11 - Chapter 3 PDF
11 - Chapter 3 PDF
11 - Chapter 3 PDF
Sector in India
3.1. Introduction
3.1 Introduction
is described as the backbone of Indian economy mainly because of the three reasons.
One, agriculture constitutes large share of country's national income though the
share has declined from 55 percent in early 1950s to about 25 percent in early 2000s.
Two, more than 213rd of workforce of the country were employed in agricultural
sector until 1971. Recent census data for the year 2001 indicates that agriculture
workforce of India. Three, growth of other sectors and overall economy depends on
important role as foreign exchange earner. Because of its backward and forward
multiplier effect on the entire economy. Its performance, therefore, is crucial in the
reviews policies and initiatives in agricultural sector in the light of the New
producers and income receivers , and that , if available over a substantial period ,
they reveal the basic changes in the country's economy in the past and suggest, if
not fully reveal, trends for the future. (National Income Committee, 1951)'. The
composition and structure of India's National Income have been changing during the
plan period. The contribution of the primary sector in national income, export
earning and employment are well summarized in the table given below.
Table 3.1
Share of agriculture in national income, employment and trade
during 1950-51. This share has declined to 24.6 percent during early 2000s. The
2001 census data indicates that agriculture workers account for 58.4 percent of
earner. Agricultural exports accounted for 44.3 per cent of India's total merchandise
exports during 1960-61. The share has declined over time but agriculture still
of growth in output, yields and area under many crops. It has gone through a green
India is the largest producer of milk, fruits, cashew nuts, coconuts and tea in the
world, the second largest producer of wheat, vegetables, sugar and fish and the third
rates presented in table 3.2. The table shows the growth rates for agriculture and
allied sectors that include crop, livestock and fishery sub sectors. Separate estimates
for GDP of crop sector and livestock sector are not available, because, due to
to distinguish between inputs used in crop activity and livestock activity. However,
separate estimates for value of output of these two activities are available.
Among the three sub sectors, output of fishery has grown at the highest rate
during all the five decades since 1950-51. In the last three decades, output of
livestock sector has been growing at a faster rate compared to crop sector. Growth
diversifying towards livestock and fishery products away fiom crop products.
Outputs of crop sector showed best growth during the period fiom 1980-81 to 1990-
91.
Table 3.2
Average of annual growth rates in GDP and output of agriculture and its sub sectors
at 1993-94 prices (%)
Figure 3.1
Growth of agricultural sector since 1950-51
5-
4.5 -
4 -
3.5 -
S
.5 3-
B
E 2.5 -
3 2-
1.5 -.
0J
1951-61 1961-71 1971-81 1981-91 1991-01
time period
rate appeared in the initial years of reforms and it deteriorated further in the post
WTO period. In the case horticultural sector (fruits and vegetables), output growth
rate increased from 3.65 percent during the decade before reforms to more than 5.54
percent during the reforms (EPW, 2002)~.It is worth noting that after 1991-92
output of horticultural sector increased annually by about 6 percent that is more than
horticulture crops has recorded lowest growth after 1990-91 in the post
independence period.
agricultural growth through its increased investment in this field as also inducing the
economic survey reveal the mutual role of the two parties. Though the overall growth
of the Indian economy has depended much upon the performance of agriculture, over
the years, not much public investment has been made on its development. There is a
the same time, private investment has been increasing over the years. During 1960-61,
the total investment in the agricultural sector was 1670 crores of which the public
sector contributed 590 crores and the public sector, 1070 crores. However, during
1980-81, the total investment increased to 4640 with 2840 and 1800 crores by the
GDP declined from 1.6 per cent in 1993-94 to 1.3 per cent in the subsequent years i.e.,
during early 2000s. This declining trend was mainly due to near stagnation or fall of
public investment in agriculture since the early nineties. The year 2001-02 is likely to
be a turning point as public investment in agriculture has touched Rs. 4794 crores,
which was significantly higher than that of the previous five years. If this trend were
% Investment in
Total Private Public % share
Year investment investment investment (private) (public) agriculture as
percent of GDP
1993-94 13523 9056 4467 67.0 33.0 1.6
1994-95 14969 10022 4947 67.0 33.0 1.6
1995-96 15690 10841 4849 69.1 30.9 1.6
1996-97 16176 11508 4668 71.1 28.9 1.5
1997-98 15942 11963 3979 75.0 25.0 1.4
1998-99 14895 11025 3870 74.0 26.0 1.3
1999-00 17304 13082 4222 75.6 24.4 1.4
2000-01 16687 12768 3919 76.5 23,5 1.3
2001-02 18057 13263 4794 73.5 26.5 1.3
Source: Central Statistical Organization.
that the underdeveloped countries have launched on a massive scale especially after
Second World War. For a country of its size, India is a minor participant in world
trade. At present, India accounts for less than 1 per cent of overall world exports and
restrictions and protective licensing regime, free trade in a large number of items has
become the order of the day. With the removal of Quantitative Restrictions on
agricultural items and urea, the Indian farmer community has been placed to face
Figure 3.2
1.20
1.15
1.10
j ::;
0.95
0.90
S 0.85
0.80
0.75
0.70
1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000-
92 93 94 95 96 97 98 99 00 01
Source: Ramesh Chand, "India's Agricultural Trade Policies and its stand in
the Doha Round of WTO Negotiations", National Centre for Agricultural
economics and Policy Research, New Delhi
Ramesh chand6 gives a picture of india's share in global trade in the ten
year period since 1991-92 (see figure 3.2). Until1 1995-96, India's share was less
than one per cent of the global agricultural trade. However, with the introduction of
AoA, our participation in the trade improved and the share gone up to 1.15 % during
1996-97, thereby maintaining the position above one per cent in the succeding years.
3.5.1 Agricultural Exports
Exports from India are broadly classified into several categories like agriculture
and allied products, oils and minerals, manufactured goods, mineral fuel etc. Among
them, agriculture and allied products occupied significant place in the total export
earning of the country. Agriculture and allied products alone contributed 31.7 per
cent of the total export earning of India in 1970-71, which fell down to 30.6 per cent
% of agricultural
Agricultural Total national
Year exports to total
exports export
national exports
1990-91 6012.76 35527.28 18.49
1991-92 7838.13 44041.81 17.80
1992-93 9040.30 53688.26 16.84
1993-94 12586.55 69748.85 18.05
1994-95 13222.76 82673.40 15.99
1995-96 20397.74 106353.35 19.18
1996-97 24161.29 118817.32 20.33
1997-98 24843.45 130100.64 19.10
1998-99 25510.64 139751.77 18.25
1999-00 25313.64 159095.20 15.91
2000-0 1 28909.30 202509.76 14.28
200 1-02 16254.29 115762.05 14.04
2002-03 NA NA 13.58
2003-04 NA NA 12.62
Source: website, http://www.agriculture-industry-india
India has been a consistent but small net exporter of agricultural products
since 1980. The major devaluation of the Indian rupee that followed the balance of
payment crisis in 1991 has had a much greater impact on the value of exports of
clothing, textiles and other manufactured goods than on exports from the agricultural
sector. The share of agricultural exports in total Indian exports has been declining in
recent years. In 2003-04, agricultural products made-up around 12 per cent of the
total value of Indian exports compared with 18 per cent in 1990-91. No one
reference period and registered the highest value during 1996-97 i.e., 20.33%. It
started declining further from 1996-97 onwards thereby showing 12.62 % during
increased non-agricultural exports from the country and hence agricultural sector
sharp increase in the recent past. Data given in table 3.5 show the trend of India's
total as well as agricultural imports since 1990-91. Regarding the percentage share
of agriculture in the total imports, the share was too narrow in the early 1990's; say
2.79% in 1990-91 and 3 -09 % in 1991-92. However, the share increased to 6.6 in
1994-95 and thereafter after a slight slop in the share for the next three financial
years, it recorded the highest share of 8.17 % during 1998-99 for the first time in the
decade.
During 2001-02, agricultural commodity imports were valued at $2.3 billion,
two-third of which was accounted for by a single commodity, namely edible oil. In
recent years, edible oil accounting for nearly 60 to 65 per cent of the value of total
agricultural imports has become the single largest import item. Raw cashew nuts,
nuts (almonds from USA) and pulses are among the other dominant agricultural
imports, each of which accounts for nearly 5 to 10 per cent of the total agricultural
imports in recent years. There was a substantial increase in the import of pulses
during 2001-02 with its share in the total agricultural imports rising by over 28 per
cent. Agricultural imports in 2003-04 constituted only a small proportion (6.19 per
Source: http://www.agriculture_industry-india
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somaf0rmof~~ela~ononlmpom(~~tr2001)'~~1~101~~(
~ 9 3 l p e t ~ € u f W e l o c a t ~ ~ b a h c e s f
1991 d a reassessment of trade policy. Tke exchnp rate was devdmd,
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qumtitatiw import lmhchom
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1995 and the implementation of the Uruguay Round Agreement on Agriculture
The liberalization process in the agricultural sector had to wait until the
formation of the WTO to gather momentum. The GATT was a failure in promoting
free trade in agricultural products (Bernad and Michel, 1995)". Agricultural trade
was practically kept out of free trade regime until the formation of WTO. The AoA
and export subsidies. These rules relate to country specific commitments to improve
required to replace all types of non-tariff barriers with tariffs, and to reduce tariff
also called for maintaining current access opportunities and establishing minimum
access tariff quotas. For countries such as India, where Quantitative Restrictions
(QRs) covered all agricultural imports for Balance of Payment (BoP) reasons, only
ceiling bindings had to be submitted. For these ceiling bindings, there was no upper
limit, provided the tariffs had not been bound in earlier rounds of negotiations.
products that were subject to previously unbound tariffs or subject to some form of
qualitative restriction. These ceiling bindings could be higher than the September
1986 applied tariffs (the rate at which developing countries were required to limit
tariffs under the General Agreement on Tariffs and Trade then in place). In addition,
there was no obligation to reduce these ceiling bindings during the implementation
Countries use a number of policy instruments such as support prices and input
subsidies, which affect incentives that farmers receive in terms of prices and hence
influence resource allocation. In the AoA, the impact of price support and related
policies is captured through the AMS. India has a product price support system in
-.
the form of minimum support prices announced by the government for different
Costs and Prices. Our analysis shows that for 18 major commodities, the product-
specific support, as defined under the AoA during the base period, was (-) US$18.11
billion (Table 3.7). As a percentage of the value of agricultural output (crop sector),
the product-specific AMS is (-) 26.1 percent during this period. During 1995-96, the
estimated product specific AMS turned out to be (-) 34.36 percent of the value of
agricultural output, and during 2000-2001, the same was estimated to be (-) 28.6
fertilizers, electricity, credit and seeds, was about 1.25 percent of the value of
agricultural output during the base period. During 1995-1996, the non-product-
specific support was roughly 1.88 percent of the value of agricultural output, which
was worked out to be about 2.32 percent of the value of agricultural output during
2000-01.
Table 3.7
Domestic support to Indian agriculture
Period Product As a percentage of Non-product As a percentage
specific the value of output specific of the value of
support of the agricultural support (US$ output of the
(US$ sector billion agricultural
billion) sector
(1986-87 -18.1 1 -26.10 0.87 1.25
t01988-89)
1995-96 -26.37 -34.36 1.44 1.88
1996-97 -27.67 -32.44 1.58 1.86
1997-98 -25.38 -29.52 1.84 2.14
1998-99 -27.75 -30.13 1.86 2.02
1999-00 -25.50 -27.24 2.07 2.21
2000-01 -26.00 -28.58 2.1 1 2.32
Source: WTO, 2001b
The negative product specific support to Indian agriculture shows that various
controls on domestic as well external trade have kept domestic prices of major crops
below world prices. In the case of domestic trade, these controls included
levies, licensing and stocking requirements and credit controls. The controls on
export prices and canalization. The net result of these policies has been that the
support.
by the government or any other agency, including payments in kind; payments that
are made from the proceeds of levy imposed on agricultural products; subsidies that
are given to reduce the cost of marketing including internal handling, processing,
As India does not have a system of direct export subsidies, it was not bound to
make any reduction commitment on export subsidies. A few benefits were available
section 80 - HHC of the Income Tax Act (1961) on profits from export sales. In
2000, the government decided to phase out these benefits over a period of five years
costs and the costs of domestic and international transport and freight, India is
making use of these provisions. The schemes facilitate mainly the exports of
horticultural items and are operated by the Agricultural and Processed Food
agricultural items have been adversely hit owing to the fall in commodity prices and
introducing direct export subsidies in the kture that are not compatible with the
agreement.
Cash crops are high value crops of great economic importance and provide
huge employment opportunities, the important among them being tea, sugar, coffee,
rubber and tobacco. In recent times, cash crops have even facilitated the external
sector, especially export crops like tea and coffee. The policies relating to the cash
crops also underwent changes with the advent of the Agreement on Agriculture. A
major factor causing changes in production, prices and trade is the commitment
India is among the biggest producers, consumers and suppliers of tea in the
world. However, even tea has been under-performing. Tea production in India
peaked in 1998 and has been on the decline ever since. In fact, tea production
declined by 5.9% in 2005. Natural rubber also did well in terms of production.
Note : * Base rate of duty is the duty prevailed on 1-9-1986 for all items except NR
and the duty prevailed on 1-1-1990 for NR (GATT, 1994: V/ Part I-I, Part
11-I), UB- Unbound, TSR- Technically Specified Rubber.
different plantationlcash crops. Since all the items except natural rubber are
classified as agricultural products, the bound rates are 100 and 150 per cent for raw
and processed forms respectively. Therefore, operationally, the bound rates of dry
forms of natural rubber have been 29.4 per cent of the base duty compared to 107
per cent in the case of processed tea and coffee. Consequently, the flexibility drawn
from the higher bound rates was effectively used by enhancing the import duty rates
of tea and coffee in the Union Budget for 2000-2001. This is to ensure protection in
the existing import duty of 25 per cent for dry forms of NR could not be raised.
livelihood for more than half of her total population. The primary sector of the
elsewhere in the economy will also continue to put pressure for changes in the
agricultural sector. A major change that took place in this sector is the globalization
of Indian agriculture.
which required India to revise its trade support policies. As a result, the strict
controls on trade in agricultural products were loosened with the virtual removal of
relatively high tariffs has so far had little impact on trade or opened the domestic
opportunities and challenges to policy makers. Opportunities exist for deriving large
1. Government of India (195 l), First Report of the National Income Committee, April 1951 ,
p.6
2. Chand Ramesh (2004), "Agriculture Growth during the Reforms and Liberalization: Issues
and Concerns, Policy Brief 2O", National Centre for Agricultural Economics and Policy
Research, New Delhi
5. Mattoo, A. and Subramanian, A. (2003), 'India and the multilateral trading system post-
Doha: defensive or proactive?' in Mattoo, A. and Stem, R.M. (Eds), India and the WTO,
World Bank and Oxford University Press.
6. Ramesh Chand, "India's Agricultural Trade Policies and its stand in the Doha Round of
WTO Negotiations", National Centre for Agricultural economics and Policy Research, New
Delhi.
7. Ruddar Datt and K P M Sundharam (2003), "Indian Economy", forty Eighth Revised
Edition, S Chand & Company Ltd., New Delhi, p. 514
9. Chadra, R. (2001), 'Trade and balance of payments' in Economic and Policy Reforms in
India, National Council of Applied Economic Research, New Delhi, pp. 89-128.
10. Bernard H and K Michel (1995), "The Political Economy of the World Trading System:
From GATT to WTO", Oxford Press, Oxford
11. FAO (Food and Agriculture Organization of the United Nations) (2003), "ET0Agreement
on Agriculture: The Implementation Experience- Developing Country Case Studies", Rome,
2004, FAOSTAT database, Rome (http://faostat.fao.org).
12. "Meter's down for cash crops", Times News Network, March 3,