The increasing economic integration of
the Indian economy with global processes has brought considerable challenges
at the door of its agricultural sector. These challenges have arisen from
two broad sets of problems. In the first place, a number of major crops
have been witnessing a decline in productivity growth, in particular over
the past decade. Second, and perhaps more important from a short run perspective,
is the fact that Indian agriculture faces unfair competition from cheap
imports, which poses an enormous threat to the livelihoods of the farming
communities. It is quite clear, therefore, that a comprehensive framework
needs to be evolved, one that addresses the specific problems that the
agricultural sector faces at the present juncture.
One of the ironies of the reforms programme introduced in the beginning
of the 1990s was that it failed to cast a glance at the sector that supports
the largest share of the country's workforce. An eloquent testimony of
the relative neglect suffered by agriculture during the past decade is
its steadily decreasing share in the country's capital formation. Throughout
the 1990s, the share of agriculture in gross capital formation (at constant
prices) has remained in single digits, which explains the slackening of
its growth momentum during the past decade. This has contributed to the
decline in the share of the sector in GDP, from just less than a third
in the early 1990s to below a fourth a decade later.
That there has been a steady deterioration in the agricultural situation
during the past decade can also be seen from the fact that while the share
of rural population has seen very little change, there has been some decrease
in the share of population dependent on agriculture. These trends could
be a pointer to the threat to their livelihoods that the agricultural
population has been facing in the more recent years.
The livelihood threats facing the Indian agricultural population could
in fact increase manifold if the country is forced to undertake reductions
in tariffs of the kind that is being demanded by the United States in
particular in the ongoing negotiations in the WTO. The magnitude of the
problems for domestic agriculture that any drastic reduction in the existing
levels of tariffs can cause would be clear from the trends in the international
prices of some of the major commodities in the second half of the 1990s.
International prices had slumped to their lowest levels during this period
primarily because of the weight of the subsidies granted by the major
players in the markets for agricultural commodities, in particular the
United States and the members of the European Union. A feature of the
subsidies being granted by these countries has been the targeting of subsidies
on products that are of export interest to them. The members of the European
Union have traditionally been using very high does of subsidies on specific
products which include wheat, corn and sugar besides dairy products. In
case of wheat, for instance, the production-related subsidies that the
producers received in 2002 were almost 84 per cent of the total value
of output. The corresponding figures for sugar and milk were 51 and 50
per cent respectively. In addition to these subsidies, the EU members
were also using export subsidies to gain control over the global markets.
The United States, on the other hand, increased the subsidies it was granting
to specific commodities, after the WTO was established in 1995. Wheat,
rice, corn and soybeans were some of the commodities in which subsidies
were increased quite considerably. In case of rice, subsidies increased
from close to US $ 12 million to more than US $ 700 million between 1995
and 2001, while for soybeans, the increase was from US $ 16 million to
more than US $ 3.6 billion during the same period. These tendencies displayed
by the countries controlling the global agricultural markets shows the
levels at which distortions are being introduced in these markets, leading
to increased levels of uncertainties. It is not surprising therefore that
the international prices for at least the major commodities are expected
to remain sticky at relatively low levels for most of the present decade.
The ongoing agriculture negotiations in the WTO have brought to the fore
the severe pressures on India to reduce its tariffs. These pressures are
higher given that India is among the very few countries for which the
bound tariffs (i.e. maximum tariffs allowed under the WTO regime) are
at levels that are significantly higher than most developing countries.
It is, however, important for India to maintain tariffs on products that
are critical from the point of view of maintaining food security and livelihoods,
given that the international prices of many of these commodities have
remained sticky at low levels in recent years, a point that was made earlier.
What also needs to be mentioned in this context is that India is the only
country among those having significant interests in agriculture, which
has not taken recourse to various forms of non-tariff measures (NTMs)
whose use has been legitimized by the WTO. Two of the more prominent forms
of these NTMs are the Sanitary and Phytosanitary (SPS) measures and Technical
Barriers to Trade. While SPS measures have been used to ensure protection
to human, animal and plant life and health, a significant proportion of
the TBT measures have also been used for the same purpose. It is interesting
to note that the use of both SPS measures and TBT have increased during
the past decade. Further, the largest users of SPS measures and TBT have
been countries that have, on an average, relatively low levels of tariffs.
Thus, the United States, the country that is aggressively pushing for
a lowering of agricultural tariffs, has the largest number of SPS measures,
accounting for more than a fourth of the total put in place by all WTO
members. And, Brazil and Thailand, the two developing countries whose
agricultural markets are more open those in than most others, have notified
large numbers of SPS measures. This trend in the use of SPS measures and
TBT by the WTO members only reinforces a point that has been made in the
past which is that as countries reduce their tariff levels, they develop
the tendency to employ non-tariff measures. In other words, effective
market access continues to remain a major problem in most markets.
The above-mentioned trends in the use of SPS measures and TBT hold significance
for India for yet another reason. Suggestions have been made in some quarters
that Indian agriculture should focus on exports to provide impetus for
its growth. These suggestions are based on the assumption that the relatively
low cost agriculture in India will have the competitive advantage in the
global market place, which can help generate additional markets. However,
as food standards become increasingly important in the larger markets,
mere price advantages that countries like India enjoy, can contribute
precious little in obtaining additional market access. India would therefore
have to invest heavily in upgrading its production facilities - from the
farm to the processing units - to have a look-in into the larger markets.
But with investments in agriculture decreasing steadily from the mid-1980s,
it would require a complete turnaround in the government's priorities
to reverse the trend. The larger issue that needs to be addressed in the
context of the suggestions for an "export-oriented" agricultural
sector in India is the impact such a policy orientation would have on
the country's food security. Arguments advanced in this respect have been
that the increase in the stocks of foodgrains is an indicator that the
country has solved its problems relating to food security. As a corollary
it was suggested that diversification of Indian agriculture should take
place rapidly so as to better utilise the available resources.
However, the reality has time and again proved otherwise. There is enough
and more evidence that poverty and malnutrition are the grim realities
facing India even in the 21st century. That India has to go some distance
in making its population food secure can be seen by comparing the availability
of foodgrains in India and China. In 2002, production of cereals in China
was 400 million tonnes, which was required to meet the demands of a population
that was touching 1.3 billion. In sharp contrast, India's cereals production
was about one-half of China's, which supported the food needs of a population
that was just over one billion.
Under the prevailing circumstances, it is vital for India to adopt a two-pronged
strategy in respect of the agricultural sector. In the first place, India
has no option other than to protect its domestic market with appropriate
levels of bound tariffs. The bound tariffs, particularly in respect of
products that are extremely sensitive from the point of view of food security
and livelihood concerns, need to be so determined that they are able to
protect the domestic producers against the downward pressure in international
prices. It is therefore imperative for the Indian government to resist
pressures for tariff reductions that have been mounted by its major trading
partners like the United States.
The second part of the strategy, one that is equally important for ensuring
sustainable livelihoods, is to ensure that adequate resources are provided
to this resource-starved sector in order that it is able to gather the
necessary growth momentum. At the same time, however, there is need for
bringing about meaningful institutional reforms domestically with an eye
to reaching the benefits to the lower rungs of the farming communities.