Indian Agriculture: Recent Performance and Prospects in the Wake of Globalization R.P.S.Malik

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Indian Agriculture Recent Performance and
Prospects in the Wake of Globalization
R.P.S.Malik
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Story Line

• Based on some of the available literature, the
  paper provides a brief review of the following
• Recent 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)
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Compound Growth Rates of Production and Yield of
Important Crops (Base TE 1981-82100) ( Per
annum)
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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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From the point of agricultural production,
however, the single most effective supply side
constraint is that irrigation coverage still
extends to only about 40 per cent of net sown
area. Need for new Investments in Major
irrigation and multipurpose projects   Almost 90
million ha or 60 of net sown area dependent on
rainfall Net irrigated area is required to
increase by at least 35 million ha (to 92 million
ha by 2025) for meeting the demand for foodgrains
and commercial crops.   Most of this additional
irrigation will have to come from new surface
irrigation projects since the past trends in
increasing tubewell irrigation can not be
sustained due to declining groundwater tables in
arid and semi-arid regions.
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Changes in Food Consumption Pattern in Rural and
Urban India 1977-99(Quantity in Kg/Person per
annum)
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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
  the corresponding 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 2020
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Exports of Agricultural Commodities from India (
Value in Million US)
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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 angle

• The 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 Trends

• Trends 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 the nineties.
• 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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Indias Imports of Selected Agricultural
Commodities 1990-91 to 2001-02 (in US million )
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Agricultural Imports

• Indias 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 has shown 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 rate of 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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Agricultural Support Policies Protecting and
Supporting Agriculture
Broadly can be clubbed in to three categories

• Domestic policies
• Import policies and
• Export policies
•  

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The domestic policies comprise
        Input subsidies on fertilizers, power,
irrigation water   Public investment in
development of water resources surface and
groundwater Government intervention in
markets   Direct payment to farmers (such as
those in the form of deficiency payments,
insurance and disaster payments, stabilization
payments, as also some compensatory
payments)    Price support for major crops
  General services (such as government
transfers to agricultural research and
development, extension services, training and
agricultural infrastructure etc)     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 barriers such 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 agriculture per se      
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Input Subsidies in Indian Agriculture- All India
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Input Subsidies in Indian Agriculture

• 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 Indias GDP 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 the
  problems of agriculture

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Export Subsidy Provided by India (US Million) 
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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 agricultural commodities 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 of liberalization

• Estimating the potential impacts of
  liberalization of trade in agricultural and non-
  agricultural commodities in the wake of WTO
  negotiations on the 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 domestic support
  , 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 more of 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 yield the 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 a
  negotiating 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 very significant

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Change In Key Agricultural Trade, Production And
Welfare Indices For India
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Export Subsidy Cut Simulation Results Impact on
Production of Select Commodities (Percent Changes
 
 
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Domestic Subsidy Cut Simulation Results Impact
on Production of Select Commodities (Percent
Changes) 
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In general thus if the prices of agricultural
commodities like rice, cotton, wheat, sugar etc
were to rise, India could generally 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
general equilibrium 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 to fill the breach.

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Thank you!