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.
