The objectives of the study are mainly to understand the dynamics of the agriculture sector within India, how it is likely to emerge in coming years and how other countries in the region or otherwise can gain from greater interaction with...
moreThe objectives of the study are mainly to understand the dynamics of the agriculture sector within India, how it is likely to emerge in coming years and how other countries in the region or otherwise can gain from greater interaction with India.
This study draws from the literature, government reports as well as policy documents to bring out specific issues related to agriculture apropos increasing its potential for contributing to development. The impact of India's agriculture sector on the rest of the world is an important aspect in this context. Forecasts for domestic production and consumption as well as the potential exports and imports of various agricultural commodities obtained using the Global Trade Analysis Project (GTAP) model are considered. The implications for other countries, both as potential trade partners and in general are also discussed.
The paper first discusses the evolution of the Indian economy with a special focus on the agriculture sector. Since independence there have been three major phases — before the Green Revolution, the Green Revolution years and deceleration after the Green Revolution. The success of the Green Revolution provides us with some important insights: The government, even for a country as diverse and heterogeneous as India, can play an important role in setting the agriculture sector on a course towards high growth. It has done so in the past, inter alia by promoting suitable technology nationwide, supplying ample credit and manifold extension services, declaring a minimum support price and a scheme for government purchasing, subsidizing fertilizer and pesticides, and increasing investment in small irrigation projects. Despite their relatively low capital base, Indian farmers, including small and marginal farmers, responded positively to the opportunities offered by technology and the incentives put in place by the government. Impressive strides were made in other subsectors such as fisheries and livestock, meeting the diverse food needs of the growing population. A critical success factor was the coordinated approach by the government in establishing numerous agricultural research institutions and a well-knit extension system.
However, all of these efforts could not disseminate the benefits of the new technologies to all parts of the country, given the diversity in crops and resource constraints, particularly water, in less well-endowed areas. In the 1990s, in the wake of the policy reforms in response to the macroeconomic crisis, there was a slackening of public investment in research and infrastructure. Risk mitigation measures — so necessary for continued and stronger diversification — were also not in place. The coordinated approach worked best during crises (for example lack of food or foreign exchange) that resulted in heavy dependence on external largesse. But once the crisis was over, the necessary follow-up measures were not forthcoming.
One of India's significant successes in the past few decades has been massive reduction in poverty levels at a time when the population was expanding rapidly at about 2 percent per annum. Was the Green Revolution responsible for this? Although this is not debated here, the Green Revolution as well as improvements in the dairy industry, fisheries and animal husbandry, were quite instrumental. The greatest increases in productivity occurred in the 1970s and 1980s. The greatest reduction in poverty occurred in the 1980s and 1990s, which were also a period of high economic growth and economic liberalization. The Green Revolution facilitated the availability of agricultural commodities; it also increased incomes for many cultivators who could access the available technologies. When the high-income growth phase occurred, poverty levels fell significantly, as high-yielding varieties benefited both producers directly and consumers indirectly. In other words, enhanced production by itself may not have generated the required impact on poverty, although it was a necessary factor, but when greater income growth came later, the impact on poverty was significant.
Section 3 discusses current population, economic growth and demand patterns and future prospects. It also discusses productivity issues to provide a backdrop to the assumptions used for the GTAP model that is used to forecast food production and consumption scenarios in India.
Between 10 and 13 percent of the Indian export basket of goods (excluding services) comes from agriculture and is worth around US$7 billion a year. Tea, coffee, rice, wheat, sugar and molasses, tobacco, spices, cashew nuts, oilmeal, fresh fruit and vegetables, meat and marine products are the major export items. India's export shares in global exports are high for items like tea, coffee, tobacco, spices, sugar, rice and fish. Contingent on domestic reforms, there is enormous potential for meat products, fruit and vegetables and processed foods. Imports of agricultural products account for between 4.5 and 5.5 percent of India's imports of goods (excluding services), worth US$2 to 3 billion, with pulses, cashew nuts, other fruit and nuts and edible oils being the major items. Rice is the largest agricultural commodity export and India is currently among the top three nations in quantity terms. India is a minor exporter of wheat and by-products and this share is expected to fall further.
Oil and oilseed imports are likely to increase in quantity and value. India is going to become an even more important exporter of cotton garments, and therefore importer of cotton, accounting for 18 percent of global plant-based fibre imports by 2020. Meat is not a significant export, and India will remain a net exporter, although marginal, of fish products.
Sections 4 and 5 discuss the agenda for reform related to land, water, credit, markets, diversification and taxation separately. For poor farmers, land and its ownership is the most significant asset and form of collateral. Since the 1990s, conversion of agricultural land to other uses has increased because of urbanization and population pressure. Land redistribution in many states has not really changed the status of small and marginal farmers. Apart from improper land utilization, there are salinization and waterlogging constraints. A considerable area of land is also subject to litigation and land ceiling laws have not been repealed. Land consolidation on the basis of efficiency has been hampered by poor documentation and confusion over land rights.
Barely one-third of agricultural land is irrigated, so Indian agriculture remains dependent on monsoons. Irrigation fuelled the success of the Green Revolution, but since the 1990s projects remain incomplete or on paper only owing to lack of funds. Credit has similarly remained out of reach for many farmers despite initiatives taken by the government, as well as non-government entities, especially for small farmers with poor access, knowledge and collateral. A concomitant issue is the continued absence of a comprehensive crop insurance scheme.
Intermediation is a serious problem that plagues Indian agriculture. The abundance of intermediaries not only wastes produce but also keeps farmers at the bottom of the food chain. The plethora of laws aggravates the situation. Nine different ministries are concerned with food processing and there are 22 related Acts and Orders. Encouraging diversification through producers' organizations and greater private sector participation would be of major assistance.
The National Common Minimum Programme, a politico-economic agenda that guides new government policy decisions, lists several important reforms. Some are underway. Now an integrated food-processing law is being prepared and the Essential Commodities Act (ECA) has been drastically amended. All Orders issued by state governments under the ECA have almost been repealed. Contract farming, because it is equated with corporate farming, is controversial, but many states have amended their Agricultural Produce Marketing Committee (APMC) laws, to allow direct marketing, contract farming and the establishment of private markets in the private or cooperative sectors.
But if reforms have not matched actual expectations, there is a reason. Constitutionally, most agriculture-related areas are state government subjects and it is difficult for the central government to provide incentives for such reforms. The major exceptions to this principle are foreign trade policy, agricultural credit and insurance, major irrigation projects, fertilizer policy and research and development
