Indian economy, which experienced a boom in the 2000s, is currently undergoing a major crisis with a sluggish growth, high inflation and a low rupee. This slump in the country’s economy has generated high retail prices and a high unemployment rate. The weak structures of the country have been made worse by the crisis, and the lack of political willpower is unlikely to improve the situation in the near future.
What will be the consequences of this crisis in key sectors such as agriculture? A question which is all the more crucial since a text has just been voted in favour of the virtually free distribution of cereals to over 800 million Indians. This plan is expected to cost several million USD, and many feel that it will only further increase the state deficit.
We recommend reading this excerpt of one of the latest reports of the ICTSD on India’s agricultural trade policy and its functioning since 1950 , the time when Indian agriculture took off, with a production rising from 50 million tons to 250 million tons in 2012, hand in hand with a growing demographic pressure. Despite the fact India has the world's second-largest population, is the world’s third economic power, and is the fourth largest agricultural producer, over 400 million people in India live on less than $ 1 a day, and 212 of them suffer from malnutrition. For decades now, India’s agricultural policy has consisted in paying subsidies and guaranteeing minimum support prices, in order to feed the country’s population and allow farmers to make a decent living. Nevertheless, this policy has often failed as a result of the country’s structural weaknesses (malnutrition, low yield and climatic hazards…) which urgently call for major reforms.
An agricultural giant that is paradoxically unable to feed its own population and which will be facing difficult challenges in the 21st century, India is nevertheless determined to make its voice heard within the WTO, and make it understood that as far as the market for agricultural commodities is concerned, the liberalization of international trade is far from being a panacea.
momagri Editorial Board
During the last six decades or so Indian agriculture has made remarkable progress with food grain production growing fivefold from about 50 MMT in 1950 to more than 250 MMT in 2012. Despite the increase in population from 361 million to 1.2 billion during this period, India has turned from a food deficit to a food surplus country. From the angle of achieving growth in production, clearly India’s agricultural trade policy has been highly successful.
Underpinnings of India’s agricultural trade policies
Ensuring food security for a rapidly increasing population has been the principal goal of India’s food and agricultural policies, and all agri-trade policies have been subservient to this goal. In the quest for self-reliance in basic food (especially key staples like rice and wheat) trade policy has oscillated between export controls and high import duties. Nevertheless, over the years, India has been gradually integrating its agriculture with global markets, and its agri-trade (imports plus exports) as a percentage of agri-GDP has risen from about 5 percent in 1990-91 to about 18 percent in 2011-12.
Given that India still has the largest number of poor and malnourished people in the world, one of the major concerns has been to keep food prices under control. It is this over-riding concern that has often led to export controls, high stock holdings to feed the public distribution system, and large food subsidies for the poor. To incentivise production, cultivators have been provided with subsidies on inputs and minimum support prices for some of their products. This twintrack approach of keeping food prices low for the consumer and incentivising production through domestic support has been the hall mark of India’s agricultural policies.
Due to the rising population the per capita availability of cultivated land and water has declined and raising food production in a sustainable manner has become a bigger challenge. With falling water tables in much of India, and forecasts that the frequency and intensity of droughts and floods will increase with climate change, there is increasing concern about the sustainability of agriculture.
Policies and programmes to support farm operations
Input subsidies and market price support are the two pillars of India’s domestic support programmes.
In 2010-11, input subsidies generally available to cultivators (non-product-specific subsidies)
totalled USD 27.6 billion, comprising of subsidies for irrigation (USD 4.7 billion), power (USD 6.5 billion), fertilisers (USD 13.7 billion), credit (USD 2.47 billion), and some small amount coming from subsidies for seeds, insurance etc. In that year, these subsidies were 8.88 per cent of the total value of agricultural output but earlier in 2008-09 the level had topped 15 per cent.
However, how these percentages measure up against the de minimis level of 10 per cent fixed in the WTO Agreement on Agriculture for developing countries, would depend on the interpretation of ‘low-income’ or ‘resource-poor’ farmers in respect of whom Article 6.2 of the WTO Agreement exempts them from reduction commitments. Without doubt, the area of agricultural holding cannot be the sole measure of the income status of farmers as farm income depends critically on the availability of assured irrigation.
However, because of the lack of availability of detailed holding wise data on water, there is little option but to undertake analysis on the imperfect basis of the area of the holding alone. Analysis by the authors shows that whether we take the defining level to determine the low-income or resource-poor status as 10, 4 or 2 ha, in 2010-11, the total non-product-specific subsidy as a percentage of the total value of agricultural output was well below the benchmark of 10 per cent. Even in 2008-09, when there was an unprecedented spike in government support for agriculture, this percentage remained below the benchmark and was 7.75 percent, for the most rigorous interpretation of ‘low-income’ or ‘resource-poor’. The benefit to the farmer of input subsidies is substantially neutralised by inefficiencies in the delivery of the service by the government or government agencies. In surface irrigation, due to the lack of maintenance and disrepair of existing canal systems the farmer does not get the water for the crops in a timely fashion. Deficiencies in the functioning of State Electricity Boards result in interruptions in power supply and voltage fluctuations, which damage the pumps used by the farmer. Low irrigation service fees and free or very nominal rates for power are contributory factors leading to these inefficiencies.
1 The full report is available here http://ictsd.org/downloads/2013/09/indias-agricultural-trade-policy-and-sustainable-development-goals.pdf