WTO, Trade Liberalization, and Indian Agriculture

Chapter –2

WTO, Trade Liberalization, and Indian Agriculture Madhusudan Ghosh

2.1 Introduction The importance of agriculture can hardly be overemphasized in an economy such as India, where a high percentage of the population lives in rural areas and an overwhelming majority of the workforce is engaged in agriculture for their livelihood. While agriculture’s share in the gross domestic product (GDP) declined to 13.9% in 2013–14, more than 50% of the workforce is still employed in this sector. Naturally, the overall performance of the economy and the standard of living of a large section of the population depend largely on the performance of this sector. Indian agriculture has experienced remarkable transformation due to policy changes at the national and international levels. The adoption of high yielding variety (HYV)-technology in the mid-1960s, supported by land reforms, price support policies, and investment in irrigation, power, roads, and other rural infrastructure, was instrumental in bringing about an unprecedented growth in food grains production, ushering in an era of Green Revolution in agriculture. This sector has also been undergoing changes due to large-scale economic reforms involving structural adjustment and liberalization programmes since the early 1990s. Though the liberalization process in trade and industry started since June 1991, the reform process in agriculture was initiated from the mid-1990s when India became a part of the multilateral trading system under the World Trade Organization (WTO). The Agreement on Agriculture (AoA) of the WTO marked a significant turning point in world trade in agriculture. The AoA, which emerged from the Uruguay Round of Multilateral Trade Negotiations (1986–1993), came into force from January 1, 1995. The Agreement sought to bring free and fair competition to this sector through a fair and market-oriented agricultural trading system. As the root cause of distortion of international trade in

20 |

Indian Agriculture Under multilateral and Regional Trade Agreements

agriculture was found to be the huge subsidies given by the developed countries to their agricultural sector, the starting point for achieving a fair agricultural trade regime was thought to be the reduction in domestic production subsidies and in the volume of subsidised exports, and minimum market access opportunities to agricultural producers throughout the world. The Agreement, therefore, contains provisions in three broad areas of agriculture and trade policy: (1) market access, (2) domestic support, and (3) export subsidies. All the WTO members except the least developed countries were required to make commitments in these areas. Developing countries were given Special and Differential Treatment(S&DT) to a certain extent (Ministry of Commerce 1999).These provisions have far-reaching consequences for Indian agriculture. The Indian government has initiated the reform process in agriculture since 1994–95 in pursuance with the obligations contained in the AoA. External trade in agricultural commodities has been liberalized in line with the provisions of the WTO. Tariff and nontariff barriers have been reduced for several commodities and provisions have been made to revise them keeping in view the movements of world commodity prices, increase in imports, and concerns for food security and self-sufficiency. During the 1990s, trade policy reforms were undertaken to facilitate greater integration of the agricultural sector with the global market. The quantitative restrictions (QRs) on the trade flows of agricultural products have been removed and brought under the tariff system. The number of agricultural commodities, earlier canalized through state-trading agencies, has been reduced and with a few exceptions viz. wheat and rice, most of the commodities have been brought under the Open General Licensing (OGL). Average tariffs on agricultural imports have been reduced. Export policies have been liberalized to promote export of agricultural commodities through relaxation in export quotas, removal of restrictions on licensing, minimum export price, and increased availability of credit. A gradual opening up of Indian agriculture to world economy through the liberalization of trade was expected to provide incentives for specialization in crops according to comparative advantage and to boost trade in agricultural products. As prices of agricultural commodities are likely to increase after reductions in domestic and export subsidies by the developed countries and the terms of trade (ToT) moves in favour of agriculture, the production and exports of agricultural commodities were expected to go up (Bhalla and Singh 2012). Overall, Indian agriculture was expected to benefit from its participation in the WTO. This chapter examines the implications of liberalization policies, introduced in Indian agriculture in line with the AoA, in terms of their

WTO, Trade Liberalization, and Indian Agriculture

| 21

impact on agricultural production and international trade. The rest of the chapter is organized as follows. Section 2 makes a review of the provisions contained in the AoA and India’s commitments in this regard. Section 3 discusses the trade liberalization policies introduced in agriculture in accordance with the provisions in the Agreement. Section 4 evaluates the impact of trade liberalization policies on agricultural production and international trade in India, making a comparative study of the trends in production, exports, and imports of agricultural commodities between the pre-WTO and post-WTO periods. It has also checked whether the degree of integration of the agricultural sector with the global market has increased or not during the post-WTO regime. Section 5 summarizes the major findings and draws conclusions. The data set used in the study was compiled from various sources such as Agricultural Statistics at a Glance (Government of India), Economic Survey (Government of India), Handbook of Statistics on the Indian Economy (Reserve Bank of India), Data-Book Compiled for Use of Planning Commission (Planning Commission),International Trade Statistics (WTO), and Indiastat. 2.2 The Agreement on Agriculture and India’s Commitments 2.2.1 Market Access Market access obligations include tariffication, tariff reduction, and access opportunities. Tariffication requires that all nontariff barriers such as QRs, import and export licensing, etc. are to be abolished and converted into an equivalent tariff to provide the same level of protection. Developed countries have to reduce ordinary import tariffs including those resulting from tariffication by an average of 36% with a minimum rate of 15% for each tariff item over a period of six years. Developing countries are to reduce tariffs by 24% in 10 years with a minimum 10% tariff reduction for a single item. A minimum level of imports of agricultural products not less than 3% of domestic consumption in the base period (1986–88) has to be given access in 1995, rising to 5% by 2000 for developed countries and by 2004 for developing countries. However, the market access provision is not applicable when the commodity in question is a “traditional staple” of a developing country. India has made a commitment regarding tariffication by binding the tariff rates at 100% for primary agricultural products, 150% for processed foods and 300% for edible oils. For some agricultural products, the bound rates were raised substantially after the negotiations under Article XXVIII of the General Agreement on Tariffs and Trade (GATT) were successfully completed in December 1999. The bound tariff rates were raised from zero to 60% for skimmed milk powder, from 60 to 80% for cereals (including maize,

22 |


rice, spelt wheat, and millets) and from 45 to 75% for rapeseed and mustard oils (Gulati 2002). 2.2.2 Domestic Support All types of domestic support to agriculture (both product and nonproduct specific), measured in terms of Aggregate Measurement of Support (AMS) are subject to rules. The WTO has classified domestic subsidies into three categories viz. Amber Box, Blue Box, and Green Box. For developed countries, the AMS (Amber Box subsidies) during 1986–88 should be reduced by 20% over six years commencing 1995, and by 13% in developing countries over 10 years. Domestic support, both under the product and nonproduct-specific categories at less than 5% of the value of production for developed countries and less than 10% for developing countries, are excluded from any reduction commitments (de minimis level). Other forms of support, which have no or at most minimal trade distorting effects on production, are excluded from any reduction commitments (Blue Box/Green Box subsidies). These include (1) government assistance for general services such as research, pest and disease control, training, extension and advisory services, public stockholding for food security, domestic food aid, direct payment to producers for income insurance and safety nets, relief from natural disasters, and payments for environmental programmes. (2) Direct payments under production-limiting programmes in accordance with the requirements set out in Paragraph 5 of Article 6 of the Agreement (Blue Box measures) which is considered most relevant to the developed countries. (3) Special and Differential Treatment (S&DT) provisions are also available for developing countries. These include (1) untargeted subsidized food distribution to the rural and urban poor; (2) investment subsidies generally available to agriculture, and agricultural subsidies generally available to low-income and resource-poor farmers in the developing countries; and (3) purchases for and sales from food security stocks at administered prices provided that the subsidies to producers are included in the computation of AMS (Government of India 1999). During the reference period (1986–88), India had provided price support to 22 products, out of which 19 are included in the list of commitments. The total product-specific AMS (the difference between domestic price and the external reference price multiplied by the quantity of production) was estimated to be hugely negative during the reference period, as the domestic prices were far below the corresponding external reference prices. Non-product-specific support is computed by taking into account subsidies on inputs such as fertilizers, irrigation, credit, and electricity. Then nonproduct-specific AMS was positive but far below the de


| 23

minimis level during the reference period. Combining both product-specific and non-product-specific AMS, the total AMS was found to be hugely negative [about (−) 18% of the total value of production of selected agricultural commodities in India] and hence does not require any reduction commitment (Gulati and Narayanan 2003). India has notified domestic support for the period 1995 to 2010 and Amber Box support for this period was below the de minimis limit. 2.2.3 Export Subsidies The AoA has listed the types of subsidies to which reduction commitments are applicable. Export subsidies are defined as “subsidies contingent on export performance” and the list includes export subsidy practices such as direct export subsidies contingent on export performance, and many others (see Government of India 1999). The Agreement specifies that the developed countries are to reduce export subsidy expenditure by 36% and volume by 21% in six years in equal instalment from 1986–90 levels and the developing countries are to reduce these by 24 and 14%, respectively, in equal annual instalments over 10 years. Developing countries are free to provide some of the listed export subsidies (viz., reduction of export-marketing costs, internal and international transport and freight charges). The Agreement also stipulates that for products not subject to export subsidy reduction commitments, no such subsidies can be granted in the future. As the Indian exporters of agricultural commodities are not given any direct export subsidy, the issue of reduction of export subsidy on agricultural products does not arise in the case of India. The only export subsidies available to them are in the form of (1) exemption of export profits from income tax under section 80-HHC of the Income Tax Act and this is not subjected to any reduction commitments and (2) subsidies on the cost of freight on export of certain agricultural products such as fruits and vegetables, which the developing countries are free to provide. Negotiations on the provisions of the AoA have been going on. Agriculture is one of the subjects included in the Doha Round of trade negotiations, continuing since November 2001. The negotiations in the “Special Session” of the WTO’s Committee on Agriculture take place on the basis of draft texts on modalities issued from time to time. During the Doha Development Round, many issues related to the agriculture sector were discussed and analysed through various modalities. India along with other developing countries raised the issue of food security. For India, the issue of

35 Nil

Potato

Onions

30

Butter, dairy spreads and melted butter (ghee)

60

35

Fresh milk and cream

Sugar

50

Sorghum

35

50

Millet, jowar

100

70

Semi-milled or wholly milled rice

Fish

80

Husked (brown) rice; broken rice

Coffee

80

Rice in the husk

35

50

Maize (corn) Seed

100

50

Wheat (other than Meslin)

Tea

10

Pulses

Cheese

April 2002

Item

5

30

60

30

100

100

30

30

30

80

70

70

80

80

50

50

10

March 2003

30

30

60

30

100

100

30

30

30

80

70

70

–

80

50

50

10

March 2004

5

30

60

30

100

100

30

40

30

80

70

70

80

80

50

50

10

March 2005

5

30

60

30

100

100

30

40

30

50

50

70

80

80

50

50

10

January 2006

5

30

60

30

100

100

30

40

30

80

70

70

80

80

70

Free

Free

August 2007

5

30

60

30

100

100

30

40

30

80

50

Free

80

80

Free

Free

Free

April 2008

5

30

Nil

30

100

100

30

30

30

80

50

Nil

80

80

50

Free

Free

August 2009

Nil

30

10

30

100

100

30

30

30

80

50

70

80

80

50

Free

Free

September 2012

Nil

30

25

30

100

100

30

30

30

50

70

70

80

80

50

Free

Nil

November 2013

Table 2.1: Tariffs (basic custom duty) and bound rates (%) on major agricultural commodities

100

150

150

Unbound

100

150

40

40

100

70

70

70

80

80

70

100

100

Bound Duty

24 | Indian Agriculture Under multilateral and Regional Trade Agreements

45 85 85 85 75 75 85

Groundnut oil

Sunflower/safflower

Coconut oil (edible grade)

Rapeseed oil

Mustard oil

Other oils

85

75

75

100

85

85

45

30

March 2003

100

75

75

100

85

85

45

30

March 2004

100

75

75

85

85

85

45

30

March 2005

85

75

75

85

85

85

45

30

January 2006

85

85

85

85

50

85

40

30

August 2007

Note: The rates are as on the first day of the month)

Sources: Government of India (2004, 2005, 2008, 2011, 2013, 2014); Indiastat.

35

Soyabean oil

April 2002

Oilseeds

Item

7.5

7.5

7.5

7.5

7.5

7.5

7.5

30

April 2008

7.5

7.5

7.5

7.5

7.5

7.5

7.5

30

August 2009

7.5

7.5

7.5

7.5

7.5

7.5

7.5

30

September 2012

10

10

10

10

10

10

10

30

November 2013

300

75

75

300

300

300

300

100

Bound Duty


| 25

26 |


public stockholding for food security is very important and WTO members are engaged in finding a permanent solution to the issue of public stockholding at administered price. 2.3 Trade Liberalization Policies in Agriculture The Indian government followed restrictive trade policies for agricultural products during the pre-reform period till the early 1990s. Although the comprehensive economic reforms since 1991 substantially liberalized external trade in non-agricultural goods, the progress of liberalization of trade policies for agricultural products was very slow in the early 1990s. Exports/imports of agricultural products were restricted through several controls including quotas, licenses, prohibitions and minimum export prices, high tariff rates, etc. The QRs on a number of agricultural products were administered through the public and private sector trading enterprises. The process of liberalization of external trade policies for agricultural products, initiated as a part of the economic reforms since 1991, was accelerated with the implementation AoA under WTO since 1995. The process was further accelerated following India’s defeat in the dispute with the USA in the WTO to retain QRs on imports on the ground of balance of payments (Chand and Bajar 2012). Import polices were remarkably changed with the removal of all QRs on agricultural imports and introduction of tariffs for all agricultural imports in April 2001. Policies for promotion of export of agricultural commodities have been adopted through removal of restrictions on licensing, abolition of minimum export prices, reduction in the number of agricultural products subject to state trading, relaxation of export quotas, increased availability of credit for export of agricultural products, etc. The primary objective of the new trade policy is to provide stimulus to exports, promoting export competitiveness by reducing the degree of regulations, and licensing controls on external trade. The details of the trade policy announced on March 31, 1992 for achieving the stated objective of the new trade policy are provided in the Export–Import Policy 1992–97, and the subsequent changes made in the policies are available in the Export–Import Policy 1997–2002, 2004–09, and 2009–14. While the Export–Import Policy (1992–97) was oriented towards trade liberalization and the same for 1997–2002 towards globalization, the Export–Import Policy (2004–09) emphasized the importance of trade as an instrument of growth (Chand and Bajar 2012). The policies related to agricultural products emphasized that as India has immense potential for exports of these products, it should exploit this opportunity. For this purpose, various restrictions and controls on exports of agricultural products


| 27

have been gradually removed, and institutional and infrastructural support and some indirect incentives have been provided. QRs on imports of agricultural products have been completely eliminated by April 2001, and the tariff rates on imports have been reduced for many agricultural products. The changes in export/import policies for selected agricultural products as expressed in the Export-Import policies from 1992-97 are summarized in Chand and Bajar (2012). The exports of products like wheat, rice, maize, maize for feed, rapeseed & mustard, soybeans, groundnut, milk, poultry meat, sheep meat, eggs, coffee, tea, cotton and sugar, which remained either free or restricted/regulated in 1992-97, were made free in most cases during 1997-02 and completely free in all cases in 2004-09. The export of maize for feed was banned during 2007–11. The export of wheat and maize for feed was banned in 2011. The restrictions on export of rice and maize were either relaxed or lifted in 2011. Similarly, the imports of most the products, which were either restricted or canalized in 1992–97, were made free in 2004–09. Import of eggs was restricted throughout the entire period. Table 2.1 furnishes data on tariffs (basic custom duty) and bound rates on import of major agricultural products during 2002–2013. The tariff rates have been reduced for many agricultural products and the applied rates remained well below the bound rates for most of the commodities. 2.4 Impact of Trade Liberalization on Indian Agriculture 2.4.1 Impact on Agricultural Production Table 2.2 reports the estimated annual growth rates of output and yield of individual crops and crop groups during 1980/81–2013/14, dividing the period into the pre-WTO (1980/81–1994/95) and the post-WTO (1995/96– 2013/14) periods. The growth rate of production and yield is found to have decelerated during the post-WTO period for all the crops and crop groups except coarse cereals and cotton, as the growth rates declined significantly during the post-WTO period from their rates in the pre-WTO period. Coarse cereals and cotton are the only crops whose output and yield experienced significant acceleration in growth during the post-WTO period relative to the pre-WTO period. The production of groundnut experienced a negative growth rate during the post-WTO period in spite of the fact that its yield growth rate has accelerated during this period. The growth rate of GDP from agriculture & allied activities at constant (2004–05) prices has also decelerated since the mid-1990s, as the growth rate declined from 4.05% during the pre-WTO period to 3.16%during the post-WTO period. Liberalization of the economy and its integration with the world economy since the early 1990s were expected to end discrimination against agriculture and help accelerate its growth. Opening up of the economy and

28 |


removal of protection to the industrial sector was believed to shift the ToT in favour of agriculture, providing incentives for public and private investment in this sector. Moreover, the reduction of protection to industry and liberalization of industrial imports and the consequent depreciation of the exchange rate were thought to enhance agricultural production and exports by changing the relative prices in favour of agriculture (Bhalla and Singh 2012). However, contrary to the expectations, shifts in the ToT and relative prices in favour of agriculture since the early 1990s failed to attract public and private investment in agriculture, and the postreform period has experienced a significant deceleration in the growth rate of agricultural output and yield. Figure 2.1 displays that increasing trends in relative prices between agriculture and manufacturing sectors (RP) and ToT between agriculture and non-agriculture sectors have been associated with declining share of agriculture and allied sector’s gross capital formation (GCF) in total GCF in the economy.1 This happened for both public and private investment in this sector. Increasing subsidy outlay seems to be curtailing public investment in agriculture, and despite increasing and diversifying demand for food products, private investment remains largely unattractive in agriculture vis-à-vis other sectors (Gulati 2006; Landes and Gulati 2009). The correlation of average annual growth in agriculture and allied sector with RP and TOT was found to be very weak, the estimated correlation coefficient being 0.077 and (–) 0.085, respectively, for the period 1981/82–2013/14. Table 2.2: Annual growth rate (%) of output and yield crops in India Crop

Growth rate of output (%)

Growth rate of yield (%)

PreWTO

PostWTO

Entire period

PreWTO

PostWTO

Entire period

Rice

3.44

1.49

2.02

2.92

1.54

1.73

Wheat

3.65

1.97

2.57

2.97

1.04

1.71

Coarse cereals

0.48

2.03

1.02

2.41

3.05

2.56

Total cereals

2.88

1.77

2.01

3.21

1.82

2.17

Pulses

1.27

1.93

1.07

1.40

0.42

0.59

Total food grains

2.82

1.87

1.95

2.67

2.26

2.05

Groundnut

2.90

−0.31

0.22

1.51

1.56

1.31

1The

estimated trend in the relative prices (RP) and terms of trade (TOT) are: ln RP = 4.46 + 0.015 Trend;R2 = 0.81 (11.62)* ln TOT = 4.55 + 0.004 Trend;R2 = 0.42 (4.39)* Figures in parentheses are t-statistics; * indicates significance at the 1% level.

| 29


Crop

Growth rate of output (%) PreWTO

PostWTO

Rapeseed &mustard

7.63

Soybeans

18.21

Total oilseeds

Growth rate of yield (%)

Entire period

PreWTO

PostWTO

Entire period

2.32

3.51

3.65

2.05

2.06

5.45

10.50

2.56

1.05

1.70

5.96

2.49

3.24

2.76

1.87

2.01

Coffee

2.86

1.51

3.01

1.66

−0.48

0.74

Cotton

3.76

7.49

4.69

3.99

5.82

3.42

Jute &mesta

0.86

0.64

1.25

2.86

1.80

1.99

Sugarcane

3.37

1.26

2.20

1.48

-0.04

0.51

Tea

2.33

1.96

1.99

1.56

0.02

0.50

Tobacco

1.22

1.50

0.93

2.34

1.24

1.21

Total non-food grains

4.30

2.72

3.03

2.28

1.76

1.65

All crops

3.38

2.11

2.34

2.49

2.30

1.95

Agri-GDPat constant

4.05

3.16

3.55

–

–

–

(2004–2005) prices

Sources: Author’s estimates using data from Government of India (2014); Reserve Bank of India (2013, 2014 Notes: Agri-GDP: GDP from agriculture & allied activities; Pre-WTO period: 1980/81–1994/95; Post-WTO period: 1995/96–2013/14; Entire period: 1980/81–2013/14.)

Bhalla (2007) argues that the slowing down of agricultural growth during the postreform period has been due to, among other things, significant reduction in public investment in critical areas of agricultural growth viz. irrigation and drainage, rural road, soil conservation, water management system, and research and technology. Balakrishnan et al. (2008) explain the slowdown in agriculture in terms of some price and non-price factors. While there was no evidence to consider relative price movement over the past 15 years as an important factor for the slowdown of agricultural growth since the early 1990s, the non-price factors, most likely to be responsible for slowdown in agriculture, are (1) stagnation of public investment for about a quarter of a century; (2) declining efficiency of public investment;(3) slowing down of the rate of expansion of irrigation since 1991; (4) slower growth in public expenditure in real terms on research and extension since 1990; (5) environmental problems; (6) smaller farm size, making it more difficult to adopt new technology and more efficient form of production organization; and (7) down-scaling of production due to farm fragmentation. They further argue that “to focus a priori and exclusively on the reforms as the likely root cause of agricultural slowing may be misleading. However, the reforms as implemented since 1991—or some

30 |


associated policy changes—may not have been altogether benign towards agriculture” (Balakrishnan et al. 2008, p6).

16

160.0

14

140.0

12

120.0

10

100.0

8

80.0

6

60.0 40.0

4

20.0

2

0.0

0

% of GCF in Agriculture & Allied Sector

180.0

1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Index of Relative Price/Terms of Trade

Fig. 2.1:Terms of trade/relative price and gross capital formation (GCF) in agriculture

Year

Relative Price

TOT

Gcfpub

Gcfpri

Gcftotal

Sources: Author’s estimate using data from Government of India (1999, 2011, 2014, 2015); Indiastat

2.4.2 Impact on Trade in Agricultural Products This section evaluates the impact of trade liberalization on India’s exports and imports of agricultural products by comparing their trends between the pre-WTO (1990/91–1994/95) and post-WTO (1995/96–2013/14) periods. Table 2.3 and Fig.2.2 show that exports and imports of agricultural products have steadily increased over time, with continuously increasing trade surplus in agriculture. However, while the proportion of agricultural exports (agri-exports) to total national exports declined steadily during the period from 1996–97 to 2010–11 after which it has started increasing, the proportion of agricultural imports (agri-imports) to total national imports experienced a declining trend since 1998–99, the year in which it reached its peak. Moreover, there were wide inter-temporal fluctuations in exports and imports of agricultural products, and these fluctuations increased significantly during the post-WTO period relative to the pre-WTO period. The inter-temporal fluctuations in agri-exports, measured in terms of coefficient of variation (CV), increased from 31.74% during the pre-WTO period to 96.28% during the post-WTO period. Similarly, the CV in agriimports increased from 68.51 to 90.74%. It may be noted that agri-imports

| 31


had no statistically significant relationship with the average import duty. Using data for the period 1991/92–2009/10, the correlation coefficient of agri-imports turned out to be (−) 0.29 with simple average import duty, and (−) 0.02 with weighted average import duty. Figure 2.3 does not reveal any systematic relationship between agri-imports and simple or weighted average import duty during the period. Table 2.3: Trend in exports and imports of agricultural products in India

Percentage of national export

Percentage of GDP from agriculture &allied

Value of imports (rupees crore)

Percentage of National imports

Percentage of GDP from agriculture & allied

Imports

Value of exports (rupees crore)

Exports

1990–91

6,012.76

18.49

3.90

1,205.86

2.79

0.78

1991–92

7,838.13

17.80

4.35

1,478.27

3.09

0.82

1992–93

9,040.30

16.84

4.47

2,876.25

4.54

1.42

1993–94

12,586.55

18.05

5.37

2,327.33

3.18

0.99

1994–95

13,222.76

15.99

4.90

5,937.21

6.60

2.20

1995–96

20,397.74

19.18

6.95

5,890.10

4.80

2.01

1996–97

24,161.29

20.33

6.84

6,612.60

4.76

1.87

1997–98

24,843.45

19.09

6.63

8,784.19

5.70

2.34

1998–99

25,510.64

18.25

5.93

14,566.48

8.17

3.38

1999–00

25,313.66

15.91

5.56

16,066.73

7.45

3.53

2000–01

28,657.37

14.23

6.22

12,086.23

5.29

2.62

2001–02

29,728.61

14.22

5.96

16,256.61

6.63

3.26

2002–03

34,653.94

13.58

7.14

17,608.83

5.92

3.63

2003–04

37,266.52

12.70

6.84

21,972.68

6.12

4.03

2004–05

41,602.65

11.08

7.36

22,811.84

4.55

4.03

2005–06

49,216.96

10.78

7.72

21,499.22

3.26

3.37

2006–07

62,411.42

10.92

8.63

29,637.86

3.53

4.10

2007–08

79,039.72

12.05

9.45

29,906.24

2.95

3.58

2008–09

85,951.67

10.22

9.11

37,183.03

2.71

3.94

2009–10

89,341.33

10.57

8.28

59,528.00

4.37

5.52

2010–11

1,17,483.61

10.28

8.90

57,334.32

3.41

4.34

2011–12

1,87,609.33

12.80

12.51

82,819.15

3.53

5.52

2012–13

2,32,041.11

14.20

14.11

1,09,610.68

4.11

6.66

2013–14 (P)

2,68,469.05

14.17

14.08

1,05,149.00

3.87

5.52

CV (%) Pre-WTO

31.74

5.78

12.17

68.51

39.15

47.60

Year

32 |


Percentage of national export

Percentage of GDP from agriculture &allied

Value of imports (rupees crore)

Percentage of National imports

Percentage of GDP from agriculture & allied

Imports

Value of exports (rupees crore)

Exports

CV (%) Post-WTO

96.28

23.33

31.23

90.74

32.11

32.78

Growth (%) Pre-WTO

22.49

–

–

63.30

–

–

Growth (%) Post-WTO

18.17

–

18.61

–

–

Growth (%) Entire period

18.97

–

26.38

–

–

Year

–

Sources: Government of India (2014); Reserve Bank of India (2014) Notes: Pre-WTO: 1990/91–1994/95; Post-WTO: 1995/96–2013/14; Entire period: 1990/91– 2013/14)

Exports and imports of agricultural products at nominal prices grew at the annual average rate of 18.97 and 26.38%, respectively, during the entire period. However, contrary to the expectation that liberalization of trade would promote growth in external trade, India’s agri-exports and imports have experienced slowing down of growth during the post-WTO period. The growth rate of agri-exports declined from 22.49% in the pre-WTO period to 18.17% during the post-WTO period; the growth rate of agri-imports declined from 63.3 to 18.51%. The temporal behaviour of India’s agri-exports and imports shows that India had been a net exporter of agricultural products during the past 24 years, and even though the growth rate of agriimports exceeded the growth rate of agri-exports, trade surplus in agricultural products widened consistently during the period (Table 2.3 and Fig.2.2). Exports and imports of agricultural commodities grew at a faster rate than the growth rate of GDP from agriculture and allied activities (agriGDP). Agri-GDP at current prices grew at the annual average rate of 15.03, 11.0, and 11.7%, respectively, during the pre-WTO, post-WTO, and the entire period. Moreover, India’s agri-exports and imports grew at a faster rate than the growth rate of agri-exports/imports in the world. Growth estimates based on data from various issues of International Trade Statistics, published

| 33


by WTO, revealed that agri-exports/imports in the world grew at the annual average rate of 7.85% during the pre-WTO period, which declined marginally to 7.72% during the post-WTO period.

25

250000

20

200000

15

150000

10

100000 50000

5

0

0

Agri-Exports/Imports as % of National Exports/Imports

300000

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Agri-Exports/Imports (Rs. Crore)

Fig. 2.2: Trend in exports and imports of agricultural products in India

Year Agri-Imports

Agri-Exports

% National Imports

% National Exports

Source: Author’s estimate using data from Government of India (2014)).

70000

120

60000

100

50000

80

40000 60 30000 40

20000

Import Duty (%)

Agri-Imports (Rs. crore)

Fig. 2.3: Agricultural imports and simple/weighted average import duty

20

10000 2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

2002-03

2001-02

2000-01

1999-00

1998-99

1997-98

1996-97

1995-96

1994-95

1993-94

1992-93

0 1991-92

0

Year Agri-Imports

Import Duty(SA)

Import Duty(WA)

Sources: Author’s estimate using data from Government of India (2014) and Planning Commission (2014.Notes: SA: simple average; WA: weighted average

34 |


With the liberalization of external trade and opening up of the economy, Indian agriculture has been gradually integrating with global markets for agricultural commodities. The proportion of India’s agri-exports to world agri-exports was higher than the proportion of India’s agri-imports to world agri-imports throughout the period from 1990–91 to 2013–14, and these proportions increased steadily during the period, particularly after 1998–99 (Fig. 2.4). This rise is more prominent for agri-exports, as the proportion of India’s agri-exports to world agri-exports increased from 0.85 in 1990–91 to 2.69 in 2013–14, and the proportion of India’s agri-imports to world’s agri-imports rose from 0.42 in 1990–91 to 1.40 in 2013–14. The high correlation of India’s agri-exports with world agri-export (0.95) and India’s agri-imports with world agri-imports (0.97) during the period from 1998–99 to 2013–14 lend support to this observation.

3.0

14.0

2.5

12.0 2.0

10.0 8.0

1.5

6.0

1.0

4.0 0.5

2.0 0.0

0.0

Agri-Exports/Imports as % of World AgriExports/imports

16.0

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Agri-Exports/Imports as % of Agri-GDP

Fig. 2.4: Agri-exports/imports relative to agri-GDP and world agri-trade

Year Agri-Exports/Agri-GDP

Agri-Imports/Agri-GDP

Agri-Exports/World

Agri-Imports/World

Sources: Government of India (2014); Reserve Bank of India (2014); WTO (2001, 2005, 2010, 2014)).

The increasing trend in the proportions of India’s agri-exports/imports to agri-GDP may also be construed to be an indication of increasing integration of Indian agriculture with global markets for agriculture. This rise is particularly prominent in the case of agri-exports since 1999–2000. Table 2.3 and Fig.2.4 show that the agri-exports as a percentage of agri-GDP


| 35

increased from 3.9 in 1990–91 to 5.56 in 1999–2000 and further to 14.08 in 2013–14. The percentage of agri-imports to agri-GDP increased from 0.78 to 3.53 and further to 5.52 in the corresponding years. This is corroborated by the finding of high correlation between agri-GDP and agri-exports/imports. The correlation of agri-exports with agri-GDP was found to be 0.97 during the pre- and post-WTO periods, and that of agri-imports with agri-GDP was found to be 0.88 during the pre-WTO period and 0.98 in the post-WTO period. Integration of Indian agriculture with global markets for agricultural products has also been examined in terms co-movements of domestic prices with international prices of agricultural commodities. Two markets are considered to be spatially integrated if, in the presence of trade between them, the prices of a commodity in the exporting market are significantly correlated with the prices in importing market. Naturally, agricultural trade liberalization policies, facilitating the flow of external trade in agricultural commodities, would help strengthening the integration of the two markets. Evaluating market integration in terms of correlation between domestic and international prices of agricultural products, Indian agriculture was found to be increasingly integrated with global agricultural markets. Chand and Bajar (2012) reported that for rice, wheat, maize, and sugar, the correlation coefficients between domestic and international prices increased from 0.165, 0.198, 0.122, and 0.286 during the pre-WTO period (1981–1995) to 0.808, 0.835, 0.753, and 0.877, respectively, during the post-WTO period (1996– 2009). Gulati et al. (2013) observed that domestic prices of rice, wheat, maize, pulses, rapeseed & mustard, oilseeds, groundnut, cotton, and sugar were broadly in line with the international prices over a period of 5–11 years till 2012. Our estimates of correlation coefficient between domestic and international nominal prices of rice, wheat, and cotton during 2000/01– 2011/12 turned out to be as high as 0.94, 0.89, and 0.98, respectively. Thus, the increasing proportion of Indian agri-trade to world agri-trade since the inception of WTO, and the rising trend in the proportion of agri-trade to agri-GDP after the liberalization of agricultural trade policies in India have been associated with increasing integration of domestic and international prices of agricultural commodities. The volatility (measured in terms of CVs) in the prices of the three commodities was found to be lower in the domestic market relative to the international market. While the CVs in the domestic

36 |


prices of rice, wheat, and cotton were found to be 28.7, 26.5, and 34.8%, respectively, the same in the international prices were found to be 45.0, 34.3, and 39.9%. 2.4.2.1 Changes in the Composition of Trade The composition of exports and imports evolves over time depending upon a country’s international competitiveness of agricultural products and according to the country’s farm trade policies. India has followed a strategic approach to agri-trade policies with the guiding principle of striking a balance between producers and consumers interest (Chand and Bajar 2012). Price competitiveness is evaluated in terms of Nominal Protection Coefficient (NPC), defined as the ratio of domestic price of a commodity to its external reference price (cif/fob) depending on whether the commodity is exportable or import substitute. Estimating the NPCs over a long period for major commodities (viz., wheat, rice, maize, jowar, gram, soybeans, pearl millet, pigeon pea, chickpea, sorghum, rapeseed, mustard, copra, groundnut, sunflower, sugar, rubber, and cotton) under exportable or importable or both hypotheses, Gulati (2002, 2006), and Hoda and Gulati (2007) found that much of Indian agriculture is reasonably competitive and the actual trade flows were in line with the expected ones. The triennium average value of exports of agricultural products and their relative contribution to total agri-exports in various triennium ending (TE) years are reported in Table 2.4.The data reported in the table amply demonstrate remarkable structural changes in the composition of exports of agricultural products over the years. Tea and coffee, together, was the most significant export item contributing 18.45% of the total agri-exports in the TE1992–93, followed by marine products (18.11%), oil meals (13.51%), cashew (8.12%), basmati rice (7.6%), and cotton (5.86%). Food grains as a whole constituted 10.53% of total agri-exports in the TE 1992–93. However, most of the traditional agricultural export items have lost their importance over the years. For example, the contribution of tea and coffee, marine products, oil meals and cashew to total agri-exports declined significantly to 4.48, 8.75, 7.28, and 2.06%, respectively, in the TE 2012–13 from their levels in the TE 1992–93. On the other hand, some export items (viz., food grains, spices, groundnut, guar gum meals, sugar, meat and preparations, cotton, and paper and wood products) have substantially improved their share in agri-exports. Food grains (including basmati and non-basmati rice, wheat,


| 37

pulses, and other cereals) have emerged as the most significant agri-export items, increasing their contribution remarkably from 10.53% in the TE 1992– 93 to 18.78% in the TE 2012–13. Cotton has emerged as the second most important agri-export item raising its share from 5.86% in the TE 1992–93 to 10.22% in the TE 2012–13. Marine products have become the third most important export items even after losing their share from 18.11 to 8.75% during the same period. Meat and preparations, guargum meals, spices, and groundnut have emerged as important agri-export items, as their contributions to total agri-exports increased remarkably from 2.75, 1.28, 4.36, 0.32% in the TE 1992–93 to 7.59, 7.53, 6.78, and 2.12%, respectively, in the TE 2012–13. The composition of imports has also undergone significant transformation during the same period. The triennium average value of imports of agricultural products and their relative contribution to total agriimports in TE years between 1992-93 and 2012-13 are reported in Table 2.5. It shows that wood & wood products were the most important import items with their share of 26.59% in total agri-imports in the TE 1992-93, followed by wheat (19.81%), pulses (19.12%), cashew (13.94%), vegetable oils (13.25%) and cotton (11.68%). However, the composition of imports changed remarkably in the TE 2012-13, as vegetable oils, with their share of as high as 55.19% in total agri-imports, emerged as the most prominent import items, distantly followed by wood & wood products (13.4%), pulses (11.59%), fruits & nuts (5.89%) and cashew (5.29%) even after reduction in their shares in total agri-imports in the TE 2012-13 compared with the shares in the TE 199293. The reduction in imports of these products was counter-balanced by a huge increase in the imports of vegetable oils. Currently, India imports mainly vegetable oils, wood & wood products, pulses, fruits & nuts including cashew, which together account for more than 91% of agricultural imports.

1087.67 320.55 371.47

Tea

Coffee

Tobacco (manufactured&

104.87 182.72 382.92

Sugar

Fruits &vegetables

97.87

Guargum meal

Castor oil

24.35

Groundnut

1030.53

619.27

Cashew

Oil meals

332.92

Spices

unmanufactured)

60.09 803.65

55.47

Wheat

Food grains

215.69

Pulses &other cereals

579.92

Rice(other than basmati)

1992–93

Rice (basmati)

Commodity

1014.27

374.20

625.16

2957.42

542.94

343.93

1437.62

1414.77

862.93

1616.88

1726.09

4769.92

261.81

233.40

2671.32

1603.39

1825.26

1309.59

729.50

1931.66

493.81

248.55

1963.73

1590.07

899.27

1091.26

1720.00

5646.57

498.99

1168.39

1960.47

2018.73

2002–03

4036.43

3033.58

1101.48

6111.04

1110.19

545.09

2361.87

3149.98

1648.16

1808.57

1907.52

10676.24

2149.14

197.70

4939.17

3390.23

2007–08

8293.21

7591.45

3912.71

13042.64

13483.25

3803.94

3685.35

12137.05

4280.37

4053.07

3976.70

33618.96

6852.06

3850.99

7769.07

15146.84

2012–13

5.02

2.39

1.37

13.51

1.28

0.32

8.12

4.36

4.87

4.20

14.25

10.53

0.79

0.73

2.83

7.60

1992–93

4.08

1.51

2.52

11.91

2.19

1.38

5.79

5.70

3.47

6.51

6.95

19.21

1.05

0.94

10.76

6.46

1998–99

5.89

4.22

2.35

6.23

1.59

0.80

6.33

5.13

2.90

3.52

5.55

18.21

1.61

3.77

6.32

6.51

2002–03

6.39

4.81

1.74

9.68

1.76

0.86

3.74

4.99

2.61

2.86

3.02

16.91

3.40

0.31

7.82

5.37

2007–08

4.63

4.24

2.19

7.28

7.53

2.12

2.06

6.78

2.39

2.26

2.22

18.78

3.83

2.15

4.34

8.46

2012–13

(average of triennium ending)

1998–99

Percentage of totalagriculturalexports

Value of export (rupees crore) (average of triennium ending)

Table 2.4: Composition of exports of agricultural products


447.48

Cotton (raw &waste

7630.40

Total agricultural exports 24836.46

1310.09

0.00

867.77

4287.65

768.46

31013.31

2113.04

1601.71

104.68

6397.89

1346.72

2002–03

63132.70

4580.16

4537.13

5670.62

7297.21

3266.23

2007–08

179044.7

9835.70

8907.8

18293.68

15658.99

13596.64

2012–13

100

5.27

0.00

3.49

17.26

3.09

1998–99

100

6.81

5.16

0.34

20.63

4.34

2002–03

100

7.25

7.19

8.98

11.56

5.17

2007–08

100

5.49

4.98

10.22

8.75

7.59

2012–13

Notes: Total percentage may not be equal to 100 because of rounding off. Fruits & vegetables include fruit/vegetable seeds, fresh fruits, fresh & processed vegetables and processed fruits. Others include poultry & dairy products, floriculture products, sesame seeds, nigerseed, shellac, molasses, jute hessian, poultry products, cashewnut shell liquid, and miscellaneous processed items.)

100

3.54

0.00

5.86

18.11

2.75

1992–93

(average of triennium ending)

1998–99

Percentage of totalagriculturalexports

Value of export (rupees crore) (average of triennium ending)

Sources: Government of India (2004, 2005, 2008, 2011, 2013, 2014); Indiastat

270.25

Others

0.00

1381.85

Marine products

Paper/wood products

209.59

1992–93

Meat &preparations

Commodity


| 39

931.26 852.51 1.83 0.64 71.96 6.76 807.84 567.16 176.88 528.22 4,427.60 164.44 1,369.62 56.52 9,987.76

354.29 367.13 41.15 0.23 143.81 18.73 258.46 132.21 3.57 245.63 216.49 492.83 9.91 1,853.46

15,317.22

81.05

2,226.30

1,491.99

7,073.71

32.18

448.15

732.09

876.08

8.47

83.34

6.60

6.31

1.86

2,131.89

2002–03

26,971.36

198.87

4747.05

759.54

9,599.86

219.12

788.31

1,720.42

1874.82

24.23

141.24

20.36

0.39

4,254.00

3,882.06

2007–08

82,875.34

357.95

11,102.5

1,377.67

45,740.77

2,065.92

2,054.91

4,880.19

4,383.38

545.62

296.34

66.86

3.52

87.32

9,604.85

2012–13

100

0.53

26.59

11.68

13.25

0.19

–

7.13

13.94

1.01

7.76

0.01

2.22

19.81

19.12

1992–93

100

0.81

13.71

1.65

44.33

5.29

1.77

5.68

8.09

0.07

0.72

0.01

0.02

8.54

9.32

1998–99

100

1.30

14.53

9.74

46.18

0.21

2.93

4.78

5.72

0.06

0.54

0.04

0.04

0.01

13.92

2002–03

100

1.33

17.60

2.82

35.59

0.81

2.92

6.38

6.95

0.09

0.52

0.08

Neg.

15.77

14.39

2007–08

Percentage of total agricultural imports (average of triennium ending)

100

0.99

13.40

1.66

55.19

2.49

2.48

5.89

5.29

0.66

0.36

0.08

Neg.

0.11

11.59

2012–13

Sources: Government of India (2004, 2005, 2008, 2011, 2013, 2014); Indiastat. Notes: Total percentage may not be equal to 100 because of rounding off. Others include oil seeds, vegetable & animal fats, raw jute and tea.)

1998–99

1992–93

Value of import (rupees crore) (average of triennium ending)

Table 2.5: Composition of imports of agricultural products



| 41

2.5. Summary and Conclusions We have examined the impact of trade liberalization policies, introduced in Indian agriculture since the mid-1990s, on the production and exports/imports of agricultural products. External trade in agricultural commodities has been liberalized from 1994–95 as a part of the structural adjustment and liberalization programmes since 1991, and in pursuance of the obligations contained in the AoA of WTO. The QRs on agricultural products have been removed and brought under the tariff system. Average tariffs on agricultural imports have been reduced. Export policies have been liberalized to promote export of agricultural commodities through relaxation in export quotas. However, India did not have to undertake any reduction commitments regarding domestic support on the ground that both the product and non-product specific supports were below the de minimis level. The reduction of protection to industry and the consequent depreciation of the exchange rate, and opening up of the economy through liberalization of trade were believed to enhance agricultural production and exports by changing the relative prices in favour of agriculture, providing incentives for public and private investment in this sector. However, shifts in the ToT and relative prices in favour of agriculture since the early 1990s have failed to attract public and private investment in the agricultural sector. And contrary to the expectations, the post-liberalization (post-WTO) period was found to have experienced a significant deceleration in the growth rate of output and yield of agricultural commodities. The growth rate of agri-GDP at constant prices has decelerated during the post-WTO period. Exports and imports of agricultural products have increased steadily with increasing trade surplus but widening inter-temporal fluctuations. There has also been a significant transformation in the composition of exports and imports of agricultural products. With rising proportion of agricultural trade to agricultural GDP and world agricultural trade, associated with increasing integration of domestic and international prices of agricultural commodities, Indian agriculture has been gradually integrating with global markets since the time of opening up of the economy through liberalization of trade policies. Despite large-scale liberalization in the economy since 1991, export of agricultural products has been regulated, and agricultural export policies have been frequently changed with various restrictions. These restrictions, primarily to protect the interest of consumers, have, in many instances, adversely affected the interests of farmers. Frequent changes in agricultural export policies create a situation of uncertainty and adversely affect exports, reducing their growth but raising inter-temporal fluctuations in their levels. A consistent trade policy for agricultural products, balancing the interests of both consumers and farmers, needs to be

42 |


carefully formulated, keeping in view our commitments to the WTO and the increasing integration of our agriculture with the world market. References Balakrishnan P, Golait R, Kumar P (2008)Agricultural growth in India since 1991.Development Research Group, Study No. 27, Department of Economic Analysis &Policy. Reserve Bank of India: Mumbai Bhalla GS (2007) Indian agriculture since Independence. National Book Trust:New Delhi Bhalla GS, Singh G (2012) Economic liberalization and Indian agriculture. Sage: New Delhi Chand R, Bajar S (2012) Agricultural trade liberalization policies in India: Balancing producer and consumer interests. In Banga R, Das A (eds.) Twenty years of India’s liberalization: Experiences and lessons. UNCTAD: Geneva, p 27–42 Government of India (1999) Economic Survey 1998–99. Department of Economic Affairs. Economic Division, Ministry of Finance: New Delhi Government of India (2004) Agricultural statistics at a glance 2004. Agricultural Statistics Division, Directorate of Economics and Statistics, Ministry of Agriculture: New Delhi Government of India (2005) Agricultural statistics at a glance 2005. Agricultural Statistics Division, Directorate of Economics and Statistics, Ministry of Agriculture: New Delhi Government of India (2008) Agricultural statistics at a glance 2008. Agricultural Statistics Division, Directorate of Economics and Statistics, Ministry of Agriculture: New Delhi Government of India (2011) Agricultural statistics at a glance 2011. Agricultural Statistics Division, Directorate of Economics and Statistics, Ministry of Agriculture: New Delhi Government of India (2013) Agricultural statistics at a glance 2013. Agricultural Statistics Division, Directorate of Economics and Statistics, Ministry of Agriculture: New Delhi Government of India (2014) Agricultural statistics at a glance 2014. Agricultural Statistics Division, Directorate of Economics and Statistics, Ministry of Agriculture: New Delhi Government of India (2015 )Economic Survey 2014–15. Department of Economic Affairs, Economic Division, Ministry of Finance: New Delhi Gulati A (2002) Indian agriculture in a globalizing world. Am J AgricEcon84(3): 754– 761


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Gulati A (2006) Trade policies, incentives, investment and institutions in Indian agriculture. In Radha krishna R, Rao S K, Dev S M, Subbarao K (eds.) India in a globalizing world.Academic Foundation: New Delhi, p 347–371 Gulati A, Jain S, Hoda A (2013) Farm trade: Tapping the hidden potential. Discussion Paper No. 3, Commission for Agricultural Costs and Prices, Ministry of Agriculture, Government of India:New Delhi Gulati A, Narayanan S (2003)The subsidy syndrome in Indian agriculture. Oxford University Press: New Delhi Hoda A, Gulati A (2007) WTO negotiations on agriculture and developing countries.Oxford University Press: New Delhi Landes R, Gulati A (2009) Farm sector performance and the reform agenda. In Krishna K L, Uma Kapila (eds.) Readings in Indian agriculture and industry. Academic Foundation: New Delhi, p 131–156 Ministry of Commerce (1999) WTO agreement on agriculture and its implications, India & the WTO(a monthly newsletter, May) 1(5): 1–12 Planning Commission (2014) Data-book compiled for use of planning commission. Government of India: New Delhi: http://planningcommission.gov.in. Accessed15 March 2014 Reserve Bank of India (2013) Handbook of statistics on the Indian economy 2012– 13.Reserve Bank of India: Mumbai Reserve Bank of India (2014) Handbook of statistics on the Indian economy 2013– 14.Reserve Bank of India: Mumbai World Trade Organization (WTO) (2001)International trade statistics 2001. Geneva World Trade Organization (WTO) (2005)International trade statistics 2005. Geneva World Trade Organization (WTO) (2010)International trade statistics 2010. Geneva World Trade Organization (WTO) (2014)International trade statistics 2014. Geneva database website: www.Indiastat.com