WTO-AND-INDIAN-ECONOMY.docx

7/27/2019 WTO-AND-INDIAN-ECONOMY.docx

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WTO AND INDIAN ECONOMY(AGRICULTURAL IMPLICATIONS)

BY:

RAYNAH FERNANDES 13

SRUSHTI GANGAN 14

NEHA GAONKAR 15


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INDEX1. WORLD TRADE ORGANISATION

GATT Principles of WTO Objectives & Function

2. INDIA & WTO3. INDIAN ECONOMY4.

INDIAN AGRICULTURE Agricultural Trade Agricultural Support Policies Importance Of Indian Agriculture

5. AGREEMENT ON AGRICULTURE The Three Boxes: Green, Amber and Blue Trend In Pattern Of Consumption Implication Of Agreement : Short Term and Long Term

6. WTO & INDIAN AGRICULTURE Indias Commitment Indias Agricultural Trade Under WTO Regime

7. A STUDY & ITS FINDINGS8. SUGGESTIONS9. BIBLIOGRPHY


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ACKNOWLEGEMENT

We would like to acknowledge and express our sincerest gratitude for theefforts and timely guidance of our professorMrs. Neelam Shetty of ManagerialEconomics for providing us the opportunity to study the impact of WTOagreements on the Indian economy especially focused on the agricultural sector.

We would also like to thanks and express our gratitude towards professorMr. Agnelo Menezesof economics from the Bachelors of Arts faculty and hisstudent from XRCVC Master Prashant Lindayat.

Each and every team member gave in his best to make sure that this report hasall the necessary inputs and is completed on time. We definitely had aknowledgeful and enriching experience.


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WORLD TRADE ORGANISATION

The WTO provides a forum for negotiating agreements aimed at reducingobstacles to international trade and ensuring a level playing field for all, thus

contributing to economic growth and development. The WTO also provides alegal and institutional framework for the implementation and monitoring ofthese agreements, as well as for settling disputes arising from theirinterpretation and application. The current body of trade agreements comprisingthe WTO consists of 16 different multilateral agreements (to which all WTOmembers are parties) and two different plurilateral agreements (to which onlysome WTO members are parties).

World Trade Organization as a Multi-lateral organization facilitates the free

flow of goods and services across the world and encourages fair trade amongnations. The result is that the global income increases due to increased trade andthere is supposed to be overall enhancement in the prosperity levels of themember nations. To put it in brief WTO encourages a multi-lateral tradingsystem within its member countries.

Over the past 60 years, the WTO, which was established in 1995, and itspredecessor organization the GATT have helped to create a strong andprosperous international trading system, thereby contributing to unprecedentedglobal economic growth. The WTO currently has 153 members, of which

117 are developing countries or separate customs territories. WTO activities aresupported by a Secretariat of some 700 staff, led by the WTO Director-General.The Secretariat is located in Geneva, Switzerland, and has an annual budget ofapproximately CHF 200 million ($180 million, 130 million). The three officiallanguages of the WTO are English, French and Spanish.

Decisions in the WTO are generally taken by consensus of the entiremembership. The highest institutional body is the Ministerial Conference,which meets roughly every two years. A General Council conducts the

organization's business in the intervals between Ministerial Conferences. Bothof these bodies comprise all members.

Basic Details

Location: Geneva, SwitzerlandEstablished: 1 January 1995Created by: Uruguay Round negotiations (1986-94)Membership:153 countries (as of 23rd July 2008)Budget: 155 million Swiss francs for 2003Secretariat staff: 560Head : Director-General, Supachai Panitchpakdi
http://www.wto.org/english/thewto_e/minist_e/minist_e.htmhttp://www.wto.org/english/thewto_e/gcounc_e/gcounc_e.htmhttp://www.wto.org/english/thewto_e/gcounc_e/gcounc_e.htmhttp://www.wto.org/english/thewto_e/minist_e/minist_e.htm


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Origin and Evolution of WTO: GATT to Uruguay

One of the most dramatic events that have taken place in later part of20th century was culmination of GATT 1947 into WTO (The world Trade

organization), which came into being on 1st

January 2005. As an organization ithas vast powers and functions than what its ancestor GATT (GeneralAgreement on Tariffs and Trade) had, the objectives and goals of both being

broadly the same. GATT came into existence in the year 1948, after longnegotiations to form an organization called ITO immediately after the SecondWorld War did not materialize. The ITO was supposed to be the thirdinternational organization in the "Golden Triangle" that was supposed to comeinto existence, the first two being IMF and World Bank.

To begin with 23 countries became founder GATT members (officially,"contracting parties"). GATT remained the only multilateral instrumentgoverning international trade from 1948 until the WTO was established in 1995.There were several controversies on whether the GATT had actually contributedto enhancement of world trade and did it serve its purpose of a multi-lateraltrading organization. The liberalization of international trade during GATT erain its true sense was always debatable. However, it is very clear that over the

period of 47 years of its existence, GATT was successful in initiating a processof tariff cutting in several groups of manufactured goods. Moreover thesignatories in the GATT increased from 23 to more than 100 in a short span,ratifying the fact that being in the system was proved and considered more

beneficial than not being in it.

On the other front, the internal and domestic economic problems andfluctuations made some economies to go back to increase the levels of

protection and increase trade barriers to enable faster domestic growth andrecovery. The problem was not just a deteriorating trade policy environment,

but some other serious issues. GATT negotiations did not include services andagricultural trade in its gamut. As the world trade grew in size, the share of

services trade along with that of merchandise started to increase leading to theinsufficiency of the GATT principles to cover the expanding aspects of everevolving global trade. As a result, these loopholes were taken as advantage bymany trading countries, resulting in a lopsided development of world trade.These and other factors convinced GATT members that a new effort toreinforce and extend the multilateral system should be attempted. That effortresulted in the Uruguay Round, the Marrakesh Declaration, and the creation ofthe WTO.


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PRINCIPLES OF WTO

The agreements of WTO cover everything from trade in goods, services andagricultural products, these agreements are quite complex to understand,

however all these agreements are based on some simple principles;

Non-Discrimination

This is a very simple principle which advocates that every membercountry must treat all its trading partners equally without anydiscrimination, meaning that if it offers any special concession to onetrading partner, such concessions need to be extended to its other trading

partners as well in entirety. This principle effectively gets translated into

"MFN" or the Most Favored Nation. However, this principle is relaxed incertain exceptional cases, such as if country X has entered into a regionaltrade agreement with another country Y, then the concessions extended toY country need not be extended to other non-members of the agreement.Besides these developing countries facing Balance of Payment problemsalso get concessions, and if a country can prove unfair trade it can retainits power to discriminate.

The Non-discrimination principle is also translated as a principle thatwould ensure "National Treatment" to all the goods, services or theintellectual property that enters any other countries national borders.

Reciprocity

This Principle reflects that any concession extended by one country toanother need to be reciprocated with an equal concession such that thereis not a big difference in the countries Payments situation. This wasfurther relaxed for developing countries facing severe Balance ofPayments crisis. This principle along with the first principle wouldactually result in more and more liberalization of the world trade as anycountry relaxing its trade barriers need to extend it to all other membersand this would be reciprocated. Thus progressive liberalization of theworld trade was aimed at by WTO.


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Transparency

The multilateral trading system is an attempt by governments to make thebusiness environment stable and predictable. Thus this principle ensuredthat there is lots of transparency in the domestic trade policies of membercountries. Moreover, the member countries are required to sequentially

phase out the non-tariff barriers and progressively reduce the tariffbarriers through negotiations.

Thus, these principles were primarily to serve the purpose of freer and fair tradeand also to encourage competitive environment in the global market. This was

further supposed to enhance development and Economic reforms in thedeveloping countries over a period of time in a phased manner.


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WTO: OBJECTIVES AND FUNCTIONS

The overriding objective of the World Trade Organization is to help trade flowsmoothly, freely, fairly and predictably; to meet its objective WTO performs the

following functions

Administering W.T.O Trade Agreements. Acting as a Forum for trade negotiations. Settling and Handling Trade disputes Monitoring and reviewing national trade policies, Assisting the member in trade policies through technical assistance and

training programs Technical assistance and training for developing countries.

Co-operation with other International OrganizationThe goals behind these functions are set out in the preamble to the MarrakechAgreement. These include:

Raising standards of living; Ensuring full employment; Ensuring large and steadily growing real incomes and demand; and Expanding the production of and trade in goods and services.

These objectives are to be achieved while allowing for the optimal use of theworld's resources in accordance with the objective of sustainable development,and while seeking to protect and preserve the environment. The preamble alsospecifically mentions the need to assist developing countries, especially theleast developed countries, secure a growing share of international trade.


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INDIA AND WTO

India is one of the founding members of WTO along with 134 other countries.Various trade disputes of India with other nations have been settled through

WTO.

India has also played an important part in the effective formulation of majortrade policies. By being a member of WTO several countries, are now tradingwith India, thus giving a boost to production, employment, standard of livingand an opportunity to maximize the use of the world resources. It is expectedthat reduction in export subsidy and domestic support to the agricultural sector

by the developed countries may lead to a decrease in production in thosecountries and, therefore, will give scope for expansion of exports from the

developing countries.India, with its cheap labour, diverse agro climatic conditions and largeagricultural sector can definitely gain through expansion of international tradein agricultural products. However, the concerns relating to quality of productsfor seeking markets in the advanced countries needs to be addressed on anurgent basis.(Source : Ministry of Agriculture)


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INDIAN ECONOMY

The economy of India is the fourth largest in the world, and is the tenth largestin the world Growth in the Indian economy has steadily increased since 1979,averaging 5.7% per year in the 23-year growth record.

Indian economy has posted an excellent average GDP growth of 6.8% since1994. India has emerged the global leader in software and business processoutsourcing services, raking in revenues of US$12.5 billion in the year thatended March 2004.

Agriculture has fall to a drop because of a bad monsoon in 2005. There is aparamount need to bring more area under irrigation.

Export revenues from the sector are expected to grow from $8 billion in 2003to $46 billion in 2007. Indias foreign exchange reserves are over US$ 102

billion and exceed the foreign reserves of USA, France, Russia and Germany.This has strengthened the Rupee and boosted investor confidence greatly.

A strong BOP position in recent years has resulted in a steady accumulation offoreign exchange reserves. The level of foreign exchange reserves crossed theUS $100 billion mark on Dec 19, 2003 and was $142.13 billion on March 18,2005.

Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03,driven entirely by the increase in the net foreign exchange assets of the RBI.Reserve money growth declined to 6.4% in the current year to January 28, 2005.During the current financial year 2004-05, broad money stock (M3) (up toDecember 10, 2004) increased by 7.4 per cent (exclusive of conversion of non-

banking entity into banking entity, 7.3 per cent)Economicsexperts and various studies conducted across the globe envisage India andChina to rule the world in the 21st century.


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SECTORS OF INDIAN ECONOMY

there are three major sectors in Indian Economy

Agriculture

Agriculture and allied sectors like forestry, logging and fishing accounts for25% of the GDP. It employs almost 58% of the total work force. It is the largesteconomic sector and plays a significant role in the overall socio-economicdevelopment of India. Due to steady improvement in irrigation, technology,modern agricultural practices the yield per unit area of all crops has increasedtremendously.

Industry

Index of industrial production which measures the overall industrial growth ratewas 10.1% in October 2004 as compared to 6.2% in October 2003. The largestsector here holds the textile industry. Automobile sector has also demonstratedthe inherent strength of Indian labor and capital. The three main sub sectors ofindustry viz Mining & quarrying, manufacturing, and electricity, gas & watersupply recorded growths of 5%, 8.8% and 7.1% respectively.

Services

The service sector is the fastest growing sector. It has the largest share in theGDP accounting for about 48% in 2000. Business services, communicationservices, financial services, community services, hotels and restaurants andtrade services are among the fastest growing sectors.


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INDIAN AGRICULTURE

Indian agriculture was backward in every respect on the eve of Independence in1947. It was characterised by feudal land relations, primitive technology, andthe resultant low productivity per hectare.

The First Five year Plan (1951-56) accorded the highest priority to theagricultural sector to tide over the difficult food problem created by the partitionof the country. Since then, agriculture has occupied an important place in everysuccessive plan. The nation has invested huge resources for the development ofagriculture under various plans. Two major components of agriculturaldevelopment strategy have been:

subsidies on inputs and Minimum support price for output.Agricultural sector occupies a key position in the Indian economy. It

provides employment to about 65 per cent of the working population of India.Around one-quarter of India's national income originates from the agriculturalsector.

Agricultural products like cereals (mainly rice), tea, coffee cashew, spices,tobacco and leather are important items of India's exports and hence foreignexchange earnings. Agriculture is also the source of raw material for agro-basedindustries including textiles, cigarettes, jute, sugar, paper, processed foodstuffs

and vanaspati. Moreover, agricultural sector provides market for capital goods(tractors, pump sets and other agricultural machinery), inputs (fertilisers,insecticides), and light consumer goods.

Development of the agricultural sector depends, to a large extent, on suchcore industries as power, petroleum, fertilizers and machine tools. Thus, there isa degree of inter-dependence between agriculture and industry.

Needs of India

Indias basic objectives in the ongoing negotiations are:

(a) To protect its food and livelihood security concerns and to protect alldomestic policy measures taken for poverty improvement, rural developmentand rural employment.

(b) To create opportunities for expansion of agricultural exports by securingmeaningful market access in developed countries.


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Use Distribution of India's Geographical AreaAfter China, India is the most populous country in the world accounting for

16.0 per cent of world population. It is the seventh largest country in the worldoccupying 2.4 per cent of total world area. It has a land frontier of 15,200

kilometers and its sea coast runs to the length of 6,100 kilometers.

Cropping Pattern

Cropping pattern refers to the distribution of cultivated land among differentcrops grown in a country. Cropping pattern reveals the nature of agriculturaloperations, e.g. the importance of food crops vis--vis cash crops.

Cropping pattern is influenced by a host of factors which can be broadlyclassified into two categories: (a) physical factors and (b) economic factors.

Among the physical factors, the important ones are soil conditions, extent ofrainfall and type of climate. The economic factors include relative prices ofagricultural commodities, size of the farms, availability of inputs, demandconditions, system of land holding and government policy regarding exportsand imports, taxes and subsidies.

There are two main agricultural seasons in India: (a) kharifunder whichcrops are planted at the onset of the Southwest monsoon in June-July andharvested in September-October, (b) rabi under which crops are planted usually

between October and December and harvested between March and May

India is a large country with diverse climatic, soil and terrain conditions. A

wide variety of crops are grown in different parts of the country.

Small-sized Agricultural HoldingsSmall-sized holdings are a disturbing feature of the Indian agriculture. The

average size of farms has become smaller over the years and the trendcontinues. One important reason for this trend is the fast growing populationwhich has adversely affected the per capita availability of land afterIndependence.

The pressure of population along with some social and economic factors hasdecreased the size of agricultural holdings in India.

Low Productivity

Indian agriculture was backward and stagnant at the time of Independence.Ever since the launching of the First Five Year Plan (1951-56), agriculturalsectorhas received the prime attention of the Government in the overall strategyeconomic development. As a result, farm productivity has increased over yearsand the country has achieved high degree of self-sufficiency in terms of' food

grains and raw material for agro-based industries.


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Although per hectare yield of major crops has increased over the last fourdecades yet it is far below the international levels.

System of Marketing of Agricultural Produce in India

Marketing is the last link in the chain of production process. An efficientmarketing system which ensures reasonable return to the producers is essentialto induce them to produce more.

During the pre-Independence period, Indian agriculture was backward andstagnant and there was hardly any marketable surplus. Therefore, the system ofmarketing, though defective, did not attract much attention. However, in the

post independence period and particularly after the green revolution,agricultural instituting has become a prime concern for the planners. Due toincrease in agricultural productivity, the marketable surplus has increased;necessitating reforms in the existing system. The objectives of these reforms areto ensure: Fair prices for the produce of the farmers, Adequate and regular availability offood grains for urban areas, and Regular supplies of raw materials for the industries

Rural Agricultural Credit in India

Credit Needs of the Indian Farmers

Need for agricultural credit arises because modern farm technology is costlyand the personal resources of the farmers are inadequate. Provision ofagricultural credit, as an input, is essential for widespread use of improvedagricultural methods.

Credit requirements of the farmers may be classified (a) on the basis ofpropose, and (b) on the basis of time. They need credit for productive as well asfor unproductive purposes. Productive purposes include all such activities whichhelp in the improvement of agricultural productivity such as purchase of inputsand permanent improvements in land. Unproductive credit needs include

celebration of marriages and other social and religious functions and litigation.Classification based on time period has three categories. Farmers need credit

for short period (up to 15 months) for the purchase of seeds, fertilisers, fodderfor livestock etc. They need credit for medium term (15 months to 5 years) forthe purchase of agricultural tools and implements, cattle, and digging andrepairing of wells. They also require long-term loans (more than 5 years) for the

purchase of heavy farm machinery like tractors and harvesters.

Extent of Rural Indebtedness

According to the All-India Debt and Investment Survey, 1981-82, at the all-India level about 20 per cent of the households in the rural sector and 17 per


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cent in the urban sector were indebted. The average value of debt per indebtedhousehold in the rural sector was Rs. 3,311, much less than the urban sectoraverage of Rs. 5,930. At the States' level, high percentage of indebted ruralhouseholds was noticed in Tamil Nadu (28.7), and Kerala (28.5). The

percentage of rural households reporting indebtedness was lowest for Assam(4.8). Kerala (29.7) topped the list in the urban sector whereas Assam (4.3)recorded the lowest figure. Widespread rural indebtedness is the result of lackof credit facilities at the institutional level.

Source of Rural Credit

Sources of agricultural credit are grouped into two categories:(a) Institutional sources and (b) Non-institutional sources.Institutional sources include cooperative societies, commercial banks and

other government agencies. Non-institutional sources comprise moneylenders,landlords, relatives etc.

A. Co-operative Societies: Co-operative societies form an integral part ofthe rural credit system in India. They are the main source of institutional creditto the farmers. These societies are chiefly responsible for breaking themonopoly of moneylenders in providing credit to the agriculturists. There arearound 1 lakh such societies in the country at present.

The rising over dues have reduced the borrowing and lending activities ofthese societies. Moreover, these societies have paid inadequate attention to theneeds of landless workers and rural artisans. Influential people in the villages

have been the main beneficiaries of co-operative Credit. The RBI has repeatedlyexpressed concern in this regard because non-repayment of loans by the existingowners can adversely affect recycling of funds and the credit chances of the

prospective borrowers.B. Moneylenders: There are two types of moneylenders in rural areas:(a) Agriculturist moneylenders who carry on the business of money lending

along with farming, and (b) professional moneylenders whose only occupationis money lending. Although the relative importance of moneylenders hasdeclined over the years, they are still an important source of credit for the rural

le, particularly the small farmers and the artisans.Moneylenders are popular because, unlike government agencies, they give

credit for every purpose. They are easily approachable by the credit seekers andthere are not many formalities in transacting a loan. However, the malpracticesadopted by the moneylenders to exploit the needy farmers cannot beoverlooked.

D. Kisan Credit Cards: The introduction of Kisan Credit Cards (KCCs)was a significant innovation in the rural credit delivery mechanism. However,the outreach of the KCCs to cover all eligible farmers under the scheme has

been hampered by the lack of updated land records, small landholdings anilliteracy of borrowers.


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Indias Agricultural Trade: Some Recent Trends

Exports

India has been both an importer and exporter of agricultural commodities for avery long-time. An examination of trends in exports of various commoditiesduring recent years suggest that many commodities like rice, meat products,

processed foods, fish, fruits and vegetables registered very high growth ratesduring the nineties. On the other hand some traditional exports like tea, cottonwere not able to sustain their growth rates after the liberalisation. Marine

products were the largest export earner while oil meals were also a major item

in early 1990s. Recently oil meal exports have suffered and cotton exports havecollapsed.

Imports

Indias agricultural imports have displayed extreme fluctuations. In recent

years, imports of only two items, namely, pulses and edible oils have recordedconsistently high volumes. Import of pulses, which used to vary in the range of3-6 lakh tonnes in recent years except in 1997-98, when over 1 million tonnes

were imported, surged to over 2 million tonnes in 2001-02 and has been close tothat level since then, essentially reflecting shortage of domestic production. Asin the case of agricultural export items, concerted efforts are required to raisethe productivity and production of pulses in the domestic sector.

In fact the gaps between agricultural exports and imports have been narrowingdown in recent years. Although India abolished its QRs in 2001, this has not

resulted in any surge of agricultural imports. There is an increase in growth butthis is mainly because of large imports of edible oils. Recently there has also

been a sharp increase in imports of cotton, raw wool and rubber.

India has a large potential to increase its agricultural exports in a liberalizedworld provided it can diversify a significant part of its agriculture in to highvalue crops and in agro-processing. This would depend first on undertakinglarge infrastructure investment in agricultural and agro processing as also inrural infrastructure and research and development. India has not only to createexport surplus but also to become competitive. The potential for exports would

also depend on freeing of agricultural markets by the developed countries.


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Agricultural Support Policies

India, like most of the other countries including developed countries, employs avariety of instruments to both protect and support its agriculture. These

instruments can broadly be clubbed in to three categories: domestic policies,import policies and export policies.

Domestic policies comprise a wide range of policy instruments like inputsubsidies on fertilizers, power, irrigation water, public investment indevelopment of water resources surface and groundwater, governmentintervention in markets, direct payment to farmers (such as those in the form ofdeficiency payments, insurance and disaster payments, stabilisation payments,as also some compensatory payments), price support for major crops , general

services (such as government transfers to agricultural research anddevelopment, extension services, training and agricultural infrastructure etc)

Import policies refer essentially to border protection through trade barrierssuch as quantitative restrictions, quotas and tariffs on imports which in the

process create a wedge between domestic and world market prices.

Export policies include those that either promotes exports (through instrumentslike subsidies and marketing arrangements that make exportable of a country

more competitive) or those policies that constrain exports (often throughcanalization and restriction of exports and export taxes etc). Usually howeverimport policies etc are discussed in the context of

Input Subsidies

The major components of input subsidy are: power, irrigation water andfertilizers .Subsidy -on both irrigation and poweris defined as the difference

between the cost of providing the service and the charge levied for the service

for the total quantum of that particular input used. In case of power therefore itincludes that difference between the unit cost of power supply to all sectorscombined and the average tariff rate charged from agricultural users for eachunit of power and multiplied by the quantity of power supposedly supplied toagriculture. Irrigation subsidy is defined as the difference between the cost ofsupplying water to farmers for irrigation and charges levied on water .Viewed interms of pure domestic economy, the input subsidies have often been accused ofcausing most harmful effect in terms of reduced public investment in agriculture

on account of the erosion of investible resources, and wasteful use of scarce


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resources like water and power. Further, apart from causing unsustainable fiscaldeficits , these subsidies by encouraging the intensive use of inputs in limited

pockets have led to lowering of productivity of inputs, reducing employmentelasticity of output through the substitution of capital for labour and

environmental degradation such as water logging and salinity .It is thereforeimperative to reduce these subsidies for stepping up public investment inagricultural research and extension, canal irrigation and rural electrification. Thereduction in subsidies would also have a favourable impact on the efficiency ofinput use, equity and environment. While subsidy reduction is one way to findresources for increasing public investment in agriculture, current and capitalthat lead to distortions and deleterious effects on natural resources and cropping

pattern. In fact, there is scope for significant reduction in the cost of subsidy

through better designing of the programmes and delivery mechanism. Furthermerely rolling back subsidies and diverting these to agricultural investmentcannot solve all the problems of agriculture (Government of India: 2005).

Export Subsidies

The export subsidies can be given in the form of transport assistance for export,providing common infrastructure for common use by small and mediumproducers, quality building and assurance measures, credit guarantee and

insurance to exporters at better terms etc. The export subsidy is being given inthe form of exemption of export profit from income tax and subsidies on cost offreight on export shipments of certain products like fruits, vegetables, andfloriculture products.


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IMPORTANCE OF AGRICULTURE IN INDIAN ECONOMY

The direct contribution of the agriculture sector to national economy isreflected by its share in total GDP, its foreign exchange earnings, and its role in

supplying savings and labor to other sectors. Agriculture and allied sectors likeforestry and fishing accounted for 18.5 percent of total Indian Gross DomesticProduct (GDP) in 2005-06 (at 1999-2000 constant prices) and employed about58 percent of the country's workforce (CSO, 2007). It accounted for 10.95

percent of Indias exports in 2005-06 and about 46 percent of India'sgeographical area is used for agricultural activity.

OVERVIEW

Yields per unit area of all crops have grown since 1950 due to application ofmodern agricultural practices and provision of agricultural credit and subsidiessince Green revolution in India. However, international comparisons reveal thatthe average yield in India is generally 30% to 50% of the highest average yieldin the world.

PROBLEMS

The low productivity in India is a result of the following factors:

Overregulation of agriculture has increased costs, price risks and uncertainty.

Government intervenes in labour, land, and credit markets. India hasinadequate infrastructure and services

Illiteracy, general socio-economic backwardness, slow progress inimplementing land reforms.

Inadequate or inefficient finance and marketing services for farm produce.

The average size of land holdings is very small due to land ceiling acts and insome cases, family disputes.

Such small holdings are often over- manned, resulting in disguisedunemployment and low productivity of labour.


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AGREEMENT ON AGRICULTURE

Introduction

After over 7 years of negotiations the Uruguay Round multilateral tradenegotiations were concluded on December 1993 and were formally ratified inApril 1994 at Marrakesh, Morocco. The WTO Agreement on Agriculture wasone of the main agreements which were negotiated during the Uruguay Round.

The WTO Agreement on Agriculture recognizes free and market orientedtrading system in agriculture.

1. Tariffication.

2. Market access.

3. Export Competition.

TARIFFICATION

It means conversion of all non tariffs on trade such as import quota into tariffs.Tariff bindings are to be reduced under this agreement.That is to say, non-tariff

barriers such as quantitative restrictions and export and import licensing etc. are

to be replaced by tariffs to provide the same level of protection. Least developedcountries are exempted from tariff reductions, whereas developed anddeveloping countries are to reduce tariffs over a period of time. India hasalready reserved the right to impose high levels of import duties of 100%, 150%and 300% on primary products, processed products and edible oils respectively.The Quantitative Restrictions can easily be replaced with high import tariffs incase there is need to restrict import of these commodities for ensuring welfareof our farmers. Therefore, ability to restrict import of any commodity is notconstrained in any manner by the provisions of the Agreement.


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MARKET ACCESS

Where tariff bindings are too high, current market access has to be maintainedas the amount of exports to other countries at preferential tariff rates. However,

market access provisions do not apply when the commodity in question is atraditional staple in the diet of a developing country.

Tariffication means that all non-tariff barriers such as... 1.Quotas. 2. Variablelevies. 3. Minimum import prices. 4. Discretionary licensing. 5. State tradingmeasures.

ii) The second element relates to setting up of a minimum level for imports ofagricultural products by member countries as a share of domestic consumption.Countries are required to maintain current levels (1986-88) of access for eachindividual product. Where the current level of import is negligible, theminimum access should not be less than 3% of the domestic consumption,during the base period and tariff quotas are to be established when importsconstitute less than 3% of domestic consumption. This minimum level is to riseto 5%by 2004 in the case of developing countries. However, special SafeguardsProvisions allow for the application of additional duties when shipments aremade at prices below certain reference levels or when there is a sudden importsurge. The market access provision, however, does not apply when thecommodity in question is a traditional staple of a developing country.

DOMESTIC SUPPORT

Domestic supportamber, blue and green boxes:In WTO terminology, subsidies in general are identified by boxes which are given the colours of traffic lights: green (permitted), amber (slow down), red(forbidden). In agriculture, things are, as usual, more complicated. TheAgriculture Agreement has no red box, although domestic support exceedingthe reduction commitment levels in the amber box is prohibited; and there is a

blue box for subsidies that are tied to programmes that limit production. Thereare also exemptions for developing countries.


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THE THREE BOXES: GREEN,AMBER AND BLUE

The Green Box

In order to qualify for the green box, a subsidy must

not bend trade, or at most cause minimal distortion.

These subsidies have to be government-funded (not by

charging consumers higher prices) and must not involve

price support. They tend to be programmes that are not

directed at particular products, and include direct

income supports for farmers that are not related to current production

levels or prices. Green box subsidies are therefore allowed without limits,

provided they comply with relevant criteria. They also include

environmental protection and regional development programmes. Canada

has proposed setting limits on all boxes combined, which would mean

limits on green box subsidies as well.

Some countries say they would like to review the domestic subsidies listed inthe green box because they believe that some of these, in certain circumstances,

could have an influence on production or prices. Some others have said that thegreen box should not be changed because it is already satisfactory. Some say thegreen box should be expanded to cover additional types of subsidies.

The Amber Box

All domestic support measures considered to distort productionand trade (with some exceptions) fall into the amber box, which

is defined in Article 6 of the Agriculture Agreement as alldomestic supports except those in the blue and green boxes.These include measures to support prices, or subsidies directlyrelated to production quantities.

These supports are subject to limits: de minimis minimal supports are allowed

(5% of agricultural production for developed countries, 10% for developingcountries); the 30 WTO members that had larger subsidies than the de minimislevels at the beginning of the post-Uruguay Round reform period are committed

to reduce these subsidies.


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The reduction commitments are expressed in terms of a Total AggregateMeasurement of Support (Total AMS) which includes all supports for

specified products together with supports that are not for specific products, inone single figure. In the current negotiations, various proposals deal with how

much further these subsidies should be reduced, and whether limits should beset for specific products rather than continuing with the single overallaggregate limits. In the Agriculture Agreement, AMS is defined in Article 1and Annexes 3 and 4.

The Blue Box

The blue box is an exemption from the general rule that allsubsidies linked to production must be reduced or keptwithin defined minimal levels. It covers payments directlylinked to acreage or animal numbers, but under schemeswhich also limit production by imposing production quotasor requiring farmers to set aside part of their land. Countriesusing these subsidies (and there are only a handful) say they

distort trade less than alternative amber box subsidies. Currently, the onlymembers notifying the WTO that they are using or have used the blue box are:the EU, Iceland, Norway, Japan, the Slovak Republic and Slovenia

At the moment, the blue box is a permanent provision of the agreement. Somecountries want it scrapped because the payments are only partly decoupled from

production, or they are proposing commitments to reduce the use of thesesubsidies. Others say the blue box is an important tool for supporting andreforming agriculture, and for achieving certain non-trade objectives, andargue that it should not be restricted as it distorts trade less than other types ofsupport. The EU says it is ready to negotiate additional reductions in amber boxsupport so long as the concepts of the blue and green boxes are maintained.

The Agreement also imposes constraints on the level of domestic supportprovided to the agricultural sector. In Indias case, it may have in future someimplications on minimum support prices given to farmers and on the subsidiesgiven on agricultural inputs. The Agreement allows us to provide domesticsupport to the extent of 10% of the total value of agricultural produce. India isnot providing any export subsidy on agricultural products. The Agreementallows unlimited support to activities such as (i) research, pest diseases control,training, extension, and advisory services; (ii) public stock holding for foodsecurity purposes; (iii) domestic food aid; and (iv) income insurance and food

needs, relief from natural disasters and payments under the environmentalassistance programmes. Moreover, investment subsidies given for development


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of agricultural infrastructure or any kind of support given to low income andresource poor farmers are exempt from any commitments. Most of our majorrural and agricultural development programmes are covered under these

provisions. Therefore, the Agreement does not constrain our policies of

investments in these areas.Domestic support measures that have, at most, a minimum impact on trade("green box" policies) are excluded from reduction commitments. Such policiesinclude general government services, for example, in the areas of research,disease control, and infrastructure and food security. It also includes direct

payments to producers, for example, certain forms of "decoupled" (fromproduction) income support, structural adjustment assistance, direct paymentsunder environmental programmes and under regional assistance programmes.Provisions of the Agreement regarding domestic support have two mainobjectives first to identify acceptable measures that support farmers andsecond, to deny unacceptable, trade distorting support to the farmers. These

provisions are aimed largely at the developed countries where the levels ofdomestic agricultural support have risen to extremely high levels in recentdecades. De minimal support is the only form of support available to farmers inmost developing countries.

All domestic support is quantified through the mechanism of total AggregateMeasurement of Support (AMS). AMS is a means of quantifying the aggregate

value of domestic support or subsidy given to each category of agriculturalproduct. Each WTO member country has made calculations to determine itsAMS wherever applicable. For developing countries, this percentage is 13%.

AMS consists of two partsproduct-specific subsidies and non-product specificsubsidies. Product-specific subsidy refers to the total level of support providedfor each individual agricultural commodity, essentially signified by

procurement price in India. Non-product specific subsidy , refers to the totallevel of support for the agricultural sector as a whole, i.e., subsidies on inputs

such as fertilizers , electricity, irrigation, seeds, credit etc .There are threecategories of support measures that are not subject to reduction under theAgreement, and support within specified de-minimis level is allowed. Thesethree categories of exempt support measures are:

1. Measures which have a minimum impact on trade and which meet the basicand policy specific criteria set out in the Agreement ( the Green Boxmeasures in the terminology of WTO). These measures include Governmentassistance on general services like (i) research, pest and disease control,training, and advisory services; (ii) public stock holding for food security

purposes; (iii) domestic food aid (iv) direct payment to producers like


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governmental financial participation in income insurance and safety nets, relieffrom natural disasters, and payments under environmental assistance

programmes .

2. Developing countries like India which meet the criteria set out in paragraph 2of Article 6 of the Agreement (Special and Differential Treatment). Examplesof these are (i) investment subsidies and (ii) agricultural input services generallyavailable to low income Farmers

EXPORT SUBSIDIES

Such subsidies are virtually non-existent in India as exporters of agriculturalcommodities do not get direct subsidy. It is also worth noting that developingcountries are free to provide three of the listed subsidies, namely, reduction ofexport marketing costs, internal and international transport and freight charges.Under the Agreement, export subsidies are defined as "subsidies contingent onexport performance" and the list covers export subsidy practices such as directexport subsidies contingent on export performance; producer-financed subsidiessuch as government programmes which require a levy on production which isthen used to subsidise the export of the product; cost-reduction measures suchas subsidies to reduce marketing costs for exports including costs of

international freight; internal transport subsidies applying only to exports;subsidies on incorporated products i.e., subsidies on agricultural products suchas wheat contingent on their incorporation in export products made of wheatetc. All such export subsidies are subject to reduction commitments in terms of

both the volume of subsidised export and budgetary outlays for such subsidies.As indicated earlier, such measures are virtually non-existent in India and,hence, the issue of reduction of export subsidy on agricultural products is not of

particular relevance for India.

The Agreement contains provisions regarding members commitment toreduce Export Subsidies.

Developed countries are required to reduce their export subsidy expenditureby 36%. For developing countries the percentage cuts are 24%.

Product coverage

The Agreement covers not only basic agricultural products such as wheat, milkand live animals, but the products derived from them such as bread, butter, otherdairy products and meat, as well as all processed agricultural products such as


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chocolates and sausages. The coverage includes wines, spirits and tobaccoproducts, fibers such as cotton, wool and silk, and raw animal skins destined forleather production. Fish and fish products are not included nor are forestry

products.

NATIONAL AGRICULTURE POLICY, 2000

On July 28, 2000, Government of India announced a National AgriculturePolicy to include this vital sector of the economy in the ambit of economicreforms. According to Economic Survey, 2000-2001, "After the economicreforms in 1991-92 that removed the restrictive and protective licensing regimefor industry, the policy focus turned to agriculture. There is still the generalimpression that agriculture in India operates amidst a number of restraints andcontrols and that the farmers do not receive the benefits of free trade ascompared to other sectors of the economy." The main elements of the newagriculture policy are the following:

Private sector investment in agriculture would be encouraged, particularly inareas like agricultural research, human resource development, post harvestmanagement and marketing.

Catapulting agricultural growth to over 4 per cent per annum by 2005.

Restrictions on the movement of agricultural commodities throughout thecountry would be progressively dismantled.

Appropriate measures would be adopted to ensure that agriculturists by andlarge, remain outside the regulatory and tax collection system.

Rural electrification would be given high priority as a prime mover for

agricultural development.

Progressive institutionalization of rural and farm credit would be continuedfor providing timely and adequate credit to farmers.


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Trend in Pattern of Consumption and Likely Demand for Food

grains

There has been a slow down in the growth rate of direct demand for food grains

consumption on account of several factors. First the growth rate of populationhas accelerated. Second, with rise in per capita income and changing tastes andpreferences, the food basket is getting rapidly diversified. With such adiversification of consumption, the income elasticity of demand for food grainshas declined perceptibly. The consumption patterns have been changing both inrural as well as in urban areas. The patterns of consumption of food grains overthe years indicate a consistent fall in consumption of cereals both in rural aswell as urban areas. In contrast there has been a significant increase in

consumption of milk and milk products, edible oils, fruits and vegetables andmeat, egg and fish. The available data shows that the food diversification hasoccurred in all expenditure groups including the poorest, although the pooreststill spend a major part of their income on food grains. The decline in pattern ofconsumption of food grains especially amongst the poor has also been attributedto several other factors such as need for increased expenditure on fuel and lightand on miscellaneous goods and services, the insufficient growth in availabilityof employment opportunities, stagnating or declining real agricultural incomes,

lack of purchasing power etc.The demand projections for food grains need to take in to account the

possibility of a further fall in per capita demand on account of the likelydevelopment of rural infrastructure and mechanization. Further since the rural-urban differential in per capita consumption of food grains is quite high evennow, one should expect a significant decline in average per capita consumptionof food grains in the country with increasing urbanization. On account of allthese factors it would not be unreasonable to expect a further decline in per

capita consumption of food grains say by 2020 at the same rate as witnessedover the last two decades.


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Implications of the Agreement

Indian agriculture is characterised by majority of small and marginal farmersholding less than two hectares of land, less than 35.7% of the land, is under any

assured irrigation system and for the large majority of farmers, the gains fromthe application of the science & technology in agriculture are yet to be realised.Farmers, therefore, require support in terms of development of infrastructure aswell as improved technologies and provisions of requisite inputs at reasonablecost. Indias share of worlds agricultural trade is of the order of 1%. There is

no doubt that during the last 30 years, Indian agriculture has grown at areasonable pace, but with stagnant and declining net cropped area it is indeedgoing to be a difficult task to maintain the growth in agricultural production.

The implications of the Agreement would thus have to be examined in the lightof the food demand and supply situation. The size of the country, the level ofoverall development, balance of payments position, realistic future outlook foragricultural development, structure of land holdings etc. are the other relevantfactors that would have a bearing on Indias trade policy in agriculture.

Implications of the Agreement on Agriculture for India should thus be gaugedfrom the impact it will have on the following: i ) Whether the Agreement hasopened up markets and facilitated exports of our products; and ii) Whether we

would be able to continue with our domestic policy aimed at improvinginfrastructure and provision of inputs at subsidised prices for achievingincreased agricultural production.


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Implications - Short Term:

Regarding freedom to pursue our domestic policies, it is quite evident that in theshort term India will not be affected by the WTO Agreement on Agriculture.

India has been maintaining quantitative restrictions (QRs) on import of 825agricultural products as on 1.4.97. QRs are proposed to be eliminated within theoverall time frame of six years in three phases 1.4.97 to 31.3.2003. (All ourtrading partners barring the US have agreed to this phase-out plan). Within the

provisions of the GATT Agreement India has bound tariffs at high levels of100%, 150% and 300% for primary products, processed products and edible oilsrespectively. Therefore, the QRs can be replaced with high import tariff in casewe want to restrict imports of these commodities.

In India, for the present, the minimum support price provided to commodities isless than the fixed external reference price determined under the Agreement.Therefore, the AMS is negative. Theoretically, therefore, we could increase the

product-specific support up to 10%.

The agriculture sector has a typical lag lead relationship between the prices andthe produce. This acts as a deterrent. Whenever prices collapse, the farmersreduce the area under a particular crop and in turn, the prices increase during the

next season/year. This cobweb phenomenon leads to equilibrium only in a closesector assumption. It will be quite ambitious to assume a certain level of priceelasticity of demand / supply, income elasticity of demand, the productiongrowth rates, resource allocations and finally, the farmers response to themarket environment


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Implications - Long Term

As mentioned earlier, for a large majority of farmers in different parts of thecountry, the gains from the application of science and technology in agriculture

are yet to be realised which would require infrastructural support, improvedtechnologies and provision of inputs at reasonable cost. The Agreement onAgriculture thus recognised this and developing countries have been given thefreedom to implement such policies.

Indian agriculture enjoys the advantage of cheap labour. Therefore, despite thelower productivity, a comparison with world prices of agricultural commoditieswould reveal that domestic prices in India are considerably less with theexceptions of a few commodities (notably oilseeds). Hence, imports to India

would not be attractive in the case of rice, tea, sunflower oil and cotton. On thewhole, large scale import of agricultural commodities as a result of tradeliberalisation is ruled out. Even the exports of those food grains which arecheaper in the domestic market, but are sensitive from the point of view ofconsumption by the economically weaker sections are not likely to rise tounacceptable levels because of high inland transportation cost and inadequateexport infrastructure in India. Through proper Tariffication, however, we willhave to strike a balance between the competing interest of 10% farmers who

generate marketable surpluses and consumers belonging to the economicallypoor sections of the society.

It is also argued that because of increasing price of domestic agriculturalcommodities following improved export prospects, farmers would get benefitswhich in turn would encourage investment in the resource scarce agriculturalsector. With the decrease in production subsidies as well as export subsidies, theinternational prices of agricultural commodities will rise and this will help in

making our exports more competitive in world market. On the one hand, theprice incentive could be the best incentive and could give a strong boost toinvestment in agriculture as well as adoption of modern technologies andthereby to the raising of agricultural production and productivity. On the otherhand, the rise in domestic prices would put pressure on the public distributionsystem and accentuate the problem of food subsidy .India requires improvementin policies, infrastructure, institutions and technology. Indias agricultural

research system has stood several tests successfully in the past and has helped

the country to tide over formidable food crises and other challenges.


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WTO AND INDIAN AGRICULTURE

INDIAS COMMITMENT

As India was maintaining Quantitative Restrictions due to balance ofpayments reasons (which is a GATT consistent measure), it did not have toundertake any commitments in regard to market access.

India does not provide any product specific support other than market pricesupport.

In India, exporters of agricultural commodities do not get any direct subsidy.Indirect subsidies available to them are in the form of-:

(a) Exemption of export profit from income tax under section 80-HHC of theIncome Tax

(b) Subsidies on cost of freight on export shipments of certain products likefruits, vegetables and floricultural products.

What India should do?

The most important things for India to address are speed up internal reforms in

building up world-class infrastructure like roads, ports and electricity supply.India should also focus on original knowledge generation in important fieldslike Pharmaceutical molecules, textiles, IT high end products, processed food,installation of cold chain and agricultural logistics to tap opportunities ofglobalization under WTO regime.

India's ranking in recent Global Competitiveness report is not very encouragingdue to infrastructure problems, poor governance, poor legal system and poormarket access provided by India.

Our tariffs are still high compared to Developed countries and there will bepressure to reduce them further and faster.

India has solid strength, at least for mid term (5-7 years) in services sectorprimarily in IT sector, which should be tapped and further strengthened.

India would do well to reorganize its Protective Agricultural policy in name ofrural poverty and Food security and try to capitalize on globalization ofagriculture markets. It should rather focus on Textile industry modernization

and developing international Marketing muscle and expertise, developing ofBrand India image, use its traditional arts and designs intelligently to give


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competitive edge, capitalize on drug sector opportunities, and develop selectiveengineering sector industries like automobiles & forgings & castings, processedfoods industry and the high end outsourcing services.

India must improve legal and administrative infrastructure, improve tradefacilitation through cutting down bureaucracy and delays and further ease itsfinancial markets.

India has to downsize non-plan expenditure in Subsidies (which are highlyineffective and wrongly applied) and Government salaries and perquisites like

pensions and administrative expenditures.

Corruption will also have to be checked by bringing in fast remedial publicgrievance system, legal system and information dissemination by using e-

governance.

The petroleum sector has to be boosted to tap crude oil and gas resources withinIndian boundaries and entering into multinational contracts to source oilreserves.

It wont be a bad idea if Indian textile and garment Industry go multinationalsetting their foot in western Europe, North Africa, Mexico and other suchstrategically located areas for large US and European markets.

The performance of India in attracting major FDI has also been poor andcertainly needs boost up, if India has to develop globally competitiveinfrastructure and facilities in its sectors of interest for world trade.

India has a large potential to increase its agricultural exports in a liberalizedworld provided it can diversify a significant part of its agriculture in to highvalue crops and in agro-processing. This would depend first on undertakinglarge infrastructure investment in agricultural and agro processing as also inrural infrastructure and research and development. India has not only to create

export surplus but also to become competitive. The potential for exports wouldalso depend on freeing of agricultural markets by the developed countries.


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Indias Agriculture Trade under the WTO Regime

The trade regime of India prior to 1990 can be categorised as a restrictive traderegime. In the export trends the structural breaks can be located at 1990 and

1995. The breaks in the exports can be attributed to policy changes during thosetwo years. Rice other than Basmati, which constitutes about 44 per cent of totalquantity and 20 percent of total value of the exports, dominated the agriculturalexports during the years 1998- 97 and 1999-2000. Oil meals constitute about 35

per cent in total quantity and about 40 per cent of the total value of exports.When the trade performance viewed in relative terms, during the years 1994-96,the share of Indias imports in the world imports stayed only at 0.50 per centlevel and that of exports hovered around 1 per cent. An important observationemerges here that even with the process of liberalisation there has not been any

significant breakthrough in Indias trade performance. The trade ratios forIndias agricultural sector indicate that it was a consistently net exporting sectorfrom 1983 to 96 except during 1988. It is interesting that the trade ratios were infavour of exports in the agricultural sector. Larger share of imports as well asexports was accounted by the basic products rather than the processed products.Among the two, imports were dominated by processed products. This indicatesthat we could increase the processing facilities to increase the exports of

processed agricultural products. In the recent modifications to QR there are alarge number of processed products that are likely to get a fresh impetus in the

processing industry. Among the imports linseed oil, jute fibres, silk and milkand cream (dry), wheat and meslin cotton (lint) and coconut oil are thedominant import commodities with high rates of growth. But not all of them hadhigh share in the total value of imports. In fact, jute and fibres, linseed oil andcoconut oil showed high rates of growth but claimed only a small share inaggregate imports. These commodities with low share of import but highgrowth are likely to record a steep increase in the imports. One can feel that theimports of meat and meat products, dairy products, fish and crustaceans, babyfoods, soya bean, rapeseed and other oils, and Fruit preparations (including

preserved fruits and juices) will increase in their import share.

On the other side, the export trends are positive except in the case of tea, citrusfruits, soya beans, and canned meat and jute fibres. Out of these commodities inthe case of soybeans, canned meat and jute fibres, we have no history of largeexportable surplus and moreover the elasticity of export demand of thesecommodities has also not been very high. But the case of tea and citrus fruits isdifferent. It is necessary to trace the reasons for the failure in increasing theexports. The inconsistency in aggregate trade is one of the major problems ofthe sector.


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With a declining import share and the export share rising since 1988, thepossibility of any import surges can be ruled out provided the tariff policy ismanaged properly. Their analysis of prices of agri-commodities indicated thecrops viz., tobacco, jute, pepper, wheat, rice, sugar must have higher level of

prices due to the removal of QRs. The import of the commodities viz., cereals,milk and milk products, silk, pulses, rubber, lint cotton and vegetable oils mayincrease. But, the possibility of surges in imports could be dealt with propertariff structure while the price level can also be managed through proper policymix.

National Level

While analyzing the impact of Agreement on Agriculture (AoA) at the national

level, we need to look at it from four different perspectives. First, it is wellknown that India has an extremely diversified agricultural sector. There areregions which are incapable of participating in international trade and mayrequire large investments to do so. These regions will be at the receiving end

both from the point of view of attracting investments towards agriculture as wellas the non-availability of plough back surplus in advancing their agriculturesector. Second, India has comparative advantages in a few commodities. Thisadvantage will certainly help in increasing the exports of such commodities,

provided we have continued positive international demand elasticity and there isa continued advantage between the domestic and the world prices. Third, thereare non-traditional export commodities, which have to be watched carefully,and India has to take advantage of tapping the market for these commodities.Lastly, Indias trade-in agriculture is characterised by its non-consistent, volatilenature across markets in terms of time series. It will be necessary to stabilizethis with suitable measures. The impact of Agreement on Agriculture (AoA) onthe national economy has to be viewed from three distinct perspectives. Theinitial reaction comes from the alteration in the support regimes both indomestic sector as well as in the export sector. The aggregate measure ofsupport is allowed at 13.33 per cent of the base level gross value of product with

86-88 base. As India has not crossed this barrier and it is unlikely to cross thisin near future, it does not cause great concern presently for us. However, inorder to keep a check on the increasing budgetary deficit, it is necessary that theagricultural policy directs the support measures towards the Green Box

policies.

Specifically speaking, the country should take advantage of providing supportto the resource poor regions and designing schemes for reduction of exportmarketing costs as well as the domestic and international freight charges by

recasting the present subsidy regime. In fact, these together will make a largedifference in the value added to the exporters and can boost up the exports. In


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case of commodities where we do not have advantage of lower domestic prices,exports will become uneconomical unless support measures are put in place fora number of commodities. In such cases, in order to sustain the current exporttrends, the commodities which require price or export support are coffee, cotton,

tea, groundnut oil, copra, sugar, wheat and maize. In respect of all thesecommodities, the average prices for over fourteen years in the Indian wholesalemarket are higher than those of the world prices. There are two likely outcomesof this:

(i) The imports of these commodities may experience a sudden spurt with theremoval of Quantitative Restrictions; and (ii) exports will go down significantly

because of the price disadvantages. It is in this context that we have to takeadvantage of the commodities which can withstand such pressure. As far as thevariations in world prices and Indian wholesale prices are concerned, we findthat the Indian wholesale prices fluctuate more violently as compared to theworld prices. Such instability in the Indian wholesale prices may cause spurts inimports and create disincentives to the producers. It is, therefore, essential towatch the price fluctuations at least in a short-term perspective. The Food andAgriculture Organisation (FAO) has projected that the world trade fromcountries to the developed countries is likely to have lower growth rates ascompared to the trade between developing countries. Therefore, it is necessaryfor us to concentrate more on the trade with developing countries where theemerging market is quite strong.


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A STUDY: Reasons for farmers grievances

As WTO/AOA and suicide of the farmers, knowledge of WTO/AOA to thefarming community, relationship between size of holding and income,

relationship between income and educational attainment and lastly the issuerelating to input subsidies have been incorporated in the study

The point wise discussion of all these aspects is being discussed one by one inthe following paragraphs.

1) Illiteracy

Table -1 show that 29.6 percent of the farmers have knowledge of WTO/AOA

and rest of the farmers was not even aware of WTO/AOA. This implies that ourfarming community is unaware and illiterate and we have to undertakeawareness programmes to educate the farming community about WTO andespecially AOA, so that they can reap the benefits from WTO/AOA.

2) Size of Land Holding

In India, land continues to be of enormous economic, social and symbolic

relevance. The way in which access to land can be obtained and its ownershipdocumented is at the core of the livelihood of the large majority of the poor,especially in rural and tribal areas and determines the extent to whichincreasingly scare natural resources are managed (Word Bank, 2007). The landreforms triggered in the Indian economy with the first constitutional amendmentin 1951. The population in India is increasing continuously for the last fourdecades, as a result of this; the size of land holding is shrinking. The literatureon this issue has stressed that land ceiling should be removed. Their argumentsin favour of this issue are based on the factors like economies of scale and also

the need for corporate farming. In order to have an insight into the size ofholding of the farmers the description of the primary survey is given in the

0

100

200

300

400

YES NO

NO.OF FARMERS

NO.OF


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Table-2. The results of the field survey highlight that majority of the farmersowned 3-6 acres of land in northern India. In case of large farm holding(above15 acre) the percentage of farmers is just 7.3 percent. The trend clearlyshows that majority of the farmers own less than 6 acre of land in India (see the

Table-2). Thus, small sizes of holding are responsible for debacle of farmersand due to this they are not in position to sustain. Further, more and morefarmers are not finding farming as a viable profession.

3) Relationship between size of Holding and Income of the

Farmers

Size of land holding has a significant bearing upon the income level of thefarmers. Moreover, big farmers keep themselves aware of the policy measurestaken at the national and international level. To explore this issue empirically, anationwide survey of about 5000 rural households was conducted. They wereinterviewed by National Council of Applied Economic Research (NCAER) in

both 1982 and 1999 to assess the extent to which cumulative land reformlegislation and/or implementation at the state level affected changes in theaccumulation of human and physical capital and income levels for the same

households over the 17 year period spanned by the data. The strong associationwas found in the land holding and the income of the farmers.

The same issue has been addressed empirically in the present study constitutinga sample of 409 farmers in this case. Hypothesis was tested by applying chi-square test to ascertain the association between size of land holding and incomeof the farmers. The results of the same are depicted in the Table -3 depicts thatthe size of holding directly varies with the income of the farmers. Thecalculated value of chi-square was found to be 172.337, which was highly

significant at one percent level of significance, depicting significant associationbetween level of income and size of land holding.

120

125

130

135

140

145

150

NO. OF FARMERS

NO. OF

FARMERS


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4)WTO/AOA and Suicide of the Farmers

The ratio of suicide by the farmers is increasing day in day out. The issue ofsuicide and WTO/AOA has been linked by the media and NGOs. The presentstudy shows that about 31.3 percent of theses pendent farmers believed thatWTO is responsible for the suicide of farmers (see the Table-4). Further, 33.5

percent said that WTO is not responsible for the same and another 35.2 percentwere found to be neutral. From the primary survey it is difficult to concludewhether WTO/AOA is responsible for the suicide of the farmers or not. In thisregard, other researchers opined that the major cause of suicide of the farmers isdebt. WTO/AOA and suicides of the farmer is still a pending issue because wehave not still realized the implications of WTO/AOA fully and moreover theresearch only on this aspect is desperately required.

0

10

20

30

40

5060

70

80

90

0-3 ACRES

3-6 ACRES

6-15 ACRE

Income of farmers

(monthly)

1

7

10

12

LESS THAN

10000

10000-

15000

15000-

25000

GREATER

THAN

25000

120

125

130

135

140

145

150

YES NO CANT

SAY

NO. OF FARMERS

NO. OF

FARMERS


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5) Farming in the Era of Globalization

Wheat and rice are the two main crops grown in the northern India for the lastfour decades. In case of farmers, they are specialized in the cultivation of thesecrops in their respective regions. The prices of food-grain in the internationalmarket are highly depressed (distorted) by the Organization for EconomicCooperation and Development (OECD) countries with high doses of subsidiesgiven by these countries to their farmers but Indian government is unable toafford so much resources which can be diverted to the farm sector (Rao, 2003).Table -5 explains the perception of farming community about competitivenessof wheat and rice in the international market. The views of the farmers are

depicted in Table-5.

The above table clearly shows that majority of the farmers (81.66 percent) inthis region believe that they are not in a position to compete in the world markettill the government take concrete steps toward this direction. This implies thatIndian farmers are not having a fair access in the international market.

6) Marketing of Crops other than Wheat and Rice

This wheat-rice cropping pattern is prevalent for last four decades in Indianagriculture because of the Minimum Support Price (MSP) and availability ofmarketing facilities. But the same facilities for other crops are not readilyavailable. Food Corporation of India (FCI) is the main agency for procuring thecereals apart from certain state agencies which are also procuring both cereals

from the market.

020

406080

100120140160180200

NO. OF FARMERS

NO. OF

FARMERS


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The Chief Minister's Advisory Committee on Agriculture Policy andRestructuring (Punjab, October 2002) realized that all efforts made so far tointroduce alternatives to these crops have failed on the market front. It is,therefore, essential the market clearance through minimum support price and

procurement system must be assured, if the production of alternative crops,especially the oil seeds and pulse crops, is to be sustained on a medium to longterm basis. The marketing of agricultural crops are becoming a major issueamong farmers, which has been raised in the primary study. The result of thestudy is given in Table-6. It also shows that 76.2 percent of the farmers were ofthe opinion that there is no marketing facility for other than wheat and rice but23.7 percent of the farmers believed that market for other than wheat and rice is

available. There is a need to provide marketing facilities for other commoditieslike pulses, grams oilseeds etc. If this is ensured, the prices of thesecommodities will tend to decline. This will also result in saving of huge foreignexchange reserves of the country.

7) Diversification in Cropping Pattern

Depleting water table, stagnant income of the farmers, low productivity levelare amongst few serious problems being faced by the Indian farmers. Apart

from this, the marketing facilities are mainly available for wheat and rice to thefarmers though for certain other corps like cotton and sugar cane the facilitiesare also available. Many researchers like Swaminathan (2001), Shiva (2002)laid more stress on diversification in the cropping pattern from wheat and rice toother cash crops to ease the situation. The Table -9 depicts the views of thefarmers regarding diversification.

The survey shows that farmers in the region are more interested to adopt wheatand rice in their fields (Table -7 shows). The percentage of such farmers is 68.9

percent and rests of the farmers are cultivating other crops in addition to wheatand rice in their fields.

0

50

100

150

200250

300

350

YES NO

NO. OF FARMERS

NO. OF

FARMERS


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8) Inadequate Supply of Electricity

Electricity is the main input used in the agricultural sector and this sectordepends heavily on adequate and incessant supply of electricity. The quality ofelectricity is inadequate at the time of agricultural operation in the field and at

peak hours supply is not available and its highly irregular one. The farmers areforced to use diesel for propelling pump sets, which further enhances thecapital-output ration in the agriculture sector. This ultimately diminishes thereturns of the farmers. Under such circumstances, there is a strong need to

analyze this issue from the point of view of farming community.

The field survey shows that about 80 percent of the farm community believesthat supply of electricity is not adequate at the time of sowing, whereas 12.2

percent believe that it is adequate. Thus, there is a need to improve the qualityand quantity of electricity supplied to agriculture sector especially during thesowing season.

0

50

100

150

200

250

300

YES NO

NO. OF FARMERS

NO. OF

FARMERS

28.11%

42.78%

16.78%

7.82%4.80%

PERCENTAGE

STRONGLY AGREE

AGREE

NEUTRAL

DISAGREE


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Table-8a highlights that the electricity subsidy is most preferred by the Indianfarmers. The second, most preferred subsidy is urea, third one is the credit andthe least preferred subsidy to the farmers is canal subsidy. The basic point thatemerged from the stud is that the electricity subsidy is of prime importance. It

may be because it is the only subsidy which is readily available to the farmers.

Hence, in the light of the above empirical analysis certain important conclusionsare emerged with are discussed in the following paragraphs.

CONCLUSION FROM STUDY

It emerged from the study that the size of land holding is continuouslydeclining. More importantly, it was also established that the size of land holdingand income are directly related. Another significant conclusion of the study

points out towards a positive relationship between income and education levelof the farmers. All the above relationship was tested with the help of Chi-squaretest technique and was found to be significant at one percent level. Further,regarding the marketing access it was found that the

0

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SUBSIDY SUBSIDY SUBSIDY SUBSIDY

ELECTRICITY FERTILISER CREDIT CANAL

Series1

Series2

Series3

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SUGGESTIONS

1. The Indian economy is predominantly an agrarian economy and itsprosperity depends upon the progress of agriculture. Agriculture sector is

considered as the backbone of our economy and a majority of farmersdepend upon it for sustaining their livelihoods. They should be giveadditional incentives and provision of electricity, irrigation facilities andinfrastructural support, improved technologies and provision of inputs atreasonable cost.Among the agricultural production incentives, subsidies are considered to bethe most powerful instrument for accelerating the growth of agricultural

production. The subsidies should be equally distributed among the different

regions and groups of our society for achieving the goal of rapid growth inagricultural development .Provision of input subsidies in agriculture hasbeen recommended on the ground that it gives incentives to the farmers touse new technology. It also gives incentives to use these subsidies and henceincrease production. However, they put a heavy burden on the stateexchequer and reduce investable surplus and consequently the growth rate ofthe economy. Besides, they might generate inequalities in the distribution ofincome and may lead to distortions and inefficiency in the system.

2. In the Pharma sector there is need for major investments in R &D andmergers and restructuring of companies to make them world class to takeadvantage. India has already an amended patent Act and both product andProcess are now patented in India. However, the large number of patentsgoing off in USA recently, gives the Indian Drug companies windfallopportunities, if tapped intelligently. Some companies in India haveorganized themselves for this.

3. The most important things for India to address are speed up internal reformsin building up world-class infrastructure like roads, ports and electricitysupply. India should also focus on original knowledge generation in

important fields like Pharmaceutical molecules, textiles, IT high endproducts, processed food, installation of cold chain and agricultural logisticsto tap opportunities of globalization under WTO regime.

4. India should expand its exports of agricultural products in which it hastremendous comparative advantage. The provisions of W.T.O offered ampleopportunities to India to expand its export market. Export prospects are

brighter with soybeans, oilseeds, oil meal and cake, fruits and vegetables,and fruit preparations. Thus, high export prospects are seen with high value

products, horticultural products, and processed products, marine products

.India need not be extremely defensive and inward looking, as Indianagriculture has demonstrated strength which needs to be appropriately used


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to compete in the global market, otherwise it will become a case of missedopportunity.

5. The Government should improve the livelihood pattern of small & marginalfarmers by enhancing their access to appropriate and affordable

technologies, market related information and linkages.6. Sustainability of extension services and expert advice through capacitybuilding exercises effectively bridging the rural-urban divide.

7. Associate all professionals involved in different aspects of agriculture andrural development through national and international networks.

8. Promote financial sector inclusion for farmers and small & mediumenterprises in agri-sector through access to market capital and riskmanagement tools.

9. India would do well to reorganize its Protective Agricultural policy in nameof rural poverty and Food security and try to capitalize on globalization ofagriculture markets. It should rather focus on Textile industry modernizationand developing international Marketing muscle and expertise, developing ofBrand India image, use its traditional arts and designs intelligently to givecompetitive edge, capitalize on drug sector opportunities, and developselective engineering sector industries like automobiles & forgings &castings, processed foods industry and the high end outsourcing services.

10.Biotechnological inventions are increasingly affecting agriculturalproduction and trade. New genetically engineered varieties of crops haveincreased productivity and are more pest resistant. Therefore it is important,

as it helps in increasing productivity which is of central concern to India.The Government should support the use of biotechnology in agriculture.

11.India blessed with its cheap labour, land, diverse agro climatic conditionsand large agricultural sector can definitely gain through expansion ofinternational trade in agricultural products.

12.India has a large potential to increase its agricultural exports in a liberalizedworld by diversifying, a significant part of its agriculture in to high valuecrops and in agro-processing.

13.For countries like India, multi functionality of agriculture is best shownthrough its growth in areas such as food security, employment and theelimination of poverty in rural areas. Moreover, these issues are neitheremotive nor undefined but are practical and harsh realities which decisionmakers have to confront when addressing issues of agricultural policies. Theneed to provide employment opportunities in pre-dominantly rural agrarianareas is one of the main Non Trade Concern which we would like to seeaddressed.


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BIBLIOGRAPHY

BOOKS:1. Indian Economy in 21st centuryM.M. Sury2. Agriculture and world trade organisation3. Indian economy and WTOG.K Chadha4. Indian Economy: Current DevelopmentA.N. Agrawal

WEBSITES:

1. http://www.wto.org/2. http://www.cii.in/3. http://indiainfoline.com/4. http://naas.org/5. http://gtad.wto.org/6. http://www.isapindia.org/

GUIDELINES:

Professor Agnelo Menezes
http://www.wto.org/http://www.cii.in/http://indiainfoline.com/http://naas.org/http://gtad.wto.org/http://www.isapindia.org/http://www.isapindia.org/http://gtad.wto.org/http://naas.org/http://indiainfoline.com/http://www.cii.in/http://www.wto.org/

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