An Assignment Report ON Role of Agricultural In Economic Development of India Submitted in the partial fulfillment of the requirement for award

d of degree of BACHELOR OF BUSINESS ADMINSTRTION Anuj Kumar Jaiswal BBA III Year :: Submitted By :: :: Submitted To :: Department of Business Management Indira Gandhi National Tribal University Amarkantak (M.P.) Academic Session 2011-2012

Role Of Agricultural In Economic Development Of India IntroductionIndia is one of the fastest growing economies of the world and is cu rrently the focus of a great deal of international attention. It is the seventh largest country in the world in terms of its geographical size. Today it has a p opulation of nearly 1.1 billion which makes it the second most populous nation i n the world. With current population growth by 2025 India may even have caught u p with China according to the UN. In this MAP we focus on agriculture and especi ally on agriculture trade. India has a large and diverse agriculture and is one of the worlds leading producers. It is also a major consumer, with an expanding p opulation to feed. For this reason and because of its agricultural and trade pol icy, its presence on the world market has been modest in relation to the size of its agriculture. India is still a big unknown. While it has been a small net ag ricultural exporter overall since 1990, in recent years there have been many cha nges in its agriculture and trade policies and significant changes in its net tr ade position for many individual products. The leading forecasting institutions expect that India will play a bigger role in world markets in future.In a number of markets it is expected to consolidate its position among the worlds leading i mporters (vegetable oils) and exporters (rice). Given the size of Indian agricul ture, changes in its balance sheets for key commodities have a potentially large impact on world markets. Those of us who preach the gospel of agriculture with evangelical zeal find the text compelling and convincing. We are regularly posse ssed by the spirit only to look around and see out colleagues, in other sectors, in country management, or even our senior management doubting, yawning or subtl y edging towards the door. We face the implicit query, If agriculture can do such great things, why have they not yet happened?1 The past decade has been one of a gro-pessimism. The promises that agricultural development seem to hold did not m aterialise. This pessimism seemed to coincide with pessimism about Sub-Saharan A frica. Especially for Sub-Saharan Africa the hope was that economic development would be brought about by agricultural development. After the success of the gre en revolution in Asia, the hope was that

a similar agricultural miracle would transform African economies. But this hope never materialised, agricultural productivity did not increase much in SSA (figu re 1), and worse, the negative effects of the green revolution in Asia became mo re apparent, such as pesticide overuse and subsequent pollution. Also in Asia th e yield increases tapered off. The sceptics put forward several arguments why ag riculture is no longer an engine of growth2. For instance, the liberalisation of the 1990s and greater openness to trade has lead to a reduction in the economic potential of the rural sector: cheap imported Chinese plastic buckets out compe te the locally produced pottery. On the other hand, it does mean cheaper (import ed) supplies. With rapid global technical change and increasingly integrated mar kets, prices fall faster than yields rise. So, rural incomes fall despite increa sed productivity if they are net producers3. The integration of rural with urban areas means that healthy young people move out of agriculture, head to town, le aving behind the old, the sick and the dependent. It is often also the men who m ove to urban areas, leaving women in charge of the farm. This has resulted in th e increased sophistication of agricultural markets (and value chains) which excl udes traditional smallholders, who are poorly equipped to meet the demanding pro duct specifications and timeliness of delivery required by expanding supermarket s. The natural resource base on which agriculture depends is poor and deteriorat ing. Productivity growth is therefore increasingly more difficult to achieve. Fi nally, multiplier effects occur when a change in spending causes a disproportion ate change in aggregate demand. Thus an increase in spending produces an increas e in national income and consumption greater than the initial amount spent. But as GDP rises and the share of agriculture typically decreases, the question is h ow important these multiplier effects are, especially when significant levels of poverty remain in rural areas, which is the case in middleincome countries4. Th e disappointment with agriculture led many donor organisations to turn away from agriculture, looking instead to areas that would increase the well-being of poo r people, such as health and education. Those organisations that still focused o n agriculture, such as the CGIAR, were put under pressure to focus more on reduc ing poverty, besides increasing agricultural productivity. However, since the be ginning of the new century, there seems to be a renewed interest in agriculture. A review of major policy documents5, including the well-publicised Sachs report and the Kofi Annan report, show that agriculture is back on the agenda again. T he most influential report, however, has been the World Development Report 2008 of the World Bank6. This report argues that growth in the agricultural sector 2 contributes proportionally more to poverty reduction than growth in any other ec onomic sector and that therefore alone, the focus should be on the agricultural sector when achieving to reach MDG 1. A reassessment of the role of agriculture in development seems to be required. This policy paper addresses several timely though complex questions: First, how can or does agriculture contribute to econo mic development, and in particular how does

it relate to poverty? Second, the agricultural sector has changed considerably i n the past decades: what are the main drivers of this change? Third, what is the relationship between economic or agricultural growth and pro-poor development? Fourth, how does agriculture relate to other sectors in the economy? Fifth, who is included and who is excluded in agricultural development, specifically focusi ng on small farms? And finally, if agricultural development is indeed important to economic development, then why, despite all the efforts and investments, has this not led to more successes? Agriculture is the backbone of Indian Economy. A bout 65% of Indian population depends directly on agriculture and it accounts fo r around 22% of GDP. Agriculture derives its importance from the fact that it ha s vital supply and demand links with the manufacturing sector. During the past f ive years agriculture sector has witnessed spectacular advances in the productio n and productivity of food grains, oilseeds, commercial crops, fruits, vegetable s, food grains, poultry and dairy. India has emerged as the second largest produ cer of fruits and vegetables in the world in addition to being the largest overs eas exporter of cashews and spices. Further, India is the highest producer of mi lk in the world. Importance of Agriculture in Indian EconomyThe direct contribution of the agricu lture sector to national economy is reflected by its share in total GDP, its for eign exchange earnings, and its role in supplying savings and labor to other sec tors. Agriculture and allied sectors like forestry and fishing accounted for 18. 5 percent of total Indian Gross Domestic Product (GDP) in 2005-06 (at 1999-2000 constant prices) and employed about 58 percent of the country's workforce (CSO, 2007). It accounted for 10.95 percent of Indias exports in 2005-06 (GoI, 2007) an d about 46 percent of India's geographical area is used for agricultural activit y. There has been a structural transformation in the Indian economy during the p ast few decades. The composition of Gross Domestic Product at 1993-94 constant p rices reveals that the share of agriculture including forestry and fishing has d eclined as growth in industrial and services sectors far outpaced agricultural s ector (Figure 1). The share of mining, manufacturing, electricity and constructi on sector has increased from 21.6 percent in 1970-71 to 27 percent in 2004-05 an d services sector has increased significantly from 32 percent to 52.4 percent du ring the same period. Despite a steady decline of its share in the GDP, agricult ure is still an important sector and plays a significant role in the overall soc io-economic development of the country. Therefore, fostering rapid, sustained an d broad-based growth in agriculture remains key priority for the government.

Consistent with the trends of economic development at national level, role of ag ricultural sector in the state economies is also changing rapidly. The share of agriculture in Gross State Domestic Product (GSDP) has declined significantly du ring the last two decades. In some States, such as Bihar, Punjab, Uttar Pradesh, Haryana, Rajasthan, and Orissa, the sector today contributes more than one-quar ter of GSDP, while in some states, such as Gujarat, Kerala, Karnataka, Tamil Nad u and Maharashtra, the sector contributes less than 20 percent to GSDP (Figure 2 ). However, contribution of agriculture to GSDP has declined in almost all State s between 1993-94 and 2004-05. The decline was the highest in Karnataka (16%), f ollowed by Haryana (14.2%), and Kerala (13.7%). In Karnataka, decline was mainly due to significant increase in the share of service sector (from 37.9% in 199394 to 54.7% in 2004-05) mainly driven by informational technology (IT) industry. Similar is the case with Haryana the decline is due to faster development of se rvices sector in cities around the national capital, Delhi. Despite declining sh are of agriculture in the economy, majority of workforce continue to depend on a gricultural sector for employment and in rural areas dependence on agriculture i s more as nearly 75 percent of rural population is employed in agricultural sect or. However, there is disguised employment in the sector due to limited opportun ities for rural non-farm employment. This disguised employment leads to lower la bor and resources productivity in the sector relative to other sectors of the ec onomy. The low labor productivity leads to higher rates of poverty in rural area s (Figure 3). Agriculture in India is constitutionally the responsibility of the states rather than the central government. The central government's role is in formulating policy and providing financial resources for agriculture to the stat es. Agricultural policyIndian agriculture policy is aimed essentially at improving f ood self sufficiency and alleviating hunger through food distribution. Aside fro m investing in agricultural infrastructure, the government supports agriculture through measures including minimum support prices (MSP) for the major agricultur al crops, farm input subsidies and preferential credit schemes. Under the price support policy, MSPs are set annually for basic staples to protect producers fro m sharp price falls, to stabilise prices and to ensure adequate food stocks for public distribution. In the past guaranteed prices have been below the prevailin g market prices, according to the International Food Policy Research Institute ( IFPRI) in 2007. At the same time subsidies on farm inputs including fertilisers, electrical power and irrigation water have led to inefficient use of inputs and indirectly subsidise income. IFPRI concluded that support for agriculture (from 1985-2002) has been largely counter cyclical to world prices. OECD appears to rea ch a similar conclusion. Its 2007 monitoring report points out that the level of agricultural support (covering transfers from taxpayers and consumers) for Indi a would appear to be slightly below the

OECD average but considerably higher than that of the emerging economies reviewe d by the OECD. Furthermore the instruments of support used are the least efficient and the most trade distortive forms of support. Economic developmentsIndia is the third largest economy in Asia after Japan and China, as measured in terms of its Gross Domestic Product (GDP) and it is contin uing to grow rapidly. The Indian economy has seen high growth rates of more than 8% since 2003. In 2005 and 2006 GDP grew at a rate of over 9%. Globally Indias g rowth is surpassed only by that of China. This is expected to continue with grow th just under 7% by 2015. Graph 1 compares GDP growth in India, China and Brazil , where growth has been much slower.

High growth rates have significantly reduced poverty in India.However its GDP per head is still very low (estimated at US$ 820 in 2006), so it remains classified by the World Bank as a low income country. The World Development Report 2008 st ates that over one third of the population of India was living below the poverty line in 2004-2005, managing on less than $1 a day. Cereals are the staple food in India, providing over half the calories consumed, while pulses are the main p rotein supplement in the diet. Rising incomes and the influence of globalisation have contributed to changes in the diet with a slight decrease in cereals consu mption and an increase in pulses, edible oils, fruits and vegetables, milk and m eat, which is growing from a low base. In the case of edible oils, the fall in p rices after the liberalisation of imports further stimulated consumption. Howeve r although diets are diversifying, India still lags behind Brazil and China in t erms of daily calorie intake per capita. Table 1: Food consumption daily calorie s per capita 1990-1992 Brazil China India 1998-2000 2860 2696 2396 3001 2917 246 3 2003-2005 3223 2957 2512 Deceleration in Agricultural GrowthIndias GDP grew at an annual rate of 5.8 perce nt from 1995-96 to 2004-05 at 1993-94 constant prices, but agricultural growth d eclined to about 2 percent, resulting from stagnation/decline in productivity du ring the last decade. Plan-wise trends of growth of total GDP and GDP from agric ulture are presented in Figure 4. It is evident from the figure that Indias agric ultural sector has grown more than targeted growth rate during the 6 , 7 and th th th th th th 8 Five Year Plans but fell short of targeted growth during the 9 and 10 Plan. Du ring the 10 Plan, agricultural GDP grew at an annual rate of mere 2.1 percent ag ainst the targeted growth rate of 4 percent. Indian agriculture is at a crossroa ds. With about 70 percent population living in rural areas and about 58 percent of its workforce engaged in agriculture, th India needs positive change in agricultural sector. Therefore, in the 11 Five Ye ar Plan, the National Development Council has adopted a 14 point resolution divi ding responsibilities equally between the Central and the state governments with an aim to achieve four percent

th agricultural growth by the end of 11 plan (see Box 1). The agricultural sector h as been allocated additional Rs. 25,000 crore from the Central government in the next four years. Land Ownership and Distribution PatternLand ownership pattern of sample househol ds is given in Table 9. The average size of operational holdings was larger (10. 5 hectares) in case of contract farmers than in noncontract farmers (4.8 hectare s). In case of contract farmers, majority of households (41%) have average opera tion holding of more than 10 ha, followed by 28 percent households having 4-10 h a while proportion of small and marginal farmers ( 2 hectares) was only 7 percent . In contrast, proportion of farmers having operational holding less than 4 hect ares (average farm size of the State) was nearly 60 percent. These results clear ly show that medium and large farmers are major beneficiaries of contract farmin g in the State. Tenancy is allowed in the state; therefore, leasing of land is q uite common. The average area under lease is higher (5 hectares) in case of cont ract farmers than non-contract farmers (3.2 hectares). The area under lease has increased from 3 hectares in 2002 to 5 hectares in 2007 in case of contract farm ers; while the corresponding figures for non-contract farmers are 1.5 and 3 hect ares. The data shows that largely medium and large farmers are leasing in land t o increase their operational holding to enter into contract farming, which most companies prefer. Fixed rent and payment in cash are the dominant practices and rent is fixed per hectare. The average rent per hectare per year in the study ar ea was higher (Rs. 25,755) in contract farmers than non-contract farmers (Rs. 23 ,887). The average cropping intensity is marginally higher (183%) in case of con tract farmers than non-contract farmers (178%). Contract farmers 2007 Owned land Leased-in Leased-out Operational Holding Terms of Lease Fixed rent (%) Share Cropping (%) Average lease (Rs/ha) 5.5 5.0 0.1 10. 5 100.0 0.0 25,755 2002 5.5 3.0 0.0 8.4 92.3 6.7 20,910 Non-Contract farmers 2007 1.6 3.2 0.0 4.8 100.0 0.0 23,887 2002 1.6 1.5 0.0 3.1 100.0 0.0 20,591

Role Of Agriculture In Indian EconomyAgriculture is the main sector of Indian ec onomy which is amply powered by the following points:1. Share in National Income : The contribution from agriculture has been continuously falling from 55.1% in 1950-51 to 37.6% in 1981-82 & further to 18.5% in 2006-07. But agriculture still continues to be the main sector because it provides livelihood to a majority of the people. 2. Largest Employment Providing Sector: in 1951, 69.5% of the worki ng population was engaged in agriculture. This percentage fell to 66.9% in 1991 & to 56.7% in 2001. However, with rapid increase in population the absolute numb er of people engaged in agriculture has become exceedingly large. 3. Provision o f Food Surplus to the Expanding Population: Because of the heavy pressure of pop ulation in labor-surplus economies like India & its rapid increase the demand fo r food increases at a fast rate. Therefore, unless agriculture is able to contin uously increase its surplus of food-grains, a crisis is likely to emerge. Expert s foresee that by the end of 11th five year plan (i.e., 2011-2012), the demand f or food-grains is expected to increase to 280.6 million tons. Meeting this deman d would require 2% growth per annum. The challenge facing the country is clear a s during the last 10 years the food-grains have been growing at a meager 0.48%. 4. Contribution to Capital formation: There is a general agreement on the import ance of Capital Formation in economic development. Unless the rate of Capital Fo rmation increases to a sufficient high degree, economic development cannot be ac hieved. Agriculture can play a big role in pushing the Capital Formation in Indi a. Rural sector can transfer labor & capital to the industrial sector which can be effectively used to increase the productivity in the latter. 5. Providing Raw Material to industries: Agriculture provides raw materials to various industrie s of national importance. Sugar industry, Jute industry, Cotton textile industry , Vanaspati industry are examples of some such industries which depend on agricu lture for their development.

6. Market for Industrial Products: Since more than two-thirds of the population of India lives in rural areas, increased rural purchasing power is a valuable st imulus to industrial development. 7. Importance in International Trade: Agricult ure constitutes about 75% of the total exports of the country. Such is the impor tance of agriculture as far as earnings of foreign exchange are concerned. Agriculture structureIndias agricultural area is vast with total arable and perma nent cropland of 170 million hectares in 20032005. It has the second largest ara ble area in the world after the United States. OECD in its 2007 agricultural poli cy monitoring report notes that Indian agriculture is dominated by a large numbe r of small scale holdings that are predominantly owner occupied. The average size of holding in the late nineties was about 1.4 hectares and cont inues to decline, as farms are usually divided on inheritance. Out of Indias 116 million farmers, around 60% have less than 1 hectare and together they farm 17% of the land. The share of medium to large farms (above 4 hectares) is very small at just over 7% of all holdings, but these farms account for around 40% of the land. The implication is that many of the very small farms are subsistence holdi ngs, with low investment and little productivity growth. PRODUCTIVITY GROWTH IN INDIAN AGRICULTURE: THE ROLE OF GLOBALIZATION AND ECONOMI C REFORMIndia, which is one of the largest agricultural-based economies, remained closed until the early 1990s By 1991, there was growing awareness that the inward-looking import substitution and overvalued exchange ra te policy coupled with various domestic policies pursued during the past four de cades, limited entrepreneurial decision making in many areas and resulted in a h igh cost domestic industrial structure that was out of line with world prices. H ence the new economic policy

of 1991 stressed both external sector reforms in the exchange rate, trade and fo reign investment policies, and internal reforms in areas such as industrial poli cy, price and distribution controls, restructuring in the financial and public s ectors. and In fiscal addition, Indias membership and commitment to World Trade Organization (WTO) in 1 995 was a clear sign of Indias intention to take advantage of globalization and f ace the challenge of accelerating its economic growth. One measure of economic g rowth is given by productivity growth as it forms the basis for improvements in real incomes and welfare. The concept of productivity growth gained importance f or sustaining output growth over the long run as input growth alone is insuffici ent to generate output growth because of diminishing returns to input use. This paper, which examines Indias productivity growth in the agricultural sector in th e context of globalization, has three main aims. First, it examines these possible links in the agricultural sector in general. Second, it discusses the problems and prospects for agricultural productivity growth of var ious Indian states. Third, the paper highlights the challenges of globalization and draws policy implications for the success of Indian agriculture. OVERVIEW OF INDIA'S AGRICULTURAL ECONOMYIn the early 1950s, half of Indias GDP came from the agricultural sector. By 1995, that contribution was halved again to ab out 25 per cent. As would be expected of virtually all countries in the process of development, Indias agricultural sector s share has declined consistently over time as seen in the table below. Table 1. Share of agricultural output in India's GDP Year Percentage share Source: 1950/51 52.2 1965 43.6 1976 37.4 1985 32.8 1991 28 .3 1999 24.4 Estimated from various issues of Economic Survey, Government of India. In the last five decades, the Governments objectives in

agricultural policy and the instruments used to realize the objectives have chan ged from time to time, depending on both internal and external factors. Agricult ural policies at the sectoral level can be further divided into supply side and demand side policies. The former include those relating to land reform and land use, development and diffusion of new technolog ies, public investment in irrigation and rural infrastructure and agricultural p rice supports. The demand side policies on the other hand, include state interve ntions in agricultural markets as well as operation of public distribution syste ms. Such policies also have macro effects in terms of their impact on government budgets. Macro level policies include policies to strengthen agricultural and n on-agricultural sector linkages and industrial policies that affect input suppli es to agriculture and the supply of agricultural materials. During the pre-green revolution period, from independence to 1964-1965, the agricultural sector grew at annual average of 2.7 per cent. This period saw a major policy thrust toward s land reform and the development of irrigation. With the green revolution period from the mid-196 0s to 1991, the agricultural sector grew at 3.2 per cent during 1965-1966 to 197 5-1976, and at 3.1 per cent during 1976-1977 to 1991-1992. Acharya (1998) explai ns that the policy package for this period was substantial and consisted of: a) introduction of highyielding varieties of wheat and rice by strengthening agricultural research and extension services, b) measures to increase the supply of agricultural inputs su ch as chemical fertilizers and pesticides, c) expansion of major and minor irrig ation facilities, d) announcement of minimum support prices for major crops, gov ernment procurement of cereals for building buffer stocks and to meet public dis tribution needs, and e) the provision of agricultural credit on a priority basis . This period also witnessed a number of market intervention measures by the cen tral and state Governments. The promotional measures relate to the development a nd regulation of primary markets in the nature of physical and institutional inf rastructure at the first contact point for farmers to sell their surplus product s. Acharya (1998) also notes that the rate of growth of productivity per hectare of all crops taken together increased from

2.07 per cent in the decade ending 1985-1986 to 2.51 per cent per annum during t he decade ending 19941995. Similar evidence of an increase in yields, a partial measure of productivity gains given by output per unit of land area is seen belo w for various crops. Table 2. Yield for various crops (kg/ha) 1950/51 Rice Wheat Coarse cereals Pulses Food grains Oil seeds Cotton Sugarcane Source: 668 663 408 441 522 481 88 33 422 1960/61 1 013 851 528 539 710 507 125 45 549 1970/71 1 123 1 307 665 524 872 579 106 48 322 1980/81 1 336 1 630 695 47 3 1 023 532 152 57 844 1990/91 1 740 2 281 900 578 1 380 771 225 65 395 1995/96 1 855 2 483 941 552 1 499 851 246 68 369 1998/99 1 905 2 596 1 035 661 1 611 948 240 69 288 Agricultural Statistics At A Glance. Agriculture, CMIE, September 1999. Although productivity gains were sustained in the 1990s after the liberalization process began, the yield rates for most of the agricultural products in India a re far below comparable rates in a number of other countries. This is seen in ta ble 3. Except for sugarcane, tea, coffee and jute, Indias yields are lower than the world average. It should be noted that India is ranked second both in area and output for sugarcane production and is the largest producer of tea and jute in the world. Although India is doing quite well in wheat production, the average yields in the Netherlands and Ireland are more than thre e times Indias yield rates. In all other major crops, Indias productivity performance seems to lag behind others Why globalize? Globalization in the context of agriculture can be best discussed in the context of three components improvement of productive efficiency by ensuring the conver gence of potential and realized output, increase in agricultural exports and val ue added activities using agricultural produce, and finally, improved access to domestic and international markets that are either tightly regulated or are over ly protected

Table 3. Annual average yield based on 1995, 1996 and 1997 data (kg/ha) Crops Region Wheat World Europe China India USA Canada Australia Thailand Indone sia Sri Lanka Brazil Kenya Bangladesh UK 7 772 2 155 1 580 2 482 2 565 4 764 3 7 87 2 569 2 508 2 245 1 880 2 252 4 473 67 718 1 365 1 385 582 1 473 480 6 186 2 848 6 590 Rice 3 757 Coarse Grains 2 678 4 311 4 358 982 6 590 Maize 4 050 5 698 4 867 1 540 7 690 Pulses Ground- Sugarnuts 4 050 5 698 4 867 1 540 2 686 1 059 2 787 64 159 71 040 697 1 776 741 7 543 1 318 63 266 Tea cane 1 158 Coffee 538 C ows Tobacco Milk 2 062 3 557 1 005 1 845 1 442 2 275 2 522 1 827 Leaves 1 616 Ju te 1 757 Source: Food and Agricultural Organization Yearbook 1997. These components are linked in various ways. For example, productive efficiency would enhance value added activities in agriculture through agro-processing and exports of agricultural and agro-based products. These activities in turn would increase income and employment in the industrial processing sector. Thus globali zing agriculture has the potential to transform subsistence agriculture to commercialized agriculture and to improve the living conditions of the rural community. However, economic refo rms within India are necessary to pave the path to successful globalization. The stated objective of the new economic policy is to raise the economys growth rate from the current 5.5 per cent achieved over 15 years to about 7 or 8 per cent p er year. Ahluwalia (1996) explains that this indirectly requires an improvement in agricultural growth from between 2 and 3 per cent in the past to about 4 per cent per year. Although initially, with respect to agriculture, ther e was no major policy reform package in the 1990s, it was however anticipated th at the opening up of the agricultural sector to foreign trade, the move to a mar ket determined exchange rate and reduction of protection for industry would, ove r time, benefit the agricultural sector. Manmohan Singh (1995), the then Finance Minister, in his inaugural address at the 54th Annual Conference of the Indian Society of

Agricultural Economics, brought to notice that a policy of heavy protection of t he industrial sector operated to the disadvantage of the agricultural sector whe n industrial prices were raised relative to world prices and thus the profitabil ity of investing in industry was raised relative to agriculture. This would lead to a shift of resources from agriculture to industry. A policy of heavy industrial protection also led to an appreciation of the exchange rate. Ahluwalia (1996) noted that ov er-valuation of the exchange rate (before the Indian rupee was devalued by 18 pe r cent in two phases starting in July 1991) discouraged agricultural exports mor e than industrial exports because Indian industrial policy had sought to offset the constraints faced by industries via a system of export incentives for market support. Agricultural exports on the other hand were denied any such incentives as they did not use imported inputs. Ahluwalia (1996) argued that in the past, the agricultural sector was negatively protected because of the above two reason s and the fact that farmers were denied access to the world markets due to trade barriers. Exports of plantation crops and a few commercial crops were free from export restriction but exports of essential commodities, pa rticularly food products, were subject to bans, quotas and other restrictions. I nterestingly, Kruger and others (1991) showed that while many developed countrie s continue to protect agriculture, developing countries do not do so. However, n o formal attempt or theoretical framework has yet been used to assess the extent of negative protect ion in Indian agriculture. The implementation of economic reform in the Indian agricultural sector has been a gradual process. These inclu de an 87 per cent cut in tariff on agricultural products, sustenance of high-yie ld crop varieties, removal of minimum export price on selected agricultural prod ucts, a lift on quantity restrictions on the export of some crops and various la nd reforms related to tenancy rights and land ceilings. Agricultural growth and performance: an economy-wide analysisAlthough Indias econ omic reforms were initiated in June

1991, the process of liberalization was implemented gradually and thus it is dif ficult to assess the full impact of the liberalization measures. Nevertheless, a n attempt is made to discuss what is observable in terms of agricultural growth. One observation is that the expected increase in exports due to liberalization simply did not occur. Indias share in world exports was 0.6 per cent in 1997; Ind ia has to aim for at least 4 per cent by 2005 in order to meet the growing impor t demands for capital goods, raw materials and crude oil as well as to meet her external financial commitments (Kalirajan and others 2001). For the last decade or so, Indias share in world exports of agriculture has been between 2 per cent a nd 3 per cent. Furthermore, as table 3 shows, India is not as competitive as the other countries and calculations show that Indias crop yields have increased at a slower rate over the 1990 s. In addition, the agricultural sectors output growt h decreased to 2.9 per cent during 1992-1993 to 1998-1999. Kalirajan and others (2001) explain that two important reasons for the slowdown are that there was no major breakthrough in developing new high-yielding varieties during the 1990s a nd there was a decline in the environmental quality of land which reduced the ma rginal productivity of the modern inputs. What could this mean in terms of the e ffectiveness of the policies of reduced protection to industry, a market determi ned exchange rate and the opening of the agricultural sector to foreign trade? F irst, although the reduction to protection of industry is substantial, there is reason to believe that the reduction was not necessarily sufficient to benefit t he agricultural sector whose tariffs were also drastically reduced. Hence, the e xpected shift in resources to agriculture did not occur. Second, is the apparent ineffectiveness of the market determined exchange rate in boosting exports. Thi s is however not surprising as the exchange rate may not be a key factor determi ning agricultural export demand for India. In general, unlike manufacturing indu stries, agriculture did not benefit much from these two policies because the sha re of imported inputs in the value of

agricultural production is small. It is likely that a change in the mindset and attitude of farmers has yet to take place and there are delays or hesitation in embracing Indias openness. Third, in opening up the agricultural sector to foreig n trade, India has taken major steps towards trade liberalization since 1991, pa rtly on its own initiative and partly from its commitments to WTO. Kalirajan and others (2001) provide a detailed review of these reform procedures. But why hav e the benefits from trade liberalization been slow to come? One reason is that p rospects for growth in agricultural exports depend partly on domestic policies a nd partly on the removal of protectionist policies pursued by developed countrie s such as Japan and members of the European Union (EU). An OECD report (1998) estimated that the producer equivalent subsidy in the OECD countries increased b y US$ 9.3 billion from 1988 to 1993 and this subsidy as a percentage of the valu e of production in 1997 was 9 per cent in Australia, 20 per cent in Canada, 47 p er cent in EU and 70 per cent in Japan. These protectionist practices do not see m likely to come to an early end. An UNCTAD report (1999) noted that 29 member countries of the OECD spent an average of US$ 350 billion a year in agricultural support between 1996-98. reports that the EU provides product-specific trade di storting domestic support to at least 50 different agricultural products. The im plication of these reports is that food exports from India may not show a large increase given the international environment and the still-existing restrictions on exports in the major importing markets based on the self-sufficiency argumen t and food security. Other macroeconomic factors, such as the recession in Schum acher (2000) further developed countries in 1996-98 as well as the 1997 South-East Asian financial cr isis, have clouded the possibilities of increasing Indian exports. Another probl em faced by Indian agricultural exporters is the protectionist measures in the f orm of non-trade barriers that developed countries use to restrict market access . This is by tightening requirements of quality, testing and labeling, and anti-dumping and countervaili ng measures. For example, in May 1997, the EU banned

marine products from India citing unhygienic processing sts of meeting the standards required in export markets ted with changes in the production mix and transactions may well be discouraging Indian exporters. One existing tural protection is the use of input subsidies.

conditions. The extra co as well as costs associa associated with exports problem of Indias agricul

The general argument favouring this has been that it is necessary to encourage t he use of particular inputs for production for various benefits. For India, Gulati and Sharma (1995) show that the input subsidy in per cent of G DP increased from 2.13 in the triennium ending 1982-1983 to 2.73 in the trienniu m ending 1992-1993. But the benefits of these subsidies have accrued to only cer tain classes of farmers in some regions cultivating irrigated crops. Furthermore , highly subsidized prices of inputs such as irrigation water and electricity fo r pump sets have encouraged cultivation of waterintensive crops, over-use of wat er, ground water depletion/salinity and water logging in many areas. Subsidy for nitrogen fertilizer on the other hand has resulted in nitrogen phosphorous potassium imbalance and acted as a disincentive for use of the environmentally friendly organic manure. As a res ult, the linkage between food crops and non-food crops, which include fodder, has been reduced. These adverse consequenc es are a drain on the fiscal burden of central and state Governments. Thus, if n ot properly monitored, input subsidies can be counterproductive and, in this con text, protection to lower costs of production should be done selectively in the course of liberalization. In fact, Agenda 21 of the United Nations Conference on Environment and Development in 1992 stressed that there is a need for integrati on of environmental considerations in the pricing of natural and other resources in such a way that prices reflect social costs. Such a pricing policy will not only lead to a more efficient use of scarce resources but also result in subsidy reductions and improvements in environmental quality. The money saved from the reduction of subsidies can be spent in the development of rural infrastructures, agricultural research, farmers education and other forms of support for

agriculture. Agricultural growth and performance: an inter-state analysisWhile the above anal ysis has provided a general view of the impact of economic reforms, this section examines agricultural growth and performance in the states of Bihar, Karnataka, Tamil Nadu and Punjab with their attendant policy implications. The table below shows the yield for various crops in these four states. Table 4. Yield of major crops (kg/ha) Year Rice Wheat Coarse cereals Pulses Bihar 1960/61 1970/71 1980/81 1990/91 1995 /96 867 788 1 015 1 220 1 370 679 957 1 314 1 810 2 020 730 885 828 1 114 1 566 515 600 609 791 610 Karnataka 1960/61 1970/71 1980/81 1990/91 1995/96 1 292 1 70 9 2 029 2 070 2 380 441 696 793 780 1 294 270 354 319 333 470 Punjab 1960/61 197 0/71 1980/81 1990/91 1995/96 1 009 1 764 2 733 3 229 3 130 1 244 2 237 2 730 3 7 15 3 880 904 1 411 1 548 1 907 1 995 785 744 589 755 820 Tamil Nadu 1960/61 1970 /71 1980/81 1990/91 1995/96 Source: 1 413 1 900 1 861 3 116 3 390 787 784 841 1 106 1 154 265 271 324 425 370 1 058 1 340 1 340 1 910 2 140 900 919 846 1 081 1 470 167 196 201 290 350 80 000 77 367 100 820 113 920 110 010 1 032 1 860 2 561 3 390 3 840 654 790 786 958 1 200 270 350 308 463 440 36 541 41 171 55 211 59 41 0 65 300 518 774 873 888 1 290 407 626 520 525 680 389 499 590 1 074 980 70 149 78 689 78 232 76 287 79 560 749 795 989 1 300 1 450 398 458 423 617 620 33 879 3 8 353 31 412 52 490 45 510 Food grains Oil seeds Cotton Sugarcane Statistical Abstract, Government of India. Tamil Nadu: Season and Crop Reports. Table 4 shows that the yields for various crops in these states differ greatly. While Tamil Nadu had the highest yield in rice, oil seeds and sugarcane, Punjab enjoyed the highest yields in wheat, coarse cereals, pulses and food grains. Kar nataka on the other hand is seen to do well in cotton and Bihar performed quite well in pulses

and coarse cereals. Further analysis and findings by Kalirajan and others (2001) show that Punjab had made remarkable achievements on the agric ultural front while Bihar had remained stagnant in the last two decades, with Ka rnataka and Tamil Nadu showing moderate achievement. Clearly, differences in phy sical endowments, climatic conditions and institutional characteristics are some of the reasons for the var ying productivity performance. Thus, having across the board economic reforms is likely to work less effectively than state-specific policy m easures that enable each states agricultural yields to reach their full potential . The comparative advantage of each states agricultural production should be dete rmined and with inter-state restrictions removed, total agricultural output woul d see a very significant increase. For example, Karnataka with less favourable s oil and water resources should be given incentives to concentrate on agro-proces sed products and corporate agriculture in horticulture, floriculture and animal husbandry, or to undertake watershed development to help with dry land agricultu re. Many studies have indicated that with watershed areas, productivity growth h as been mainly due to seed and fertilizer use. Thus, this state has to be given input subsidies for high yielding seed varieties but at the same time, the farme rs need to be educated on the over use of chemical fertilizers. With Bihar, agri cultural performance is problematic on many fronts. First, although demographic pressure has increased and agricultural technology has improved, most of the uncultivated land is concentra ted in southern Bihar, where irrigation facilities have not kept pace and the so il is of poor quality. Given the physiography of southern Bihar, wells are also unsuitable and thus the dominant mode of irrigati on has been through tanks whose expansion and maintenance has been neglected. Se cond, the infrastructural facilities of Bihar have been lagging as seen by the i nfrastructure development index in table 5. Due to infrastructural bottlenecks, availability of modern goods and services has not increased or their supply rema ins costly or unreliable. Table 5. Infrastructure development index (All India = 100) Bihar Karnataka Punjab Tamil Nadu

1980/81 1984/85 1989/90 1992/93 1993/94 Source: 83.5 84.8 83.1 83.4 81.1 94.8 97.9 95.2 96.1 96.9 207.3 204.6 195.8 191.6 191.4 158.6 148.7 147.4 143.3 144.0 Profiles of States, CMIE, March 1997. Third, agriculture in Bihar is dominated by small and marginal farmers and the p revalence of mass poverty is largely related to the backwardness of agriculture. Fourth and importantly, the state agricultural policies in Bihar are in dire ne ed of review. The semi-feudal production condition still exists in rural areas and the ineffective protection of tenancy rights has hindered agricultural growth. The slow pace of land consolidation reflects inadequate Kalirajan and others financial outlays and a shortage of manpower. (2001) note that marketing and extension services in Bihar are also rather weak compared to the other states. Punjab on the other hand, was one of the few state s which enjoyed the success of land reforms and the high priority of investment in rural infrastructure as seen in table 5. Also, the irrigation base of the sma ll and medium sized farms was comparable to that of large farms. In addition, th e Punjab Agricultural University at Ludhiana contributed to the development of n ew seed varieties. However, there are clear signs of a decline in crop yields si nce the 1990s and this has been associated with the increasing use of fertilizer s and excessive water use which have increased the unit cost of production as a result of declining soil quality. Hence, care is needed when providing further A nother related fact is the input subsidies in fertilizer and water use. steep increase in wages in Punjab and in the absence of productivity increases, the cost increase has affected the profitability of farmers. With Tamil Nadu, th e main crop has been rice as this state is blessed with two monsoons. But from 1 992-1997, there has been a steady decline in the areas irrigated by canals and an increase in well-irrigate d areas while the use of tanks remains an unreliable source of irrigation. Howev er, major improvements in about 10 rice varieties released in the early 1990s ca n be expected to improve productivity growth in rice production although pests a nd diseases as well as imbalance in the use of fertilizers are major constraints .2 Thus Tamil Nadu could do with subsidies of

pesticides and farmers should be educated on the more effective use of fertilize rs to obtain high yields. Interestingly, the cropping pattern of late has shown increasing substitution of food crops by commercial crops but the re is concern that the benefits will reach farmers only with the development of adequate infrastructure such as roads and markets. Table 5 shows, however, that Tamil Nadu has a higher index than the all India average of infrastructure. Groundwater OverexploitationWith paddy and wheat being heavily water dependant c rops, farmers have every reason to over-exploit groundwater. The inevitability o f groundwater extraction has been politically exploited too. Successive governme nts in the recent past have even given free electricity to the farmers in the st ate. The water tables have fallen at alarming rates in many places in the State during the last few decades. The governments policy of providing free electricity for agriculture and very low water charges for canal water have encouraged inef ficient use of irrigation water. Intensive use of tubewell irrigation has led to depletion of water resources in the State. As illustrated in Table 5, about 98 percent of groundwater resources in the State have already been exploited. Nearl y 59 percent of blocks in the State have overexploited groundwater resources, the highest rate in the country and another 12 percent are in dark/critical zone. On the other hand injudicious use of cana lirrigation water without regard to soil conditions and inadequate attention to drainage, have led to the emergence of conditions of water-logging and salinity in many areas, resulting in valuable agricultural land going out of use in the S tate. CONCLUSIONAlthough India missed the opportunity to open up two decades ago, its attempts to do so now must be regarded as better late than never. Others such as Desai (1999) observe that, the logic of the global economy as well as Indias inte rests dictate that India become proactive in its liberalization policies. India must liberalize not because it has no choice but because it is the best choice. H is lament that India has

adopted a victim mentality when it really needs to adopt a winner mentality has beco me less of a concern as over time, India has shown commitment to stay on the ban dwagon of globalization. Having realized that globalization is a necessary but n ot a sufficient condition for high growth production, India has undertaken econo mic reforms, both internal and external. However, it must be ensured that these reforms are synchronized so that the pace of in hand to promote agricultural and educating them appropriately take up new activities or adopt this context, it is necessary to both reforms is set right in order to work hand productivity growth Thus, training the farmers to change their mindset and reorienting them to foreign technology is of utmost importance. In

involve non-governmental organizations in training and mobilizing the rural poor to face the challenge of liberalization. Also, with domestic economic reforms, more care needs to be exercised to draw up statespecific liberalization measures to maximize their benefits. Lastly, in the implementation of these reforms for successful globalization, one crucial el ement, not entirely within control is the need for good governance and stability in the political and economic environment. Political leaders who are the ultima te decision makers in these matters need to examine their own role dispassionate ly. It is quite apparent that at this relatively early stage, there is little ob servable evidence of gains to Indias agricultural performance after opening up. H owever, there could easily be benefits that have not yet surfaced, or are yet to be identified and perhaps too difficult or intangibl e to measure. Whatever the case, it is highly likely that it is too soon to assess the full impact of globalization and economic reforms. Fur thermore, the process of liberalization has been gradual and remains incomplete. For example, the complete removal of quantitative restrictions after March 2001 will have provided an opportunity for Indian farmers to tap world markets and, if they are successful, results should start to become evident soon. Export prom otion via the development of export and trading houses as well as effective libe ralizing export promotion zone schemes for agriculture are fairly recent measure s and only time will tell as to how effective these measures are. Other possibil ities such as agro-industry parks for promoting exports are also in the pipeline.

In conclusion, India has successfully set sail on the waters of globalization an d economic reforms and even in the wake of economic and political instability, s he has to carefully steer her course in order to reap the benefits of increased productivity growth in the agricultural sector.