Chapter-1 1

CHAPTER-1

INTRODUCTION

Agriculture is described as the backbone of Indian economy, mainly

because of three reasons. One, agriculture constitutes largest share of

country's national income though the share has declined from 55

percent in early 1950s to about 25 percent by the turn of the Century.

Two, more than half of India's workforce is employed in its agriculture

sector. Three, growth of other sectors and overall economy in its

agriculture to a considerable extent. Besides, agriculture is a source of

livelihood and food security for large majority of vast population in

India. Agriculture has special significance for low income, poor and

vulnerable sections of rural society. Because of these reasons

agriculture is at the core of socio economic development and progress

of Indian society, and proper policy for agriculture sector is crucial to

improve living standards and to improve welfare of masses.

India attained Independence from colonial rule in 1947 facing situation

of economic stagnation and widespread poverty and hunger. Per capita

income showed negative growth during the two decades preceding

Independence throwing a formidable challenge to improve level of

living. Out of total population of 361 million in 1951 about half to two

third was estimated to be below poverty line by different estimates.

Economic stagnation and widespread poverty were recognized as the

biggest problem before the nation. To address these problems and to

attain other goals of development, the country started an era of

planned development in 1950-51 with the launching of First Five Year

Plan. It was contemplated to remove poverty in the next 27 years by

making economy grow at more than 3.8 percent per annum and by

doubling the per capital income in 27 years (1950/51 to 1977/78).

Chapter-1 2

Indian agriculture was backward and stagnant at the time of

Independence. Ever since the launching of the First Five Year Plan

(1951-56), agricultural sector has received the prime attention of the

Government in the overall strategy of economic development. As a

result, farm productivity has increased over the years and the country

has achieved high degree of self-sufficiency in terms of foodgrains and

raw material for agro-based industries.

India inherited almost a stagnant agriculture at the time of

independence in 1947. With the launching of planning framework for

development in 1951, some reforms were initiated in agriculture,

especially with regard to agrarian structures and investments in

irrigation projects. This helped in raising the growth rate in agriculture.

But it was still not sufficient to feed the growing population of India,

with high expenditure elasticity for food. The policy of heavy

industrialization adopted in the second five year plan (FYP: 1956-61)

also generated food demand through income effect that had to be met.

Food imports became necessary to bridge the widening gap between

demand and supply of food. These imports were arranged largely

under PL 480 contract with the United States of America.

There have been some lacunae and loopholes in the land legislations

and consequential evasion of some provisions of these legislations,

especially in Land Ceiling Acts of different States. Moreover, the

implementation of land reforms has been tardy. However, several

important desirable changes have taken place. The notable ones

among them are:

1. Prevention of enlargement of landholdings beyond the ceiling

limit,

2. Reduction in the phenomenon of absentee landlordism,

Chapter-1 3

3. Greater convergence of land-ownership and land-

management, and

4. Emergence of a more or less uniform land-tenure system

(Ryotwari) throughout the country.

Whatever may be the equity implications, the land reforms have failed

to contribute to the overall growth in agricultural productivity. A large

number of agricultural holdings remained deficient in production or at

best self-sufficient. In any case, they have not been able to transform

our agriculture into a surplus generating and high-value agriculture

and much less into precision-agriculture. In view of low-value

agriculture on a large number of landholdings, it has now become

necessary that more capital is to be injected in farming in order to

raise productivity. The ceiling on landholdings has been a major

stumbling block for high capital investment in agriculture.

Encouragement of the contract farming system in high-value crops is,

therefore, the need of the hour. Relaxation of ceiling on landholdings

at this stage may not be appropriate since it is likely to swell the army

of landless workforce in agriculture. This step may have to be deferred

until the needed resilience is built into our rural economy. There is,

however, a clear and convincing case for liberalising tenancy provision.

It would be quite appropriate to allow the land-lease market to

function now. Relaxation of the Tenancy Laws would produce a positive

impact on both the leasers and the lessees. We should, however.

introduce two safeguards that the investment in land made by the

tenant is appropriately compensated, and that the land owner will not

lose his/her ownership right. Such a move will import the necessary

assurance and flexibility in the land-market. And at the same time, un-

freezing of land-lease market should be guaranteed.

Chapter-1 4

It was in mid sixties that India adopted a bold policy to achieve self-

sufficiency in food. The import of 18,000 tons of HYV seeds of wheat

from Mexico along with a policy of assured and remunerative prices for

foodgrains was a turning point in India’s history of agriculture. The

policy of price incentives for cultivators was assured through the

inception of institutions like Agricultural Prices Commission and Food

Corporation of India in 1965. Thus, the technology, incentive prices

along with a reasonably efficient input delivery system ushered in

green revolution in India. Within a period of six years India became

self-sufficient in foodgrains and even decided to build buffer stocks

from domestic production as a measure of national food security. By

1998-99 Indian foodgrain production is likely to touch 200 million

tonnes, building a buffer stock of about 34 million tonnes by end of

June 1999, almost 10 million tonnes in excess of minimum food

security norms.

The importance of sound agricultural policy has been recognized since

earliest times in all cultures. In China in the sixth century BC, Lao Tze

wrote. There is nothing more important than agriculture in governing

people and serving the Heaven. In addition, he admonished rulers who

neglected the agricultural sector.

Higher productivity in farming can release labor for other sectors, for

several decades of the twentieth century this relationship between

agriculture and overall economic growth became distorted into a

doctrine of pursuing industrialization even at the expense of

agricultural development, with the result of undercutting agriculture's

possibilities of contributing to overall development. The sector was

viewed as playing a supporting role to industrial development, which

was considered the most essential aspect of a growth strategy. In fact,

industry was thought to be so important to a nation's long-run

Chapter-1 5

economic prospects that it was common practice to subsidize it, at the

expense of taxpayers and other sectors.

This was the doctrine of the first generation of economic development

strategies. The practice of favoring and subsidizing industrial

development was especially pronounced in Latin America and some

countries of Asia. Perhaps the best-known early Latin American

exponent of that tradition was Celso Furtado. In words that have an

odd ring today. Furtado said, regarding sectoral priorities in Brazilian

development:

Government action as a source of ample subsidies for industrial

investments through foreign exchange and credit policy permitted the

expansion, acceleration and broadening of the industrialization

process. Without the governmental establishment of basic industries

(steel, petroleum) and without the foreign exchange subsidies and the

negative interest rates of government loans, industrialization would

not have achieved the speed and the breadth that evolved during that

quarter of a century1.

In this approach to development, the role of agriculture was seen as

that of a provider of ‘surpluses’ (of labor, foreign exchange and

domestic savings) to fuel industrial development. It was not looked to

as a source of income growth in its own right. On the contrary, the

implementation of subsidies for industry meant levying a tax, implicit

or explicit, on agriculture which was likely to depress its growth

prospects. Furtado commented in another context that in Mexico:

...since 1940, agricultural policy has systematically pursued the

1 Celso Furtado, Obstacles to Development in Latin America, Anchor Books, Doubleday and Company, New York, 1970, p. 144.

Chapter-1 6

objective of increasing the agricultural surplus extracted for urban

consumption or export.1

Bruce Johnston and John Mellor developed a more complete vision of

the agricultural development process and advocated policies that

favored development of the smallholder sector. Theirs was the first

agricultural development to emphasize the importance of increasing

productivity, even among smallholders. They described a long-term

growth process in which the type of technological innovation varies by

phase of the process. Nevertheless, their view of agriculture's role was

to support the development of the other sectors in the economy,

mainly by supplying goods and factors of production to the rest of the

economy. That role includes supplying labor, foreign exchange,

savings and food to the economy, as well as providing a market for

domestically produced industrial goods.2

Therefore, far from advocating support for agriculture, much of the

thinking in the past 50 years about agriculture's role in development

advocated taxing the sector, directly or through pricing policies, to

provide resources for the development of the rest of the economy, and

in some cases using the resultant resources to subsidize industry.

Among other concerns that would be raised today about this approach,

a basic question is how far can agricultural incomes be reduced by

pricing and taxation mechanisms before rural poverty reaches

unacceptable levels and agricultural production stagnates for lack of

profitability?

The conception of agriculture as a hand maiden to the development of

the rest of the economy, as a store of labor and capital to be 1 Celso Furtado, Economic Development in Latin America, 2nd Edn. Cambridge University Press, Cambridge, UK, 1976, p. 259 2 Bruce F. Johnston and John W. Mellor, ‘The Role of Agriculture in Economic Development’, American Economic Review, 51, 1961, pp. 566-593.

Chapter-1 7

exploited, is increasingly being supplanted by the view that agricultural

development should be pursued in its own right, that at times it can be

a leading sector in the economy, especially in periods of economic

adjustment. The World Bank's World Development Report, (1990),

highlighted a number of cases of adjustment programs in which

agriculture responded quicker than other sectors to the new policy

regime and grew faster than other sectors for a period of four to five

years, leading the economies out of recession. In Chile and Brazil,

agriculture grew faster than manufacturing through most of the 1990s.

In Chile, agriculture was the main source of new scientific, technical,

professional, managerial and administrative jobs during that decade.1

When agro-processing industries, agricultural input sectors and

marketing activities are taken into account, agriculture's contribution

to total GDP typically lies in the 35 to 45% range for low to middle-

income developing countries, much greater than the share of primary

agricultural output alone would indicate, and almost always much

greater than that of manufacturing alone. The bulk of poverty is often

found in rural areas and therefore for poverty alleviation purposes, as

well as to avoid a swelling of urban shanty towns, agricultural

development can claim a place in national priorities.

Typically high growth rates are achieved when agriculture grows

rapidly. That is because the resources used for agricultural growth are

only marginally competitive with other sectors and so fast agricultural

growth tends to be additive to growth in other sectors, as well as

being a stimulant of growth in the labor surplus non-tradable sector....

1 Roger D. Norton, ‘Critical Issues Facing Agriculture on the Eve of the Twenty- first Century’, in IICA, Towards the Formation of an Inter-American Strategy for Agriculture, San Jose, Costa Rica, 2000, p. 260

Chapter-1 8

Block and Timmer's model of the Kenyan economy1 shows the

multipliers from agricultural growth to be three times as large as those

for non-agricultural growth.

There is a close association between agricultural policy followed in the

country and the magnitude and sources of output growth. Based on

these, agricultural policy followed during the last five decades can be

broadly distinguished in 3 phases. A detailed description of policy

followed in each phase is given in Rao (1996) and in this section we

have drawn mainly from this paper.

The period from 1950/51 to mid 1960s which is also called pre green

revolution period witnessed tremendous agrarian reforms, institutional

changes and development of major irrigation projects. The

intermediary landlordism was abolished, tenant operations were given

security of farming and ownership of land. Land ceiling acts were

imposed by all the states to eliminate large sized holdings and

cooperative credit institutions were strengthened to minimise

exploitation of cultivators by private money lenders and traders

(Radhakrishna 1993). Land consolidation was also affected to reduce

the number of land fragments. Expansion of area was the main source

of growth in the pre green revolution period. The scope for area

expansion diminished considerably in the green revolution period in

which growth rate in area was less than half the growth rate in the

first period. Increase in productively became the main source of

growth in crop output and there was significant acceleration in yield

growth in green revolution period. The main source of productivity

increase was technological breakthrough in wheat and rice. The

1 Steven Block and C. Peter Timmer, ‘Agriculture and Economic Growth: Conceptual Issues and the Kenyan Experience’, mimeo, Harvard Institute for Economic Development, Cambridge, MA, USA, 1994.

Chapter-1 9

country faced severe food shortage and crisis in early 1960s which

forced the policy makers to realise that continuous reliance on food

imports and aid imposes heavy costs in terms of political pressure and

economic instability (Rao 1996) and there was a desperate search for

a quick breakthrough in agricultural production.

The biggest achievement of new agricultural strategy, also known as

green revolution technology, has been attainment of self sufficiency in

foodgrains. Since the green revolution technology involved use of

modern farm inputs, its spread led to fast growth in agro input

industry. Agrarian reforms during this period took back seat while

research, extension, input supply, credit, marketing, price support and

spread of technology were the prime concern of policy makers (Rao

1996).

Two very important institutions, namely Food Corporation of India and

Agricultural Prices Commission, were created in this period in the

beginning of green revolution period, to ensure remunerative prices to

producers, maintain reasonable prices for consumers, and to maintain

buffer stock to guard against adverse impact of year to year,

fluctuations in output on price stability. These two institutions have

mainly benefited rice and wheat crops which are the major cereals and

staple food for the country.

The next phase in Indian agriculture began in early 1980s. While there

was clear change in economic policy towards delicensing and

deregulation in Industry sector, agriculture policy lacked direction and

was marked by confusion. Agricultural growth accompanied by

increase in real farm incomes led to emergence of interest groups and

lobbies which started influencing farm policy in the country. There has

been a considerable increase in subsidies and support to agriculture

Chapter-1 10

sector during this period while public sector spending in agriculture for

infrastructure development started showing decline in real term but

investments by farmers kept on moving on a rising trend (Mishra and

Chand 1995, Chand 2001). The output growth, which was

concentrated in very narrow pockets, became broad-based and got

momentum. The rural economy started witnessing process of

diversification which resulted into fast growth in non foodgrain output

like milk, fishery, poultry, vegetables, fruits etc which accelerated

growth in agricultural GDP during the 1980s. This growth seems

largely market driven.

Though green revolution has been widely diffused in unirrigated areas

throughout the country, the dry land areas have not seen benefit of

technological breakthrough as witnessed through green revolution

technology. Of late, improved varieties of oilseeds and coarse cereals

have provided some opportunities for productivity growth in dry land

areas.

A new phase was started in India's economic policy in 1991 that

marked significant departure from the past. Government initiated

process of economic reforms in 1991, which involved deregulation,

reduced government participation in economic activities, and

liberalization. Though much of the reforms were not initiated to

directly affect agriculture sector, the sector was affected indirectly by

devaluation of exchange rate, liberalization of external trade and

disprotection to industry. Then came new international trade accord

and WTO, requiring opening up of domestic market. Initially there

were strong apprehensions about the impact of trade liberalization on

Indian agriculture which later on turned out to be real threat for

several commodities produced in the country.

Chapter-1 11

All these changes raised new challenges and provided new

opportunities that required appropriate policy response. Besides, last

two decades had witnessed mainly price intervention that had a very

limited coverage, and there was a sort of policy vacuum. Because of

this, there was a strong pressure on the government to come out with

a formal statement of agriculture policy to provide new direction to

agriculture in the new and emerging scenario. In response to this

government of India announced New Agricultural Policy in July 2000.

Throughout much of the 1980s, restrictive import policies, direct

export restrictions and the overvalued exchange rates imparted a

considerable anti-export bias to the Indian economy. Exports of

agricultural goods have been restricted through myriad controls that

included prohibitions, licenses, quotas, marketing controls and

minimum export prices (MEPs).

Following the 1991 economic reforms, India terminated its policy of

granting cash incentives to exports, but retained income tax

exemptions for profits from exports. India's agricultural export policies

then began to show signs of change with the 1994 opening up of

exports of rice. Export policies have been progressively liberalized

since then, barring the occasional reversal.

In India, domestic support for agriculture has been provided mainly

through two channels. Minimum Support Price (MSP) guarantees for

basic staple commodities and provision of inputs subsidies. In addition,

a complex array of other policy instruments has been employed.

There were sweeping reforms in exchange rate policies and a marked

decline in industrial protection in 1991, but it was not until later in the

decade that direct reforms egan in agriculture. Agricultural reforms

started at the border, with the opening up of rice exports in 1994. In

Chapter-1 12

comparison, the reforms in the arena of domestic policy have been

slow. These reforms have been to a large extent a consequence of

unilateral policy initiatives rather than the results of reduction

commitments required under the WTO (Hoda and Gulati, 2005).

The most important import policy features to occur are removal of QRs

and the binding of tariffs at high rates. Following the 1991 economic

reforms, India also progressively trimmed the list of products that

were canalized (directed to state-owned enterprises) for import.

However, as late as 2002, imports of a few critical commodities

continue to be controlled by State Trading Enterprises (STEs). The

EXIM policy for 2002-2007 imposed further reforms by retaining

import monopolies only in respect of copra and coconut oil (State

Trading Corporation, STC) and some cereals (Food Corporation of

India, FCI).1

“In India, the WTO Agreement has been dogged by controversy from

the very beginning. The proposed agreement on agriculture was seen

as a threat to food security and rural employment in the country.

There were also concerns about the Indian farmer-becoming

dependent on the corporate sector and having his traditional rights

curtailed. The anxlety about the possible impact of the new trade

agreement on agriculture was understandable in a country in which

two-thirds of the population depended on this sector for its livelihood.

“While these concerns have remained in the minds of many, a number

of economists have found that there is sufficient flexibility in it from

which India may benefit. They think that in respect of the protection of

1 Use of import monopolies is consistent with Article XVII of GATT 1994 as long as the agencies that have been granted these monopolies have a free hand in importing the canalized products. Since import tariffs for the canalized products remained high in general, imports had not been taking place until the end of 2002.

Chapter-1 13

plant varieties, it is possible under the WTO Agreement, to protect the

interests of the farmers, while providing incentives for innovation to

the plant breeders. The commencement of negotiations in the spring of

2000 at Geneva for continuing the liberalization in agriculture has

rekindled the debate on the subject in India.1”

India adopted a modified tariff schedule on March 15, 2000. The tariff

bindings, subsequent to revision in 1996 and renegotiations within the

WTO in 1999, retain the overall structure notified after the Uruguay

Round: 100 percent for commodities, 150 percent for processed

products and 300 percent for edible oils.

Figure shows average bound tariff and applied tariffs (in 1997) for 46

agricultural commodity groups. Of these, 33 have average bound

tariffs at or above 100 percent. For 7 of these groups, the average

bound tariffs are 150 percent or higher.

India has witnessed only limited progress in reforms in the agricultural

sector since economic reforms were launched in 1991. For example,

only recently were steps taken to removal some of the countless

marketing restrictions that exist.

The domestic price support policies for agriculture have remained

largely unaffected by the economic reforms of 1991. Basic staples in

India continue to be subject to MSP guarantees. These commodities

include paddy rice, wheat, coarse cereals, maize, barley, pulses (i.e.

gram, arhar moong, urad), sugarcane, cotton, groundnuts, jute,

rapeseed/mustard, sunflower, soyabean, safflower, toria, tobacco,

copra, sesamum, and niger seed (GOI, 2001c).

1. WTO Agreement and Indian Agriculture/edited by Anwarul Hoda, Delhi, Social

Science Press, 2002, xxv, 236 p.

Chapter-1 14

Pre-Conditions for the Successful Operations of Reform

Measures

The fundamental condition for gaining the fruits from liberalization

policies is to maintain regularity in the supply of our exportables-in he

global market. This condition could help us to win two objectives—

stability in price, as well as maintain continuity in the foreigners'

demand for our products. There is need at least two steps for the

expansion of our products. One, some infrastructural changes in our

agro-economic structure in order to increase productivity per unit of

land; and secondly, some technological changes in the method of

production in order to increase productivity per unit of labour.

Obviously, both these steps need targeted and limited subsidies as

well as increasing investment both from the public and private sectors.

But the report of the Planning Commission, as is shown in Table 4,

reflects that the levels of actual investment lie below the planned

levels of investment in all the four sectors during 1992-97, while the

fall of public investment in the agricultural sector is strikingly

prominent. But the governments of China and South Korea which have

gained much from liberalization, provide assistances in the form of

investment and subsidies to ensure that farmers have access to vital

inputs at affordable costs. As a result, the use of mineral fertilizer in

terms of plant nutrients per hectare of agricultural land in 1983 was as

high as 331 kg. in Republic of Korea, 184 kg. in China and 117 kg. in

Malaysia when compared to the World Average of 88 kg. But in India

the untargeted reduction in subsidies led to a virtual stagnation in the

consumption of fertilizer in the post-reform period.

According to C.H. Rao “..... the main casualty of stabilization measures

has been real public investment in agriculture which continued to

Chapter-1 15

decline significantly in the post-reform period in India”. Report of the

Planning Commission shows that planned spending on irrigation out of

total has declined from 10 percent in the Sixth Plan to 7.5 percent in

the Seventh Plan and 6.4 percent in the Eighth Plan.

During the reform period area under major and medium irrigation

increased by 2.1 million ha. compared to the near constancy in the

pre-reform period rose only by 5.8 million ha. compared to 8.3 million

ha. during the pre-reform period.

Similarly, the percent value of modern inputs (fertilizers, pesticides,

electricity and diesel oil) at constant 1980-81 prices to the value of

gross agricultural output increased marginally from an average of 11%

during 1985-91 to 13% during 1991-96 and still there was no

acceleration in the growth of agriculture.

The second pre-condition that would help us to gain from the

globalized market is the appropriate selection of commodities through

scientifically surveying the market demands of the foreigners for our

products. Since the days of nineties, our agricultural exportable basket

mainly consists of basmati rice, horticulture, fishes and dairy products,

our agricultural research and extension programmes ought to

concentrates mainly for the intensive cultivation of these products.

Government should provide investment to a large extent in these

exportables in order to generate employment and export surplus

needed for our economic development. Further, we have to form High

Powered Quality Control Board to look after the qualitative aspects of

our exportables. A high degree of intra-subregional trade patterns may

be recommended in order to increase intra-SAARC exports among the

SAARC countries, Intra-Eco-exports and Intra-pacific exports among

the member-countries.

Chapter-1 16

Main Policy Instruments Affecting Incentives / Disincentives

Apart from the strengthening of agricultural research base in the

country and creating a system of transfer of technology to the

farmers, a network of agencies for production and distribution of farm

inputs including credit to the farmers was created. Further, several

policy instruments for creating a stable and remunerative marketing

environment for the farmers were tried and used in the country. The

instruments which are currently in use include the following:

(i) Fixation and announcement of minimum support prices for

24 commodities before sowing and making arrangements

for purchases of farm produce at these prices in case

market prices dip below these levels;

(ii) Selective intervention in the market for some commodities

under market intervention scheme of Government of India;

(iii) Open market operations by public agencies and

cooperatives for some commodities like raw cotton,

oilseeds and copra;

(iv) Buffer stocking of cereals;

(v) Public distribution of certain commodities like wheat and

rice at subsidized prices;

(vi) Levy on rice mills and sugar factories and distribution of

levy sugar at subsidized prices;

(vii) Imposition of stock limits on traders and processors;

(viii) Regulation of marketing practices in agricultural produce

markets;

Chapter-1 17

(ix) Prescribing quality and grade standards of agricultural

products;

(x) Creation of infrastructural facilities for improving

marketing such as market yards and sub-yards in primary

produce markets, roads, communication facilities and

dissemination of market information;

(xi) Encouraging cooperative in agricultural development and

marketing; and

(xii) Regulation of imports and exports.

Diversification and Competitiveness of Indian Agriculture

India is endowed with rich and diverse agro-climatic resources where

crops can be grown throughout the year. There is still enormous

untapped potential in Indian agriculture and its bio-diversity.

It should be strive hard to locate the major issues and problems

hindering growth of this vital sector of the Indian economy on which all

other sectors of the economy are dependent and to develop a policy

framework that has the potential.

1. to boost a higher growth,

2. to raise farmers' income

3. to alleviate poverty at a much faster rate; and

4. to ensure both food and livelihood security.

As Indian agriculture is to be gradually integrated with the global

economy, the question that stares us into the face is—How will Indian

agriculture fare in the new context? Which sub-sectors in Indian

agriculture will ride the wave of liberalisation and globalisation and

Chapter-1 18

which ones would be threatened? This is a critical issue, since the

trade liberalisation and globalisation processes would have significant

repercussions not just on agricultural trade balance but also hold

deeper implications on the overall welfare of producers and consumers

and all other sections of the economy dependent on agriculture.

Indian agriculture is, by and large, competitive and capable. Fruits,

vegetables, flowers and cotton are the potential exports since they are

even now export competitive. This holds true for rice and wheat also to

a certain extent. Most of our pulses and coarse cereals can help avoid

imports, though are not export competitive at present. The traditional

exports-tea, coffee, spices and tobacco-are likely to continue to be

export-competitive, though the competing exporting countries are

occasionally eating into India's share. The only major commodity

group, which is not competitive even as import substitute is the

oilseeds and edible oils group. But they possess the innate strength

and potentiality to become export competitive, provided proper

measures are taken up in an integrated manner and on war-footing.

Impressive growth has also been registered in commercial crops such

as oilseeds, sugarcane and cotton, as also in livestock, poultry and fish

products. Growth in the output of fruit and vegetables, particularly

tuber crops, has been no less spectacular. India is the largest producer

of fruit and second largest producer of vegetables in the world. It si

also the largest producer of pulses, cashewnut, tea and milk in the

world, second largest producer of rice, wheat, onions and sugarcane,

and their largest producer of coconut, tobacco and cotton. India ranks

sixth in the production of potatoes and fish.

Chapter-1 19

In any review of the growth performance of Indian agriculture during

this 20th century, especially since independence, following observations

stand out:

The annual growth rate of about 2.7% for all crops

achieved during 1949-95 was considerably higher than the

insignificant growth of 0.3% per annum registered during

the first half of the century;

The nature of growth during 1950-66 has been such that

agriculture proper (crop sector) grew faster than the allied

sector (animal husbandry, forestry and fisheries), and that

the growth in crop sector was almost equally contributed

by area expansion as well as yield augmentation. However,

within the crop sector, it was the non-foodgrains segment

that grew much faster than the foodgrains segment;

The growth in agriculture in the post green revolution

period (1967-1980) has also been dominated by the

growth in crop sector. But within the crop sector, it was

dominated by the foodgrain segment, unlike the

experience during 1949-64 when non-foodgrain segment

dominated. And within the foodgrain segment, superior

cereals-wheat and rice-led the growth momentum, a

substantial part of which came from yield augmentation;

During 1980-96, the complexion of growth in agriculture

changed. The allied sector, led by animal husbandry and

fisheries, grew much faster than the crop sector. This

raised the share of allied component to almost one-fourth

of the agriculture and allied sector's GDP. Another notable

change during this period was that with in the crop sector,

Chapter-1 20

the lead was by non-foodgrain segment, more notably by

oilseeds.

During 1990-97, there is a deceleration in the annual

average rate of growth in agriculture. The deceleration in

much severe in the crop sector than in the allied

component. In fact, the animal husbandry and fisheries

have almost escaped this deceleration. Bt within the crop

sector, deceleration is more in the foodgrain segment than

in the non-foodgrain segment. The average annual growth

rate in the production of foodgrains for the period 1990-97

turns out to be just 1.4 per cent, much below the rate of

growth of even population.

This changing pattern of growth in Indian agriculture presumably

speaks of increasing diversification in the production basket, being

guided by the pattern of expenditure elasticties in the consumption

basket with rising levels of income and urbanization. That indicates the

force of `market pull' in influencing production decisions and also that

the producers of agricultural commodities do respond strongly to

market/price signals in search of higher incomes. This is a healthy sign

of a market led growth, but the overall deceleration in the growth of

crop sector during the 1990s does raise some concern, especially from

food security point of view. This deceleration in the growth of

foodgrains also raises questions whether it is a result of relatively

stringent market controls on foodgrains that suppress their relative

profitability vi-a-vis non-foodgrains, or whether it is a result

bottlenecks in the supply side factors, especially irrigation. Rao (1997)

opines that it is largely the result of slowing down of the creation of

irrigation potential during 1990s as also the wrong sequencing of the

reform process that curtailed capital expenditures, and created

Chapter-1 21

uncertainty on fertilizer front. But more on these issues later in the

paper.

Areas of Concern

Despite significant past achievements in India's agricultural sector,

there are several disturbing trends.

First, the growth in agriculture since early 1980s has been

accompanied by rising level of input subsidies to agriculture, especially

for power, water, fertilizers and credit (Gulati and Sharma, 1997). The

subsidy burden is making the growth of Indian agriculture financially

unsustainable. It seems to be also eating into the public sector

investments in agriculture, besides inducing inefficient use of scarce

resources. For example, the uncertain and fluctuating policy with

regard to pricing of fertilizers has led to unbalanced use of N, P and K

(almost 8 : 3 : 1 as against the desirable norm of 4 : 2 : 1). This is

perhaps now getting reflected in the slowing down of growth in

agriculture during 1990s.

Second, demographic pressures are leading to rapid fragmentation of

landholdings. Land reforms, especially consolidation of land holdings,

remain restricted to a few states.

Third, patterns of growth have not been conducive to absorption of

surplus agricultural labor in the secondary and tertiary sectors. The

second FYP had projected a decline in the work force engaged in

agricultural activities from 70% in 1956 to 60% in 1976. The actual

decline has, however, been much slower. Even in 1991, 64.9% of the

workers were in agriculture, representing a decline of only 5% from

70% of 1956. As a result, the rate of growth of labor productivity has

been very low. There has also been widening of disparities between

agriculture and non-agricultural sectors.

Chapter-1 22

Fourth, without minimizing the impact of Green Revolution in

imparting dynamism to the growth in foodgrain production and in

transforming Indian from a state of food deficiency to one of self

sufficiency, it must be admitted that household food security, for a

large section of the population, still remains elusive.

Fifth, it must also be admitted that Green Revolution remained

restricted to the well endowed irrigated areas of the country. The

rained areas, constituting about two-third of the cultivated area in the

country, have been largely by-passed by the Green Revolution. This

created some regional inequalities in the beginning, though 1980s saw

some correction in this trend with the spread of Green revolution to

the eastern belt of India.

Sixth, with increasing intensification of agriculture in some parts of the

country, the stress on natural resources has been on the rise. This

raises concerns regarding environmental sustainability of the

agricultural growth process. This is particularly true with respect to

water, soil and even forests.

Seventh, with India becoming signatory to the Uruguay Round

Agreement (URA) of General Agreement on Tariffs and Trade (GATT),

culminating into World Trade Organization (WTO), Indian agriculture is

likely to experience increasing liberalization of external trade in

agriculture. This would also necessitate adhering to the trade related

Intellectual Property Rights (IPR). The relevant concern for Indian

agriculture is that in case domestic market reforms are not carried

through quickly, it may create a situation where an opportunity to

grow and capture world markets gets converted into a threat to the

future growth of Indian agriculture.

Chapter-1 23

All these concerns speak for the need of a comprehensive policy

agenda for agriculture that can respond to these issues appropriately.

The Policy Framework

What is the policy framework through which one can hope to attain a

higher growth in agriculture (above 4% per annum), and that is based

on the principles of efficiency, equity and sustainability?

We believe that such a growth process can be triggered through a

package of technology supported by sufficient incentives, reasonable

infrastructure and appropriate institutions.

Technology:

Technology is a prime mover of growth. The technology package

primarily comprises

Seeds

Water and

Fertilizers

Of these three constituents of technology package, seed is a catalyst.

Development of a new seed or even improvising on the existing ones

is a medium to long term process requiring large investments in

Research and Development (R&D). At any point of time, however, the

existing technology provides a sort of production frontier. For example,

in case of wheat and rice, the HYV seeds provide a technological

production frontier some where around 7 tonnes per hectare. But the

actual yields in the economy may be much lower. The gap between

this technological production frontier and the actual yield levels gives a

sense of ‘potential’ that exists in the system. This potential can be

realized through several other policy instruments ranging from

Chapter-1 24

provision of irrigation and fertilizers on the one hand to according

incentives and aligning institutions on the other. There are major

policy issues related to each one of these that would be taken up in

subsequent sections dealing with policy agenda. Suffice it to say here

that shifting the production frontier outwards is a long term goal,

which needs infusion of heavy investments in R&D.

Incentive Structures:

Diffusion of existing technology and innovation requires appropriate

incentive structures. Many experts also believe that incentives even

induce generation of new technologies and innovation. Incentives

comprise.

Sector level incentives

Crop-specific incentives

Sector level incentive are concerned with movements of terms of trade

between agriculturists and the rest of the economy. This is normally

defined as the ratio of prices received by the farmers for the

commodities sold to prices paid by the farmers for the goods

purchased namely inputs, intermediate goods as well as consumption

goods. There are issues within this item of sector level incentives

relating to whether one should look at barter terms of trade or income

terms of trade, and whether one should consider them in autarkic

environment or open economy framework. These are taken up later in

the policy agenda for incentives.

The other part of incentives relates to crop-specific policies pertaining

to price support and insurance. Is there an effective price support to

various commodities? In surplus areas of north-western India, there

appears to be an effective support price for wheat and rice. But for

Chapter-1 25

many other commodities, it is well known that actual prices rule even

below the support prices in many parts of the country. The

Commission for Agricultural Costs and Prices under its price policy

recommendations covers about 22 commodities for providing support

prices, but to make it effective at a national level one needs effective

procurement policy for these commodities, which is somewhat lacking.

On the issue of crop insurance, nation is still struggling to evolve a

viable strategy that is financially sustainable and operationally feasible.

In the meantime, crops get damaged by pest attacks or natural

calamities, and often the farming community has to go without any

realistic compensation.

Rural Infrastructure

Reasonable rural infrastructure is a must to exploit the potential of

technology and incentives. Rural infrastructure mainly comprises.

Rural Roads

Power supplies

Agricultural markets and storage facilities

Without a reasonable network of rural roads that facilitates movement

of goods from farms to markets and factories, the talk of globalization

of agriculture is futile. The pre-condition for incentives to work is that

farmers should be able to reap benefits of higher prices prevailing in

domestic and international markets, which is not possible without

faster and wide spread reach of road connectivity.

Similarly, lack of power supplies in almost the whole of rural India is

becoming a drag on agricultural productivity. The poor quality,

inadequate quantity, and untimely supplies of power are forcing the

farmers to switch to diesel, which is a much costlier source of energy.

Chapter-1 26

In eastern India, for example, almost 80% of tubewells are running on

diesel, and estimates are that if good quality power supplies can be

assured, agricultural productivity can go up by at least 25%. On the

other hand, power is supposedly supplied to agriculture at much below

its cost of generation and transmission, resulting into large subsidies,

bankrupting the power supplying agencies. This is turn makes it

difficult to efficiently maintain the distribution network. Poor

maintenance results in poor quality supplies that causes reluctance on

the part of farmers to pay higher price for power. The system seems

to be on a downward spiral, both financially and technically, heading

for a near collapse situation if urgent reforms are not introduced.

Lack of proper marketing infrastructure is leading to huge waste of

agricultural produce. The estimates are to the tune of at least 8-10 per

cent in case of foodgrains and 25-30% in case of fruits and

vegetables. Saving wastage of agricultural produce by suitably

developing the marketing and storage facilities, including the cold

chain, would deserve priority as it is economically more rational, and

environmentally benign, to save wastage than to produce an extra

tonne of agricultural produce.

How the proposed policy changes can help develop this type of rural

infrastructure is dealt with in later sections of this paper that enunciate

the policy agenda.

Institutions

Institutions play an enabling role and ensure reasonable equity in

growth. Two important institutions are:

Institutions governing land structures, and

Institutions relating to credit

Chapter-1 27

It was noted earlier that fragmentation of land holdings resulting from

demographic pressures is leading to economically unviable holding

sizes. What sort of institutional reforms should one carry in the land

markets that one can arrest this process of fragmentation while

simultaneously promoting equity is discussed later in the policy

agenda. This is also closely linked with reforms in the credit sector that

is suffering from high transaction costs, high defaults, and

concessional rates of interest in the agricultural sector.

Understanding the direction and magnitude of the effects of WTO

agreements on Indian agriculture is a very difficulty proposition. Some

attempts have been made in the past to quantify the effects of WTO

agreement and trade liberalization on Indian agriculture. While the

direction of the gains to Indian agriculture may be correct, one may

not agree with the assumptions of their models, and the magnitudes

and distribution of these gains. In the presence of imperfectly

competitive export market structures, the increase in terms-of-trade

for Indian agriculture may not be as high as predicted by the

computable general equilibrium studies that implicitly assume perfectly

competitive markets. Whatever little improvement may occur in the

terms-of-trade, it will have negative or at best very little effect on

farmers' welfare, as supply response to term-of-trade improvement is

ambiguous. On this ground, developing countries may ask for further

and sharp reductions in the export subsidies and domestic support

given by the developed world. Our agriculture will stand to gain if we

bring about improvement in irrigation, transport, agricultural extension

services and research. Expenditures on such items are exempt from

domestic support reduction commitments under the green-box

policies.

Chapter-1 28

Given the complexities and escape routes available to the western

world in the implementation of the agreements, one could question the

methodologies followed in the reduction commitment norms. Market

access commitments have been tampered with dirty tariffication, and,

only the already low rates of tariffs have been reduced rather than

reducing high tariff rates. Therefore, the Swiss Formula may be

suggested to reduce higher tariffs by steeper cuts. On the other hand,

some of India's low tariff bindings may be re-negotiated. Calculation of

price support within the product-specific AMS is not clearly defined in

the text. Therefore, it would be a good idea to bring a consensus

among the member countries on this issue. Developing countries

which have net-taxed their agriculture, may ask for credit of some

sorts for having negative AMS. Further, Blue-Box policies may be

suggested to be eliminated altogether or moved out of the exemptions

for the calculation of current AMS. Moreover, along with export

subsidies, export credits and guarantees may also be suggested to be

brought under reduction commitments. The SPS and TBT agreements

do affect agricultural markets. Modernising our agricultural processing

will not only enhance our export market potential but aid in reforming

the domestic food quality as well1.

Indian Agriculture and WTO

Indian Agriculture has been going through a serious crisis during the

post-reform period. Besides domestic concerns, such as decline in

productivity, high input-cost, stagnated net-sown area, declining public

sector investment, inadequate availability of institutional credit,

depressing prices off arm products, and rising agricultural imports,

1 WTO Agreements and Indian Agriculture-Retrospection and Prospects, IIMA Working Paper # 99-11-06, by Satish Y. Deodhar (Assistant Professor, Centre for Management in Agriculture (CMA), Indian Institute of Management (IIMA), Ahmedabad, 380 015).

Chapter-1 29

Indian agriculture has also been facing external challenges under the

WTO regime. In order to boldly face the challenges and avail the

opportunity that may arise after successful implementation of

Agreement on Agriculture (AoA), there is not only need to evolve a

more conductive policy regime, facilitating removal of all sort of

bottlenecks in procurement of inputs, credit, technology, processing,

distribution, marketing and trade, but also there is an emergent need

to develop a team of experts comprising eminent trade economists,

policy analysts, scientists, legal experts and political scientists that

may effectively protect our interests in the WTO.

The inclusion of agriculture in the Uruguay Round (UR) of multilateral

negotiations held prospects of achieving significant progress on

reducing the policy-induced trade distortions in agricultural products.

The Agreement on Agriculture (AoA) aims to eliminate distortions in

agricultural trade through reducing export and production subsidies

and import barriers including non-tariff barriers. It was expected that

implementation of AoA would raise international prices of agricultural

commodities and would improve export prospects for developing

countries like India. However, even after completion of new years of

WTO, world trade in agriculture is still highly distorted due to heavy

export and domestic subsidies given by industrialized countries and

little market access offered by them to the agricultural products of

developing countries. The main provisions of AoA are given as:

Market Access

On market access, the AoA has two basic elements:

Under the Agreement, non-tariff barriers such as

quantitative restriction and export and import licensing

etc. are to be replaced by tariffs to provide the same level

Chapter-1 30

of protection. This is called tariffication. Tariffs, resulting

from this process together with other tariffs on agricultural

products, were to be reduced by a simple average of 36

per cent over 6 years in the case of developed countries

and 24 per cent over 10 years in the case of developing

countries.

The second element relates to setting up of a minimum

level for imports of agricultural products by member

countries as a share of domestic consumption. Countries

are required to maintain current level (1986-88) of access

for each individual product. Where the current level of

import is negligible, the minimum access should not be

less than 3 per cent of the domestic consumption, during

the base period and tariff quotas are to be established

when imports constitute less than 3 per cent of domestic

consumption. This minimum level was to increase to 5 per

cent by the year 2000 in the case of developed countries

and by 2004 in the case of developing countries. However,

Special Safeguards Provisions allow for the application of

additional duties when shipments are made at prices below

certain reference levels or when there is a sudden import

surge. The market access provision, however, does not

apply when the commodity in question is a `traditional

staple' of a developing country.

It sounds as if the developing countries get relatively better access to

the developed countries market, as reduction requirement in the case

of developed countries is 12 per cent higher. However, due to several

loopholes in the AoA, such as fixing up very high level of minimum

access tariff quota, unweighted average reduction commitment, the

Chapter-1 31

developed countries have succeeded in maintaining a high level of

protection to their agriculture.

Domestic Support

Under the AoA, member countries are required to compute an

Aggregate Measure of Support (AMS) for the base period (1986-88).

All payments deemed to be decoupled (green box measures) together

with the those so-called blue box measures and other de minimis

payments are deducted from the AMS. The residual, made up of the

most coupled trade-distorting measures, has been placed in the amber

box. Domestic supports that come under `green box', `blue box' and

`de-minimis' categories are exempted from requirement of reduction.

Further, domestic supports in developing country that meets the

criteria set out in paragraph 2 of Article 6 of the Agreement (`Special

and Differential Treatment' or the S&D Box) are also exempted from

reduction commitment. Examples of these are (i) investment subsidies

which are generally available to agriculture in developing countries;

and (ii) agricultural input services generally available to low income

and resource poor producers in developing countries.

Remaining AMS, which are highly trade distorting (amber box

measures), are subjected to reduction requirements. These AMS

consist of two parts-product specific subsidies and non-product specific

subsidies. Product-specific subsidy refers to the total level of support

provided for each individual agricultural commodity, essentially

signified by procurement price in India. Non-product specific subsidy,

on the other hand, refers to the total level of support for the

agricultural sector as a whole, i.e., subsidies on inputs such as

fertilizer, electricity, irrigation, seeds, credit etc. Reduction

commitment in the AMS for developed countries was 20 per cent by

Chapter-1 32

2000, and for developing countries, it was 13.5 per cent by 2004.

LDCs are exempted from reduction to their AMS but they cannot

exceed their base AMS. Under the AoA, for the developed countries, de

minimis level is fixed at 5 per cent of the value of agricultural

products; while for developing countries, it is fixed 10 per cent of the

total agricultural production.

Significant exemptions have been granted for `decoupled' support

which refers to payments that are not related to current production

levels. output prices, input use or input prices (green box measures)

and support subject to production limitations (blue box support).

Under Annex 2 of the AoA. the main criteria for inclusion in the green

box is that a measure must have `no or at best, minimally trade

distorting effects or effects on production. `These measure comprise

government services such as agricultural research, disease control,

infrastructure, extension and buffer stocks for food security purposes,

domestic food aid, direct payments to producers, decoupled income

support, government assistance in income insurance and income

safety net programmes, payment under environmental and regional

assistance programmes, payments for relief from natural disasters,

assistance to help farmers restructure agriculture, marketing and

promotion services. Highest green box support to agriculture is

provided by the US, which spends more than a third of its Agricultural

GDP on this support. Japan uses one-fourth of its agriculture GDP

towards green-box provisions. Among developing countries, Brazil

provides about 3 per cent of GDP for green box subsidies, while in

Thailand this support is around 7 per cent.

The `blue box' measure represent direct payments under production

limiting programme. These are relevant from the point of view of

developed countries. It covers payments directly linked to acreage or

Chapter-1 33

animal numbers. This support is given to limit production by imposing

production quotes or requiring farmers to set aside part of their land.

The blue box is an important tool for supporting and reforming

agriculture and for achieving certain non-trade objectives. It is argued

that `blue box' support should not be restricted as it distorts trade less

than other type of support.

A perusal of items listed in the `green box' and `blue box' reveals that

on the whole, these items were drawn up with developed countries in

mind. Most of the agricultural support policies in developing countries

fall under the `general services' category. Policy of `direct payment to

producers' is hardly fund in developing countries.

The decoupling of domestic support has emerged as one of the most

controversial issues in the WTO ministerial conferences. The artificial

distrinction created between price support and input subsidies on the

one hand and `green box' and `blue box' subsidies on the other, and

excluding the later from subsidy cuts, is unfair discrimination against

developing countries like India. Subsidies directly linked to production

(amber box support) or having indirect production effects (blue and

green boxes support) distort trade and should be subject to discipline.

In recent years, due to implementation of provision of AoA, amber box

support has declined in many developed countries, but support under

green box policies has significantly increased. Consequently, several

OECD countries have increased their total support to agriculture from

the base. The EU, Japan, the US and some other developed countries

have shifted domestic support from the prohibited amber box to the

permissive categories of green and blue boxes. For example, in OECD

countries, the share of permitted subsidy has tremendously increased

from 24 per cent in the base period to 62 per cent in 1995-980.

Chapter-1 34

Export Subsidies

The commitment on export subsidy is on two counts, viz., (i) reduction

in the total budgetary outlays on export-subsidies, and (ii) reduction in

the total quantity of export covered by the subsidy. Developed

countries needed to reduce the volume of subsidies export and

expenditure on subsidies by 21 per cent and 36 per cent respectively

by 2000, while developing countries had to reduce the volume of

subsidized export and expenditure on subsidies by 14 per cent and 24

per cent respectively by 2004. The subsidies given on transport,

processing and packaging of agricultural exports of both developed

and developing countries are exempted from the reduction

requirements.

Enhancing Competitiveness

A two-fold strategy to give a boost to the Indian agriculture. First we

have to enhance to competitiveness of our agriculture in the global

market, which basically depends on two factors—the price

competitiveness and the product-quality. Second, as India is the net

exporter of agricultural products and has already complied most of the

WTO commitments, she has to mobilize support of similar developing

countries in various WTO forums to put pressure on industrialized

countries for reducing production and export subsidies. Following

suggestions are offered for enhancing the competitiveness of Indian

agriculture in the global market.

Productivity Enhancement Measures

Productivity growth in agriculture has been roughly halved during

1990s. If it is not improved, there may be danger of its falling well

below the rate of growth of population. In order to make agriculture

competitive and cost-effective and to sustain the livelihood of about 60

Chapter-1 35

per cent of the workforce, productivity will have to be augmented not

only in the irrigated regions but also in the rainfed regions. The UPA

government's Common Minimum Programme (CMP) document

released on 27 May, 2004 highlights the government approach

towards the agricultural development. The CMP for the agriculture is

quite relevant and timely. However, its effectiveness will depend on

how much budgeted resources are allocated and how efficiently

schemes are implemented to translate the promises into reality.

Among others, the policy attention must be on; substantially

enhancing public sector investment in agriculture, irrigation, power,

and roads; ensuring adequate credit flow, especially to small and

marginal farmers, and agriculturally under-developed regions;

orientation of MSP policy towards achieving crop diversification;

downsizing non-merit subsidies and plough back the generated

resources to agriculture as investment in irrigation and other

infrastructure; reversal of on-going process of corporatisation of farm

sector; development of suitable institutional market mechanism for

agricultural products; and improving the agricultural R&D and

extension services.

Most of the issues discussed so far relate to price competitiveness of

agricultural commodities. However, WTO member countries have

reached agreements on SPS and TBT that essentially affect the quality

competitiveness of Indian agricultural commodities. A discussion on

the effects of WTO agreements. In fact, article 14 of the AOA clearly

states: Members agree to give effect to the Agreement on the

Application of Sanitary and Phytosanitary Measures. The agreement on

SPS allows members to adopt and enforce measures necessary to

protect human, animal or plant life or health, subject to the

requirement that these measures are not applied in a manner which

Chapter-1 36

would constitute a means of arbitrary or unjustifiable discrimination

between members where the same conditions prevail or a disguised

restriction on international trade. Moreover, article 3.2 states that

sanitary and phytosanitary measures which confirm to international

standards and guidelines shall be deemed to be necessary to protect

human, animal or plant life or health.

For food products, the agreement has accepted the guidelines on food

safety and food standards set by the Codex Alimentarius Commission

(CAC). An important component of the CAC guidelines is the

implementation of a food safety system called Hazard Analysis and

Critical Control Points (HACCP). We need to incorporate this food

quality system in our food processing units, else the SPS agreement

can act as a non-tariff-barrier for our exports. Adoption of the quality

system will not only ensure exports of value-added agricultural

products, but will improve our domestic food quality as well. Article 9

of the SPS agreement provides for technical assistance to developing

countries to build their infrastructure for food processing. May be,

India can take advantage of this provision. Similarly, the agreement

on TBT sets standards for labeling and packaging of agricultural

products as recommended by CAC. Unless India keeps itself abreast of

the emerging guidelines of CAC, it may face non-tariff-barriers in

future. In this regard, WTO does encourage developing countries to

take active part in the CAC activities to decide on various SPS and TBT

related standards. Among developing countries, India has been active

in its participation. This practice needs to be pursued on a continued

basis to protect interest of Indian agriculture, without jeopardizing the

spirit of achieving uniform international standards.

Chapter-1 37

Present Scenario of Indian Agriculture: A Comparative Study on

Performance During Pre-Reform and Post-Reform Periods

Tables 1A to 3 provide the data on some of the macro-economic

variables for the primary, secondary and the tertiary sectors of Indian

economy. Table 1A highlights: first, the secondary and the tertiary

sectors go ahead of the agricultural sector in four out of five key

economic variables considered in the Table, both in the first and

second phase of reform periods. Only in the formation of GDP, the

secondary sectors lags a little behind the agricultural sector in all the

three periods under consideration.

Secondly, the agricultural sector holds the highest position in providing

employment to the workforce both in pre and in the post-reform

periods.

Thirdly, reform measures either in its first phase or in the second

phase have failed to bring changes in index of value added per worker

in the agricultural sector, while the corresponding figures for the

secondary sector and tertiary sector have been progressing very

successfully during the reform periods, especially in its second phase.

Table 1B reflects that the average annual rate of growth of per worker

value added in the agricultural sector has fallen in the second phase

comparing with that of the first phase and this statement is also true

with respect to GDP formation by this sector. But in the secondary

sector the average annual rate of growth of per worker value added

increased by 131.05 percent in the first phase over the pre-reform

years and 137.72 percent increase in the second phase over the first

phase of reforms and the corresponding figures for the tertiary sector

are 134.58 percent and 141.41 percent respectively.

Chapter-1 38

Table 2 reveals that over the 25 years, the contributions of agriculture

to total GDP has fallen by 51.78 percent, unlike all the other sectors.

Table 3 highlights the fact that agricultural commodities accounted for

about 17.61% of export basket of India, an increase in foreign

exchange from Rs. 21.58 billion in 1988-89 to Rs. 37 billion in 1992-

93. The year 1995-96 is exceptional with the export performance of

agriculture and allied products, increasing by 28% over the previous

year. Export of rice registered and increase of 169% and 194%

respectively over that of 1994-95 (Yojana, Sept. 1999) India step up

rice exports gradually from 67000 tonnes in 1978-79 to 5.51 million

tonnes during 1995-96. With the population of South-East Asia

expected to increase from 450 million to 615 million, its food and

agricultural business market has potential to triple to % 60 billion

annually by 2010. Similarly, at per report of WTO, Japan has opened

up its rice market and would import 4% of its domestic consumption of

rice gradually rising it by 8% which approximately amount to 785,000

tonnes by 2000 A.D. Considering all these, we attempt to discuss the

significance of TRIPs in Indian agriculture in Section 3 of this paper.

TRIPs and its Significance for Indian Agriculture

TRIPs agreement provides a comprehensive set of global trade rules

for the protection of copyright, patents, trademarks, industrial designs,

trade secret, semi-conductor layout designs, and geographical

indicators that apply to all the member-countries, irrespective of all

the levels of development of natural and human endowments.

According to GI aspect of TRIPs, the geographical origin of the goods

in question are of vital of acquiring rights to be traded by the

producers. So each country needs specific law on geographical rights

in order to enable the country concerned to get legal action for

Chapter-1 39

protection of GI. Otherwise there is every danger of item like basmati

rice or neem of getting patented by other countries. However, for

many low income countries like Indian with limited administrative

capacity, it seems to be costly to use legal expertise for a number of

times.

TRIPs are also in conformity with the 1993 convention on biodiversity

where 170 countries have upheld the need for biodiversity. India and

some other developing countries situated in semi-arid tropical region

receive vast-germoplasm and species as free-gifts of nature. India has

nearly about 7,500 highly valued medical plants. India has 6% of the

world's flowering plant species, 14% of the world's birds, and one-third

of the world's identified plant species numbering over 45,000 and

81,000 identified species of animals. Further more than 3,000 species

of earthworms are known. TRIPs offer an opportunity for the Indian

farmers to receive a lot of royalty for these plant species and medicinal

plants like turmeric and neem. Biodiversity is a common property for

rural Indian society All knowledge, intellect regarding biodiversity is

maintained by traditional societies and moreover through different

ethical, cultural and social mechanisms that have been consumed and

utilized, freely exchanged for the benefit of the community. Thus

TRIPs would help Indian agriculture to maintain natural resources and

environment intact and to use only that much of quantity which is

regenerated naturally.

Table 1A

Performance of the Three Sectors of Indian Economy During

Pre-reform and Post-reform Periods, 1987-97

Chapter-1 40

Variable Year Primary Sector

Secondary Sector

Tertiary Sector

Total

GCF (average for each period at constant 1980-81

1987-91 4,342

(10.2)

20,970

(49.4)

17,150

(40.4)

42,462

(100.0)

Prices (Rs. Crores) 1991-97 5,891

(9.5)

31,384

(50.5)

24,831

(40.0)

62,106

(100.0)

Per worker value added (Rs. at constant 1993-94 prices)

1987-88

8,404 29,519 34,719 17,022

1993-94 10,435

(4.0)

38,684

(5.2)

46,721

(5.8)

22,160

(5.0)

1998-99 12,174

(3.3)

53,276

(7.5)

60,074

(8.3)

29,553

(6.5)

GDP 1987-88 31.6 28.2 40.2

1993-94 30.3 25.8 43.9

1998-99 26.8 26.5 46.7

Workforce 1987-88 64.1 16.2 19.7

1993-94 64.4 14.6 20.8

1998-99 64.7 14.6 20.7

Index of Value added per worker

1987-88 100.0 351.2 413.1

1993-94 100.0 370.7 447.6

1998-99 100.0 437.4 542.5

Notes: 1. GDP and Workforce in different sectors are percentages respectively. 2. Workforce pertains to 15+ age groups. 3. Value added is index per worker value added at 1993-94 prices.

Table 1B

Changes in the Key Economic Variables in all the three Sectors of Indian Economy during First Phase of Reforms over the Pre-Reform Years and during Second Phase over the First Phase of

Reform Years.

Sectors Percent change in per worker value added

during

Percent changes in workforce during

Percent changes in GDP formation during

First Phase

over pre-reform years

Second Phase

over first phase of reforms

First Phase

over pre-reform years

Second Phase

over first phase of reforms

First Phase

over pre-reform years

Second Phase

over first phase of reforms

Primary Sector 24.17 16.66 0.3 0.3 -95.89 -88.45

Chapter-1 41

Secondary Sector 32.05 37.72 -1.4 -0.2 -91.49 -402.71

Tertiary Sector 34.58 41.41 1.1 0.1 109.20 106.38

Note: All the figures in this Table 1B are percentage figures. Source: Computed from the data of Table 1A.

Table 2

Relative Share (%) of Agriculture in Total GDP during 1950-51

to 1995-96

Sector 1950-51 1995-96 % change in 1995-96 over 1950-51

Agriculture 56 29 -51.78

Manufacture 15 29 193.33

Transport and Trade 11 20 181.82

Banking 9 11 122.22

Administrative and Defence 9 11 122.22

Source: Economic Survey, 1996-97.

Table 3

Share of Agricultural Exports in total Exports in India

(Rs. billion at 1980-81 prices)

Year Total Exports Agricultural Exports

Share of Total Exports (%)

Share of Agri. in GDP (%)

1988-89 119.46 21.98 18.40 35.49

1989-90 152.03 26.82 17.64 33.86

1990-91 162.29 31.49 19.41 33.67

1991-92 193.04 36.06 18.68 32.78

1992-93 213.82 37.66 17.61 32.97

Source: Govt. of India, Ministry of Finance, Economic Survey, Various Issues.

Thus from sections 2 and 3 it is obvious that the Indian agriculture has

been experiencing an encouraging picture with respect to her export

performance, especially in some selected products, namely; basmati

rice, turmeric, Haldiram Bhujia, and tin-packed sweets. So in section 4

Chapter-1 42

of this paper, an attempt has been made to discuss the pre-conditions

that we need for the successful operations of TRIPs measures.

Table 4

Planned and Actual Sectoral Public Investment, 1992-97

Sector Planned Actual Percent of Planned

Agriculture 64.9 38.3 59

Secondary 244.9 219.0 89

Tertiary 190.2 203.0 107

Total 500.0 460.3 92

Source: Govt. of India, Planning Commission, Ninth Five Year Plan.

Need of the Study

Despite serious concerns about the growth rate in agriculture in the

recent years very few attempts have been made to examine the

impact of new economic policy on agricultural sector. This study was

planned to fill this gap. It examines the response of aggregate crop

output to important policy and other variables and quantifies the effect

of various factors on agricultural output.

Objective of the Study

In the present study, we have following objectives:

Analysis of the impact of new economic policies on

Agriculture Production.

To study the impact of New Economic Policy on the

Agricultural factors of production.

To study the Impact of New Economic Policy on the

Agricultural Product Price.

Chapter-1 43

To study the impact of New Economic Policy on Agriculture

sector subsidy.

To study the impact of new Economic Policy on the

Diversification of Crops.

To study the Impact of New Economic Policy on

Agricultural Export & Import.

Hypothesis

That since British period Indian Agriculture remained

backward and stagnant, the trend that is continued till

today.

That the “New Economic Policy” did not give much

importance to Indian Agriculture as compared to the

Industrial & Service Sectors.

That the 60% of the total population is engaged in

agriculture and it is the only means of their employment,

still not much has been done to improve the standard &

economic development of the farmers.

That the new economic policy is not conducive for the

growth of agricultural production, which is sliding year by

year. Overall the lack of the mechanism of institutional

credit is leading to the dangerous trend in the society like

suicide by the farmers being in debt trap.

That the problems of “supply side” eg. Irrigation,

agricultural credit, agriculture research & development

have to be given much importance as per the norms of

new economic policy.

Chapter-1 44

That the new economic policy lacks a clear perspective of

“food security” and the liberalization of agriculture is not

conducive for the Indian agricultural sector today.

That the industrial agriculture in the era of globalization

and economic liberalization had a good chance to rectify

the lacunae of its sector together with other developing

nations.

Plan of the Study

This study is organized into six chapters including Introduction. The

Second Chapter presents the review of literature of the study. Chapter

Third discuss the data collection & research methodology in the study.

Different stages of Development of the Indian Agriculture is presented

in Chapter Four & Chapter Fifth presents empirical results and discuss

the impact of new economic policy on Agricultural Development.

Conclusions and Suggestions of the study are contained in the Sixth

Chapter.