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By C.S.C. Sekhar *
The centralised planning in India has accorded primacy to agriculture right from the beginning in view of the importance of the sector for meeting the evergrowing food needs and the employment generation potential. The focus of planning can be broadly divided into four phases.
During the first phase (1950-1965) the thrust was on heavy industry (Temples of Modern India) and relatively lesser importance to agriculture. The major source of agricultural growth during this period was area increases without notable productivity gains. During the second phase (1965-1980) major food shortages in the 60s and the consequent problems with PL-480 imports necessitated a shift in focus to self-sufficiency in production. With the advent of new technology and HYV seeds (popularly called ‘Green Revolution’), the focus shifted to high potential regions with irrigation. In order to keep inflation under control, a policy of input subsidisation (fertiliser subsidy, power, irrigation) for producers and for consumers (food subsidy) has been adopted.
The trade in agricultural commodities was virtually prohibited except for a few commodities such as tea, coffee and tobacco. These policies resulted in stupendous growth in food production and India became self-sufficient in food production by the late seventies. The major source of growth during this period was increase in productivity. But the focus on well-endowed regions has resulted in inter-regional disparities in growth.
The third phase (1980-1992) saw the diffusion of green revolution technology to pockets other than north-west India, particularly to eastern India. This period can be called the best phase of Indian agriculture because growth was achieved along with equitable distribution of benefits. But large subsidies flowing into agriculture have resulted in mounting fiscal deficit. In the fourth phase (1992-2002), with the launching of economic reforms in 1991, the focus shifted to containing and curtailing the huge subsidies to agriculture. Also, in view of the supposed comparative advantage of Indian agriculture, a more liberal trade policy has been adopted. With the signing of Agreement on Agriculture (AoA) of WTO in the Uruguay Round, the gradual dismantling of protection to agriculture and outward-looking (export oriented) agriculture is being promoted. The removal of domestic restrictions on movement of agricultural products and other restrictive measures recently taken are expected to have a positive impact on agricultural growth.
Needed Domestic Trade Policy Reforms
The sectors where India has comparative advantage in production should be identified and a proactive export strategy should be formulated for these sectors. A brief sketch of the commodity-wise comparative advantage of India is given below.
Rice, tea, coffee, cotton, oilseeds and cakes, tobacco and sugar are some of the commodities with export potential. With respect to rice, we need to formulate a different strategy. The present exports of basmati rice to west Asia and to parts of US and Europe may be continued. Meanwhile, efforts should be made to tap rice markets in East Asian countries like Japan and South Korea and also in South East Asian countries like Indonesia, Malaysia and Philippines. The rice markets in Japan and South Korea, which have been closed for a long time, offer good opportunities. But the pre-requisite for nurturing these markets is to produce those varieties of rice, which are preferred by consumers in these countries.
Among the traditional exports like tea, coffee, cotton, oilseeds, tobacco and sugar only tobacco and coffee have dynamic demand. Tea exports are stagnating because of sluggish world demand, increasing domestic demand and inability to impart efficiency in domestic production. India should try to regain its pre-eminent position in the world tea market. Exports of cotton and sugar are problem-ridden due to instability in production. In order to exploit our compar-ative advantage in these commodities, the wide year-to-year fluctuations in production need to be minimised. The important plank of the Indian export strategy should be to lay thrust on dynamic commodities (showing high growth rate in the recent past) like unmanufactured tobacco, milk and milk products, rice, fruits & vegetables, coffee, soyabean and soyabean oil, oilseeds, cakes and meals. Among these, milk and milk products is by far the most important commodity for export. India is the second largest producer of milk and its cost of production is lowest after New Zealand.
Fruits & vegetables is another sector where India, because of its diverse climatic and soil conditions, holds a distinct advantage. But, promotion of this sector requires good facilities for processing, storage, grading and marketing. The cold storage facilities, rural roads, vertical integration of farmers and processors need to be provided for ensuring growth of this sector. The exemption of excise duty on cold chain equipment provided in the recent budget is a welcome step in this direction. Also the agri-export zones in 20 places all over the country out of which work has already begun at 15 (Exim policy 2002-07), should provide a fillip to the fruits and vegetables sector, which has a lot of untapped export potential. Similarly reduction in customs duty on agricultural machinery and equipment from 25 to 15 percent is a welcome step.
* C.S.C. Shekhar is a fellow at Indian Council for Research on International Economic Relations. The views expressed are strictly those of the author and have no relation with his institutional affiliation.All figures are from the FAO Trade Year Book (various years).