Q.Give the economic justification in favour of continuing agricultural subsidies to the farmers in India. Give two points.
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Lending Where the Farmer Lives
A farmer's costs come before the harvest — seeds, fertiliser, pumps — while income comes months later. That gap makes credit the lifeblood of rural India. But for decades, the only lenders in the village were moneylenders charging crushing interest. Building a fair, formal rural credit and banking system became one of independent India's central missions, especially once the Green Revolution demanded reliable finance.
Rural credit system = the network of institutions that provides loans and banking services to farmers and rural households for agricultural and allied activities.
A Multi-Agency System
The most important feature to remember: India's rural banking is not a single institution but a multi-agency system built up in the post-Independence period. Its main components are:
- Cooperative credit societies — including primary agricultural credit societies for short-term loans and land development banks for long-term credit.
- Commercial banks — expanded rapidly into rural areas, especially after nationalisation in 1969.
- Regional Rural Banks (RRBs) — set up specifically to serve the rural poor.
- Self-Help Groups (SHGs) — small savings-and-credit groups that reach households the formal banks miss.
- NABARD — the National Bank for Agriculture and Rural Development, established in 1982 as the apex body that coordinates and refinances the whole system.
So statements claiming the rural banking system is single-agency, or that no structured system was built after Independence, are incorrect — the reality is exactly the opposite.
Why Institutional Credit Was Needed
- Escaping the moneylender. Informal lenders charged exploitative rates and trapped farmers in debt; institutional credit offered lower, regulated interest. …
Agricultural subsidies protect vulnerable farmers and help secure the country's food supply. …
Agricultural subsidies are economically justified mainly as support for vulnerable farmers' productivity and as a safeguard for the country's food security.
- Supporting small and marginal farmers: The majority of Indian farmers are small/marginal and have limited capacity to bear the cost of modern inputs like high-yielding seeds, chemical fertilizers and irrigation. Subsidies make these inputs affordable, encouraging their wider adoption, raising agricultural productivity and helping these farmers compete and sustain their livelihoods. …
- CBSE 2026Set ANNUAL1 markMCQQ.Identify which of the following is not an advantage of Green Revolution. (A) India has become self-sufficient in the production of food grains (B) India has built sufficient buffer-stock of food grains (C) Increase market surplus (D) Increase in the prices of food grains
›Reveal solutionSolution
Among the listed outcomes, a rise in food-grain prices is NOT a benefit of the Green Revolution -- in fact the Green Revolution, by boosting supply, helped keep food-grain prices stable/lower.
The Green Revolution (adoption of HYV seeds, fertilizers, irrigation, mainly in wheat and rice from the late-1960s) delivered several genuine advantages for India: it made India largely self-sufficient in food-grain production (option A, a real advantage), allowed the government to build up sufficient buffer stocks of food grains for food security (option B, a real advantage), and created a larger marketable surplus of food grains available for sale beyond farmers' own consumption needs (option C, a real advantage). An INCREASE in the prices of food grains, however, was not a benefit -- the Green …
- CBSE 2025Set 58/5/11 markMCQQ.Identify, which of the following statements is incorrect about the Rural Banking system in India. (Choose the correct option) (A) The Rural Banking system in India consists of a set of multi-agency institutions. (B) In the post-independence period, a well-structured Rural Banking system was formulated in India. (C) Regional Rural Banks, Cooperative and Land Development Banks are components of the Rural Banking system in India. (D) The Rural Banking system in India works under the guidance, instruction and supervision of the State Bank of India.
›Reveal solutionSolution
The rural banking system in India is supervised by the Reserve Bank of India (RBI), not the State Bank of India (SBI). Statement (D) is incorrect.
The question tests your understanding of the institutional architecture of rural credit in India, particularly the supervisory and regulatory framework.
Rural banking in India was deliberately designed as a multi-agency system after independence to channel credit to agriculture and allied activities. The system recognizes that different institutions serve different needs: commercial banks for larger farmers and formal credit, cooperative banks for small and marginal farmers with local knowledge, and Regional Rural Banks (RRBs) as a hybrid model combining the outreach of cooperatives with the professionalism of commercial banks. Statement (A) is correct—this multi-agency character is a defining feature.
Statement (B) is also correct. The post-independence period saw systematic institution-building: the All India Rural Credit Survey (1954) laid the groundwork, nationalization of commercial banks (1969) mandated priority-sector lending, RRBs were established in 1975, and NABARD was created in 1982 as the apex institution for rural credit. This was indeed a well-structured, policy-driven evolution.
Statement (C) accurately lists the components. Regional Rural Banks were set up specifically to serve rural areas, cooperative banks (Primary Agricultural Credit Societies, District Central Cooperative Banks, State Cooperative Banks) form the cooperative credit structure, and Land Development Banks (now called State Cooperative Agriculture and Rural Development Banks) provide long-term credit for land improvement and capital formation.
Watch outA common confusion: the State Bank of India is a commercial bank—the largest in India and originally the Imperial Bank before nationalization in 1955. It is not a regulatory body. The Reserve Bank of India (RBI) is the central bank and the sole monetary authority that supervises all banking institutions, including rural banks. …
- CBSE 2025Set ANNUAL1 markMCQQ.Which of the following statements is not an argument in favour of continuation of the agricultural subsidies in India? (A) Subsidies encourage farmers to adopt new technologies (B) Subsidies mainly benefit the fertilizer industry and big farmers (C) Subsidies aim to reduce the inequalities between rich and poor farmers (D) Subsidies help farmers to face the uncertainties of future
›Reveal solutionSolution
Statements (A), (C) and (D) are standard arguments for continuing agricultural subsidies; statement (B) -- that subsidies mainly benefit the fertilizer industry and big, already well-off farmers rather than the small and marginal farmers who need them most -- is the standard argument against subsidies, so it is the one that is not in favour.
Arguments commonly given in favour of agricultural subsidies include: they encourage the adoption of new, high-yielding technology among farmers who would otherwise be reluctant to take the risk (A); they help offset the disadvantage faced by poor farmers relative to large farmers, promoting equity (C); and they provide a cushion against the price/weather/market uncertainties farmers face (D). In contrast, critics argue that, over time, subsidies have mainly b …
- CBSE 2024Set ANNUAL1 markMCQQ.Indicate which of the following states of India is not under the areas of Green Revolution?(a) (A) Punjab(b) (B) Rajasthan(c) (C) Andhra Pradesh(d) (D) Tamil Nadu(a) (A) Punjab(b) (B) Rajasthan(c) (C) Andhra Pradesh(d) (D) Tamil Nadu
›Reveal solutionSolution
Green Revolution areas needed assured irrigation — Rajasthan largely lacked it.
The Green Revolution (adoption of High-Yielding Variety seeds, chemical fertilisers and assured irrigation) took hold mainly in states with reliable irrigation infrastructure: Punjab, Haryana, western Uttar Pradesh, and parts of Andhra Pradesh and Tamil Nadu (irrigated paddy belts). Rajasthan, being predomin …
- CBSE 2024Set ANNUAL1 markQ.Why are small scale and cottage industries more important than large scale industries in India?
›Reveal solutionSolution
Labour-intensive → more employment per unit of capital, better suited to India.
Small-scale and cottage industries use relatively more labour and less capital than large-scale, capital-intensive industry. Since India has abundant labour but scarce capital, these industries generate far more employment per unit of investment, help spread industrial activity into rural and semi-urban areas (promoting balanced regional development), support traditional artisan livelihoods, and need comparatively little capital/technical sophistication to start — making them more suited to India's resource endowment than large-scal …
- CBSE 2024Set ANNUAL1 markMCQQ.The apex refinancing institution for rural and agricultural credit is(a) RRBs(b) NABARD(c) NAFED(d) Self Help Group
›Reveal solutionSolution
NABARD, set up in 1982, is the apex (top-level) institution refinancing rural and agricultural credit in India.
India's rural credit system has several institutions, but only one sits at the apex, refinancing the others:
- RRBs (Regional Rural Banks) are retail-level institutions that lend directly to farmers and rural borrowers in their regions; they are not a refinancing apex body.
- NAFED (National Agricultural Cooperative Marketing Federation) deals with marketing of agricultural produce, not credit refinancing.
- Self Help Groups (SHGs) are grassroots-level groups that pool small savings and extend micro-credit to their own members. …
- CBSE 2024Set ANNUAL1 markMCQQ.What is the duration of long-term credit?(a) 6 – 10 years(b) 2 – 5 years(c) 5 – 10 years(d) 5 – 20 years
›Reveal solutionSolution
Long-term agricultural credit is sanctioned for a repayment period of roughly 5 to 20 years, for investments whose returns are realised only over a long horizon.
Agricultural/rural credit is conventionally classified by duration:
- Short-term credit (up to about 15 months): meets seasonal needs like buying seeds, fertilisers and paying wages, repaid out of the very next harvest.
- Medium-term credit (roughly 15 months to 5 years): used for purchasing bullocks, implements, or minor land improvements, repaid over a few crop cycles. …
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