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The agriculture sector in India

Agriculture in India is one of the most important sectors of its economy. It is the means of livelihood of almost two thirds of the work force in the country and according to the economic data for the financial year 2006-07, agriculture accounts for 18% of India's GDP.

About 43 % of India's geographical area is used for agricultural activity. Though the share of Indian agriculture in the GDP has steadily declined, it is still the single largest contributor to the GDP and plays a vital role in the overall socio-economic development of India keeping in view the importance and predominance of the agricultural sector in the Indian economy, in terms of both income generation and employment and its intimate relationship with other sectors of the economy through input-output and consumption linkages, the macroeconomic and other changes implied in the stabilization and structural adjustment programme had a significant impact on the sector.

A general review of agricultural development since independence helps to provide the necessary basis for understanding the full implications of structural reform for the agricultural sector of India.

Agricultural policy in India during the planning era

Prior to the liberalization of the Indian economy of June 1991, agricultural policy was governed by a planning framework. The entire gamut of macroeconomic policies, notably trade, fiscal and monetary policies, was designed to serve planning objectives. The plans for the agricultural sector, including its financing and production targets, were all decided through a series of governmental processes at the state and central levels.

The nature and role of planning for the Indian agricultural sector was primarily determined by the sector's specific characteristic of being under the operation of millions of independent producers. Hence, agricultural planning in India consisted in creating a rural infrastructure combined with providing modern inputs and a framework of incentives for farmers that would enable them to increase output through the adoption of modern technology.

Because food availability emerged as a major concern and constraint to the development process, accelerating agricultural and food grains growth with a view to providing food security became the central objective of India's agricultural policy.

There were several agricultural components in the first and subsequent five-year plans.

  • The first and most important was the implementation of land reforms during the mid-1950s with the objective of eliminating intermediaries and bringing about a greater degree of equality in land distribution.
  • The fourth important component of policy was the establishment of a comprehensive management system for the procurement, storage and public distribution of foodgrains to provide food to consumers at reasonable prices
  • The fifth component was tightly controlled trade and exchange rate policies. In the case of agriculture, except for a few traditional commercial crops, the sector was insulated from world markets through the almost total control of exports and imports. The estimated surplus over domestic consumption requirements determined the quantities to be exported and vice versa for imports.
  • Food grains, sugar and edible oils were imported in times of scarcity to prevent domestic prices of essential commodities from rising and to impart a measure of stability to domestic prices in the interest of both producers and consumers. Foreign trade in most agricultural goods was subject to quota or other restrictions such as minimum price requirements.
  • Finally, financial policy attempted to mobilize resources for public sector expenditure and for public investment. A system was created to extend cooperative and institutional credit to the rural sector, thus facilitating private investment in infrastructure and encouraging the adoption


    Globalization of Indian agriculture offers both opportunities and challenges to policy-makers.


    The challenges are in modernizing small-scale agriculture and in making it efficient and competitive, but also in involving the mass of rural people including small and marginal farmers and landless agricultural labourers, in all parts of India, in the development process.

    Globalization of agriculture brought about many changes which we have seen in the form of opportunities.

    Export and Import

    India's Export and Import market as in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country.

    1. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports.
    2. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts from nearly 5 to 10% of the country's total agricultural exports.

    Greater market access

    With the joining the WTO, the India has got the better market access in various developed and developing countries. Also various strategies to encourage free trade because of WTO have also given chance to become players in the international market.

    Comparative advantage

    Other countries realized that India and other developing countries have a comparative advantage because of less cost of production, labour, land and other incentives in the form of taxes and subsidies.

    But countries like US and UK were against this and supplemented there sector by providing various type of subsidies to their farmers which hampered the growth of the agriculture sector. But India and other developing nation have raised their concern about this at taken up the issues at Doha round.

    Infrastructure development

    With the increase in globalization the infrastructure has developed to a much larger extent. This is evident from the development of roads, railways networks in the rural areas. Development in the power and water supply, better coordination of the government.

    Also there are many MNC'S which have developed their factories around the rural areas to have the proximity for getting the raw materials easily.

    1. It aims at increasing the production of food and improvements of the economic and social condition of farmers.
    2. It would increase efficiency of the workers. Use of hybrid seeds and machines help to increase agricultural productivity.
    3. It would improve animal husbandry's would be able to import good breed of animals from the other countries.
    4. Farmers will get the privilege of the international market through export agricultural products.


    Though globalization has brought many positive impacts but the negatives impact are much more and in the recent past have surfaced.

    Climate change

    Climate change and globalization are two main processes of global change, and it is assumed that both have major impacts on Indian agriculture. We have seen in the recent past what major differences have changing climate has made to the growing crops

    The condition of

    Corporatization Of Agriculture

    This corporatization of agriculture, which is being pushed as a successor to the Green Revolution of the 1960s and '70s, is leading to new poverty for small farmers, as unequal and unfair contracts lock them into a new form of bondage.

    E.g. Farmers in the Indian state of Punjab contracted by Pepsico to grow tomatoes received only 0.75 rupees per kilo, while the market price was 2.00 rupees. First the farmers rejected Pepsico and now Pepsico has abandoned Punjab, selling its tomato processing plant to a subsidiary of Levers.

    Decline production

    Trade liberalization and the globalization of agriculture suppose to increase the production of food and improve the economic situation of farmers across the world. However, in country after country the process is leading to a decline in food production and productivity, a decline in conditions for farmers and a decline in food security for consumers. Globalizations is deepening food insecurity the world over.

    No food security

    Providing food security continues to be the central of India's agricultural policy With a large and growing population of 844 million and an expected acceleration in per caput income over the next decade, the demand for food grains is likely to grow at a rapid rate. Policy-makers recognize that accelerating growth in foodgrains production is an essential prerequisite for meeting the rising food demand.

    Higher agricultural growth requires both public and private investment in irrigation and other rural infrastructure. However, the rate of investment in agriculture has declined since the early 1980s. An important reason has been that in most states a large proportion of the government budget is required for huge subsidies on power, transport and water and on the inefficient functioning of both power and irrigation systems. In addition, policy-makers are considering decentralizing and privatizing irrigation projects (with explicit subsidies to be provided for socially important schemes), leasing distribution systems to panchayats and forming irrigation cooperatives to establish and collect water charges and to manage and maintain distribution channels.

    Private investment in agriculture is likely to increase if public investment grows to allow farmers to adopt yield-raising technology and if farmers have the incentives of remunerative prices.

    Also there is a lot of pressure on the farmers to produce more food from less land with fewer natural resources and inputs like seeds, fertilizers, and irrigation sources. But the major issue to be highlighted is the decline of capital formation in the agricultural sector.

    Increase number of suicide

    The biggest problem Indian agriculture faces today and the number one cause of farmer suicides is debt. Forcing farmers into a debt trap are soaring input costs, the plummeting price of produce and a lack of proper credit facilities, which makes farmers turn to private moneylenders who charge exorbitant rates of interest. In order to repay these debts, farmers borrow again and get caught in a debt trap.

    e.g AP's experience is particularly relevant in this analysis because of its leadership. Chandrababu Naidu, Chief Minister of Andhra Pradesh from 1995-2004, was an IT savvy neo-liberal, and believed that the way to lead Andhra Pradesh into the future was through technology and an IT revolution.

    His zeal led to the first ever state level (as opposed to national level) agreement with the World Bank, which entailed a loan of USD 830 million (AUD 1 billion) in exchange to a series of reforms in AP's industry and government. Naidu envisaged corporate style agriculture in AP, and implemented World Bank liberalisation policies with great enthusiasm and gusto. He drew severe criticism from opponents, saying he was using AP as a laboratory for extreme neo-liberal experiments. Hence, AP's experience with liberalization is critical.

    The Debt Trap and the Role of Liberalisation

    The Debt trap: High Input Costs


    The biggest input for farmers is seeds. Before liberalisation, farmers across the country had access to seeds from state government institutions.

    For example, AP's APSSDC3 produced its own seeds, was responsible for their quality and price, and had a statutory duty to ensure seeds were supplied to all regions in the state, no matter how remote. The seed market was well regulated, and this ensured quality in privately sold seeds too.

    With liberalization, India's seed market was opened up to global agribusinesses like Monsanto, Cargill and Syn Genta. Also, following the deregulation guidelines of the IMF, 14 of the 24 units of the APSSDC's seed processing units were closed down in 2003, with similar closures in other states.

    This hit farmer doubly hard: in an unregulated market, seed prices shot up, and fake seeds made an appearance in a big way.

    Seed cost per acre in 1991 was Rs. 70 (AUD 2) but in 2005, after the dismantling of APSSDC and other similar organizations, the price jumped to Rs. 1000 (AUD 28), a hike of 1428%, with the cost of genetically modified pest resistant seeds like Monsanto's BT Cotton costing Rs. 3200 or more per acre, (AUD 91) a hike of 3555%. BT Cotton is cotton seed that is genetically modified to resist pests, the success of which is disputed: farmers in Andhra Pradesh and Maharashtra now claim that yields are far lower than promised by Monsanto, and there are fears that pests are developing resistance to the seeds.

    Expecting high yields, farmers invest heavily in such seeds. Also BT Cotton and other new seeds guarantee a much lower germination rate of 65% as opposed to a 90% rate of state certified seeds.

    Hence 35% of the farmer's investment in seeds is a waste. Output is not commensurate with the heavy investment in the seeds, and farmers are pushed into debt.

    The abundant availability of spurious seeds is another problem which leads to crop failures. Either tempted by their lower price, or unable to discern the difference, farmers invest heavily in these seeds, and again, low output pushes them into debt.

    Earlier, farmers could save a part of the harvest and use the seeds for the next cultivation, but some genetically modified seeds, known as Terminator, prevent harvested seeds from germinating, hence forcing the farmers to invest in them every season.

    Fertilizer and Pesticide:

    One measure of the liberalisation policy which had an immediate adverse effect on farmers was the devaluation of the Indian Rupee in 1991 by 25% (an explicit condition of the IMF loan).

    Indian crops became very cheap and attractive in the global market, and led to an export drive. Farmers were encouraged to shift from growing a mixture of traditional crops to export oriented 'cash crops' like chilli, cotton and tobacco.

    These need far more inputs of pesticide, fertilizer and water than traditional crops. Liberalization policies reduced pesticide subsidy (another explicit condition of the IMF agreement) by two thirds by 2000. Farmers in Maharashtra who spent Rs. 90 an acre (AUD 2.5) now spend between Rs. 1000 and 3000 (AUD 28.5 - 85) representing a hike of 1000% to 3333%. Fertilizer prices have increased 300%

    Electricity tariffs

    They have also been increased: in Andhra Pradesh tariff was increased 5 times between 1998 and 2003. (Seeds of ruin, 2005) Pre-liberalisation, subsidized electricity was a success, allowing farmers to keep costs of production low. These costs increased dramatically when farmers turned to cultivation of cash crops, needing more water, hence more water pumps and higher consumption of electricity. Andhra Pradesh being traditionally drought prone worsened the situation. This caused huge, unsustainable losses for the Andhra Pradesh State Electricity Board, which increased tariffs. (This was initiated by Chandrababu Naidu in partnership with Britain's DFID4 and the World Bank.) Also, the fact that only 39% of India's cultivable land is irrigated makes cultivation of cash crops largely unviable, but export oriented liberalisation policies and seed companies looking for profits continue to push farmers in that direction.

    The Debt Trap: Low price of Output

    With a view to open India's markets, the liberalization reforms also withdrew tariffs and duties on imports, which protect and encourage domestic industry. By 2001, India completely removed restrictions on imports of almost 1,500 items including food.

    As a result, cheap imports flooded the market, pushing prices of crops like cotton and pepper down. Import tariffs on cotton now stand between 0 - 10%, encouraging imports into the country. This excess supply of cotton in the market led cotton prices to crash more than 60% since 1995. As a result, most of the farmer suicides in Maharashtra were concentrated in the cotton belt till 2003 (after which paddy farmers followed the suicide trend).

    Similarly, Kerala, which is world renowned for pepper, has suffered as a result of 0% duty on imports of pepper from SAARC5 countries. Pepper, which sold at Rs. 27,000 a quintal (AUD 771) in 1998, crashed to Rs. 5000 (AUD 142) in 2004, a decline of 81%.

    As a result, Indian exports of pepper fell 31% in 2003 from the previous year. Combined with this, drought and crop failure has hit the pepper farmers of Kerala hard, and have forced them into a debt trap. Close to 50% of suicides among Kerala's farmers have been in pepper producing districts.

    The Debt Trap: Lack of credit facilities and dependence on private money lenders.

    In 1969, major Indian banks were nationalized, and priority was given to agrarian credit which was hitherto severely neglected. However, with liberalization, efficiency being of utmost importance, such lending was deemed as being low-profit and inefficient, and credit extended to farmers was reduced dramatically, falling to 10.3% in 2001 against a recommended target of 18%.

    A lack of rural infrastructure deters private banks from setting up rural branches, with the responsibility falling on the government, which has reduced rural spending as a result of its liberalisation policies. Rural development expenditure, which averaged 14.5% of GDP during 1985 - 1990 was reduced to 8% by 1998, and further to 6% since then.

    Seeds of suicide

    This at a time when agriculture was going through a crisis proved disastrous for farmers, who turned to private money lenders who charge exorbitant rates of interest, sometimes up to 24% a month. With input costs and output prices being what they are, coupled with crop failures and drought, they are pushed into debt which is impossible to repay.

    12 out of India's 28 states have 50% and higher indebtedness among farm households. Andhra Pradesh has the highest percentage of indebted farm households - 82%. 64.4% of Kerala's farm households and 54.8% of Maharashtra's farm households are indebted Indebtedness has been identified as the single major cause of suicides in both Andhra Pradesh, Kerala and Maharashtra. (Analysis of Farmer Suicides in Kerala, 2006)

    Once again, there are some individual cases where globalization has led to deprivation and suicide. About 800 km away from Mumbai is the cotton-growing region of Vidarbha, perched on the Deccan Plateau. Hundreds of cotton farmers here have killed themselves in recent years. The reasons are complex and varied. Among the reasons is this one: farmers here cannot compete with cheap cotton imported from the United States, whose farmers are lavished with huge subsidies by a government that preaches the virtues of competitive markets to the rest of the world. Their deaths can be linked to imperfect globalization. More generally, though, reform and globalization have led to faster growth and sharp drops in poverty levels. [Knowledge Wharton 2007]


    The provisions of W.T.O offered ample opportunities to India to expand its export market. Contrary to this, the price situation changed dramatically after 1996, which was the first year after implementation of Urguay Round Agreement and formation of W.T.O. International price of agricultural commodities have since then plummeted, because of which domestic price turned higher than international price, which made India an attractive market for import of most agricultural commodities.

    This situation resulted in a wide spread decline in agricultural export and had also pressure on domestic prices. The impact of W.T.O on agriculture was severely felt by India as cheap imports have frequently hit the Indian market, causing shock waves among the agriculture producers. The changes in agricultural exports reveal that during pre W.T.O period the increase was significantly remarkable than post W.T.O period and the rising export trend could not be sustained in the post W.T.O period whereas imports rose steadily. The agricultural products from India can be made competitive in international market and the prices of agricultural goods in the domestic market can be

    As a result of commitments under the Uruguay Round, India has bound all the tariff lines in agriculture. India had bound its tariffs at 100% for primary products, 150% for processed products and 300% for edible oils, except for certain items (comprising about 119 tariff lines), which were historically bound at a lower level in the earlier negotiations.

    The applied rates have been much lower than the bound rates. In India the product specific supports is negative, while the non-product specific support i.e., subsidies on agricultural inputs, such as, power, irrigation, fertilizers etc., and is well below the permissible level of 10% of the value of agricultural output. Therefore, India is under no obligation to reduce domestic support currently extended to the agricultural sector.

    Export subsidies of the kind listed in the Agreement on Agriculture, which attract reduction commitments, are not extended in India. Also, developing countries are free to provide certain subsidies, such as subsiding of export marketing costs, internal and international transport and freight charges etc.


    Rich nations preach free trade but practice protectionism against poor nations, especially in agriculture. For example, the United States severely limits sugar imports from Latin America to benefit American sugar beet growers, even inhibiting imports of Brazilian cane-based ethanol, which is far cheaper and more energy efficient than domestic ethanol.

    The subsidies that the developed nations offer their farmers' vis-á-vis to what the developing countries can offer is very large. The developing nations find it difficult to withstand this competition in the world markets. If the subsidies are not reduced by the US and the EU, it will be the developing nations who will have to bear the brunt.


    Trade liberalisation is supposed to bring benefits to national agricultural economies. However, the beneficiaries are neither farmers nor governments of the Third World.

    This freedom to trade has mainly benefited the giant grain traders Cargill and Continental. They are buying wheat at $60 to $100 per tonne from India and selling it at $230-240 per tonne on the international market, making a neat $130-170 profit per tonne, while India is losing $100 million in exports because of the concentration of power in the hands of five merchants of grain.

    The US grain giants are turning to the Indian market because the large-scale wheat farming in the US, has been wiped out in nearly 50% of the farm land by a combination of drought and the Karnal Bunt - a fungal disease.

    As a result of the US crop failure, India's wheat exports have increased dramatically. However, in the globalised world, it is ultimately not countries such as the US and India, which are exporting and importing grain, but corporations like Continental and Cargill. Treating countries as economic units in a free-trade world is misplaced since they have been replaced by corporations as the basic economic units. The gains and losses from globalised trade in food are more appropriately worked out at the level of people and corporations rather than at the level of countries. Globalised food trade is of course an opportunity in the trade perspective, but will have serious impacts on the entitlements of already vulnerable grounds


    Role of government; the government in India has taken a very substantial stand. It has shown the developed world that won't take the nuisance of subsidies. In the wake of WTO which was serving the interest of the developed world, they can no longer take the developing countries as for granted.

    To realize the expected gains from trade liberalization, apart from improvement in infrastructure, Indian agriculture would need to become more competitive.

    The recent deceleration of growth in Indian agriculture- both in production as well as in crop productivity- has however been a cause of worry. Unless this trend is reversed, India may not be able to take on the opportunities that may be made available to it in the wake of globalization.

    Reversal of this trend would however require action on a number of fronts the most important being reversing the trend of declining public investment in agriculture and extending the coverage of irrigation to a much larger cultivated area.


  • Doubling the rate of growth of irrigated area;
  • Providing easy access to credit at affordable rates.
  • Importance of effective supply chain arrangements that encompassed storage, processing and trading.
  • It a major concern of regulating intermediaries. There is a strong perception that inadequate regulation of intermediaries in agricultural trade acutely affects farmers on account of low farm gate prices.
  • Policy constraints such as restrictions on movement of agricultural commodities and ad hocism in export policy have been cite as a major source of regulatory problems . The Government of India removed several statutory restrictions in its 2002 National Agricultural Policy. In early 2004 the Government liberalized procurement of food grains for the export market; exporters are now permitted to procure rice and wheat from farmers at market-determined rates. Food grain market policy in India has tended to be highly interventionist with the central and state governments actively involved in grain storage and restrictions on the movement of food grains across states).
  • Transport costs are also extremely high in India. It has been estimated that comprehensive reform and infrastructure intervention consisting of rationalization of internal movement controls, reduction of transport costs by 50% and decentralization of public procurement
  • Although the incentives and climate for private investment have improved, it may not be able to fully substitute for weak public investment. Reforms at the border, when they have been implemented, have typically exposed inefficiencies in the domestic market that limit competitiveness. These weaknesses limit the benefits of border reform and, at least in India's case, will require significant investment in transport and marketing infrastructure and institutional capacities to overcome.

    Indian agriculture has benefited substantially from whatever little globalization that has been allowed in Indian agriculture. The farmers that got the exposure to global links of markets, technology and investment, benefited in terms of improving their yields, getting better prices and secured off take.

    In many areas of the country, tomatoes growers, potato farmers and fruit grower's farmers benefited from tie-up and collaborations with ketchup, potato chips, fruit juices, etc.

    Indian agricultural exports have grown where Indian farmers in selected pockets are competitive: these include spices made from agricultural produce, flowers, mangoes, other fruitsrice, vegetables, pickels, papads, tobacco, etc.

    The e-choupals network created by an Indian company and the spread of mobile telephones have provided on line market price and climatic information on on-line real-time basis and helped them to get the best prices and sell to the most attractive buyers and brought them freedom from the clutches of the middlemen and traders. Because of the resistance from the traders and the politicians, more and more farmers are not getting the benefits of globalisation: vested interests are stopping the entry of more professional and honest buyers of agricultural produce of high quality for supply to urban areas through network of malls.

    Fishermen in Kerala have increased their incomes using mobile phones to find out the best mandis where the prices are the highest on each day.

    There has been negative effect of globalization on Indian farming.

    The faulty and restrictive policies have made it difficult for farmers to consolidate their holdings for larger scale commercial farming, access to large, high paying buyers with retail chains, support of well-organised transparent mandis not ruled by traders.

    As a result in many areas farmers have committed suicides because of crop failures and high indebtedness. Using the old British Indian laws of land acquisition, the state government, are forcing farmers to sell their lands for industries at prices they consider justified rather than asking industrialists and companies to bid for agricultural land which will increase the market prices of land.

    Once these policy impediments are removed, globalization will proceed in Agriculture and farming in the proper way and benefit Indian agriculture and farming throughout the country.

    India does not need all the land under agriculture now for agricultural use: much less area would suffice to feed the nation and export if agricultural productivity can be raise substantially through private investment in agriculture by companies that need agricultural produce for their business growth and India's economic growth.

    Globally India has tremendous opportunities of exporting farm produce and allied agro-products. Even the landless farmers have tremendous opportunities of getting higher income by working under contract farming methods through agreements with large industrial companies.

    In the USA only 1 5 of the workforce is employed in agriculture to meet the country's needs and also export

    Another effect of globalisation of Indian farming is that the cropping pattern may change and higher scales of production and higher productivity will displace agricultural labour.


    Though the impact of globalization was both positive and negative but the negative are much more.

    The lack or slow pace of internal or domestic liberalization is also seen to hinder the possible gains from external or trade liberalization.