The functioning of the rental markets also depends on the presence/absence of other supporting or enabling factors such as extension services and so on. Access to extension may help the farm households to increase cropping intensity and diversify crops cultivation which in turn may necessitate the use of pump-sets

Since the 1990s, the Government of Nepal has been implementing national agricultural policies to reduce poverty and induce sustainable economic growth through commercialization and competitiveness in agriculture. Some of the policies adopted by the government are: Agriculture Perspective Plan (APP), Agribusiness Promotion Policy (AgPP), Agriculture Development Strategy (ADS), and Agriculture Mechanization Promotion Policy (AMPP). While APP, AgPP and ADS are concerned with the overall agriculture development, the AMPP specifically focuses on the promotion of mechanization of agriculture in Nepal.

In view of the out-migration of labour from Nepal, mechanization can be the only solution to retain small and marginal farmers in the agrarian sector. The government policy on its own may not however be able to bring all the cultivated area under mechanization.

It is not possible to provide subsidized capital goods to all the farmers. In fact, given the small size of operational holding, it makes no sense for all the farmers to possess such machinery.

Even with subsidy, farmers may not be interested to invest on capital goods due to the indivisibility characteristic of these goods. However, the presence of the rental markets plays a crucial role in overcoming the challenge posed by indivisibility of capital goods. These markets, while allowing the owners to sell the excess capacity also contributes towards fulfilling the objective of mechanization without all the farmers, especially the marginal and small, having to own the capital goods.

In this way, rental markets, which have emerged spontaneously as a response to mis-match in the ownership of these goods, have complemented the policy of promoting mechanization.

In absence of these markets, a substantial part of cultivated area would have remained beyond the scope of mechanization even in presence of government policy of promoting mechanization.

Given the perceived benefits of the rental markets of capital goods, the objective should be to ensure that these markets survive and do not suffer from any imperfection.

One of the possible sources of imperfection could be the limited availability of the capital goods. As the number of capital goods available in villages is limited, the farmers who do not own them may not get their services when they need especially during the peak season. This may affect their farming activity and ultimately the performance in terms of productivity and generation of farm income.

The other source of imperfection could be higher level of rental rate. The government may take necessary steps in order to ascertain that the rental users of the capital goods are not exploited by a few owners.  The government may facilitate the formation of farmers’ group and entrust the responsibility of regulating the rental rate of the capital goods on these groups.

Such an arrangement will allow the rental rate to be decided keeping in view the agro-economic conditions of the area within the jurisdiction of a farmers’ group. Further, in order to increase the availability of the capital goods and thereby to prevent the rental rate from being exorbitant, the government may consider increasing outreach of the subsidy programme on the capital goods.

The functioning of the rental markets also depends on the presence/absence of other supporting or enabling factors such as extension services and so on.   Access to extension may help the farm households to increase cropping intensity and diversify crops cultivation which in turn may necessitate the use of pump-sets.

Similarly, access to credit may also help to own and hire the capital goods. In other words, for smooth functioning of the rental markets, it is important that the complementary factors are also available. It has however been noticed that the extension service in the country is in a very dismal state. Most of the farmers, especially, the marginal and small, do not even know who the extension worker is in their locality.

The government has an important role to play in improving the delivery of extension services. Improvement in the access to these enabling factors and other basic infrastructure may further improve the extent of the rental markets and mechanization and thereby can play a crucial institutional support for promoting the growth of the agriculture sector of the country.

At a time when the government of Nepal is planning for the consolidation of land holding in the plains through different measures (such as declaration of special pocket zones) to overcome the problems caused by small and fragmented land holding, it is important to note that rental markets, by allowing the small farmers to use the capital goods and by increasing the extent of mechanization have emerged as a substitute of such land reform measures.