07 indian agriculture r p s malik

8/6/2019 07 Indian Agriculture R P S Malik

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Indian Agriculture:Indian Agriculture:

Recent Performance and ProspectsRecent Performance and Prospects

in the Wake of Globalizationin the Wake of Globalization

R.P.S.Malik


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Story LineBased on some of the available literature, the paper

provides a brief review of the following

R

ecent Growth Performance of Indian Agriculture Changing Pattern of Consumption and estimated

demand for foodgrains in 2020

Performance of Exports and Imports of agriculture in

recent years Agricultural Support Policies that have a major impact

on agriculture

Likely impacts of WTO negotiations on Indian

agriculture


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Annual Production of Important Crops during Selected

Periods (Million Tonnes)

TE

Ending

Foodgr

ains Rice Wheat

Coarse

Cereal

s

Total

Pulses

Oilsee

ds Cotton

Sugarc

ane

1980-81 123.73 49.91 34.55 31.24 10.46 7.95 7.95 144.91

1990-

91 172.45 72.78 53.03 53.03 13.66 8.42 8.42 223.22

2000-

01 203.41 86.91 72.45 72.45 13.14 6.88 6.88 294.67

2003-

04 199.70 84.33 69.98 69.98 13.25 6.57 6.57 271.65


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The long term trend of agricultural production in India can

largely be attributed to a variety of factors such as:

Declining public investment

Failure to carry out essential reforms to conserve water and

soil

Unabated degradation of natural resources

A weakened support systems due to financial problems of

state governments.


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While reversing the trend of declining investment in agriculture,

which has often been cited as the most important factor for

deceleration in growth especially during the 1990s, could contribute

significantly to reversing the observed deceleration in the growth of

agriculture, it will not however be wise to expect that investment

alone will reverse this trend.

In order to make investment in agricultural infrastructure yield the

desired results in terms of higher productivity and production, it

would be imperative to pursue reforms vigorously in many areas

such as agricultural research, extension, credit, marketing, etc.,

These reforms collectively would determine the reduction in cost

of production and profitability of agriculture. It is the profitability

that would ultimately drive the engine of innovation,

entrepreneurship and growth.


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Changing demand for Foodgrains

There has been a slow down in the growth rate of direct demand for

foodgrains consumption on account of several factors- deceleration in

growth rate of population, changing per capita income, changing tastes

and preferences, declining income elasticity of demand for foodgrains,

changing patterns of consumption in both rural and urban areas etc

In between the period from 1977-1999, the cereal consumption per

capita in rural areas declined from 192.6 Kg per annum to 152.6 Kg per

annum ( a decline of about 21 percent) while in urban areas thecorresponding decline was from 147 Kg to 125 Kg ( a decline of about

15 percent).

An important feature of decline in consumption has been that the

decline has occurred in all cereals- rice, wheat, and coarse cereals.


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There has also been a narrowing down of the difference in levels

of cereal consumption between rural and urban areas

In contrast there has been a significant increase in consumption of

milk and milk products, edible oils, fruits and vegetables and meat,egg and fish.

The food diversification has occurred in all expenditure groups

including the poorest, although the poorest still spend a major part

of their income on foodgrains


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Estimated Demand for

Cereals in India: 2020Based on Estimated demand (Million

Tonnes)

Bhalla et al 257 to 375

IMPACT 237

Kumar and Mittal 269

Radhakrishna and Reddy 253

Bansil 241


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Performance of Agricultural Exports from

India

During 1961-71, Indias agricultural exports grew at a rate of only 0.78 percent per

annum

Between 1971 -81 exports grew at an annual average growth rate of 18.36 percent.

During the decade of 1980s the growth rate of exports again plummeted to 2.24 percent

per annum.

The economic liberalization and trade reforms introduced in 1991, helped India

accelerate the growth rate of exports to 7.42 percent per annum. While during the first

half of the 1990s agricultural exports performed extremely well, however since 1995-96 these have shown extreme fluctuations.

Although the WTO Agreement on Agriculture in 1995 was expected to improve Indias

agricultural exports, this does not seem to have happened.

There have recently been some signs of a turnaround during 2002-03 and it is

expected that this trend will continue.


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Examined from another

angleThe share of agricultural exports, which constituted more than 30 percent of the total

exports from the country during 1970-71 and 1980-81, have of late been declining

consistently, more so in recent years.

The declining trend is more noticeable in the post liberalization and post WTO periods.

In 1990-91 agricultural exports constituted about 18 percent of the total exports which

in 2000-01 went down to 14 percent. In 2003-04 agricultural exports constituted only

12.4 percent of all exports.

Not only the share of agricultural exports in the total merchandise exports has come

down steadily over the years but the share of agricultural exports (including processed

food) in agricultural GDP has also declined from 7.6 percent in 1995-96 to 6.3 percent

in 2001-02 and recovered to 6.9 percent in 2003-04


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Recent Export TrendsTrends in exports of various commodities during recent years suggest

that many commodities like rice, meat products, processed foods, fish,

fruits and vegetables registered very high growth rates during thenineties.

On the other hand some traditional exports like tea, cotton were not able

to sustain their growth rates after the liberalization.

Recently oilmeal exports have suffered and cotton exports have

collapsed


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Agricultural ImportsIndias agricultural imports have displayed extreme fluctuations, with

sudden surge in imports during the mid 90s.

The percentage share of agricultural imports in total imports also hasshown very high volatility, having moved in the range of 28 per cent to

less than 2 per cent during the same period.

In recent years agricultural imports have grown at a relatively high rateof about 23, 22 and 27 per cent in 2001-02, 2002-03 and 2003-04

respectively.

In recent years, imports of only two items, namely, pulses and edible

oils have recorded consistently high volumes. There has also been a

sharp increase in imports of cotton, raw wool and rubber.


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On Import-Export

Balance

While after 1996 there was a deceleration in export growth, the

agricultural imports have shown an increase. In fact the gap between

agricultural exports and imports have been narrowing down in recent

years.

Although India abolished its QRs in 2001, this has not resulted in any

surge of agricultural imports. There is an increase in growth but this is

mainly because of large imports of edible oils


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The domestic policies

comprise

y Input subsidies on fertilizers, power, irrigation water

y Public investment in development of water resources surface and

groundwater Government intervention in marketsy Direct payment to farmers (such as those in the form of deficiency

payments, insurance and disaster payments, stabilization payments, as also

some compensatory payments)

y Price support for major crops

y

General services (such as government transfers to agricultural researchand development, extension services, training and agricultural infrastructure

etc)

y Other support (comprising such measures like certain tax concession

specific to agriculture or local or substantial level funding for agriculture

etc).


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Import policies

Refer essentially to border protection through trade barrierssuch as quantitative restrictions, quotas and tariffs on imports

which in the process create a wedge between domestic and

world market prices.


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Export policies

Include those that either promote exports (through instruments like

subsidies and marketing arrangements that make exportables of a country

more competitive) or those policies that constrain exports (often through

canalization and restriction of exports and export taxes etc). Usually

however import policies etc are discussed in the context of trade policies

rather than support to agricultureper se


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Input Subsidies in IndianAgriculture

The total input subsidies on irrigation, power and fertilizer during the

year 1999-00 for the country as a whole are estimated at Rs 377 billion at

current prices

This amounts to 2.13 percent of Indias GDP and 8.8 percent of IndiasGDP in agriculture in that year.

Over the past two decades ( 1980s and 1990s) these subsidies, at

constant prices, have risen nine times - from 11.4 billion in 1981-82 to

104 billion in 2001-02.In nominal terms, the subsidy per hectare of GCA has increased almost

continuously from Rs 45 in 1980-81 to reach an estimated level of Rs

1964 in 1999-2000.Measured in terms of constant prices, the subsidy per hectare of GCA has increased

more than ten times during the two-decade period


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Input Subsidies and Public Investment

in Agriculture

During 1999-00 the level of input subsidies (measured at 1993-94 prices) at more than Rs 250

billion was much higher than the public sector GCFA of Rs 50 billion. It is argued that even a

modest reduction of subsidies, say, to the extent of 20 percent could enable the government to

double its investment in agriculture.

While subsidy reduction is one way to find resources for increasing public investment in

agriculture, it may be more beneficial to focus on those aspects of all subsidies, current and

capital, that lead to distortions and deleterious effects on natural resources and cropping pattern.

In fact, there is scope for significant reduction in the cost of subsidy through better designing of

the programmes and delivery mechanism.

The input subsidies have often been accused of causing most harmful effect in terms of reduced

public investment in agriculture on account of the erosion of investible resources, and wasteful

use of scarce resources like water and power.

Merely rolling back subsidies and diverting these to agricultural investment cannot solve all theproblems of agriculture


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Export Subsidy Provided by India (US $Million)

Year Commodities Amount (US $

Million)

1996 Fresh fruits, fresh vegetables, plants and flowers, cardamom 1.99

1997 Fresh fruits, fresh vegetables, plants and flowers, 3.92

1998 Fresh fruits, fresh vegetables, plants and flowers, poultry

products

2.51

1999 Fresh fruits, fresh vegetables, plants and flowers, poultry

products

2.33

2000 Fresh fruits, fresh vegetables, plants and flowers, cardamom 1.10


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Globalization and Domestic Policies Reforms

The importance of domestic reforms in an environment of increased

global integration has been widely acknowledged.

Policy constraints such as restrictions on movement of agriculturalcommodities and ad hocism in export policy have been cited as a major

source of regulatory problems.

The Government of India removed several statutory restrictions in its

2002 National Agricultural Policy.

In early 2004 the Government liberalized procurement of food grains

for the export market; exporters are now permitted to procure rice and

wheat from farmers at market-determined rates.

The incentives and climate for private investment have improved


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As a result of commitments under the Uruguay Round, India has bound

all the tariff lines in agriculture. The applied rates have been much lower

than even the bound rates.

The product-specific support is negative, while the non-product specific

support i.e., subsidies on agricultural inputs, such as, power, irrigation,

fertilizers etc., is well below the permissible level of 10% of the value of

agricultural output.

India is under no obligation to reduce domestic support currently

extended to the agricultural sector.

Export subsidies of the kind listed in the Agreement on Agriculture,

which attract reduction commitments, are not extended in India.


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Potential impacts ofliberalization

Estimating the potential impacts of liberalization of trade in agricultural

and non- agricultural commodities in the wake of WTO negotiations onthe agriculture is complicated and would depend on the outcome of the

negotiations currently underway

More specifically it would in large part depend upon the extent to

which the developed countries are willing to scale down their domesticsupport , export subsidies, tariffs, and non tariff barriers and let increase

their market access for the developing and least developed countries .

While several proposals are currently on the table in respect of each of

these components, agreements have alluded all of them


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Several researchers have nevertheless attempted to evaluate, using the

scenario analysis approach, the likely impacts of some of the alternative

proposals under discussion in one or more of these areas on one or moreof the affected variables viz international prices, production, trade and

welfare at the global and /or at the level of a region/country.

The results from most of the studies on liberalization of agricultural

trade point towards an increase in international prices of a majority of the

agricultural commodities, increase in volume of international trade and

an increased welfare consequent upon liberalization. The impacts on

production of different crops, principally the cereals, however appear to

be marginal


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A comparison of the relative impacts of alternative scenarios analyzed

in a partial equilibrium framework indicate that cuts in tariffs would

yield higher gains overall for India, rather than domestic support and

export subsidy cuts. Moreover, the deeper the tariff cuts the higher are

the gains. However, if the number of tariff bands are increased, even with

deeper tariff cuts, Indias gains would decrease.

Asymmetric across the board cuts of the Uruguay Round would yieldthe most significant gains for India in terms of several parameters, but

export gains are modest, and the losses would also be lower than in the

three or four band formula.

The effects of reduction in domestic subsidy are much lower than the

effects of reduction in export subsidy. Thus India should target anegotiating strategy preferably with Uruguay Round cuts. However, if

that were not to be possible, then fewer bands with deeper progressive

cuts would be better for India. However, the welfare gains of tariff

liberalization along with domestic subsidy and export subsidy reductions

are ver si nificant


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Change In Key Agricultural Trade, ProductionAnd Welfare Indices For India

UR Formula 3 Band Soft 3 Band Hard 4 Brand Hard

Production

(% Change)

1.266 1.180 1.333 2.082

Imports(% Change)

7.76 6.44 13.90 8.87

Exports

(% Change)

67.92 62.20 90.14 103.17

Consumer

Surplus (USD

Million)

-948 -909 -766 -1,642

Producer

Surplus (SUD

Million)

970 920 825 1,696

Total

Welfare

(USD Million)

73 55 139 112


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Export Subsidy Cut Simulation Results:Impact on Production of Select Commodities(Percent Changes

Commodity % Change in Production

Wheat 0.18

Rice -0.003

Barley 0.88

Maize -0.27

Pulses 0.0006

Cotton 0

Sugar, Raw 0.18

Total (All commodities including those not

listed above)

0.12


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Domestic Subsidy Cut Simulation Results:Impact on Production of Select Commodities(Percent Changes)

Commodity % Change in Production

Wheat 0

Rice 0.01

Barley -.01

Maize 0.003

Pulses 0

Cotton 0

Sugar, Raw 0

Total (All commodities including those not

listed above)

0.001


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In general thus if the prices of agricultural commodities like

rice, cotton, wheat, sugar etc were to rise, India couldgenerally improve its exports. Developing countries and the

agricultural market in general stands to gain major benefits of

reducing and eliminating subsidies and domestic support. It is

however necessary to emphasize that this is only a generalequilibrium picture and might be slightly more optimistic than

reality, as certain products of particular interest to India are

likely to be liberalized least and there are other competitors

who will because of high trade logistic costs in India rush tofill the breach.


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Thank you!

07 indian agriculture r p s malik

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