through financial, technical and marketing assistance; Encourage
specialisation and brand development by partnering community skills with modern business
practices; Use new technology and the Internet to link small producers with consumers;
Economic development from the community level upward.
Business Development: Under the concept, community groups are encouraged to devise
their own product ideas for development into business plans with due consideration to the
following factors:
- Financial support can come from state development banks, private venture capital, or
government’s own rural development projects, or from cooperatives and their
federations and banks;

23
- Duplication in products is inevitable – there can be as many products as there are
villages;
- In marketing facilitation government support is crucial;
- Products sampling: Varieties of fruits and vegetables; handicrafts, clothing, farm
products, pickles, fish, ornamental plants;
- Focus on all local consumers. Markets abroad, Linkages with tourist industry and
bulk users/consumers;
- Reacting buyers will depend on heavy state support to promote goods, given the limited
resources available for community groups and start-up enterprises to spend on
marketing and advertising;
- Caution: Encourage countries to shift their resources away from low-selling products
to those offering more promising opportunities; and
- An area known for producing high quality lime, for instance, might first look to develop
food stuffs taking advantage of the local produce. But if good failed to sell, the
community might consider shifting to leatherwear or woven baskets to tap consumer
demand.
What is important under the programme [concept] is having communities learning about
joining and cooperating together about fostering an entrepreneurial spirit among people
who wish to better their income potential. While some might fail, others could develop into
full-blown small and medium-size enterprises. The logic is: create wealth from locally-
available products to be inducted in generating additional income for food and social security.
[II] World’s Largest Food Security Programme of India
Around 30% of India’s population lives under the poverty line. This means that 4 out of 10
people have to struggle for even two secure meals a day. The Government of India has
taken a huge initiative towards reducing this discrimination and at the same time addressing
the unfortunate issue of malnutrition amongst children.
The Food Security Legislation, enacted by the Parliament in September 2013, proposes to
cover 75% people in rural areas and 50% in urban areas. It guarantees at least 25 kgs of
subsidised grains to every family of five members, covering in all 67% of India’s population.
This is seen as a major poverty eradication programme aimed at the same time towards
reducing massive malnutrition in Below Poverty Line [BPL] families.
The Food Security Act is the biggest such programme in the world with the government
spending an estimated Rs 125,000 crore annually. This will provide a supply of about 62
million tonnes of rice, wheat and other coarse cereals to the target population. The Act is
seen as a timely step towards insulating a large segment of the population from rising
inflation particularly sky-rocketing prices of food grains and vegetables.
Crisil a reputed rating agency in India known for its reliable financial analysis, research
and forecasts indicates that the food security legislation would generate additional savings
of around Rs. 4,400 crore a year for BPL household, on purchasing subsidised food.

24
On another positive note the step will push huge investments in storage and transportation
sectors for putting in place a commensurate infrastructure through the length and breadth
of the country. It is also seen as a step towards infusing greater participation of agricultural
cooperatives in erecting appropriate channels for warehousing, distribution and
transportation.
[III] United Nations International Year of Family Farming-2014
-A means to ensure food security at the local level
The 2014 International Year of Family Farming [IYFF] aims to raise the profile of family
farming and smallholder farming by focusing world attention on its significant role in
eradicating hunger and poverty, providing food security and nutrition, improving livelihood,
managing natural resources, protecting the environment, and achieving sustainable
development, in particular, in rural areas.
The goal of the 2014 IYFF is to reposition family farming at the centre of agriculture,
environmental and social policies in the national agendas by identifying gaps and
opportunities to promote a shift towards a more equal and balanced development. The
2014 IYFF will promote broad discussion and cooperation at the national, regional and
global levels to increase awareness and understanding of the challenges faced by
smallholders and help identify efficient ways to support family farmers.
What is Family Farming? Family farming includes all family-based agricultural activities
and it is linked to several areas of the rural development. Family farming is a means of
organising agricultural, forestry, fisheries, pastoral and aquaculture production which is
managed and operated by a family and predominantly reliant on family labour, including
both woman’s and men’s.
Both in developing and developed countries, family farming is the pediment form of
agriculture in the food production sector.
At national level, there are a number of factors that are key for a successful development of
family farming, such as agro-ecological conditions and territorial characteristics, policy
environment; access to markets; access to land and natural resources; access to technology
and extension services; access to finance; demographic , economic and socio-cultural
conditions; availability of specialised education among others.
Family farming has an important socio-economic environmental and cultural role.
Why is Family Farming important? Family and small-scale farming are inextricably
linked to world food security;
Family farming preserves traditional food products, while contributing to a balanced diet
and safeguarding the world’s agro-biodiversity and sustainable use of natural resources;
Family Farming represents an opportunity to boost local economies, especially when
combined with specific policies aimed at social protection and well-being of communities.

25
Role of Regional Organisations
In the Asia-Pacific Region, a number of national cooperative organisations and several
government departments offer a variety of capacity building programmes to strengthen the
management of cooperatives. Specialised institutions like the Network for the Development
of Agricultural Cooperatives in Asia-Pacific [NEDAC] offer various avenues of training
and exchange of expertise to the leaders and managers of agricultural cooperatives to
facilitate exchange of information, technology and knowledge.
A brief note of NEDAC is placed as Annexure-II which gives information on the
organisation and services of the institution. The NEDAC by virtue of its organisational
structure and objectives is well-poised to collaborate on issues relating to farmers-
organisations and cooperatives with international organisations like the FAO, IFAD, ICA
and the UN/ESCAP. The NEDAC’s member composition is unique in the sense that it
accepts governmental and non-governmental organisations as its members. Several national
level training institutions are in its membership and participate in exchange programmes.
Other institutions like the International Cooperative Alliance Regional Office for Asia-
Pacific [ICA AP] offer specialized training programmes to the leaders and managers of
cooperatives in association with its member-organisations.
Suggestions and Recommendations
In the light of the discussions held hereinabove, it is clearly highlighted that agricultural
cooperatives and farmers’ organisations play a significant role in providing food security,
financial stability, improving livelihood situations and income and employment generation.
Agricultural cooperatives are member-owned, member-managed, autonomous and
democratically-controlled organisations. Members take their own decisions based on their
own financial and social standings and in concert with local conditions and without any
interference from the government authorities. They are major contributors in the management
of national food reserves and distribution of agricultural inputs including credit for
production and consumption.
- In order to further enable agricultural cooperatives and farmers organisations to
continue to perform their tasks the following conditions need to be met:
- Agricultural cooperatives should have adequate capital and should be able to operate
all the four key services to the members e.g., credit, marketing, input supplies and
farm guidance. For this purpose, members need to be encouraged to participate in all
the activities of the cooperative;
- Government should be encouraged to provide adequate legal protection and
encouragement to cooperatives, especially agricultural cooperatives and farmers’
organisations and to ensure that they are free from political and official interference;
- Organisations like the FAO and IFAD should be more positive to support the activities
of NEDAC especially in sectors like field projects, technology exchange, initiatives
like food security, issues relating to climate change by holding joint technical assistance

26
programme and also enabling the NEDAC to undertake field research and development
programmes through an adequate funding support;
- Institutions like the FAO, IFAD, ILO, ICAand NEDAC should develop a coordinated
approach to strengthen agricultural cooperatives and farmers’organisations for better
access to inputs, credit and markets which will ultimately result into better livelihood
for the poor;
Conclusion
Agriculture continues to be the engine of economic growth in most developing countries of
the Region. Small farmers in the Region have common features being e.g., seasonal
producers, fragmented buyers and suppliers unable to exploit economies of scale, and
dominated by household economies where functions such as consumption, investment,
work and social activities are undifferentiated and unspecialized.
Strong cooperatives and other producer organisations are able to overcome many of the
obvious difficulties faced by them. Cooperatives have the advantage of the total support
from their members.
Cooperatives are present in all countries and all sectors, including agriculture, food, finance,
health care, marketing, insurance and credit. It is estimated that one billion individuals are
members of cooperatives worldwide, generating more than 100 billion jobs around the
world. Agricultural and food cooperatives are already a major tool against poverty and
hunger.
Some of the principal services offered by cooperatives to their members are: Farm Guidance
and better living services; Cooperatives, through their member education and information
programmes, offer general and technical information on the management of cooperatives,
methods and practices of business management which enhance member participation in
organisational and business matters.
In association with government and non-governmental organisations cooperatives also offer
training and orientation programmes in soil testing, crop protection, use of insecticides and
pesticides, composting and drainage including irrigation management.
A number of examples from the Region go to prove that agricultural cooperatives have
been playing a significant role in providing food security and livelihood of farming
community in the Region. Even in economically developed countries like Japan, agricultural
cooperatives contribute to the wellbeing of member-farmers. Agricultural cooperatives or
farmers’organisations are the sure rallying institutions for the members at the village level.
This theme paper was presented at the General Assembly Meeting of the Network for the Development
of Agricultural Cooperatives in Asia-Pacific [NEDAC] held at Rural Development Academy, Bogra,
Bangladesh. April 4-10 2014

27
Annexure-I
The UN Millennium Development Goals
And the Role of Cooperatives in Ensuring Food Security
In the year 2000 world leaders met at the historic Millennium Summit where they adopted
the UN Millennium Declaration with additional input from the Millennium Forum held in
May that year and comprising representatives of NGOs and civil society organizations.
Equally important to the establishment of the MDGs were also inputs from other international
development bodies – including the Organization for Economic Cooperation and
Development [OECD], the World Bank [WB] and the International Monetary Fund [IMF].
They aim at improving social and economic development in the poorest countries of the
world, with a fifteen-year time frame running from 2001–2015.
The MDGs do not merely constitute a list of wanton aspirations of development donors but
are a product of intense and careful thinking, analysis, evaluation of past approaches and
experiences against the realities of the current social, economic, political and cultural order.
They are a product of a broader view of human development that transcends “traditional”
view of economic growth as a solution to all human problems. They are based on a set of
fundamental values: freedom, equality and solidarity. There are eight of them which can be
grouped in three categories of human development:
• Bolstering human capital
• Improving infrastructure
• Increasing social, economic and political rights
The eight goals are listed below:
GOAL-01: Eradicating extreme poverty and hunger: Target 1[a]: Halve the proportion of
people living on less than 1 dollar a day; Target 1[b] Achieve decent employment for
women, men and young people; Target 1[c] Halve the population of people who suffer
from hunger;
GOAL-02: Achieve universal primary education: Target 2[a]: By 2015 all children - boys
and girls can complete a full course of primary education
GOAL-03: Promote gender equality and empower women: Target 3[a]: Eliminate gender
disparity in primary and secondary education, preferably by 2005, and at all levels by
2015;
Goal-04: Reduce child mortality rates: Target 4[a]: Reduce by two-thirds, between 1990
and 2015, the under-five mortality rate;
Goal-05: Improve maternal health: Target 5[a]: Reduce by three-quarters, between 1990
and 2015, the maternal mortality ratio; Target 5[b] Achieve by 2015 universal access to
reproductive health;

28
Goal-06: Combat HIV/AIDS, malaria and other diseases: Target 6[a]: Have halted by
2015 and begun to reverse the spread of HIV/AIDS; Target 6[b] Achieve by 2010 universal
access to treatment of HIV/AIDS for all those who need it; Target 6[c] Have halted by
2010 and begun to reverse the incidence of malaria and other major diseases
Goal-07: Ensure environmental sustainability: Target 7[a] Integrate the principle of
sustainable development in country policies and programmes; reverse loss of environmental
resources; Target 7[b] Reduce biodiversity loss, achieving by 2010, a significant reduction
in the rate of loss; Target 7[c] Halve, by 2015, the proportion of the population without
access to sustainable safe drinking water and basic sanitation; Target 7[d] By 2020, to
have achieved a significant improvement in the lives of at least 100 million slum-dwellers
Goal-08: Develop a global partnership for development: Target 8[a] Develop further, an
open, rule-based, predictable, non-discriminatory, trade and financial system; Target 8[b]
Address the special needs of the Least Developed Countries [LDC]; Target 8[c] Address
the special needs of land-locked developing countries and small islands developing states;
Target 8[d] Deal comprehensively with the debt problems of developing countries through
national and international measures in order to make debt sustainable in the long term;
Target 8[e] In cooperation with pharmaceutical companies, provide access to affordable
essential drugs in developing countries; Target 8[f] In cooperation with the private sector,
make available the benefits of new technologies, especially information and communication.
The MDGs are specific and measurable as well as being relevant and time-bound
GOAL-01: Eradicating extreme poverty and hunger: Target 1[a]: Halve the proportion of
people living on less than 1 dollar a day; Target 1[b] Achieve decent employment for
women, men and young people; Target 1[c] Halve the population of people who suffer
from hunger.
Cooperatives and the MDGs
Many features of the MDGs are based on values that have much in common with the
Cooperatives Principles and Values. For example:-
MDG Values Cooperative Principles & Values
• Freedom
• Voluntary and open membership
• Autonomy and independence
• Equality • Equality
• Solidarity • Solidarity
• Tolerance • Caring for others
• Respect for nature • Concern for the community
• Shared responsibility • Social responsibility

29
Let us now see how cooperatives are [and have the potential for] contributing to the various
Millennium Development Goals.
GOAL ONE: Eradicating Extreme Poverty and Hunger
Cooperatives have demonstrated the potential to contribute, in no small measure, to poverty
reduction. It has been proven that:
- Cooperatives are people-oriented i.e., they are based on active participation of
individuals and groups working together [cooperating] to achieve their goal, guided
by the concept that what an individual or a few people cannot accomplish, quite often
many people working together can. Cooperatives are thus founded upon solidarity.
Solidarity forged out of a common need, mutual trust and pursuing a common goal
under good leadership and governance creates power. This power when harnessed in
production or an enterprise can positively change people’s economic conditions. Their
principal objective is to improve the social and economic welfare of their members.
In pursuing this objective the reduction of poverty among their members in particular
and the community generally is implicit;
- As enterprises cooperatives conduct business from which they generate income. The
profit or surplus made over a period of time reverts to members. The distribution is
not according to the number of shares held by a member [as is the case with traditional
private companies] but on the basis of the extent to which the member has used the
services of the cooperative i.e., patronage. This contributes to poverty reduction among
cooperative members. A recent study has established that “the standards of living of
cooperative members in villages [peasants] are low, but better than peasants who are
non-members.
- Cooperatives are based on the values of equality and equity. There is a relationship
between equality and poverty reduction if we consider that “poverty reduction is faster
where growth is combined with equity. It is more easily achieved in less unequal
countries because the lower the level of inequality the larger the share of benefits that
accrue to the poor;
- Because the cooperative enterprise in many cases eliminates or reduces the number of
middlemen, this also helps cooperatives make more money for their members.
Increased income helps reduce poverty;
- Not only are cooperatives “schools of democracy”, they provide education and training
that help improve and increase production with greater possibilities for increased
household incomes;
- Cooperatives operate everywhere – including remote rural areas where no other
enterprise want to operate from – ostensibly for lack of infrastructure such as paved
roads, potable water, electricity, and other amenities, but also because of low incomes
and poverty in those areas. Yet this is where the majority of the population, - and the
poor for that matter – live They provide services that are easily accessible to members
– including supply of farm inputs and marketing their products. The former is often
provided on credit with repayment deducted from the proceeds realized from sale of

30
their products. Most of the services provided by cooperatives help improve the
livelihoods not only of their members but the community at large;
- Education, training and information programmes for members are among the services
radiating from cooperative. These help broaden the knowledge and skills of members
so that they are able to produce more and raise their incomes;
- Cooperatives contribute to food security through such services and grain storage and
warehouse receipt systems.Advice given to members through information programmes
and methods used in storing produce delivered by members ensures minimum post
harvest loss;
- Financial cooperatives – prominently savings and credit cooperatives - enable poor
people both in rural and urban areas access credit to improve production or run small
enterprises that generate income and contribute to poverty reduction;
- With regard to employment creation cooperatives have a potential for creating decent
employment for both women and men. As has been noted, cooperatives employ over
100 million people worldwide. In several Asian countries the numbers employed by
cooperatives may not be so impressive but there is much indirect employment that
goes unnoticed;
- Agricultural cooperatives provide services that enable their members raise their
production time [full employment] and also hire additional labour - for example during
tilling, weeding and harvesting. The cooperatives as such engage full-time workers as
managers, book-keepers, clerks, store-keepers, watchmen, and drivers and hire casual
labour during the crop delivery season. Some of them have processing facilities not
only create employment but also adds value to the members produce, thus raising
incomes and reduce poverty;
- Of all types of cooperatives, workers cooperatives have the greatest potential for
creating employment – even more so with labour contracting cooperatives;
- Youth employment: Unfortunately the design and orientation inherent in the education
system of many developing countries has not changed significantly from the colonial
days. Typically, it has not succeeded appreciably in preparing school leavers for self-
employment. Still, cooperatives have a potential for employment creation for young
women and mean - especially those with technical or professional training and who
find it hard to ever-shrinking employment opportunities;
- School cooperatives where children form their own cooperatives – e.g. small retail
shops and vegetable gardens are common in various countries. Children do not only
run the cooperatives but also get classroom lessons on cooperative theory and practice.
The combined theoretical knowledge and hands-on experience help them develop
leadership and managerial skills as well as democratic practices. The cooperatives
are a good grooming facility for future cooperative members, leaders and managers;
- Retirees/Senior citizens, too, can form a workers’cooperative - including professionals
such as accountants, auditors, doctors and teachers can also form cooperatives that
provide professional services to public;

31
- Workers’ cooperatives: Of all types of cooperatives, workers cooperatives have the
greatest potential for creating employment – even more so with labour contracting
cooperatives;
- The informal workers: The informal economy is an important provider of employment.
In some countries it employs over 70% of the labour force. But it is not always decent
employment and indeed they are mostly unprotected. Through cooperatives such as
savings and credit cooperatives they can access loans to improve their businesses,
increase their incomes and improve their living conditions. Such cooperatives do also
offer some kind of social protection as one can access a loan in times of emergency –
for example illness or death in the family.
Source: Based on various documents of the United Nations, Secretariat of the UN International Year of
Cooperatives-2012, and International Cooperative Alliance.

32
Annexure-II
Network for the Development of Agricultural Cooperatives
in Asia and the Pacific [NEDAC]*
-Institutional Information-
Background
The Network for the Development of Agricultural Cooperatives in Asia and the Pacific
[NEDAC] was established in December, 1991 by the FAO Regional office for Asia and the
Pacific, Bangkok [FAORAP] in close collaboration with International CooperativeAlliance
and International Labour Organisation. It was the ICAconference of Cooperative Ministers
held in Sydney in 1990 that provided the platform for establishment of NEDAC by the
FAO Regional office, Bangkok. The FAO provides work place to NEDAC in its office in
Bangkok.
Being encouraged by the endorsement of the Cooperative Ministers in that ICA Conference,
FAO Regional office with the support/assistance of ICAROAP and ILO organized the first
meeting/foundation meeting of NEDAC in December, 1991 which was attended by senior
cooperative officials from 9 [nine] countries [Bangladesh, China, Fiji, India, Indonesia,
Malaysia, Philippines, Sri Lanka and Thailand]. Since then NEDAC General Assembly
meetings have been held in 1992 [in Bangkok], 1993 [in Beijing], 1995 [in Bangkok], 1997
[in New Delhi], 2001], [in Beijing], 2003 [in Kathmandu], 2006 [in New Delhi] 2009 [in
Bangkok], and, 2011 [in the Philippines]. ICAROAP and FAORAPare permanent members
of NEDAC General Assembly and its Executive Committee.
Growth
The present membership of NEDAC has grown to 20 cooperative organizations from 8
countries [Bangladesh, China, India, Japan, Nepal, Philippines, Sri Lanka and Thailand] as
against 10 organizations in 1991.
Membership*
NEDAC membership is open to: government departments dealing with cooperatives,
Cooperative Movements and any other organization/institution involved in education/
training, agro-processing, research/development of agricultural cooperatives. The
membership is subscription-based. Associate membership is granted at the discretion of
General Assembly.
* Secretariat :
Network for the Development of Agricultural Cooperatives in Asia and the Pacific
[NEDAC]
36 Maliwan Mansion, Phra Atit Road, Bangkok 10200. Thailand

33
Mandate
Major objectives/functions of NEDAC are as follows:
- To provide a forum for exchange/sharing of information and experiences on cooperative
development and promote cooperation amongst member-countries through joint efforts/
field visits/workshops/seminar etc;
- To promote cooperative policy frame works of member-countries with focus on legal/
legislative reforms, enterprise development, institutional capacity building/
strengthening of agricultural cooperatives [agriculture includes fishery, livestock and
forestry];
- To sensitize governments on the need for promoting the potential of agricultural
cooperatives’ role in development;
- To strengthen the institutional capacity and professionalism of member-organizations;
- Arrange for and organize consultations, workshops, seminar, research projects, courses
and other training programmes for senior level policy makers, cooperative leaders
and middle level managerial and technical staff on policies, programme management
and technical aspects of agricultural cooperative development;
- Organize observation tours/study programmes for policy-makers, cooperative leaders
and senior executives to study policies, programmes and field activities related to
agricultural cooperative development and related issues.
Development Activities
NEDAC activities/development Workplan for every two years’ span are discussed and
approved in principle in advance by the NEDAC GeneralAssembly. The NEDAC Executive
Committee selects the activities for each year.
*Current Members of NEDAC: Bangladesh: Rural Development and Cooperatives
Division, Ministry of Local Development, Rural Development and Cooperatives; China:
Department of Rural Economic System and Management Administration, Ministry of
Agriculture; India: National Cooperative Development Corporation; National Cooperative
Union of India; Ministry of Agriculture, Government of India; Indian Farmers Fertiliser
Cooperative Limited; National Federation of State Cooperative Banks Limited; National
Agricultural Cooperative Marketing Federation Limited; Haryana State Cooperative Supply
and Marketing Federation Limited; National Federation of Fishermen’s Cooperative
Limited; National Consumer Cooperative Federation Limited; Krishak Bharti Cooperative
Limited; Japan: Central Union of Agricultural Cooperatives of Japan [JA-Zenchu];
Malaysia: Farmers Organisation Authority; Nepal: National Cooperative Federation of
Nepal Limited; National Cooperative Development Board; National Agricultural
Cooperative Central Federation Limited; Philippines: Cooperative Development Authority,
Government of the Republic of the Philippines; National Cooperative Development Council;
Sri Lanka: Department of Cooperative Development, Government of Sri Lanka; Thailand:
Cooperative Promotion Department; The Cooperative League of Thailand; Asia-Pacific
Regional Office of the International Cooperative Alliance; and, FAO-RAP.

34
Akshara Baru Special Article
Abstract
The Panchayat Raj system in India is a concept that aims at a decentralized and participatory
system of local self governance through a three tier system at the State Level. This structure
includes a locally elected governing body at the Village, Mandal and the District level.
This theory of having a locally elected governing body at the village level has been in
conception since the Vedic period in the form of ‘sabhas’and with time has found a place
for itself in the Constitution of India (Bhattacharya, 2009).
This paper primarily aims to understand the contributions of the former Viceroys of India
Lord Mayo (1869-1872) and Lord Ripon (1880-1884) in sanctioning local self governing
institutions and empowering them thereof. The paper first tries to explore Lord Mayo’s
decentralization scheme in the 1870’s which granted for the establishment of a system of
local self government by sanctioning financial decentralization awarding greater power to
the provinces thereby enabling them to meet their local needs .
Following Lord Mayo’s contribution through fiscal decentralization the paper furthers
discusses Lord Ripon’s historic resolution which emphasized administrative efficiency by
removing the defects that existed in the system. He further advocated the creation of
instruments of political education through these self government units which would help
build effective administration through local self government.
The paper finally concludes by analyzing the policy of decentralization so established by
the aforementioned Viceroys and its relevance to a system of good governance.
Keywords: Panchayati Raj System, local self governance, decentralization, Indian
Constitution, good governance, British Raj, Indian administration, public policy.
1
Akshara Baru is a fifth year law student from Symbiosis Law School, Pune. The last few years of her
academic life have been involved in understanding the broad framework that guides public policy and
their implications on development of a society. In the course of the last few years she has worked with
esteemed institutions such as Administrative Staff College of India, National Commission for Women and
Foundation for Democratic Reforms. She is currently working on the critique of the State Action Plan on
Climate Change-Tamil Nadu as a part of her present internship. Her previous research paper titled
“International and Domestic influences on Green Energy Policy in India” under the guidance of Dr. Usha
Ramachandran, Administrative Staff College of India, has been published in the “IOSR Journal of
Humanities And Social Science”.
Evolution of the Policy of Local Self-Governance in India
during the British Raj
Akshara Baru1

35
Introduction
The most distinct feature of Indian democracy is its well established, vigorous structure of
governance at its grass root level. There are significant institutions stretching to every
corner of India which reflects its democratic resolve thus strengthening democracy and
enabling the governance to be more responsive and compelling (Arora, Hooja, 2009). Local
budgeting by providing an opportunity to citizens of a particular area to participate in
resource pooling increases a sense of belongingness as well as reinforces consistency in
the collection of funds thereby ensuring a process of effective and equitable distribution of
funds (Oommen, 2008).
The changes in economic policies during Lord Mayo’s regime such as financial
decentralization, increase in the rate of Income Tax from one percent to two and a half
percent, increase in salt duties etc had proved effective as the years following 1868-1869
showcased not just a substantial surplus over the ordinary expenditure but also relieved the
local governments to a considerable degree from depending on the Supreme Government
for their finances (Cunningham, 1881; Frazer, 1896).
Martinez-Vazquez and McNab (1997) state in their paper on fiscal decentralization and
good governance that even today most countries with established or transitional economies
are in the process of adopting financial decentralization policies with the understanding
that though the concept cradles certain risks there would be heighted efficacy in expenditure
of public funds. Lord Mayo had understood the undoubted necessity for having a better
economic structure for the better working of the government. As Fiscal Decentralization
ensures the establishment of increased social capital it also helps structure an efficient
system of democratic governance.
Though Lord Mayo’s contribution to strengthening local self governments through the
process of fiscal decentralization stands significant in understanding the deepening of this
concept during the British rule yet, Pathy (1980) argues that decentralization of political
power was largely limited only to homogenous societies where differences in social
constructions were relatively feeble. It was only towards the end of the nineteenth century
that under the Viceroyalty of Lord Ripon that there was deepening and revival of local self
governments. Therefore it is imperative to analyze and understand the contributions of
Lord Ripon in inception of decentralization of political power in India.
Lord Ripon
As mentioned earlier the credit for establishing a yardstick for institutionalizing a system
of decentralization in the government policy is attributed to Lord Ripon. There was a
considerable amount of impact of the western civilization on the Indians and this added to
an increase in the confrontation between the British and the Indians. One such impact of
the westernization was the growth of a new class of Indian intelligentsia. Though this class
was still growing and comprised of only a few their aspirations and voices needed a platform
to be publicized. It was then that Viceroy of India realized that there was an urgent need to
unleash such voices by institutionalizing platforms for such political ambitions. This caused

36
the gradual increase of inclusion of Indians to have an influence on the administration.
Therefore an age old idea that existed was replenished by extending freedom which in turn
encouraged local participation (Gopal, 1953).
Mapping Lord Ripon’s personal life to understand the factors that drove him to establish a
people centric policy digressing from the ways of his predecessors one realizes that Ripon’s
political ambitions and opinions from the beginning, vastly varied with others. He was an
active member in the Socialist movements and this gave him a reputation of a radical.
Despite being British he was one of the main spokespersons for the producer cooperative
movement that was started by Parsis in 1848. It is noted that Lord Ripon was also a proactive
member in promoting causes such as secular education, promotion of trade unions and
voter reforms. Lord Ripon is also considered as one of the main contributors of drafting the
Education Act in the year 1870 (Denholm, 1983).
Gopal (1953) in his book on the Viceroyalty of Lord Ripon argues that the greatest
achievement of Lord Ripon was not the establishment but the strengthening of an old
concept in a fresh light. He vehemently advocated substitution of outside interference with
an alternative system of greater local participation which had become a necessity. Pamphlets
of the year 1883 collected by the London School of Economics describe the reaction to
drastic change in the manner of governance brought in by Lord Ripon. The Viceroy by
creating a system which augmented independent authority of the natives offended the British
interest in India. He gave the sprouting intelligentsia and the local press a sense of revolution
through his decisions which were therefore appreciated. Apart from looking at the policy
of strengthening local self governance as a pro-Indian measure, one needs to analyze and
appreciate Lord Ripon’s decision as a step towards good governance.
Hence, further evaluating one can observe that Lord Ripon’s policy of administrative
decentralization considered the two aspects of administrative efficiency which could be
achieved through the process of political awareness and education. The first consideration
addressed in the resolution passed by him which came during the year 1880 emphasized on
educating as well as training both the elected representatives and the general public.
Though the resolution of 1880 had a great impact on local self governing institutions it was
the second resolution that came in the year 1882 that made Lord Ripon popular. Drafted in
the end of 1881 this bill can be considered a brain child of Lord Ripon and Finance member
named Baring. This resolution became immediately popular amongst the public as it
encouraged the local governing bodies to inspect the local and municipal accounts of the
provinces. In a system that ensured restrictive participation of local bodies only to the
areas that they understood. The resolution further called for from the local bodies any kind
of suggestive measures that could be taken up to strengthen local governance (Gopal, 1953).
This system so established can be connected to what is today popularly known as
Participatory Budgeting. The process involves identification of local targets and addressing
of these priorities through channelized spending. The local demands are concretized into
projects and a majority opinion on implementation of these projects is followed by the
authorities (Wampler, 2000).

IFFCO Foundation Bulletin Vol.2 No.1 June 2014 Edition

IFFCO Foundation Bulletin Vol.2 No.1 June 2014 Edition

Recommended

Recommended

More Related Content

What's hot

What's hot (14)

Viewers also liked

Viewers also liked (13)

Similar to IFFCO Foundation Bulletin Vol.2 No.1 June 2014 Edition

Similar to IFFCO Foundation Bulletin Vol.2 No.1 June 2014 Edition (20)

Recently uploaded

Recently uploaded (20)

IFFCO Foundation Bulletin Vol.2 No.1 June 2014 Edition