92516468 Role of Agriculture in Economic Development in India

8/2/2019 92516468 Role of Agriculture in Economic Development in India

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AnAssignmentReportONRoleofAgriculturalInEconomicDevelopmentofIndiaSubmittedinthepartialfulfillmentoftherequirementforawardofdegreeof

BACHELOROFBUSINESSADMINSTRTION

AnujKumarJaiswalBBAIIIYear

::SubmittedBy::

::SubmittedTo::DepartmentofBusinessManagementIndiraGandhiNationalTribalUniversityAmarkantak(M.P.)AcademicSession2011-2012


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RoleOfAgriculturalInEconomicDevelopmentOfIndiaIntroductionIndiaisoneofthefastestgrowingeconomiesoftheworldandiscurrentlythefocusofagreatdealofinternationalattention.Itistheseventhlargestcountryintheworldintermsofitsgeographicalsize.Todayithasapopulationofnearly1.1billionwhichmakesitthesecondmostpopulousnationintheworld.Withcurrentpopulationgrowthby2025IndiamayevenhavecaughtupwithChinaaccordingtotheUN.InthisMAPwefocusonagricultureandespeciallyonagriculturetrade.Indiahasalargeanddiverseagricultureandisoneoftheworldsleadingproducers.Itisalsoamajorconsumer,withanexpandingpopulationtofeed.Forthisreasonandbecauseofitsagriculturalandtradepolicy,itspresenceontheworldmarkethasbeenmodestinrelationtothesizeofitsagriculture.Indiaisstillabigunknown.Whileithasbeenasmallnetagriculturalexporteroverallsince1990,inrecentyearstherehavebeenmanychangesinitsagricultureandtradepoliciesandsignificantchangesinitsnettradepositionformanyindividualproducts.TheleadingforecastinginstitutionsexpectthatIndiawillplayabiggerroleinworldmarketsinfuture.Inanumberofmarketsitisexpectedtoconsolidateitspositionamongtheworldsleadingimporters(vegetableoils)andexporters(rice).GiventhesizeofIndianagriculture,changesinitsbalancesheetsforkeycommoditieshaveapotentiallylargeimpactonworldmarkets.Thoseofuswhopreachthegospelofagriculturewithevangelicalzealfindthetextcompellingandconvincing.Weareregularlypossessedbythespiritonlytolookaroundandseeoutcolleagues,inothersectors,incountrymanagement,orevenourseniormanagementdoubting,yawningorsubtlyedgingtowardsthedoor.Wefacetheimplicitquery,Ifagriculturecandosuch

greatthings,whyhavetheynotyethappened?1Thepastdecadehasbeenoneofagro-pessimism.Thepromisesthatagriculturaldevelopmentseemtoholddidnotmaterialise.ThispessimismseemedtocoincidewithpessimismaboutSub-SaharanAfrica.EspeciallyforSub-SaharanAfricathehopewasthateconomicdevelopmentwouldbebroughtaboutbyagriculturaldevelopment.AfterthesuccessofthegreenrevolutioninAsia,thehopewasthat


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asimilaragriculturalmiraclewouldtransformAfricaneconomies.Butthishopenevermaterialised,agriculturalproductivitydidnotincreasemuchinSSA(figure1),andworse,thenegativeeffectsofthegreenrevolutioninAsiabecamemoreapparent,suchaspesticideoveruseandsubsequentpollution.AlsoinAsiatheyieldincreasestaperedoff.Thescepticsputforwardseveralargumentswhyagricultureisnolongeranengineofgrowth2.Forinstance,theliberalisationofthe1990sandgreateropennesstotradehasleadtoareductionintheeconomicpotentialoftheruralsector:cheapimportedChineseplasticbucketsoutcompetethelocallyproducedpottery.Ontheotherhand,itdoesmeancheaper(imported)supplies.Withrapidglobaltechnicalchangeandincreasinglyintegratedmarkets,pricesfallfasterthanyieldsrise.So,ruralincomesfalldespiteincreasedproductivityiftheyarenetproducers3.Theintegrationofruralwithurbanareasmeansthathealthyyoungpeoplemoveoutofagriculture,headtotown,leavingbehindtheold,thesickandthedependent.Itisoftenalsothemenwhomovetourbanareas,leavingwomeninchargeofthefarm.Thishasresultedintheincreasedsophisticationofagriculturalmarkets(andvaluechains)whichexcludestraditionalsmallholders,whoarepoorlyequippedtomeetthedemandingproductspecificationsandtimelinessofdeliveryrequiredbyexpandingsupermarkets.Thenaturalresourcebaseonwhichagriculturedependsispooranddeteriorating.Productivitygrowthisthereforeincreasinglymoredifficulttoachieve.Finally,multipliereffectsoccurwhenachangeinspendingcausesadisproportionatechangeinaggregatedemand.Thusanincreaseinspendingproducesanincreaseinnationalincomeandconsumptiongreaterthantheinitialamountspent.ButasGDPrisesandtheshareofagriculturetypicallydecreases,thequestionish

owimportantthesemultipliereffectsare,especiallywhensignificantlevelsofpovertyremaininruralareas,whichisthecaseinmiddleincomecountries4.Thedisappointmentwithagricultureledmanydonororganisationstoturnawayfromagriculture,lookinginsteadtoareasthatwouldincreasethewell-beingofpoorpeople,suchashealthandeducation.Thoseorganisationsthatstillfocusedonagriculture,suchastheCGIAR,wereputunderpressuretofocusmoreonreducingpoverty,besidesincreasingagriculturalproductivity.However,sincethebeginningofthenewcentury,thereseemstobearenewedinterestinagriculture.Areviewofmajorpolicydocuments5,includingthewell-publicisedSachsreportandtheKofiAnnanreport,showthatagricultureisbackontheagendaagain.Themostinfluentialreport,however,hasbeentheWorldDevelopmentReport2008oftheWorldBank6.Thisreportarguesthatgrowthintheagriculturalsector2contributesproportionallymoretopovertyreductionthangrowthinanyotherec

onomicsectorandthatthereforealone,thefocusshouldbeontheagriculturalsectorwhenachievingtoreachMDG1.Areassessmentoftheroleofagricultureindevelopmentseemstoberequired.Thispolicypaperaddressesseveraltimelythoughcomplexquestions:First,howcanordoesagriculturecontributetoeconomicdevelopment,andinparticularhowdoes


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itrelatetopoverty?Second,theagriculturalsectorhaschangedconsiderablyinthepastdecades:whatarethemaindriversofthischange?Third,whatistherelationshipbetweeneconomicoragriculturalgrowthandpro-poordevelopment?Fourth,howdoesagriculturerelatetoothersectorsintheeconomy?Fifth,whoisincludedandwhoisexcludedinagriculturaldevelopment,specificallyfocusingonsmallfarms?Andfinally,ifagriculturaldevelopmentisindeedimportanttoeconomicdevelopment,thenwhy,despitealltheeffortsandinvestments,hasthisnotledtomoresuccesses?AgricultureisthebackboneofIndianEconomy.About65%ofIndianpopulationdependsdirectlyonagricultureanditaccountsforaround22%ofGDP.Agriculturederivesitsimportancefromthefactthatithasvitalsupplyanddemandlinkswiththemanufacturingsector.Duringthepastfiveyearsagriculturesectorhaswitnessedspectacularadvancesintheproductionandproductivityoffoodgrains,oilseeds,commercialcrops,fruits,vegetables,foodgrains,poultryanddairy.Indiahasemergedasthesecondlargestproduceroffruitsandvegetablesintheworldinadditiontobeingthelargestoverseasexporterofcashewsandspices.Further,Indiaisthehighestproducerofmilkintheworld.

ImportanceofAgricultureinIndianEconomyThedirectcontributionoftheagriculturesectortonationaleconomyisreflectedbyitsshareintotalGDP,itsforeignexchangeearnings,anditsroleinsupplyingsavingsandlabortoothersectors.Agricultureandalliedsectorslikeforestryandfishingaccountedfor18.5percentoftotalIndianGrossDomesticProduct(GDP)in2005-06(at1999-2000constantprices)andemployedabout58percentofthecountry'sworkforce(CSO,

2007).Itaccountedfor10.95percentofIndiasexportsin2005-06(GoI,2007)andabout46percentofIndia'sgeographicalareaisusedforagriculturalactivity.TherehasbeenastructuraltransformationintheIndianeconomyduringthepastfewdecades.ThecompositionofGrossDomesticProductat1993-94constantpricesrevealsthattheshareofagricultureincludingforestryandfishinghasdeclinedasgrowthinindustrialandservicessectorsfaroutpacedagriculturalsector(Figure1).Theshareofmining,manufacturing,electricityandconstructionsectorhasincreasedfrom21.6percentin1970-71to27percentin2004-05andservicessectorhasincreasedsignificantlyfrom32percentto52.4percentduringthesameperiod.DespiteasteadydeclineofitsshareintheGDP,agricultureisstillanimportantsectorandplaysasignificantroleintheoverallsocio-economicdevelopmentofthecountry.Therefore,fosteringrapid,sustainedandbroad-basedgrowthinagricultureremainskeypriorityforthegovernment.


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Consistentwiththetrendsofeconomicdevelopmentatnationallevel,roleofagriculturalsectorinthestateeconomiesisalsochangingrapidly.TheshareofagricultureinGrossStateDomesticProduct(GSDP)hasdeclinedsignificantlyduringthelasttwodecades.InsomeStates,suchasBihar,Punjab,UttarPradesh,Haryana,Rajasthan,andOrissa,thesectortodaycontributesmorethanone-quarterofGSDP,whileinsomestates,suchasGujarat,Kerala,Karnataka,TamilNaduandMaharashtra,thesectorcontributeslessthan20percenttoGSDP(Figure2).However,contributionofagriculturetoGSDPhasdeclinedinalmostallStatesbetween1993-94and2004-05.ThedeclinewasthehighestinKarnataka(16%),followedbyHaryana(14.2%),andKerala(13.7%).InKarnataka,declinewasmainlyduetosignificantincreaseintheshareofservicesector(from37.9%in1993-94to54.7%in2004-05)mainlydrivenbyinformationaltechnology(IT)industry.SimilaristhecasewithHaryanathedeclineisduetofasterdevelopmentofservicessectorincitiesaroundthenationalcapital,Delhi.Despitedecliningshareofagricultureintheeconomy,majorityofworkforcecontinuetodependonagriculturalsectorforemploymentandinruralareasdependenceonagricultureismoreasnearly75percentofruralpopulationisemployedinagriculturalsector.However,thereisdisguisedemploymentinthesectorduetolimitedopportunitiesforruralnon-farmemployment.Thisdisguisedemploymentleadstolowerlaborandresourcesproductivityinthesectorrelativetoothersectorsoftheeconomy.Thelowlaborproductivityleadstohigherratesofpovertyinruralareas(Figure3).AgricultureinIndiaisconstitutionallytheresponsibilityofthestatesratherthanthecentralgovernment.Thecentralgovernment'sroleisinformulatingpolicyandprovidingfinancialresourcesforagriculturetothestat

es.

AgriculturalpolicyIndianagriculturepolicyisaimedessentiallyatimprovingfoodselfsufficiencyandalleviatinghungerthroughfooddistribution.Asidefrominvestinginagriculturalinfrastructure,thegovernmentsupportsagriculturethroughmeasuresincludingminimumsupportprices(MSP)forthemajoragriculturalcrops,farminputsubsidiesandpreferentialcreditschemes.Underthepricesupportpolicy,MSPsaresetannuallyforbasicstaplestoprotectproducersfromsharppricefalls,tostabilisepricesandtoensureadequatefoodstocksforpublicdistribution.Inthepastguaranteedpriceshavebeenbelowtheprevailingmarketprices,accordingtotheInternationalFoodPolicyResearchInstitute(IFPRI)in2007.Atthesametimesubsidiesonfarminputsincludingfertilisers,electricalpowerandirrigationwaterhaveledtoinefficientuseofinputsand

indirectlysubsidiseincome.IFPRIconcludedthatsupportforagriculture(from1985-2002)hasbeenlargelycountercyclicaltoworldprices.OECDappearstoreachasimilarconclusion.Its2007monitoringreportpointsoutthatthelevelofagriculturalsupport(coveringtransfersfromtaxpayersandconsumers)forIndiawouldappeartobeslightlybelowthe


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OECDaveragebutconsiderablyhigherthanthatoftheemergingeconomiesreviewedbytheOECD.Furthermoretheinstrumentsofsupportusedaretheleastefficientandthemosttradedistortiveformsofsupport.

EconomicdevelopmentsIndiaisthethirdlargesteconomyinAsiaafterJapanandChina,asmeasuredintermsofitsGrossDomesticProduct(GDP)anditiscontinuingtogrowrapidly.TheIndianeconomyhasseenhighgrowthratesofmorethan8%since2003.In2005and2006GDPgrewatarateofover9%.GloballyIndiasgrowthissurpassedonlybythatofChina.Thisisexpectedtocontinuewithgrowthjustunder7%by2015.Graph1comparesGDPgrowthinIndia,ChinaandBrazil,wheregrowthhasbeenmuchslower.


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HighgrowthrateshavesignificantlyreducedpovertyinIndia.HoweveritsGDPperheadisstillverylow(estimatedatUS$820in2006),soitremainsclassifiedbytheWorldBankasalowincomecountry.TheWorldDevelopmentReport2008statesthatoveronethirdofthepopulationofIndiawaslivingbelowthepovertylinein2004-2005,managingonlessthan$1aday.CerealsarethestaplefoodinIndia,providingoverhalfthecaloriesconsumed,whilepulsesarethemainproteinsupplementinthediet.Risingincomesandtheinfluenceofglobalisationhavecontributedtochangesinthedietwithaslightdecreaseincerealsconsumptionandanincreaseinpulses,edibleoils,fruitsandvegetables,milkandmeat,whichisgrowingfromalowbase.Inthecaseofedibleoils,thefallinpricesaftertheliberalisationofimportsfurtherstimulatedconsumption.Howeveralthoughdietsarediversifying,IndiastilllagsbehindBrazilandChinaintermsofdailycalorieintakepercapita.Table1:Foodconsumptiondailycaloriespercapita1990-1992BrazilChinaIndia1998-20002860269623963001291724632003-2005322329572512

DecelerationinAgriculturalGrowthIndiasGDPgrewatanannualrateof5.8percentfrom1995-96to2004-05at1993-94constantprices,butagriculturalgrowthdeclinedtoabout2percent,resultingfromstagnation/declineinproductivityduringthelastdecade.Plan-wisetrendsofgrowthoftotalGDPandGDPfromagriculturearepresentedinFigure4.ItisevidentfromthefigurethatIndiasagriculturalsectorhasgrownmorethantargetedgrowthrateduringthe6,7andthththththth

8FiveYearPlansbutfellshortoftargetedgrowthduringthe9and10Plan.Duringthe10Plan,agriculturalGDPgrewatanannualrateofmere2.1percentagainstthetargetedgrowthrateof4percent.Indianagricultureisatacrossroads.Withabout70percentpopulationlivinginruralareasandabout58percentofitsworkforceengagedinagriculture,th

Indianeedspositivechangeinagriculturalsector.Therefore,inthe11FiveYearPlan,theNationalDevelopmentCouncilhasadopteda14pointresolutiondividingresponsibilitiesequallybetweentheCentralandthestategovernmentswithanaimtoachievefourpercent


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th

agriculturalgrowthbytheendof11plan(seeBox1).TheagriculturalsectorhasbeenallocatedadditionalRs.25,000crorefromtheCentralgovernmentinthenextfouryears.

LandOwnershipandDistributionPatternLandownershippatternofsamplehouseholdsisgiveninTable9.Theaveragesizeofoperationalholdingswaslarger(10.5hectares)incaseofcontractfarmersthaninnoncontractfarmers(4.8hectares).Incaseofcontractfarmers,majorityofhouseholds(41%)haveaverageoperationholdingofmorethan10ha,followedby28percenthouseholdshaving4-10hawhileproportionofsmallandmarginalfarmers(2hectares)wasonly7percent.Incontrast,proportionoffarmershavingoperationalholdinglessthan4hectares(averagefarmsizeoftheState)wasnearly60percent.TheseresultsclearlyshowthatmediumandlargefarmersaremajorbeneficiariesofcontractfarmingintheState.Tenancyisallowedinthestate;therefore,leasingoflandisquitecommon.Theaverageareaunderleaseishigher(5hectares)incaseofcontractfarmersthannon-contractfarmers(3.2hectares).Theareaunderleasehasincreasedfrom3hectaresin2002to5hectaresin2007incaseofcontractfarmers;whilethecorrespondingfiguresfornon-contractfarmersare1.5and3hectares.Thedatashowsthatlargelymediumandlargefarmersareleasinginlandtoincreasetheiroperationalholdingtoenterintocontractfarming,whichmostcompaniesprefer.Fixedrentandpaymentincasharethedominantpracticesandrentisfixedperhectare.Theaveragerentperhectareperyearinthestudyar

eawashigher(Rs.25,755)incontractfarmersthannon-contractfarmers(Rs.23,887).Theaveragecroppingintensityismarginallyhigher(183%)incaseofcontractfarmersthannon-contractfarmers(178%).

Contractfarmers2007OwnedlandLeased-inLeased-outOperationalHoldingTermsofLeaseFixedrent(%)ShareCropping(%)Averagelease(Rs/ha)5.55.00.110.5100.00.025,75520025.53.00.08.492.36.720,910

Non-Contractfarmers20071.63.20.04.8100.00.023,88720021.61.50.03.1100.00.020,591


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RoleOfAgricultureInIndianEconomyAgricultureisthemainsectorofIndianeconomywhichisamplypoweredbythefollowingpoints:1.ShareinNationalIncome:Thecontributionfromagriculturehasbeencontinuouslyfallingfrom55.1%in1950-51to37.6%in1981-82&furtherto18.5%in2006-07.Butagriculturestillcontinuestobethemainsectorbecauseitprovideslivelihoodtoamajorityofthepeople.2.LargestEmploymentProvidingSector:in1951,69.5%oftheworkingpopulationwasengagedinagriculture.Thispercentagefellto66.9%in1991&to56.7%in2001.However,withrapidincreaseinpopulationtheabsolutenumberofpeopleengagedinagriculturehasbecomeexceedinglylarge.3.ProvisionofFoodSurplustotheExpandingPopulation:Becauseoftheheavypressureofpopulationinlabor-surpluseconomieslikeIndia&itsrapidincreasethedemandforfoodincreasesatafastrate.Therefore,unlessagricultureisabletocontinuouslyincreaseitssurplusoffood-grains,acrisisislikelytoemerge.Expertsforeseethatbytheendof11thfiveyearplan(i.e.,2011-2012),thedemandforfood-grainsisexpectedtoincreaseto280.6milliontons.Meetingthisdemandwouldrequire2%growthperannum.Thechallengefacingthecountryisclearasduringthelast10yearsthefood-grainshavebeengrowingatameager0.48%.4.ContributiontoCapitalformation:ThereisageneralagreementontheimportanceofCapitalFormationineconomicdevelopment.UnlesstherateofCapitalFormationincreasestoasufficienthighdegree,economicdevelopmentcannotbeachieved.AgriculturecanplayabigroleinpushingtheCapitalFormationinIndia.Ruralsectorcantransferlabor&capitaltotheindustrialsectorwhichcanbeeffectivelyusedtoincreasetheproductivityinthelatter.5.ProvidingRawMaterialtoindustries:Agricultureprovidesrawmaterialstovariousindustrie

sofnationalimportance.Sugarindustry,Juteindustry,Cottontextileindustry,Vanaspatiindustryareexamplesofsomesuchindustrieswhichdependonagriculturefortheirdevelopment.


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6.MarketforIndustrialProducts:Sincemorethantwo-thirdsofthepopulationofIndialivesinruralareas,increasedruralpurchasingpowerisavaluablestimulustoindustrialdevelopment.7.ImportanceinInternationalTrade:Agricultureconstitutesabout75%ofthetotalexportsofthecountry.Suchistheimportanceofagricultureasfarasearningsofforeignexchangeareconcerned.

AgriculturestructureIndiasagriculturalareaisvastwithtotalarableandpermanentcroplandof170millionhectaresin20032005.IthasthesecondlargestarableareaintheworldaftertheUnitedStates.OECDinits2007agriculturalpolicymonitoringreportnotesthatIndianagricultureisdominatedbyalargenumberofsmallscaleholdingsthatarepredominantlyowneroccupied.

Theaveragesizeofholdinginthelateninetieswasabout1.4hectaresandcontinuestodecline,asfarmsareusuallydividedoninheritance.OutofIndias116millionfarmers,around60%havelessthan1hectareandtogethertheyfarm17%oftheland.Theshareofmediumtolargefarms(above4hectares)isverysmallatjustover7%ofallholdings,butthesefarmsaccountforaround40%oftheland.Theimplicationisthatmanyoftheverysmallfarmsaresubsistenceholdings,withlowinvestmentandlittleproductivitygrowth.

PRODUCTIVITYGROWTHININDIANAGRICULTURE:THEROLEOFGLOBALIZATIONANDECONOMICREFORM-

India,whichisoneofthelargestagricultural-basedeconomies,remainedclosed

untiltheearly1990sBy1991,therewasgrowing

awarenessthattheinward-lookingimportsubstitutionandovervaluedexchangeratepolicycoupledwithvariousdomesticpoliciespursuedduringthepastfourdecades,limitedentrepreneurialdecisionmakinginmanyareasandresultedinahighcostdomesticindustrialstructurethatwasoutoflinewithworldprices.Hencetheneweconomicpolicy


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of1991stressedbothexternalsectorreformsintheexchangerate,tradeandforeigninvestmentpolicies,andinternalreformsinareassuchasindustrialpolicy,priceanddistributioncontrols,restructuringinthefinancialandpublicsectors.andInfiscal

addition,IndiasmembershipandcommitmenttoWorldTradeOrganization(WTO)in1995wasaclearsignofIndiasintentiontotakeadvantageofglobalizationandfacethechallengeofacceleratingitseconomicgrowth.Onemeasureofeconomicgrowthisgivenbyproductivitygrowthasitformsthebasisforimprovementsinrealincomesandwelfare.Theconceptofproductivitygrowthgainedimportanceforsustainingoutputgrowthoverthelongrunasinputgrowthaloneisinsufficienttogenerateoutputgrowthbecauseofdiminishingreturnstoinputuse.Thispaper,whichexaminesIndiasproductivitygrowthintheagriculturalsectorinthecontextofglobalization,hasthreemainaims.First,it

examinesthesepossiblelinksintheagriculturalsectoringeneral.Second,itdiscussestheproblemsandprospectsforagriculturalproductivitygrowthofvariousIndianstates.Third,thepaperhighlightsthechallengesofglobalizationanddrawspolicyimplicationsforthesuccessofIndianagriculture.

OVERVIEWOFINDIA'SAGRICULTURALECONOMYIntheearly1950s,halfofIndiasGDPcamefromtheagriculturalsector.By1995,thatcontributionwashalvedagaintoabout25percent.Aswouldbeexpectedofvirtuallyallcountriesintheprocessofdevelopment,Indiasagriculturalsectorssharehasdeclinedconsistentlyover

timeasseeninthetablebelow.

Table1.ShareofagriculturaloutputinIndia'sGDPYearPercentageshareSource:1950/5152.2196543.6197637.4198532.8199128.3199924.4

EstimatedfromvariousissuesofEconomicSurvey,GovernmentofIndia.

Inthelastfivedecades,theGovernmentsobjectivesin


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agriculturalpolicyandtheinstrumentsusedtorealizetheobjectiveshavechangedfromtimetotime,dependingonbothinternalandexternalfactors.Agriculturalpoliciesatthesectorallevelcanbefurtherdividedintosupplysideanddemandsidepolicies.Theformerincludethose

relatingtolandreformandlanduse,developmentanddiffusionofnewtechnologies,publicinvestmentinirrigationandruralinfrastructureandagriculturalpricesupports.Thedemandsidepoliciesontheotherhand,includestateinterventionsinagriculturalmarketsaswellasoperationofpublicdistributionsystems.Suchpoliciesalsohavemacroeffectsintermsoftheirimpactongovernmentbudgets.Macrolevelpoliciesincludepoliciestostrengthenagriculturalandnon-agriculturalsectorlinkagesandindustrialpoliciesthataffectinputsuppliestoagricultureandthesupplyofagriculturalmaterials.Duringthepre-greenrevolutionperiod,fromindependenceto1964-1965,theagriculturalsectorgrewatannualaverageof2.7percent.Thisperiodsawamajorpolicythrusttowardslandreformand

thedevelopmentofirrigation.Withthegreenrevolutionperiodfromthemid-1960sto1991,theagriculturalsectorgrewat3.2percentduring1965-1966to1975-1976,andat3.1percentduring1976-1977to1991-1992.Acharya(1998)explainsthatthepolicypackageforthisperiodwassubstantialandconsistedof:a)introductionofhigh-

yieldingvarietiesofwheatandricebystrengtheningagriculturalresearchand

extensionservices,b)measurestoincreasethesupplyofagriculturalinputssuchaschemicalfertilizersandpesticides,c)expansionofmajorandminorirrigationfacilities,d)announcementofminimumsupportpricesformajorcrops,governmentprocurementofcerealsforbuildingbufferstocksandtomeetpublicdistributionneeds,ande)theprovisionofagriculturalcreditonaprioritybasis.ThisperiodalsowitnessedanumberofmarketinterventionmeasuresbythecentralandstateGovernments.Thepromotionalmeasuresrelatetothedevelopmentandregulationofprimarymarketsinthenatureofphysicalandinstitutionalinfrastructureatthefirstcontactpointforfarmerstoselltheirsurplusproducts.Acharya(1998)alsonotesthattherateofgrowthofproductivityperhectareofallcropstakentogetherincreasedfrom


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2.07percentinthedecadeending1985-1986to2.51percentperannumduringthedecadeending19941995.Similarevidenceofanincreaseinyields,apartialmeasureofproductivitygainsgivenbyoutputperunitoflandareaisseenbelowforvariouscrops.

Table2.Yieldforvariouscrops(kg/ha)1950/51RiceWheatCoarsecerealsPulsesFoodgrainsOilseedsCottonSugarcaneSource:66866340844152248188334221960/611013851528539710507125455491970/7111231307665524872579106483221980/81133616306954731023532152578441990/91174022819005781380771225653951995/96185524839415521499851246683691998/99190525961035661161194824069288

AgriculturalStatisticsAtAGlance.Agriculture,CMIE,September1999.

Althoughproductivitygainsweresustainedinthe1990saftertheliberalizationprocessbegan,theyieldratesformostoftheagriculturalproductsinIndiaarefarbelowcomparableratesinanumberofothercountries.Thisisseenintable3.Exceptfor

sugarcane,tea,coffeeandjute,Indiasyieldsarelowerthantheworldaverage.ItshouldbenotedthatIndiaisrankedsecondbothinarea

andoutputforsugarcaneproductionandisthelargestproducerofteaandjute

intheworld.AlthoughIndiaisdoingquitewellinwheat

production,theaverageyieldsintheNetherlandsandIrelandaremorethanthreetimesIndiasyieldrates.Inallothermajorcrops,Indias

productivityperformanceseemstolagbehindothers

Whyglobalize?Globalizationinthecontextofagriculturecanbebestdiscussedinthecontextofthreecomponentsimprovementofproductiveefficiencybyensuringtheconvergenceofpotentialandrealizedoutput,increaseinagriculturalexportsandvalueaddedactivitiesusingagriculturalproduce,andfinally,improvedaccesstodomesticandinternationalmarketsthatareeithertightlyregulatedorareover

lyprotected


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Table3.Annualaverageyieldbasedon1995,1996and1997data(kg/ha)CropsRegionWheatWorldEuropeChinaIndiaUSACanadaAustraliaThailandIndonesiaSriLankaBrazilKenyaBangladeshUK777221551580248225654764378725692508224518802252447367718136513855821473480618628486590Rice3757CoarseGrains2678431143589826590Maize40505698486715407690PulsesGround-Sugarnuts4050569848671540268610592787641597104069717767417543131863266Teacane1158Coffee538CowsTobaccoMilk20623557100518451442227525221827Leaves1616Jute1757

Source:

FoodandAgriculturalOrganizationYearbook1997.

Thesecomponentsarelinkedinvariousways.Forexample,productiveefficiencywouldenhancevalueaddedactivitiesinagriculturethroughagro-processingandexportsofagriculturalandagro-basedproducts.Theseactivitiesinturnwouldincreaseincomeandemploymentintheindustrialprocessingsector.Thusglobalizingagriculturehasthe

potentialtotransformsubsistenceagriculturetocommercializedagricultureandtoimprovethelivingconditionsoftheruralcommunity.However,economicreformswithinIndiaarenecessarytopavethepathtosuccessfulglobalization.Thestatedobjectiveoftheneweconomicpolicyistoraisetheeconomysgrowthrate

fromthecurrent5.5percentachievedover15yearstoabout7or8percentperyear.Ahluwalia(1996)explainsthatthisindirectlyrequiresan

improvementinagriculturalgrowthfrombetween2and3percentinthepasttoabout4percentperyear.Althoughinitially,withrespecttoagriculture,therewasnomajorpolicyreformpackageinthe1990s,itwashoweveranticipatedthattheopeningupoftheagriculturalsectortoforeigntrade,themovetoamarketdeterminedexchangerateandreductionofprotectionforindustrywould,overtime,benefittheagriculturalsector.ManmohanSingh(1995),thethenFinanceMinister,inhisinauguraladdressatthe54thAnnualConferenceoftheIndianSocietyof


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AgriculturalEconomics,broughttonoticethatapolicyofheavyprotectionoftheindustrialsectoroperatedtothedisadvantageoftheagriculturalsectorwhenindustrialpriceswereraisedrelativetoworldpricesandthustheprofitabilityofinvestinginindustrywasraisedrelativetoagriculture.Thiswouldleadtoashiftof

resourcesfromagriculturetoindustry.Apolicyofheavyindustrialprotectionalsoledtoanappreciationoftheexchangerate.Ahluwalia(1996)notedthatover-valuationoftheexchangerate(beforetheIndianrupeewasdevaluedby18percentintwophasesstartinginJuly1991)discouragedagriculturalexportsmorethanindustrialexportsbecauseIndianindustrialpolicyhadsoughttooffsettheconstraintsfacedbyindustriesviaasystemofexportincentivesformarketsupport.Agriculturalexportsontheotherhandweredeniedanysuchincentivesastheydidnotuseimportedinputs.Ahluwalia(1996)arguedthatinthepast,theagriculturalsectorwasnegativelyprotectedbecauseoftheabovetworeasonsandthefactthatfarmersweredeniedaccesstotheworldmarketsduetotradebarriers.Exportsofplantationcropsandafewcommercial

cropswerefreefromexportrestrictionbutexportsofessentialcommodities,particularlyfoodproducts,weresubjecttobans,quotasandotherrestrictions.Interestingly,Krugerandothers(1991)showedthatwhilemanydevelopedcountriescontinuetoprotectagriculture,developingcountriesdonotdoso.However,noformalattemptor

theoreticalframeworkhasyetbeenusedtoassesstheextentofnegativeprotectioninIndianagriculture.Theimplementationofeconomic

reformintheIndianagriculturalsectorhasbeenagradualprocess.Theseincludean87percentcutintariffonagriculturalproducts,sustenanceofhigh-yieldcropvarieties,removalofminimumexportpriceonselectedagriculturalproducts,aliftonquantityrestrictionsontheexportofsomecropsandvariouslandreformsrelatedtotenancyrightsandlandceilings.

Agriculturalgrowthandperformance:aneconomy-wideanalysisAlthoughIndiaseconomicreformswereinitiatedinJune


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1991,theprocessofliberalizationwasimplementedgraduallyandthusitisdifficulttoassessthefullimpactoftheliberalizationmeasures.Nevertheless,anattemptismadetodiscusswhatisobservableintermsofagriculturalgrowth.Oneobservationisthattheexpectedincreaseinexportsduetoliberalizationsimplydidnotoccur.Indiasshareinworldexportswas0.6percentin1997;Indiahastoaimforatleast4percentby2005inordertomeetthegrowingimportdemandsforcapitalgoods,rawmaterialsandcrudeoilaswellastomeetherexternalfinancialcommitments(Kalirajanandothers2001).Forthelastdecadeorso,Indiasshareinworldexportsofagriculturehasbeenbetween2percentand3percent.Furthermore,astable3shows,IndiaisnotascompetitiveastheothercountriesandcalculationsshowthatIndiascropyieldshaveincreasedataslowerrateoverthe1990s.Inaddition,theagriculturalsectorsoutputgrowthdecreasedto2.9percentduring1992-1993to1998-1999.Kalirajanandothers(2001)explainthattwoimportantreasonsfortheslowdownarethattherewasnomajorbreakthroughindevelopingnewhigh-yieldingvarietiesduringthe1990sandtherewasadeclineintheenvironmentalqualityoflandwhichreducedthemarginalproductivityofthemoderninputs.Whatcouldthismeanintermsoftheeffectivenessofthepoliciesofreducedprotectiontoindustry,amarketdeterminedexchangerateandtheopeningoftheagriculturalsectortoforeigntrade?First,althoughthereductiontoprotectionofindustryissubstantial,thereisreasontobelievethatthereductionwasnotnecessarilysufficienttobenefittheagriculturalsectorwhosetariffswerealsodrasticallyreduced.Hence,theexpectedshiftinresourcestoagriculturedidnotoccur.Second,istheapparentineffectivenessofthemarketdeterminedexchangerateinboostingexports.Thi

sishowevernotsurprisingastheexchangeratemaynotbeakeyfactordeterminingagriculturalexportdemandforIndia.Ingeneral,unlikemanufacturingindustries,agriculturedidnotbenefitmuchfromthesetwopoliciesbecausetheshareofimportedinputsinthevalueof


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agriculturalproductionissmall.ItislikelythatachangeinthemindsetandattitudeoffarmershasyettotakeplaceandtherearedelaysorhesitationinembracingIndiasopenness.Third,inopeninguptheagriculturalsectortoforeigntrade,Indiahastakenmajorstepstowardstradeliberalizationsince1991,partlyonitsowninitiativeandpartlyfromitscommitmentstoWTO.Kalirajanandothers(2001)provideadetailedreviewofthesereformprocedures.Butwhyhavethebenefitsfromtradeliberalizationbeenslowtocome?OnereasonisthatprospectsforgrowthinagriculturalexportsdependpartlyondomesticpoliciesandpartlyontheremovalofprotectionistpoliciespursuedbydevelopedcountriessuchasJapanandmembersoftheEuropeanUnion(EU).AnOECDreport(1998)

estimatedthattheproducerequivalentsubsidyintheOECDcountriesincreasedbyUS$9.3billionfrom1988to1993andthissubsidyasapercentageofthevalueofproductionin1997was9percentinAustralia,20percentinCanada,47percentinEUand70percentinJapan.Theseprotectionistpracticesdonotseemlikelytocometoanearlyend.AnUNCTADreport(1999)notedthat29member

countriesoftheOECDspentanaverageofUS$350billionayearinagriculturalsupportbetween1996-98.reportsthattheEUprovidesproduct-specifictradedistortingdomesticsupporttoatleast50differentagriculturalproducts.TheimplicationofthesereportsisthatfoodexportsfromIndiamaynotshowalargeincreasegiventheinternationalenvironmentandthestill-existingrestrictionsonexportsinthemajorimportingmarketsbasedontheself-sufficiencyargumentandfoodsecurity.Othermacroeconomicfactors,suchastherecessioninSchum

acher(2000)further

developedcountriesin1996-98aswellasthe1997South-EastAsianfinancialcrisis,havecloudedthepossibilitiesofincreasingIndianexports.AnotherproblemfacedbyIndianagriculturalexportersistheprotectionistmeasuresintheformofnon-tradebarriersthatdevelopedcountriesusetorestrictmarketaccess.Thisisbytightening

requirementsofquality,testingandlabeling,andanti-dumpingandcountervailingmeasures.Forexample,inMay1997,theEUbanned


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marineproductsfromIndiacitingunhygienicprocessingconditions.TheextracostsofmeetingthestandardsrequiredinexportmarketsaswellascostsassociatedwithchangesintheproductionmixandtransactionsassociatedwithexportsmaywellbediscouragingIndianexporters.OneexistingproblemofIndiasagriculturalprotectionistheuseofinputsubsidies.

Thegeneralargumentfavouringthishasbeenthatitisnecessarytoencouragetheuseofparticularinputsforproductionforvariousbenefits.

ForIndia,GulatiandSharma(1995)showthattheinputsubsidyinpercentofGDPincreasedfrom2.13inthetrienniumending1982-1983to2.73inthetrienniumending1992-1993.Butthebenefitsofthesesubsidieshaveaccruedtoonlycertainclassesoffarmersinsomeregionscultivatingirrigatedcrops.Furthermore,highlysubsidizedpricesofinputssuchasirrigationwaterandelectricityforpumpsetshaveencouragedcultivationofwaterintensivecrops,over-useofwater,groundwaterdepletion/salinityandwaterlogginginmanyareas.Subsidyfornitrogenfertilizeronthe

otherhandhasresultedinnitrogenphosphorouspotassiumimbalanceandactedasadisincentiveforuseoftheenvironmentallyfriendlyorganicmanure.Asaresult,thelinkagebetweenfoodcropsand

non-foodcrops,whichincludefodder,hasbeenreduced.TheseadverseconsequencesareadrainonthefiscalburdenofcentralandstateGovernments.Thus,ifn

otproperlymonitored,inputsubsidiescanbecounterproductiveand,inthiscontext,protectiontolowercostsofproductionshouldbedoneselectivelyinthecourseofliberalization.Infact,Agenda21oftheUnitedNationsConferenceonEnvironmentandDevelopmentin1992stressedthatthereisaneedforintegrationofenvironmentalconsiderationsinthepricingofnaturalandotherresourcesinsuchawaythatpricesreflectsocialcosts.Suchapricingpolicywillnotonlyleadtoamoreefficientuseofscarceresourcesbutalsoresultinsubsidyreductionsandimprovementsinenvironmentalquality.Themoneysavedfromthereductionof

subsidiescanbespentinthedevelopmentofruralinfrastructures,agriculturalresearch,farmerseducationandotherformsofsupportfor


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agriculture.

Agriculturalgrowthandperformance:aninter-stateanalysisWhiletheaboveanalysishasprovidedageneralviewoftheimpactofeconomicreforms,thissectionexaminesagriculturalgrowthandperformanceinthestatesofBihar,Karnataka,TamilNaduandPunjabwiththeirattendantpolicyimplications.Thetablebelowshowstheyieldforvariouscropsinthesefourstates.

Table4.Yieldofmajorcrops(kg/ha)YearRiceWheatCoarsecerealsPulsesBihar1960/611970/711980/811990/911995/9686778810151220137067995713141810202073088582811141566515600609791610Karnataka1960/611970/711980/811990/911995/96129217092029207023804416967937801294270354319333470Punjab1960/610/711980/811990/911995/9610091764273332293130124422372730371538809041411154819071995785744589755820TamilNadu1960/611970/711980/811990/911995/96Source:1413190018613116339078778484110611542652713244253701058134013401910214090091984610811470167196201290350800007736710082011392011001010321860256133903840654790786958120027035030846344036541411715521159410653005187748738881290407626520525680389499590107498070149786897823276287795607497959891300145039845842361762033878353314125249045510FoodgrainsOilseedsCottonSugarcane

StatisticalAbstract,GovernmentofIndia.TamilNadu:SeasonandCropReports.

Table4showsthattheyieldsforvariouscropsinthesestatesdiffergreatly.WhileTamilNaduhadthehighestyieldinrice,oilseedsandsugarcane,Punjabenjoyedthehighestyieldsinwheat,coarsecereals,pulsesandfoodgrains.KarnatakaontheotherhandisseentodowellincottonandBiharperformedquitewellinpulses


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andcoarsecereals.

FurtheranalysisandfindingsbyKalirajan

andothers(2001)showthatPunjabhadmaderemarkableachievementsontheagriculturalfrontwhileBiharhadremainedstagnantinthelasttwodecades,withKarnatakaandTamilNadushowingmoderateachievement.Clearly,differencesinphysicalendowments,climatic

conditionsandinstitutionalcharacteristicsaresomeofthereasonsforthevaryingproductivityperformance.Thus,havingacrosstheboard

economicreformsislikelytoworklesseffectivelythanstate-specificpolicymeasuresthatenableeachstatesagriculturalyieldstoreachtheirfullpotential.Thecomparativeadvantageofeachstatesagriculturalproductionshouldbedeterminedandwithinter-staterestrictionsremoved,totalagriculturaloutputwouldseeaverysignificantincrease.Forexample,Karnatakawithlessfavourablesoilandwaterresourcesshouldbegivenincentivestoconcentrateonagro-processedproductsandcorporateagricultureinhorticulture,floricultureandanimalhusbandry,ortoundertakewatersheddevelopmenttohelpwithdrylandagriculture.Manystudieshaveindicatedthatwithwatershedareas,productivitygrowthhasbeenmainlyduetoseedandfertilizeruse.Thus,thisstatehastobegiveninputsubsidiesforhighyieldingseedvarietiesbutatthesametime,thefarmersneedtobeeducatedontheoveruseofchemicalfertilizers.WithBihar,agri

culturalperformanceisproblematiconmanyfronts.First,althoughdemographicpressurehasincreasedand

agriculturaltechnologyhasimproved,mostoftheuncultivatedlandisconcentratedinsouthernBihar,whereirrigationfacilitieshavenotkeptpaceandthesoilisofpoorquality.Giventhephysiographyof

southernBihar,wellsarealsounsuitableandthusthedominantmodeofirrigationhasbeenthroughtankswhoseexpansionandmaintenancehasbeenneglected.Second,theinfrastructuralfacilitiesofBiharhavebeenlaggingasseenbytheinfrastructuredevelopmentindexintable5.Duetoinfrastructuralbottlenecks,availabilityofmoderngoodsandserviceshasnotincreasedortheirsupplyremainscostlyorunreliable.

Table5.Infrastructuredevelopmentindex(AllIndia=100)BiharKarnatakaPunjabTamilNadu


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1980/811984/851989/901992/931993/94Source:

83.584.883.183.481.1

94.897.995.296.196.9

207.3204.6195.8191.6191.4

158.6148.7147.4143.3144.0

ProfilesofStates,CMIE,March1997.

Third,agricultureinBiharisdominatedbysmallandmarginalfarmersandtheprevalenceofmasspovertyislargelyrelatedtothebackwardnessofagriculture.Fourthandimportantly,thestateagriculturalpoliciesinBiharareindireneedofreview.The

semi-feudalproductionconditionstillexistsinruralareasandtheineffectiveprotectionoftenancyrightshashinderedagriculturalgrowth.TheslowpaceoflandconsolidationreflectsinadequateKalirajanandothers

financialoutlaysandashortageofmanpower.

(2001)notethatmarketingandextensionservicesinBihararealsoratherweak

comparedtotheotherstates.Punjabontheotherhand,wasoneofthefewstateswhichenjoyedthesuccessoflandreformsandthehighpriorityofinvestmentinruralinfrastructureasseenintable5.Also,theirrigationbaseofthesmallandmediumsizedfarmswascomparabletothatoflargefarms.Inaddition,thePunjabAgriculturalUniversityatLudhianacontributedtothedevelopmentofnewseedvarieties.However,thereareclearsignsofadeclineincropyieldssincethe1990sandthishasbeenassociatedwiththeincreasinguseoffertilizersandexcessivewaterusewhichhaveincreasedtheunitcostofproductionasaresultofdecliningsoilquality.Hence,careisneededwhenprovidingfurtherAnotherrelatedfactisthe

inputsubsidiesinfertilizerandwateruse.

steepincreaseinwagesinPunjabandintheabsenceofproductivityincreases,thecostincreasehasaffectedtheprofitabilityoffarmers.WithTamilNadu,themaincrophasbeenriceasthisstateisblessedwithtwomonsoons.Butfrom1992-1997,therehasbeena

steadydeclineintheareasirrigatedbycanalsandanincreaseinwell-irrigatedareaswhiletheuseoftanksremainsanunreliablesourceofirrigation.However,majorimprovementsinabout10ricevarietiesreleasedintheearly1990scanbeexpectedtoimproveproductivitygrowthinriceproductionalthoughpestsanddiseasesaswellasimbalanceintheuseoffertilizersaremajorconstraints.2ThusTamilNaducoulddowithsubsidiesof


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pesticidesandfarmersshouldbeeducatedonthemoreeffectiveuseoffertilizerstoobtainhighyields.Interestingly,thecroppingpatternof

latehasshownincreasingsubstitutionoffoodcropsbycommercialcropsbutthereisconcernthatthebenefitswillreachfarmersonlywiththedevelopmentofadequateinfrastructuresuchasroadsandmarkets.Table5shows,however,thatTamilNaduhasahigherindexthantheallIndiaaverageofinfrastructure.

GroundwaterOverexploitationWithpaddyandwheatbeingheavilywaterdependantcrops,farmershaveeveryreasontoover-exploitgroundwater.Theinevitabilityofgroundwaterextractionhasbeenpoliticallyexploitedtoo.Successivegovernmentsintherecentpasthaveevengivenfreeelectricitytothefarmersinthestate.ThewatertableshavefallenatalarmingratesinmanyplacesintheStateduringthelastfewdecades.Thegovernmentspolicyofprovidingfreeelectricityforagricultureandverylowwaterchargesforcanalwaterhaveencouragedinefficientuseofirrigationwater.IntensiveuseoftubewellirrigationhasledtodepletionofwaterresourcesintheState.AsillustratedinTable5,about98percentofgroundwaterresourcesintheStatehavealreadybeenexploited.Nearly59percentofblocksintheStatehave

overexploitedgroundwaterresources,thehighestrateinthecountryandanother12percentareindark/criticalzone.Ontheotherhandinjudicioususeofcanalirrigationwaterwithoutregardtosoilconditionsandinadequateattentiontodrainage,haveledtotheemergenceofconditionsofwater-loggingandsalinity

inmanyareas,resultinginvaluableagriculturallandgoingoutofuseintheState.

CONCLUSIONAlthoughIndiamissedtheopportunitytoopenuptwodecadesago,itsattemptstodosonowmustberegardedasbetterlatethannever.OtherssuchasDesai(1999)observethat,thelogicoftheglobaleconomyaswellasIndiasinterestsdictatethatIndiabecomeproactiveinitsliberalizationpolicies.Indiamustliberalizenotbecauseithasnochoicebutbecauseitisthebestchoice.HislamentthatIndiahas


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adoptedavictimmentalitywhenitreallyneedstoadoptawinnermentalityhasbecmelessofaconcernasovertime,Indiahasshowncommitmenttostayonthebandwagonofglobalization.Havingrealizedthatglobalizationisanecessarybutnotasufficientconditionforhighgrowthproduction,Indiahasundertakeneconomicreforms,bothinternalandexternal.However,itmustbeensuredthatthesereformsare

synchronizedsothatthepaceofbothreformsissetrightinordertoworkhandinhandtopromoteagriculturalproductivitygrowthThus,trainingthefarmersandeducatingthemappropriatelytochangetheirmindsetandreorientingthemtotakeupnewactivitiesoradoptforeigntechnologyisofutmostimportance.Inthiscontext,itisnecessaryto

involvenon-governmentalorganizationsintrainingandmobilizingtheruralpoortofacethechallengeofliberalization.Also,withdomesticeconomicreforms,morecareneedstobeexercisedtodrawupstatespecificliberalizationmeasurestomaximizetheirbenefits.Lastly,in

theimplementationofthesereformsforsuccessfulglobalization,onecrucialelement,notentirelywithincontrolistheneedforgoodgovernanceandstabilityinthepoliticalandeconomicenvironment.Politicalleaderswhoaretheultimatedecisionmakersinthesemattersneedtoexaminetheirownroledispassionately.Itisquiteapparentthatatthisrelativelyearlystage,thereislittleobservableevidenceofgainstoIndiasagriculturalperformanceafteropeningup.H

owever,therecouldeasilybebenefitsthathavenot

yetsurfaced,orareyettobeidentifiedandperhapstoodifficultorintangibletomeasure.Whateverthecase,itishighlylikelythatit

istoosoontoassessthefullimpactofglobalizationandeconomicreforms.Furthermore,theprocessofliberalizationhasbeengradualandremainsincomplete.Forexample,thecompleteremovalofquantitativerestrictionsafterMarch2001willhaveprovidedanopportunityforIndianfarmerstotapworldmarketsand,iftheyaresuccessful,resultsshouldstarttobecomeevidentsoon.Exportpromotionviathedevelopmentofexportandtradinghousesaswellaseffectiveliberalizingexportpromotionzoneschemesforagriculturearefairlyrecentmeasuresandonlytimewilltellastohoweffectivethesemeasuresare.Otherpossibil

itiessuch

asagro-industryparksforpromotingexportsarealsointhepipeline.


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Inconclusion,Indiahassuccessfullysetsailonthewatersofglobalizationandeconomicreformsandeveninthewakeofeconomicandpoliticalinstability,shehastocarefullysteerhercourseinordertoreapthebenefitsofincreasedproductivitygrowthintheagriculturalsector.


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92516468 Role of Agriculture in Economic Development in India

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