global is at ion on agriculture

8/3/2019 Global is at Ion on Agriculture

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Indian Agriculture today

Agriculture forms the backbone of the Indian economy and despite

concerted industrialization in the last six decades, agriculture occupies a place of

pride. Being the largest industry in the country, agriculture provides employment

to around 60% the total workforce in the country. The significance of the

agriculture in the national economy can be best explained by considering the role

of agriculture under different heads.

The Indian economy has grown at over seven percent per annum for the last

decade and at more that nine percent for the three years. Ironically there is

significant slowdown in agriculture sector. Agriculture growth slowed from 4.69

percent in 1991 to 2.6 percent in 1997 and to 1.1 percent in 2002-03 growth in the

agriculture was only 0.7 percent in 2004-05 due to poor monsoon but increased to

2.3 percent in 2005-06.

Year 1984-85 2002-03 2003-04 2004-05 2007-08 2008-09

Agriculture 35.2 26.5 21.7 20.5 17.8 18.00

Industry 26.1 22.1 21.6 21.9 26.6 22.00

Service 38.7 51.4 56.7 57.6 55.4 60.00

Source : Economic Survey 2000 & 2009 (% of GDP)

Major causes this decline is poor and unplanned investment in agriculture

sector. Though agriculture sector in major employment generator of this country

but investment in this sector is very less compare to the industrial sector. This poor

investment

in basic infrastructure and education in agriculture resulting in poor performance of this sector, poverty and less calorie consumption of citizen of this country compare

to citizen of other countries.

Theoretical Background



i. Indian agriculture has, in the post-independence period remained mainly

small farmer dominated subsistence, oriented and very little export led and

technologically stagnant.

ii. Indian economy practiced, at least upto 1991 a predominantly closed-doorexternal trade policy clearly based on –

(a) Import substitution

(b) Export Promotion

(c) Regulated exchange market and

(d) Certain direct controls.

iii. The major concern for Indian agriculture was provision of adequate foodsupply to teeming millions of BPL families in the country.

iv. There was no free trade.

Globalization : Conceptual Elaboration :

Globalization as a definite economic term; acquired currency after

1980’s, particularly with the evolving functional strategy of IMF and World Bank,whereby they insisted in an euphemistic manner that to eradicate poverty, we

require faster growth, which is possible only in a systematic reform, based on

Liberalization, privatization and globalization which became, in a concise way,

known as Washington Consensus. In a more direct and explicit way it means

unencumbered working of free market competitive system within, open tradewithout and no state intervention whatsoever.

The term globalization has, therefore four parameters :

A) Reduction of trade barriers to permit free flow of goods has services among

nation – states.

B) Creation of environment in which free flow of capital can take place among

nation – states.



C) Creation of environment, permitting free flow of technology, and

D) Last, but not least, from the point of view developing countries, creation of

environment in which free movement of labour can take place in different

countries of the world.

Practical Implications

In a globalized system it is believed that principle of comparative advantage

will operate and each country will expert only those goods and services in which it

has comparative cost advantage, and as Adam Smith and other Classical believed,

world production, employment and welfare will be maximized. We should keep in

mind that even in a so called global economy, even highly capitalist countries

practice trade protection policies through controls on import and export subsidies

as also convenient monetary policies. It is against this background that we shouldexamine impact of globalization on Indian agriculture.

Review of India’s Trade Policy

Before independence, India relied mainly on discriminatory protection policy.

Even after independence we continued in a broad way to follow a policy of importsubstitution and export promotion by using conventional fiscal, monetary, and

direct methods. Non-essential imports were kept minimum, developmental imports

were encouraged to hard currency areas. Later diversification of exports was

undertaken. After 1975 trade policy emphasized optimum utilization of recourses

endowments in manpower and agriculture almost upto 1991- when India adopted

NEP=LPG. We had a trade policy of selective type encouraging exports and

discouraging imports. But in the evolution of India’s trade policy, consideration of

its impact on agriculture was never a predominant factor. On the contrary, importof food grains was, for a fairly long period, inevitable.

WTO and NEP

The genesis of NEP, which goes back to 1980’s with coming back to power of congress, liberal policies of Rajeev Gandhi, World Bank conditionalities, Dunkel



draft and finally formation of WTO in 1995. World Bank conditionlities in a way

imposed capitalist. Functioning on aid / loan receiving countries for all practical

purpose WTO and NEP essentially boil down to free open market economy for

mainly developed countries. For the first time, under WTO, which became

operative since January, 1995. Agriculture become a part of WTO, insisting more

liberal agricultural produce by reducers subsides to agriculture by greater percent

in developed countries and less percent in developed countries. However,

developed countries have successfully circumvented this approach by providing

Green box and Blue box subsidies and directing export subsidies in developingcountries.

Agreement on Agriculture

The agreement on agricultural (A.o.A.) provides framework for the long-term

reform of agricultural trade and domestic policies over the year the years to come,

with the objective of introducing increased market orientation in agriculture trade

AoA deals specifically with – providing market access, regulating domesticsupport and containing export subsidies.

As for as providing market access in concerned, AoA required that the

prevailing non-tariff barriers in agriculture, which were considered trade distorting,were to be abolished and converted into tariffs so as to provide that some level of

protection and subsequently the tariffs were to be progressively reduced by a

simple average of 36 percent by the development countries over a six years (year

ending 2000) and by 24% by the developing countries over ten years (year ending2004).

[

Reduction commitments under AoA

Developed

Countries

(1995-2000)

Developing

Countries

(1995-2004)

1 2 3



Tariffs (Base 1986-88) Average out for all

agricultural Products 36% 24%

Domestic support, total AMS (Base 1986-

88) 20% 13%

Export Subsidies (Base 1986-90)(Budgetary outleys for export subsidies) 36% 24%

Volume of Subsidized exports 21% 14%

But as facts stand today, developed countries tried to circumvent this agreement by

providing Green Box and Blue Box subsidies to support agriculture.

Green Box subsidies include amounts spent on Government service such as

research, disease control, infrastructure and food security. They also include

payments made directly to farmers that do not stimulate production, such as certain

forms of direct income support assistance to help farmers restructure agriculture

and direct payment under environmental are regular assistance programmes. Thisdefinition is very wide and includes all type so Government Subsidies.

Blue Box subsidies are certain direct payments made to framers where the farmers

are to limit production, certain Govt. assistance programmes to encourage

agriculture and rural development in developing countries, and other support on asmall scale when compared with the total value of the products supported 15

percent or less in the case of developed countries and 10 percent or less or

developing countries.

Similar to domestic support subsidies, developing countries are not allowed

to increase their negligible level of export subsidies while developed countries are

allowed to maintain 64 percent of their subsidy outlays on the base level.

Consequently, agriculture, imports form developed countries are available at much

below the market price in the domestic economy.

Earlier, Indian agricultural prices were lower than international price mostly. But

as a result of the heavy subsidization of agricultural exports by developed

countries, the situation undertook a dramatic about turn. The Indian farmers have

been put to serious disadvantage. The phenomenon of farmers suicide and the



growing unrest in several states because of the distress of farmers specializing inagricultural commodities and their export is a very serious human problem.

WHAT SHOULD HAVE HAPPENED?

In the preceding paragraphs, we have made a reference to a manner in

which globalization could have affected Indian Agriculture in respect of aspectslike –

i) Conditions of comparative advantages,

ii) Change in agriculture output,

iii) Change in structure of agricultural output,

iv) Prices of agricultural produce

v) Technological changes in agriculture with implication for agricultural

employment.

It is well-known that despite very cheap labour, Indian yields in different crops are

low resulting into relatively higher cost of production because of higher capital

cost due to their scarcity. With globalization the prices of Indian labor will go up

whereas prices of capital may come down either due to market competition or

government of India’s policy oriented supply of subsidized credit to agriculture. It

is, therefore, expected that exports of agriculture should increase at a faster rate

alongwith increased agriculture output in general. It is also expected that cropping

pattern of Indian agriculture should change in accordance with international

demand pattern where exports of foodgrains, fruits, vegetables, sugar and similar

goods should increase. In this process, it is expected that domestic prices of

agricultural produce should also increase. Most importantly, it is believed that due

to globalization adoption of modern technology will lead to grater need for capital,

substitution of machinery for labour greater incidence of unemployment inagriculture as also enhanced scale of forming unit. In a broad way, what it means

is-greater size of cultivation, application of modern technology, reduced demand

for labour and higher prices for agricultural produce, grater productivity and better

agricultural process giving farming better terms of trade against remaining sectors

of the economy. We will now examine some empirical data in following

paragraphs.



WHAT HAS HAPPENED?

In the EXIM policy, 2002-2007, Government of India removed all

quantitative restrictions on agricultural products except items like jute and onion. It

provided transport subsidy to agriculture for diversification mainly for export of fruits, vegetables, floriculture, poultry and dairy products.

If we take into consideration unit value index for 1980-81 and 2000-01, the

index number for imports of food items increased from 115 to 277 with 1978-79 as

base year. Fortunately, in the same period unit value index for food items increased

form 103 to 524. However, it is to be noted that compared with unit value index forboth imports and exports with manufactured goods the change is relatively small.

So far export of agriculture produce are concerned we get following picture-

Table No.1

Agricultural imports

(Quantity: Thousand Tones)

Sr.No. Item

1990-91 2007-08

Quantity Rs

(Cr.) Quantity Rs.(Cr.)

01. Coffee 86.5 252 178 1872 02. Tea and Mate 199.1 1070 197 2034

03. Oil Cakes 2447.8 609 6909 8141

04. Tobacco 87.1 263 173 1932

05. Cashew Kernels 55.5 447 126 2235

06. Spices 103.3 239 615 4315

07. Sugar & Molasses 191 38 5582 5663

08. Raw Cotton 374.4 846 1558 8865

09. Rice 505 462 6469 11775

10. Fish & Fish Preparations 158.9 960 - 6927 11. Meat & Meat preparations - 140 - 3749

12 Fruit, vegetables & Pulses (incl.

Cashew, kernels, processed fruits &

juices)

- 216 4053

13. Miscellaneous processed foods (incl.

processed fruits & juices) - 213 2135



14. Agricultural and allied products - 6317 - 65230

(source : Govt. of India, Economic survey, 2009-10)

So far as change in agriculture imports is concerned data in the following table in

indicated.

Table No.2

Agricultural Imports

(Quantity: Thousand Tones)

Sr.

No. Item

1990-91 2007-08

Quantity Rs(Cr.) Quantity Rs.(Cr.)

I. Food and live animals chiefly for

food (Excl. cashew raw) of which - - - -

1.1 Cereals & cereal

preparation308.3 182 1848 2839

II. Raw material & intermediate

manufactures- - - -

II.1 Cashew nuts (unprocessed) 82.6 134 592 1715

II.2 Crude rubber (including

synthetic and reclaimed) 105.1 26 339 3163

II.3 Fibers of which - - - -

II.3.1 Synthetic and

regenerated fibers

(man-made fibers)

21.2 56 44 446

II.3.2 Raw Wool 29.4 182 93 1090

II.3.3 Raw Cotton 0.2 1 137 912

II.3.4 Raw Jute 32.1 20 136 148

II.4 Petroleum. Oil &

Lubricants 29359 10816 - 320654

II.5 Animal & Vegetables oils

and facts of which- - - -

II.5.1 Edible oils 525.8 326 4903 10301

II.6 Fertilizers and chemical

Product- - - -



Total - 11942 - 341268

(source: Govt. of India, Economic survey, 2009-10)

It is clearly seen that both in terms of quantity and value, agricultural exports from

India have shown substantial increase during post globalization period. Similarly in

the post globalization period our imports of cereals and cereals preparations have

also increased substantially. Raw material imports have not been recorded. Rubber

imports have substantially increased, synthetic and edible oils show substantial

increases in quantity as well as in value terms.

A broad conclusion that emergence is that in the post globalization period

both agricultural exports and imports of India show significance increases.However, in both years imports greatly exceed exports. It is therefore, clear that

although, given level playing field, Indian agriculture would have fared better

domestically and globally, but the policies of developed OECD countries of

subsidising their farm sector in palpable manner have compelled Indian agriculture

to be in the same relative position as before.

Conclusion

Since 1991, India adopted the Liberalization, Globalization due to this policy

Indian agriculture sector faced more problems, because in india more farmers aresmall – scale farmers with low land sector. So that they could not get advantages of

globalization. Hence some Economist says that, in an age of market liberalization,

globalization and expanding agri business, there is danger that small-scale farmerswill find difficulty in fully participating in the market.

A survey of globalization policies followed in India reveales that the

promised benefits of globalization in the form of sharp increase in GDP, exports,

foreign direct investment, reduction of poverty, deceleration of unemployment

could not be realized by India during the 1990. Globalization has adversely

affected Indian economy.

global is at ion on agriculture

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