Economic Reforms and Indian Agriculture

To get the answer of: What Sort of Economic Reforms have been introduced in Indian Agriculture?

Before 1991, markets and price mechanism were not the policymakers’ tool. On the other hand, governments, both at the Centre and at the States, were serious in intervening markets for agricultural commodities and inputs.

In the early years of planning, agricultural development strategy centered around land reform programmes and in the late 1960s and 1970s, green revolution technology became the dominant policy.

Progress, as a result, became impressive. In fact, planning for agriculture has been an outstanding example of indicative planning in this country since output decisions as well as investment decisions are independently taken by millions of farmers who aim at achieving the public goal of self-sufficiency in food grains. Despite remarkable achievement in this area, there is no room for complacency.

She imports some food grains occasionally. Though the ‘ship-to-mouth’ situation on imported wheat from the USA in the late 1950s and early 1960s is still away from that point now, the shadow of food insecurity looms large in the skies of India. Prospects of hunger-free India seem to be grim at the moment.

Meanwhile, structural adjustment prog­rammes and economic reforms were launched in July 1991 in all the sectors, except agriculture. Reforms affected agriculture indirectly. One of the reasons is that unlike industry, Indian agriculture had never been controlled and regulated.

As it is the privately dominated sector, the scope for reforms in this agricultural sector is limited. Still then, reforms in all sectors including agricultural sector are needed as government intervenes in agriculture in various forms.

Above all, export market of Indian agricultural commodities had not been explored before 1991. At this present juncture, Indian agriculture cannot remain insulated from the international market in the midst of growing globalisation and integration of the Indian economy with the global economy.

Here we will present the types of economic reforms that have been introduced in Indian agriculture. Agricultural reform policies may be related to foreign trade as industrial and trade policies hurt the agricultural sector.

Restrictions and controls were in the form of:

(i) Protection of industry leading to unfavorable terms of trade against agriculture,

(ii) Export restrictions on agricultural products, and

(iii) Massive subsidies for food, fertiliser, irrigation, power, credit, etc.

Recognising the crucial role of agriculture in the Indian economy, a Draft Agricultural Policy Resolution was placed in December 1992. It seeks to dovetail agricultural development and research programmes to meet the challenges in Indian agriculture and seeks to arrest the declining trends in capital formation in agriculture and step-up public investment.

This policy attaches great importance to the problems of unemployment and poverty by employment generating activities through diversification of agriculture and promotion of agro-based industries.

Further, growth of Indian agriculture is hampered due to both domestic and export market restrictions. One often observes restrictions on the movement of commodities not only across states but also even within the states.

Externally, Indian agriculture is not integrated with the world markets. Some domestic restrictions and regulations in the reform era have been removed, while some of them still remain. However, there has been significant trade liberalisation. Again, excessive protection earlier given to the manufacturing sector has been greatly reduced.

Another policy change is the adoption of market-oriented policies. Subsidies on various agricultural inputs have been cut. An epoch-making agricultural reform process has been set in motion in February 2002 to remove licensing and stocking requirements and movement restrictions of agricultural crops, enabling free movement and unrestricted stocking and trading in wheat, rice, coarse grains, edible oils, oilseeds and sugar. It is hoped that this would enable farmers to view the entire country as one single market.

Over the years, globalisation process for agriculture has been strengthened through both domestic and foreign trade deregulation and market orientation. In this connection, we intend to consider some provisions relating to agriculture in the WTO agreements.

These are reduction and removal of various trade barriers, increased market access and reduction in aggregate measure of support (AMS). These are the direct provisions relating to agriculture. Indirect provisions relates intellectual property rights and particularly patenting of seeds.

The impact of economic reform on agriculture is a mixed one. She has attained near self-sufficiency in food grains. Both green revolution and liberalisation of India’s agriculture have favourable effects on overall as well as agricultural GDP.

But the structural adjustment programme for agriculture has increased the vulnerability of agriculture. Despite good monsoons for the entire decade of 1990s, the rate of growth of food grains is unsatisfactory in the reform era, vis-a-vis the green revolution era. This growth performance, shown in Table 13.2, is a matter of great concern.

Growth rates of food grains and non-food grains production over the period 1991-92 to 1999-2000 and 2000-01 to 2006-07 have declined significantly. Average growth rales of area of food grains and non-food grains between 1994-95 and 2006-07 stood at 0.14 p.c. and 0.86 p.c. respectively. This may be attributed to growing slackness in agricultural public investment.

Plan outlay on agriculture, rural development, special area programme and irrigation and flood control as a proportion of total plan outlay in 1990s has been less than in 1990-91. In the name of reducing fiscal deficit, plan outlay in agriculture as a proportion of total outlay declined from 20.4 p.c. in 1991-92 to 9.9 p.c. in 1997-98.

Such fall in investment in agriculture affects capital formation adversely. It may be pointed out here that trade liberalisation policies and the fast growing middle class families seem to be the two great causes of diversion of cultivated area from food grains to non-food grains and especially high-value horticulture. This, thus, raises the issue of food security.

The attempt to globalize and marketise agriculture has been a serious setback to the food security of the poor and vulnerable people. These people are now being squeezed by rising costs of inputs (e.g., credit, power, etc.), reduction of subsidies, etc.

Per capita availability of food grains has deteriorated in recent years. In the midst of plenty, food crisis has reappeared. A paradoxical situation has emerged—stocked food grains are rotting in godowns while starvation deaths take place. This is a pointer to continued mismanage­ment that is now reaching criminal proportions’.

India is now an important player in external trade after joining the WTO. Despite high hopes raised in the early years of 1990s, the evidence is not altogether happy. Here one finds declining growth rates in major agri-business exports from India. Despite level-playing field given to all players, few countries control most of the world markets.

WTO is indeed silent in this respect. This has reduced the competitive edge in the prices of India’s agri-exports. An author thus remarks that the external sector—instead of giving strong push in demand for Indian agriculture—seems to have posed further challenges to its existence and growth.

However, one must remember that external liberalisation is not a sufficient condition for the growth of India’s agricultural sector; at best it can be a necessary condition. Thus, what is required is that reform has to be made in domestic Indian agriculture. ‘The world cannot marginalize India but India can marginalize itself.

A minimum commitment to WTO provisions has to be maintained so that the opportunities of improved trade in agriculture can be exploited. India has to do much more than what the WTO requires. Mismanagement of domestic economy will ultimately spell disaster.