INTERNATIONAL TRADE AND INDIAN AGRICULTURE SECTOR


By
Krishna Chaitanya V.
Assistant Professor & Research Associate (Finance Area)
Dhruva College of Management
Kachiguda,Hydearabad - 500 027
Cell : 9849422731
Phone : 040 - 24655274 24600032
E-mail :
kc_dcm@yahoo.co.in
 


INTRODUCTION:

The backbone of Indian economy is considered as 'agriculture'. It has an important role in Indian economy though the share of agriculture in GDP is declining, it still remains a significant contributor nearly 30 to 35% coming from this sector. It provides livelihood for nearly two-thirds of our population. Agriculture provides raw material for industrial growth and use e.g. sugar, jute, cotton, agro-based industries such as food processing are gaining in importance.

Nature of Indian agricultureThe backdrop

Though more than five decades have passed since independence and agricultural production has increased several folds.

The following table & graph below depicts the growth of agriculture sector in decade wise break-up from 1950 to 2002

Agriculture growth rate in India:
(Table – 1)
 

1950-1960

1961-1970

1971-1980

1981-1990

1991-2002

3.1%

2.5%

1.9%

3.8%

2.8%


But certain features of Indian agriculture hamper the balanced growth and development.

Finance is the major constraint here. Despite the introduction of rural banking, credit societies, kisan credit cards, the small and marginal farmers still go to the same old pawn broker or money lender and become their victims. Low wages for agricultural labour due to excessive population is another major issue, which is ailing this sector. Lack of opportunities, low skills of agriculture laborers denies them to think something else other than agriculture and cheapness of labour leads to adoption of labour-intensive methods of production instead of modern technology. Added to all these, the Indian agriculture depends heavily on monsoon. Nearly 70% of the areas continue to depend on monsoon rather than irrigation. Agricultural inputs, seeds, irrigation, electricity, plant protection, fertilizers and agricultural investment are seen as other major problems characterizing Indian agriculture.

INTERNATIONAL TRADE AND ITS IMPACT ON INDIAN AGRICULTURE

Agriculture trade contributes 15% of total foreign exchange earnings. Broadly, agricultural and agri-based products can be divided into three categories, they are raw products, semi-raw products and processed and ready to yield products.

The major agri-exports of India are cereals, rice, basmati rice and non-basmati rice, spices, oilcake, tobacco un-manufactured, tea, coffee and marine products. Lack of market access in the developed market economy countries due to high tariffs and pronounced Non-tariff barriers has bees acting as a deterrent for the exports. As against agricultural exports, agri-imports constitute only a small proportion of the countries total imports 5%.

Subsequent to the economic reforms initiated in June 1991, removing the restrictions and protective licensing regime, free trade in a large number of items has become the order of the day. With the removal of QRs on agricultural items and urea the Indian farmer community has been placed to face stiff competition from the developed nations.

Two-thirds of Indian farmers are in the small and marginal farmers cultivating two hectares of land contrary to the popular perceptions given a level playing field.

These farmers are not able to compete with their western counterparts in agricultural production and exports.

Each farmer in the developed countries gets on an average a subsidy of US $ 29,000  a year. The US domestic support for farmers is US $ 25.5 billion in 1996 while the European Union it was US $ 85 billion. In the US and EU farmers constitute less than 3% of the population in contrast India's domestic support to its farmers works out to a negative US $ 23.75 billion in 1996 even after providing fertilizer, electricity, irrigation and seed subsidies.

Added to all these things, the emergence of World Trade Organization (WTO)

In 1995 laid a specific set of rules in agriculture trade popularly known as AoA , which came into force on 1st Jan. 1995.

According to WTO norms, member countries are required to fulfill the following commitments:

1. All non-tariff barriers are to be replaced by tariff barriers and tariffs will have to be reduced by 36% by industrialized countries and 24% by developing nations.

2. Countries with closed farm market will have to import at least 3%  of domestic consumption of the product, raising to 5% over a period of 6 years.

3. Trade support to farmers will have to cut by 20% over a period of 6 years by developed and by 13.3% by developed countries.

4. The value of direct export subsidy will have to be cut by 36.1% and the volume of subsidized exports by 21% over a period of 6 years, while in the case of developing countries direct export subsidies will have to reduce by 24% and the quantity of subsidized exports will have to reduce by 14% over a period of 10 years.

WTO norms on Agriculture sector for developing & developed nations
(Table – 2)
 

 

Developed countries (1995-00)

Developing countries (1995-04)

Tariffs (avg. cut for all agricultural products)

36%

24%

Minimum cut per product line

15%

10%

Domestic support

20%

13%

Export subsidies

36%

24%

Subsidized quantities

21%

14%


IMPLICATIONS:

 

It is feared that the agreements reached is not favorable to many developing nations including India for the following reasons:

(a) The government will be forced to withdraw/reduce subsidies to its farmers.

(b) The country will be compelled to import at least 3% of the domestic demand for agricultural products

(c) Policies like Public Procurement and PDS may have to be abandoned.

(d) Patenting of seeds will force Indian farmers to buy seeds from Multi nations foreign enterprises.

IS INTERNATIONAL TRADE REALLY BENIFITING???

Not withstanding the above, and contrary to the legitimate expectations of developing countries to gain handsomely from international trade in agricultural products, in retrospect, prime reason for this is that the Agreement on Agriculture (AoA) was inequitable and very much discriminatory and heavily loaded in favor of developed countries. While in most low-income developing countries including India, the farmers remain subject to much higher effective taxation and production disincentives than manufacturers.

In India, there are restrictions on mobility and trade in agricultural goods, stocking limitations, monopoly state buying agencies, serious bottlenecks resulting from a variety of policies restricting supply of key inputs as credit, infrastructure services, storage etc.

From agricultural perspective, there is greater need to reduce the anti-agricultural bias that restricts the farmers in low-income countries to produce more and restricts from benefiting from global reforms.

At the other end the agricultural trade liberalization was, justifies by the argument that the developed nation's markets would open up to India, India's exports to Europe have actually declined from 13% to 6%. This is because of the fact that high subsidies and protectionist barriers are still largely maintained by the developed nations.

Global threats to Indian agricultural could be faced if a 'livelihood-box' was included in the re-negotiated WTO agreement which permit developing nations to impose QRs on the imports of agricultural commodities, when such imports are likely to destroy livelihood opportunities for resource poor farmer families and landless agricultural laborers.

The statements like –

"World trade can be a powerful engine to reduce poverty" seems to be a myth…
at least for now!!!…
 


Krishna Chaitanya V.
Assistant Professor & Research Associate (Finance Area)
Dhruva College of Management
Kachiguda,Hydearabad - 500 027
Cell : 9849422731
Phone : 040 - 24655274 24600032
E-mail :
kc_dcm@yahoo.co.in
 

Source : E-mail February 7, 2004

 

B A C K

 

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