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CHAPTER-VI

IMPACT OF WTO ON INDIAN AGRICULTURE


IMPLICATION OF WTO AGREEMENT ON AGRICULTURE FOR INDIA:
India's obligations under the WTO agreement on Agriculture (AoA) fall mainly under four
broad areas namely market access, export subsidies domestic support and Sanitary and Phyto
sanitary measures (SPS). These are briefly discussed below:
MARKET ACCESS:
Introduction:
According to the WTO Agreement on Agriculture (AoA), all non-tariff barriers to agricultural
trade were to be tariffed and converted in to equivalent levels of tariffs. Further, tariffs
resulting from this Ratification process" were to be reduced by a simple average of 36 per
cent over 6 years in the case of developed and 24 per cent over 10 years in the case of
developing countries. The least developed countries were exempt from these reductions
In additions to this, for countries which had tariffed. There was also an obligation to maintain
current and minimum access opportunities and to establish a minimum access tariff quota of a
minimum of 3 per cent of domestic consumption in the base period 1986-88. This was to be
gradually increased to 5 per cent of base period consumption over the implementation period.
Along with many other developing countries. India was permitted to offer celling bindings
Instead of tariffication. These bindings were not subject to the reduction commitments. India
was also allowed to maintain quantitative restrictions (QRs) on account of balance of
payment problems. But since India had not tariffed and was instead allowed to bind its tariffs.
It did not have any market access commitment. But like many developing countries which
decided to bind their tariffs. India is also not entitled to use the Special Safeguard Mechanism
of the Agreement on Agriculture which can be used by only a few (36) developed countries
which had tariffed. This is a great disadvantage which needs to be addressed during future
negotiations.
Since, AoA allowed members either to tariff in all case or to bind their tariffs, during the
Uruguay Round, India chose to follow the latter route and bound its tariffs for 3.375 tariff
lines which constituted 65 per cent of India's total tariff lines defined at 6 digit HS level.
Simultaneously, India continued to have Quantitative Restrictions (QRs) which it was
permitted to impose because of balance of payment (BoP) reasons. Like many other
developing countries except for a few commodities. India bound its tariffs at very high level.
For example, India bound its tariffs at 100 per cent for primary products, 150 per cent for
processed products and 300 per cent for edible oils. But for certain items (comprising about
119 tariff lines), which were historically bound at a lower level in the earlier negotiations
(Table-1) the binding levels were very low. In some cases, even zero. But these zero or low
tariffs had no relevance because India was allowed to use QRs.
The USA and some other countries in the Dispute Settlement Body of WTO challenged
India's continuation of QRs on the plea of BoP position. In view of its improved position in
the matter of foreign balances. India lost the plea for retention of QRs on account of Balance
of payment position both at the Dispute Settlement Body as well as at the Appellate Body.

According to the understanding arrived at between the parties regarding the reasonable period
of time lasted by March 2001. India removed the QRs on 714 items including 142
commodities belonging to the category of agricultural commodities during 1999-00. On the
occasion of Export and Import policy announcement on 31st March 2001, the Minister
announced the removal of QRs on the remaining 715 items. Thereby ending the much
maligned "License Permit Raj" Table-1 below gives details:
TABLE-1 RECENT CHANGES IN TARIFF STRUCTURE OF INDIA
Total Number of Tariff lines as on

01.04.1996

Tariff lines free as on

01.04.1996

Tariff lines freed for Import during

1996-1997

Tariff lines freed for import during 1997-19998 (The QR's In respect of 1,429 tariff lines
were withdrawn preferentially for imports from SAARC countries w.e.f. 01.08.1998)
Tariff lines freed for import during

1998-1999

Tariff lines for import during 1999-2000


10,202 (10 digit) 06,161 488 391 894 714 715
Tariff lines freed for import during

2000-2001

With the removal of 715 items from the list which include 142 groups belonging to
agriculture, quantitative restrictions on import have been completely abolished and the
obligation to replace QRs by tariffs has by and large been fulfilled (except for a few strategic
commodities). After the decision to remove QRs, India was, under GATT Article XXVIII
allowed to renegotiate the tariff bindings on those commodities for which it had very low or
zero tariff bindings. Consequently in December 1999 India successfully negotiated and the
binding levels were suitably revised upward to provide adequate protection to the domestic
producers (Table-3). Out of these low bound tariff lines bindings on 15 tariff lines which
included skimmed milk powder spelt wheat, corn, paddy, rice, maize, millet, sorghum,
rapeseed, colza and mustard oil, fresh grapes etc. were revised to a level ranging between 45
per cent to 75 per cent.
Analysis of Tariff Structure of India:
Under the WTO Agreement on Agriculture (AoA). India committed 3.375 commodity groups
at 6 digit level for tariffication and bound their tariffs (Table-2). These commodities
constituted 65 per cent of all the tariff lines in India.
The bound rates for all the commodities are ad valorem, export for two commodities (HS
codes 080212) whose bound rates are committed in the form of specific amount in Rs/Kg.
Note: Tariff lines at 6 digit HS. There are Z lines that are defined as sub- group of 6-digit HS.
Includes only agriculture products.
Based on final bound committed at the UK.
Source: WTO Custom Tariff of India 1999-2000 col.
Out of these 3.375 commodity groups, 683 commodity lines at 6 digits of HS classification
belong to the agricultural sector. A large proportion of the committed lines belong to
commodity groups like edible vegetables animals or vegetable fats and oils: meat edible meat

etc. Some of the features of the bound tariff rates for agricultural commodities in India are
discussed below.
The first feature of the bound tariff rates for India is that like many developing countries. It
bound its tariffs at very high and sometimes at prohibitive levels. In some cases (44 per cent
cases) these rates exceeded 100 per cent.
Second for some commodities celling tariff binding were bound at very low levels sometimes
at 0 levels. The commodities for which tariffs were put at low or even 0 level were rice,
maize, sorghum, millet and skimmed milk powder. For some other commodities like soya oil,
olive oil, rapeseed, colza and mustard oil, the celling tariff binding were much higher at 45
per cent and 300 per cent for other major oils. For dairy products the tariff ranged between 040 per cent and for natural rubber, these were fixed at 25 per cent. Since for India there are
major agricultural commodity policy makers were rightly concerned about the adverse effect
of lifting of QRs on them.
However, consequent to the agreement to remove QRs. India was allowed to renegotiate the
tariff binding for these commodities. Table 3 gives details about the renegotiated tariff
binding for 19 commodities for which the historical bound tariffs were very low or in some
cases zero (Table 3).
The renegotiated rate are moderately high. For rice, for example, the duty has been raised
form 0 to 70 80 per cent. Similarly, the duty on coarse cereals has also been raised quite high
to a level of 60 80 per cent.
The third important feature is India's MFN tariff rates were significantly lower than that of
final bound rates for 686 products belonging to the agriculture sector (Table 4). For 85.6 per
cent of commodities numbering 587, the difference was more than 50 per cent and above.
The average basic duty rate for all agricultural tariff lines was 34.9 per cent in 2000-2001 and
slightly higher in 2001-02 which is way below the bound rates even if the Special additional
duty (SAD) and special custom Duty (SCD) are added. It comes out that India has not only
maintained the UR bound rates but has unilaterally reduced the MFN tariff rates substantially,
compared to the level of UR final bound rates (Gulati 1989). A related feature is that the tariff
structure is characterised by large dispersion between various bound tariffs (Table 4).
SOURCE : Ministry of Commerce, Col.
TABLE - 4
DIFFERENCE IN MFN TARIFF RATES AND UR FINAL BOUND
RATES Number of Lines by different Range Groups (FY-2000-01)
Range (UR-TR)
No. of Lines
Percentage Distribution
UR-TR > - 75
206
43.15
50-<UR-TR<75
291
42.42
25-<UR-TR<50
19
2.77
10-<UR-TR < 25
32
4.66
0-UR-TR < 10
38
5.54
UR-TR < 0
10
1.46
Total
686
100.00
TR = MFN Tariff Rates (BCD) as announced in old budget 2000-01 read along with other
notification in force. UR = Uruguay Round final bound rates.

Note -1: Tariff Lines at 6 digits Hs or sub-groups of 6-digits HS. Note - 2: Includes only
agricultural products.
Source: 1- WTO and 2. Col. Customs and Central Excise Budget 2000-01.
Fourthly, in the case of 21 commodities the MFN rates were pegged at very high rates. Table
5 gives details of 21 commodities where the MFN rates have been pegged at much higher
levels than the general prevalent rates and were close to the bound rates for 1.1.2001. Many
of these tariff lines belong to the beverages groups particularly spirits, liquors, etc. But some
recent additions are food items like chicken legs, milk powder, coffee, tea, sugar and rape &
mustard oils that face surge of imports consequent to the abolition of the QRS in 2001.
Fifthly, it is important to note that for three commodities, India has gone in for tariff rate
quota (TRQ) system. In the case of maize, a quota of maize ranging from 30,000 tons in the
first years to 50,000 tons in the fourth years would be imported at a duty of 15 per cent. After
that the imports can have a duty of up to 60 per cent, Again, for two tariff lines of milk and
cream powder, tariff quotas of 10,000 each can be imported at a duty of 15 per cent, but the
out quota duty would be 60 per cent. The third commodity for which TRQ has been
introduced is rape, colza and mustard oil for which a quantity of 1, 50,000 would be imported
at 45 per cent in quota tariff and out quota would be 75 per cent.
Chapter Description of Goods
1.1.2001
02
15.0
coconut oil & other oils,
refined

17.0
22.0
22.0
22.0
33.0

Palm oil,
safflower oil,

Binding
20012002-03
groundnut oil, sunflower/

120/300
85
85
16.0
Sausages and similar products of meat, meat
offal or
blood. Other prepared meat, meat offal or blood of fowls of the
species Gallus
domesticus
150
100
Sugar
150
60
Beer, grapes must, wines, Vermouth
other fermented Beverages
150/214
100
Undenatured ethvl alcohol
214
210
Whiskies, rum, gin vodka
Liquors and cordials, etc.
214
210
Alcoholic Preparation of a
kind used for the manufacture
of beverages
174
170
Source : Custom Duties - 2002
15.0

Finally, consequent to removal of QRs in March 2001, the Government of India undertook
several measures to safeguard against a surge in imports. These include restricting the import
of agricultural commodities like wheat, rice, maize, along with petrol, diesel. Aviation
Turbine Fuel (ATF) and urea only through designated State Trading Enterprises, issuing
import permits by Ministry of Agriculture after an import risk analysis based on scientific
principles and in accordance with WTO Agreement on Sanitary and Phyto Sanitary Measures
for import of all primary products of plat and animal origin. An early warning system was
also to be introduced. More important, consequent to complete removal of QRs, a substantial
hike in custom duties in agricultural commodities like tea coffee and coconut (35 per cent to
70 per cent) crude edible oils(a uniform rate of 75 per cent from 35-55 per cent) and refined
oils (85 per cent from 45-65 per cent) was introduced. Furthermore, many of the commodity
groups which were on the free list were put on the canalised list with imports only allowed
through the State trading Enterprises, mainly the Food Corporation of India (FCI).
The analysis of India import policy reveals that leaving aside some of the restrictive tariff
lines. India has unilaterally gone ahead to reduce tariff barriers much below the bound rates
of duty under URA. The biggest agricultural commodities like rice and milk (skimmed milk
powder) are committed at quite low levels even after duty on these were raised from earlier
zero per cent. For wheat the bound rate of duty is 100 per cent, but roller flour mills are
allowed to import at zero import duty. Similarly, for pulses the bound rate is 100 per cent, but
they are being imported under OGL at zero import duty. Edible oils most of which are bound
at 300 per cent import duty, were open for imports at 15 per cent duty during 1998- 99 which
was later raised to 25 per cent, even when the country was flooded with imports of edible oils
as was the case in 1999-2000. Although some scholars had hailed the liberalisation of trade
and cutting of duty on oilseeds and edible oils the excessive imports that followed these
measures proved highly deleterious to the interests of resource poor oilseed farmers in the
rain fed states of India. The result was that in the budget for 2001-2002, the duty had to be
raised to 70 per cent from the current rate of 35-40 per cent. Despite the duty hike in 2002,
agricultural imports in to the country have increased at fast rate after the dismantling of the
QRs.
The following table (Table-6) gives the existing duty structure on agricultural commodities.
TABLE - 6
STANDARDS RATES OF DUTY ON IMPORT OF SELECTED AGRICULTURAL
COMMODITIES IN INDIA DURING 1988-2002
Commodity

1988-89

1990-91

1991-92

1995-96

1999-00

2000-01

2001-02

Wheat

50

50

Rice(non-basmati) 0
Maiza
0
Barley
0
Sorghum
0
Chickpea &

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

70
50
35
50

70
50
0
50

other Pulses
Rapeseed/

10

10

10

10

mustard seed
Soyabeen Seed
Groundnut seed
R/M Oil

60
60
60
45

55
55
55
45

55
55
55
45

50
50
50
30

40
40
40
18

40
40
40
45

35
35
35
85

Soyabeen Oil
Groundnut Oil
Onion
Potato
Cotton
Jute
Sugar

45
200
100
100
40
00
00

45
125
100
100
35
00
35

45
45
100
100
35
00
35

30
30
10
10
50
00
00

18
18
10
10
40
35
40

45
45
00
15
05
05
00

45
85
00
35
05
05
00

Note: Source:
There are two types of duty rates on imports, standard and preferential duty rate is generally
10 percentage points lower and is applicable to import of some commodities from a few
countries.
Virmanl, 2002.
COMMITMENTS UNDER EXPORT COMPETITION
Introduction:
Disciplines in the area of Export subsidies required the developed countries to reduce, over a
period of 6 years, the base period (1986-90) volume of subsidised exports by 21 per cent and
the corresponding budgetary outlays for export subsidies by 36 per cent. For developing
countries these reductions are 14 per cent in volume terms and 24 per cent in budgetary
outlays over a period of 10 years.
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 cost and internal and international transport
and freight charges etc. India is making use of these subsidies in certain schemes of
Agricultural & Processed Food Products Export Development Authority (APEDA) especially
for facilitating export of rice, wheat and horticulture products.
Like many other developing countries, India also has a large potential to generate export
surpluses in many agricultural commodities. However, one of the major constraints for this is
inadequate development of rural infrastructure for agriculture and poor state of agro
processing. Moreover large export subsidies being provided by the developed countries also
adversely affect Indian exports. This is particularly so in the case of wheat, rice and other
cereals, sugar and dairy products for which export subsidies run into billions of dollars
thereby depressing world prices Because of this the developing countries are unable to
exploit their potential comparative advantage. It may be noted that the interests of some food
importing developing countries would be hurt with the abolition of export subsidies. There is
an urgent need to make provisions under the SDT clause to fully protect their legitimate
interests in this regard.
Proposals for Discipline on Export Subsidies:
India has in its Memorandum to the WTO, asked for a complete abolition of export subsidies
in a period of two years after 2000 and no rolling over of the unused export subsidies. India
has also demanded that all types of export assistance like export credit guarantees, insurance,
price discounts etc, and should be included in the calculation of export subsidies subject to
reduction and elimination. India has also stated that under the SDT clause, the developing
subsidy etc. Finally,
India has argued for the abolition of provision protecting export subsidies [Article 13 (c)]
which gives protection to export subsidies that conform to the provisions of part (v) of AoA.

It has also argued for the abolition of the peace Clause for the developed countries but would
like the developing countries, to continue to avail of the provisions of Article 19 (d) and(e),
Quite a few of these suggestions have been included in the revised draft of modalities
currently being discussed at the WTO.
COMMITMENTS UNDER DOMESTIC SUPPORT
Introduction:
As discussed earlier, according to the WTO AoA, all non-exempt domestic support calculated
as Aggregate Measure of Support (AMS), has to be reduced by 20 per cent by developed
countries in 6 years (1995-2000) and 13 1/3 per cent by the developing countries in 10 years
(1995-2004) taking 1986-88 as the base period. However domestic support given to the
agricultural sector up to a deminimus level of 10 per cent of the total value of agricultural
produce in developing countries and 6 per cent in developed countries is allowed.
The details of the methodology adopted for the calculation of AMS for India in Its official
submission to the WTO as also that adopted by other scholars who have computed AMS is
discussed below along with a critical evaluation of some of the data problems for calculation
of product specific and non-product specific support. This is followed by a brief description
of the updated calculation of AMS done by us.
Critical Evaluation of AMS Calculation for India:
i) Product specific AMS:
As per the AoA, all the support/ policies directed at producers of various agricultural products
and provided on product by product (like rice, wheat, cotton etc.) basis constitute the product
specific AMS. These support measures can be classified into three broad categories namely
Market Price Support, the non-exempt Direct Payment and other product Specific Support.
The only one measure that is relevant for the calculation of product specific support in India
is the market price support since the other two namely the Non-exempt Direct Payments and
other Product Specific Support do not constitute a significant proportion of support in India.
Market price Support constitutes the support extended by government to agricultural
producers through providing some minimum floor to the market price of agricultural
products. It is required to be measured on product by product basis as the gap between
applied administered price and reference price times the quantity of that product eligible to
receive market support (minus fees/levies paid by producers on that product).
Reference price is the per unit fob (export) price for the product concerned for the "net
exporting" and cif (import) price for the net importing country. Applied administered price is
the actual floor/ minimum support price and the quantity eligible to receive support is either
total output or the marketable surplus of that product. The official calculation takes total
output as the quantity eligible for support.
The Ministry of Commerce submitted its schedule of support to the WTO in the prescribed
format. Their revised submission given in the Trade Policy Review of India by WTO (1998)
gives AMS for the triennium ending (TE) 1988- 89 for 17 commodities along with the total
non-product specific support (Table 7 & 8).
SOURCE
TABLE - 7 OFFICIAL SUBMISSION ON AMS
S.No. Crop
1.
Rice
2.
Wheat

1986-89 (Rs. Million)


-77,235
-89,580

1995 (US $ Million)


-7,577
-9,625

3.

Bajra

- 6,822

4.

Jowar

-16,454

5.

Maize

-12,517

6.

Bariey

- 4,203

7.

Gram

- 4,045

8.
9.
10.
11.
12.

Ground nut
Rapeseed/Torla
Cotton
Soyabeen (Yellow and Black)
Urad

-20,494
- 8,694
-14,543
16
- 1,394

13.

Moong

- 1,752

14.

Tur

- 4,550

15.
16.
17.
18

Tobacco
Jute
SugarCane
Coarsa Cereals

11
- 3,833
2,405

19

Pulses

20

Total Product Specific

- 181
- 388
184
-4,530
-1,706

21
22

-1,809
-1,689
-2,106
- 192

Non-product specific

23

-2,44,422

-29619

(-21,6096)

(29.84)

45.514

5,772

(4,0896

(656)

24

Total AMS

-1,98,608

-23,847

25

Value T. Agri Output TE 1989

11,31,250

99,270

NOTE: FIGURES IN PARENTHESIS REFER TO THE RESPECTIVE RATIO OF


SUPPORT TO THE VALUE OF TOTAL OUTPUT OF THAT COMMODITY.
WTO (2000), C/AC/NC/S/1. P. 18. ALSO SE: WTO (1998). TRADE POLICY REVIEW OF
INIDA. GENEVA.
TABLE 8 NON-PRODUCT SPECIFIC SUPPORT FOR THE TRIENNIUM ENDING
1988-89 (IN Rs. Million)
Subsidy on
Quantum of Subsidy
% value of total Agricultural
Fertilisers

10,205

Output
0.90

Credit

998

0.09

Irrigation

17,927

1.58

Electricity

15,814

1.40

Seeds

820

0.72

Total non-product subsidy

45,804

4.05

Value of Output

11,31,250

In conformity with the modalities laid down under AoA. The methodology adopted by the
official submission was to calculate the product Specific Support by calculating the
difference between the minimum support price and the cif price for each commodity. While
the former figure was obtained from the Ministry of Agriculture, the latter was taken from the
Monthly Statistics of Foreign Trade published by the Director General of Commercial
Intelligence and Statistics, Calcutta. In the original submission the external reference price
(cif) was taken as fixed for the triennium 1986-87, 1987-88 and 1988-89 (TE1988-89). In
later submissions, inflation was accounted for by deflating the MSP by the depreciation of
Indian Rupee in terms of U.S. Dollar over the years.
ii) Non-Product Support:
For the non-product support also, the methodology adopted by the Ministry of Commerce in
its official submission was in conformity with the modalities laid down by the AoA. That is
for tradable inputs, per unit subsidy was calculated by taking the differnce between the
domestic price and the import (border) price. For non-tradable inputs the subsidy to
agriculture was determined by the quantum of budgetary support for their provision.
The Table No. 8 gives the details of non-product subsidy to Indian Agriculture given in the
submission.
The submission recognised that the subsidy given to resource poor farmers was exempt from
reduction payment. Nevertheless the submission did not invoke the exemption given to
resource poor farmers since the aggregate of product nonspecific support was less than the de
minmus 10 per cent.
In addition to the official submission several scholars have also calculated the product
specific and non-product specific support to Indian agriculture for various years. In almost all
the cases the methodology followed is the one laid down by the modalities under the AoA.
However in spite of near similarity in the calculation methodology and almost the same
sources of statistics the commodity wise estimates off product specific AMS and the
estimates of non-product specific AMS by various authors are not exactly matching. This is
because of several ambiguities that have arisen in the method of calculation. These are brief
by discussed below.
Problems in AMS Calculations: i) Product specific AMS:
The methodology adopted to calculate the Product Specific Support has already been
described above. It consisted of comparing the domestic price with the fixed reference price
for the triennium 1986-87, 1987-88 and 1988- 89 (TE 1988-89) . For later years. Inflation
was accounted for by deflating the MSP by the depreciation if Indian Rupee in terms of U.S.
Dollar over the years.
Although all the authors had followed the above methodology nevertheless, there are
differences in the estimates by various authors for various reasons. There areFirst, India faced some special problems in the choice of the base year since during the
selected period TE 1988-89. India had a fixed exchange rate regime. This regime represented
over valued exchange rates of about 15 per cent to 25 per cent above the free exchange rate
and led to distortions in the calculation of AMS.
The second set of problems in calculations of AMS arose because the modalities were not
very clear about the method for taking into account quality differences in the price quotations

for the imported and domestic commodities. Various calculations for product specific support
could diverge because of this reason. In general, the import prices go to detailed description
of quality in terms of Harmonised code at six or even ten digit level. On the other hand, the
quality differences are not very important for commodities for fixing MSP and thee
prescribed standard is Fair Average Quality. It becomes difficult to choose a correct cif price
that matches the domestic standards mof quality. The cif price taken by various authors may
not be the same because of this reason.
Another more serious difficulty in the estimates of product specific support is that whereas
the minimum support prices (MSP) are quoted for the unprocessed commodity, the price
quotations for cif price are generally available for the processed commodity. This is true in
the case of paddy, cotton and sugarcane. In the case of paddy, levy price of rice is often taken
as a proxy for including the processed costs. But no simple method is available for
determining equivalent price for sugar and lint. For this reason, the different methods used by
various authors lead to different results for product specific AMS. For example for cotton, the
official document made an error in that it compared the domestic price of cotton with the cif
price for lint. This exaggerated the product specific negative AMS for cotton. On the other
hand, Gulatl and Sharma (1994) and Bhalla and singh (1994) converted the MSP for cotton
into equivalent price of lint. In this study also we have computed the comparable domestic
prices of lint and compared it with the price of lint. In most cases, a general mistake that is
often made is that the processing costs are not added for getting the derived prices for the
processed commodity.
Another minor error in the official document was that for tobacco which is an export
commodity in India, the reference price taken was cif price rather than fob price which should
have been the case according to the Agreement. But most of the scholars have avoided
making this mistake and have taken the fob price for tobacco as the reference price (see:
Gulati et al...1994. Bhalla et al.. 1999) notwithstanding the divergences in estimates of AMSs
noted above the estimates for product specific AMS by various authors are not very different
for most of the commodities.
ii) Non-Product Specific Support:
To recapitulate the non-product specific support is the measure of support given to agriculture
by way of subsidised supply of inputs. For tradable inputs, per unit subsidy is to be calculated
by the difference between the domestic and import price. For non-tradable inputs, the subsidy
to agriculture is to be determined by the quantum of budgetary support for their provision.
Although all the authors followed the general guidelines laid down in the modalities of AoA
for its calculation, nevertheless, because of some serious problems thee estimates of nonproduct subsidy vary considerably. Some conceptual problems that have also arisen in the
calculation of product specific support are briefly discussed below.
Fertilisers:
Out of all the agricultural inputs namely fertilisers irrigation, electricity, credit and seeds, the
only tradable inputs is fertilisers. In the official submission the component of subsidy on
indigenous fertilisers was arrived at by multiplying domestic production by the difference
between per unit imported price and farm gate price of fertilisers. Adding the total subsidy on
domestic fertiliser obtained this way with the subsidy on imported fertilisers gives total
fertiliser subsidy. This figure works out to be different from the budgetary figure for the
fertiliser subsidy.
In principle, authors like Gulati also made their estimates on the basis of difference between
the domestic and border price of fertiliser. However, basing themselves on a detailed study of
differences between border and domestic price over a long period of time they came to the
conclusion that on an average 50 per cent of the government's budgetary subsidy for
fertilisers goes to the farmers the rest being the share of the subsidy to the fertilisers industry

(Gulati. 1994). Incidentally this formulation which was correct for the specific period covered
by the above study has become quite popular and has been extensively employed by several
scholar. Some other scholars like Acharya (2000) have actually treated the entire budgetary
subsidy to fertilisers as going to the farm sector. Because of these reasons the estimates of
subsidy on account of fertilisers differ widely from one author to the other.
The Hanumantha Rao Committee (1998) on Fertiliser Pricing policy made careful calculation
of fertiliser subsidy on the basis of a detailed exercise. The committee took per unit subsidy
to the farmer as the difference between the import price and the farm gate price for N.P. and
K. This was then multiplied by the quantity of each of the fertilisers consumed by the
agricultural sector to arrive at the total quantum of subsidy on domestic fertilisers to the farm
sector. These estimates have recently been updated to 2001 by Gulati and Narvanan (2003).
Interestingly the share of total budgetary subsidy keeps on changing widely. It has increased
from 24.54 per cent during the TE 1983-84 to 124 per cent during the TE 1996- 97. The
weighted average for the period 1980-81 to 2000-01 comes to 67.50 per cent. Hence,the often
used ratio of 50 per cent leads to serious under estimation of fertiliser subsidy ti the farm
sector for the decade of nineties. We have in our calculations followed the methodology
adopted by the Hanumantha Rao Commitee.
All the other inputs like credit, irrigation and seed were treated as non-tradable. Some details
and specific problems that have arisen are discussed below.
Electricity:
In the case of electricity the method used for working output per unit subsidy to agriculture is
the difference between the average cost of electricity generation and distribution and the tariff
charged from agriculture. But this method suffers from some serious limitations.
Firstly, the average operating costs and per unit cost of supplying electricity tend to get
inflated due to inefficiency in operation, overstaffing and outright leakages.
Secondly, keeping in view the fact that a major chunk of the electricity supplied to this sector
is during the late night hours when its opportunity cost is relatively low due to no or minimal
demand from other potential buyers mainly the industrial sector the measurement of
opportunity cost or shadow price of electricity used by agriculture is certainly much lower
than the average cost of supplying electricity.
Thirdly, it is well known that the Quantity of power consumed by the agricultural sector is
calculated as a residual after deduction from the total generation the amounts consumed by
other important categories. This method puts all leakages arising in other sector as
consumption by agriculture thereby exaggerating the consumption for irrigation purposes.
According to some studies, the government calculations overestimate the real consumption
by a wide margin anywhere from 20 per cent to 80 per cent of their total consumption,
depending upon the state (Gulati1989 and Bhalla and Singh. 1994). Finally, as per the Aoa,
all expenditure on infrastructure including capital change on electricity is exempt under the
green box exemptions and should not be included in the calculation of electricity subsidy. A
correct method of calculation would have been to find the difference between the unit cost to
the non-agriculture and that to agriculture, with a view to cancelling out the per unit fixed
costs. But neither the official submission nor any of these authors has done the calculations in
this manners Hence, all their calculation are overestimate electricity subsidy to agriculture.
We in this study have corrected this error.
Credit:
According to the GATT agreement credit subsidy is to be measured on the basis of
differential rates of interest between the commercial lending rate of interest on advances and
the rate charged from the agriculturists for their short term loans which are used for
production purposes. However, the medium and long term loans are not to be included in the
estimation as the same are advanced for investment purposes and are exempted from AMS

measurement. In addition loans for investment the support extended to small and marginal
farmers on short loans need not be included in the AMS measurement.
The official submission estimated the total short loans given by the cooperative banks and the
commercial banks and estimated the differential on the basis of maximum lending rate of the
commercial banks and the short term lending rate to the cooperative societies. It also assumed
that the short term loans were made for six months.
Other scholars have also followed similar methodology. Bhalla et al.(1994) made another
adjustment in the calculation of the subsidy. They adjusted the short term credit extended by
the Primary Agricultural Credit Societies(PACS) to medium and large farmers for the
contribution of borrowers towards share money of the PACS's and reduced the short term
PACs outstanding advanes by 10 per cent to account for their shareholding.
Irrigation:
According to the AoA, the irrigation subsidy is to be calculated as the difference between the
operational and maintenance cost of supply and the recovery charges from their farmers. It is
explicitly stated that the interest and depreciation charges to be excluded in the determination
of the cost of supply. Also exempted from the subsidy measurement is the share of support
utilised by the small and marginal farmers. Thus irrigation subsidy is estimated as the gap
between O&M expenses on major and medium works and actual collection of irrigation
charges minus part of this attributable to the small and marginal farmers.
The official submission used the data given in the National Accounts Statistics to determine
the total subsidy on maintenance and operational cost. But as noted earlier the submission did
not account for exemptions allowed to the small and resource poor farmers. Other scholars
have also followed the same methodology and used the same source. But Gulati et al. have
taken in to account the exemptions allowed to small farmers and reduced the subsidy to 60
per cent.
Seed Subsidy:
Seed subsidy is to be measured by the amount of budgetary support to the provision of seeds.
In India, the National Seed Corporation is the central corporation that has been set up to
provide timely and subsidised high yielding varieties of seeds to the farmers. Besides the
national corporation several governments have also established state level enterprises to
supplement the activities of the NSC. Most of the authors have only taken the budgetary
expenditure to the NSC as a measure of seed subsidy.
AGREEMENT ON THE APPLICATION OF SANITARY AND PHYTOSANITARY
MEASURES (SPS):
Introduction:
Sanitary and phytosanitary measures mean any measure adopted by members to protect
human, animal or plant life or health within its territory from risks arising from the entry or
establishment or spread of pest or disease carrying or causing organisms, animals plants or
beverages or foodstuffs. The Agreement on the application of Sanitary and Phytosanitary
Measures (SPS Agreement) affirms the right of WTO Members to restrict international trade
when necessary to protect human, animal or plant life, or health from food borne risk or
animal and plant carried diseases (Article 14). The agreement builds on pervious GATT rules
and requires sanitary and phytosanitary measures to be based on science, SPS measures may
be applied only to the extent necessary to protect human, animal or plant life, or health and
they may not arbitrarily or unjustifiably discriminate between countries where identical or
similar conditions prevail.
The WTO does not set the standards. The Agreement allows countries scope to establish their
own levels of health protection yet provides grounds for improved market access for
agricultural products. The WTO's SPS Agreement encourages member countries to use

standards set by international organisations, but it also allows countries to set their own
standards. This agreement seeks to harmonise S&P measures based on international
standards, guidelines or recommendations developed by international organisations, so that
members may not use their S&P standards as disguised barrier to trade. International
harmonisation offers Members and in particular developing country Members. The possibility
to meet the requirements of the Agreement without having to go through the more demanding
risk assessment procedures otherwise required. It also help to shield developing countries
exports from more stringent import requirements.
The relevant international organisations are:
a) The Codex Aliment Arius Commission' for food safety, (food additives veterinary drugs
and pesticide residues contaminants etc.)
b) The International office of Epizootic' for animal health zaniness.
c) The secretariat of the International Plant protection Conversion for plant health.
The Agreement also says government can agree to refer to any other international
organizations or agreements whose membership is open to all WTO members.
There are several issues regarding SPS Agreement that concern the developing countries. The
first important and highly contentious issues is that within the broad framework of SPS
Agreement, members have the right to evolve their own S&P standards higher than
internationally accepted by providing scientific evidence for necessity of such higher
standards. There are certain safeguards introduced. The SPS Agreement lays down that such
higher standards should be based on scientific evidence, should not discriminate between
countries and should not be a disguised restriction to trade. Further, it is obligatory on the part
of all the members to publish their S&P measures so as to acquaint the interested members
with the same. But this notwithstanding the higher standardise have often been used to
discriminate against exports from the developing countries.
Members are required to notify in advance new or changed SPS measures which affect trade
and to set up enquiry points to respond to requests for information. But the time period for
providing this information is not specified which may hamper trade. In this context, critical
for market access is the requirement for transparency and quick dissemination of information
about new regulations.
Problems have also arisen regarding the interpretation and implementation of Equivalency,
Article 4 of the SPS Agreement requires government under certain conditions to recognise
other government s' equivalent measures. Different measures could be equivalent in
providing the same level of health protection against risks of disease or contamination.
Equivalency results in a significant reduction of routine checks, control and inspection
measures while facilitating trade and improving market access conditions similarly, the
adaptation of SPS measures to regional condition. Including the recognition of pest or disease
free areas, is recognized as a concept of significant importance for trade in agricultural
products. The main question is how to establish that an exporting country's measures are
equivalent to those used in the importing country.
One of the complaints of the developing countries is that the developed countries are not
doing enough to accept that actions they are taking on exported products in particular
inspection and certification procedures are equivalent to the importing developed countries'
requirements even when the measures are different. This is because the measures provide the
same level of health protection (Doha WTO Ministerial 2001: Briefing notes SPS Measures
Food Safety etc.). This creates great deal of hurdles in agricultural exports from developing
countries.
There are a two more issues that are important regarding recurring changes in standards
brought out by the developed countries. One is the advance warring government should
provide when they draft new regulations and the second is the time developing countries

should be allowed to adapt their exports to developed countries' new standards. The SPS
Agreement uses phrases such as Voluntary Commitments" and "a reasonable" period of
time. But reasonable time has to be specified say six months or a year for example.
Some other concerns of developing countries are, their lack of resources for implementing the
agreement, their inability to effectively participate in drafting and agreeing the international
standards monitoring new regulations their export markets and the difficulty off
demonstrating sufficient scientific evidence to justify their own measures or challenge those
of others.
THE IMPACT OF GLOBLISATION AND AGRICULTURE LIBERALISATION
Introduction:
In the previous chapters of this study, an attempt was made to give an overview of the
objectives of trade liberalisation and to examine critically the main provisions contained in
the WTO AoA along with India's commitments under the Uruguay Round (UR) Agreement
on Agriculture, the study also reviewed the trends in agricultural trade of India and analysed
state wise competitiveness of various agricultural commodities separately under the export
and import hypothesis. Finally the study looked at the challenges of providing food security
to its people in the context of liberalisation of agricultural trade.
This Chapter is devoted to the main focus of the present study, namely to examine in what
way the liberalisation of the Indian economy and the establishment of a free and liberalised
trade regime under the WTO has affected the fortunes of the Indian Farmer.
AoA has both direct and indirect effects on the farmer. The direct effect can be determined by
examining to what extent the various provisions of the Agreement have affected the growth
and employment in agriculture and have thereby impacted on thee living standards of the
farmers. But more important economic liberalisation brings about a significant change in the
macroeconomic policy framework that directly and indirectly influences overall and sectoral
of patterns growth. Hence, the impact of economic liberalisation on the farmer should be
studied in the context of both direct and indirect effects of economic liberalisation.
The condition of the farmer is determined above all the growth of the economy in general and
growth of agriculture in particular growth in exports and imports consequent to economic
liberalisation distribution of gains of growth, availability of farm and non-farm rural
employment, and poverty, food security and nutrition situation. Further, the terms of trade of
agriculture via the non-agriculture sector in the post liberalisation period would determine
whether or not agriculture was a net beneficiary of the reform process. Hence, an attempt
would be made below to look at all the above parameters for making some judgement about
the consequences of globalisation and agriculture liberalisation in India for the Indian
farmers.
WTO Provisions- Impact:
India's obligations under WTO AoA, in the matter of market access, domestic support and
export competition were discussed in detail in first part of this Chapter. It was noted that at
present India had no reduction commitments regarding domestic support and export
subsidies. But in the matter of domestic support, there is an exemption from reduction
commitment only to a de minimums ceiling of 10 per cent both in the matter of product
specific and more so in the matter of non-product specific support. The product specific
support is currently negative for most of the commodities, but is close to becoming positive
in some important commodities like wheat and rice, thereby giving a warning that product
price cannot be raised indefinitely. The non-product support has also increased rapidly in
India because of increasing subsidies and is currently at about 8 per cent of agricultural
output as against a de minimums level of 10 per cent. This implies that the input subsidies

have almost been extended to the allowable limit. The warning is clear that these cannot be
extended much farther.
But at present, India's total support is well below the minimums levels. Further, the green box
also allows public expenditure for infrastructure development. In view of this, at present
these provisions do not have a negative impact for the farmer. But there is a clear message for
the farmer. He has to come out of the mind-set of dependence on ever increasing
administered prices and on increasing subsidies. He will have to compete in the international
market through increased productivity.
The story is quite different in the matter of market access. Subsequent to a complaint by the
USA to the Dispute Settlement committee of the WTO. India had to undertake revision in its
import policy and had to abolish its quantitative restrictions on agricultural imports by 2001.
India was, however, allowed to re negative its tariff limits on certain commodities for which
its bound rates were very low or even zero.
Market access provisions were meant to reduce barriers to agricultural trade. India was
expected to gain from access to the agricultural markets of developed countries. But ass
discussed in detail access was made difficult for some of the high value dairy and meat
products because of very high tariff ceilings and tariff escalation by these countries. More
important, agricultural commodities from all the developing countries including India were
put to a great disadvantage because of huge domestic and export subsidies given by the
developed countries to their agriculture. Very high standards set for SPS measures also acted
barriers to Indias exports. As would be discussed later in the chapter the gains from
agricultural exports were much lower than expected.
India bound its tariffs for agricultural products at very high rates. However, the MFN tariff
rates were much lower than the bound tariff for most of the commodities. The lifting of
quantitative restrictions has not resulted in a food of imports. This is mainly because import
duties were simultaneously increased along with the final instalment of QR's abolition.
Bound rate were also negotiated at the level of 50 per cent to 75 per cent for some
commodities, which were bound at very low rates earlier, Further, India continues to have a
competitive edge in many agricultural commodities. However, import of some agricultural
commodities have risen recently. In particular, imports of edible oils have risen at a very
rapid rate with quite adverse consequences for oilseed farmers in the dry land regions of
India. The deleterious effect of cheap imports on the incomes of the farmers cannot be ruled
out in future.
THE IMPACT OF MACRO ECONOMIC POLICY CHANGE:
Impact on Exports:
The policy makers who initiated the process of economics liberalisation argued that the
opening up of the economy combined with steep devaluation of the currency. Would go a
long way in increasing exports of tradable agriculture. Exports were expected to get a boost
with the establishment of the WTO and cutting of export and domestic subsidies by the
developed countries. Since agriculture is labour intensive. This was expected to not only
provide more employment to agricultural workers but also help to raise their productivity and
incomes.
India's trade performance was analysed in detail in pervious Chapter. It was brought out that
India was able to accelerate its exports of agricultural commodities. In the post liberalisation
period of the 1990's. But the growth rate which was very high up to 1996-97 started to
decelerate afterwards. This was because of a slowdown in growth of world trade combined
with declining competitiveness of Indian exports because of fall in international prices and
also because of large hikes given to administered prices of wheat and rice. International trade
has revived since 2002 and Indian export are also likely to increase as a result. For example,

India's exports of rice and wheat have recently recorded a big increase, they amounted to 12.4
million tonnes during 2002-03 compared with only 2.2 mn. Tonnes during 2001-02. It may be
noted that this increase was facilitated as a result of existence of large stocks and transport
subsidy made available to be exporters.
It is, therefore, obvious that the Indian farmer did derive some gain from exports. But to put
this in perspective. One should remember that Indias exports constituted only 5 per cent of
value of agricultural output and 6.1 per cent of its GDP with imports accounting for 2.6 per
cent of GDP in 2000-01. Consequently, in absolute terms, the gains from exports are only
limited and only a very small proportion of the farming community in some regions has
benefitted from them. Consequently increase in exports although welcome has not been able
to make much impact on the living condition of the farmers in India. However, India has a
large potential to increase its agricultural exports in a liberalised world once the developed
countries agree to eliminate their subsidies. In addition, this would need large investment in
agricultural infrastructure including agricultural research agro processing not only to create
export surpluses but also to remain competitive through increases in productivity.
Impact on Growth:
The impact of new economic policy on growth of the Indian economy has already been
examined in study. The main conclusion was that the new policies were instrumental in
accelerating the growth of the Indian economy. Both the GDP and per capita income
registered significant acceleration during 1990-91 to 2000-01 compared with all the earlier
decades. The growth rate of Indian economy accelerated from about 3.5 per cent pa during
1950-51 to 1979-80 to 5.5 per cent during the eighties and further to 6 per cent per annum
during the 1990's. There was a significant acceleration in per capita income growth also. It is
expected that higher growth in GDP would also benefit the agricultural sector through inter
sect oral linkages.
This notwithstanding, it is growth of agricultural GDP that has a more direct impact on the
living standards of the peasantry. As discussed earlier, instead of showing expected buoyancy
after the introduction of economic reforms, there was a noticeable deceleration in the growth
rate of agriculture. At 1980-81 constant prices, the growth of agricultural GDP decelerated
form 3.94 per cent p.a. during 1980-81 to 1990- 91 to only 1.95 per cent p.a. during 1990-91
to 1998-99. However, the revised series of GDP at 1993-94 prices show that there was no
decline in the growth rate of total GDP originating from agriculture the main reason for the
discrepancy in the two estimates is much higher GDP contribution attributed to fruits and
vegetables in the 993-94 series. But the National Statistical Commission (2001) has
expressed serious doubts the validity of the income data from fruits and vegetables.
Crop Production:
GROWTH RATES OF GDP AND PER CAPITA INCOME - 1980-81 PRICES
Year
1950-51 to 1964-65
1967-68 to 1979-80
1980-81 to 1990-91
1990-91 to 1988-99

GDP
4.00
3.45
5.46
6.23

GDP Agri.
2.65
2.10
3.94
1.95

Secondary
7.73
4.43
6.86
7.45

Tertiary
4.61
4.49
6.58
8.24

Per Capita Income


1.69
1.11
3.01
4.30

SOURCES: Economic Survey, Various Issues.


GROWTH RATES OF GDP AND PER CAPITA INCOME - 1993-94 PRICES
Year
1950-51 to 1964-65

GDP
3.94

GDP Agri.
2.54

Secondary Tertiary
6.88
4.76

Per Capita Income


1.86

1967-68 to 1979-80
1980-81 to 1990-91
1990-91 to 1999-00

3.44
5.62
6.19

2.05
3.13
3.30

4.23
6.96
6.64

4.54
6.72
7.97

1.23
3.06
3.99

SOURCE: National Accounts Statistics 2001-02.


That agricultural growth decelerated during the 1990's is also brought out by the fact that
there took place a very distinct deceleration in the growth rate of crop output during the
1990's compared with the 1980's. The growth rate for all crops taken together decelerated to
1.96 pa during 1990-91 to 2000-01 compared with a rate of 3.19 per cent pa during 1980-812
to 1990-91. It may be noted that the reported crops taken together account for more than 95
per cent of gross cropped area in the country (Table 11).
A more serious development was a visible deceleration in the yield growth of various crops.
Thus whereas the yield growth for all crops taken together decelerated from 2.65 per cent pa
during the eighties to 1.38 per cent pa during the nineties. That for rice decelerated from 3.21
to 1.27 and for wheat from 3.15 to 2.32 per cent p.a. Similar is the case for cotton. The main
reason for deceleration in crop yields is neglect in public investment in R&D and extension in
agriculture.
A significant deceleration in the growth of crop output and yields has adversely affected the
farmers by reducing their income and profitability. This also had an adverse impact on
employment.
The most important reason for the deceleration in agricultural growth has been a sharp
deceleration in total deceleration in agricultural growth has been a sharp deceleration in total
investment and more so in public sector investment in agriculture since the beginning of
1980's and more so since 1991.
This has resulted in reducing the potential for future growth. A decline in research investment
has had more serious consequences and seems to be the main cause for stagnation and
deceleration of yields of major crops. The increased private investment has not benefited
agricultural research either. The major reason for decline in public sector investment has been
fiscal compression, which has mainly fallen on investment. There has been little or no effort
to cut on inessential expenditures. Like expenditure on salaries, subsidies and defence etc.
Some of the consequences of deceleration of agriculture on agricultural population would
now be examined briefly.
Collapse of Agricultural Employment:
Slowing down of growth rates in agriculture has had many serious consequences for the
peasantry in the country.
One of the serious development was a notable deceleration in employment growth in the
economy from 2.20.
TABLE - 12
CAPITAL FORMATION IN AGRICULTURE (Rs. in Crores)
Year

Total

Public

Private

Percent
Public

Share Private

Total GCF
in
Agriculture
as %age of
GDP from

Agriculture
(AT 1980-81 PRICES)
1960-61

1668

589

1079

35.03

64.7

5.1

1970-71

2758

789

1969

28.6

71.4

6.7

1980-81

4636

1706

2840

38.7

61.3

0.6

1990-91

4594

1154

3440

25.1

74.9

6.6

1991-92

4729

1002

3727

21.2

78.8

6.9

1992-93

5372

1061

4311

19.7

80.3

7.4

1993-94

5031

1153

3878

22.9

77.1

6.7

1994-95

6256

1316

4940

21.0

79.0

7.9

1995-96

6961

1268

5693

18.2

81.8

9.0

1996-97

6999

1132

5867

16.2

83.8

8.5

(AT 1993-94 PRICES)


1993-94

13523

4467

9056

33.0

67.0

5.2

1994-95

14969

4947

10022

33.0

67.0

5.4

1995-96

15690

4848

10842

30.9

69.1

5.7

1996-97

16176

4668

11508

28.0

71.7

5.4

1997-98

15953

3979

11974

24.9

75.1

5.4

1998-99

16384

3846

12538

23.5

76.5

5.2

1999-00

18656

4668

13988

23.0

75.0

5.9

SOURCE : Col. CSO. National Account Statistics, Various Issues.


per cent pa during 1987-88 to 1993-94 to only 1.03 per cent pa during 1993-94 to 1999-00.
More important although employment growth has registered a decline in almost all the
sectors of the economy, compared with that during 1972-73 to 1987-88, a significant
development is a sharp decline and collapse of employment growth in agriculture during the
nineties.
Second, despite slowing in the growth in the labour force. There was visible increase in open
unemployment during 1993-94 to 1999-00. According to NSS, there were 3.98 million
unemployed in India in 1973-74 and their number had increased to 7.49 million by 1993-94
and to as much as 9.15 million by 1999-00. In the meantime, the incidence of unemployment
(defined as the ratio of unemployed person to the labour force) increased from 1.64 per cent
in 1973-74 to 1.96 per cent in 1993-94 and 2.25 per cent in 1999-00.
The increase in both the number and per cent of unemployed is the direct consequence of
collapse of employment in agriculture .this is more so because the higher growth of
employment in the non-agricultural sectors has not been sufficient to compensate for decline
in agricultural employment. The employment scenario during the 1990's has become a matter
of great concern.

That the process of labour force diversification is painfully slow is also brought out by the
distribution of workers across sector. Thus, the share of agricultural workers in total
workforce declined from 73.9 per cent in 19972-73 to 63.9 per cent in 1993-94 and further to
60.2 per cent during 1999-00. In 27 years from 1972-73 to 1999-00, the share of agricultural
workers in total workforce has only declined from 13.7 per cent. At this rate of change, even
in 2.050 more than one third of the workforce will still be engaged in relatively low
productivity agriculture. Another disturbing feature is that the diversification of workforce is
much slower in the rural areas and 71.4 per cent of male workers are still engaged in
agriculture (Table 6). Similar is the trend about the distribution of female workforce in rural
areas.
Basing themselves on productivity and wage data, recently, some scholars have underplayed
the crisis in agriculture and have suggested that compared with the pre reform period the
economic condition of workers has improved during the period 1993-94 to 1999-2000,
(Tendulkar.2003). The fact that during 1983 to 1993-94 and 1993 -94 to 1999-2000, growth
rate of agriculture exceeded the growth of employment did result in increase in labour
productivity. Available data from NSSO also shows that casual wages in agriculture at
constant (1993-94) prices marginally increased from Rs. 19.34 day to Rs. 22.39 day in 199900. Further, wage rates in non-agricultural occupations were found to be significantly higher
than that in agriculture. This suggests that the shift from agriculture to non-agriculture is not a
distress phenomenon.
A further argument is based on official data that brings out a notable decline in the incidence
rural poverty during 1999- 00 compared with 1993-94 (Table 8). The implication is that there
was an improvement in the living standards of rural households in India during the post
reform period.
Both the above arguments need careful scrutiny. First, it is difficult to believe that the
conditions of the peasantry improves even when the output growth registers a significant
decline. One of the problems is that the wage data refers to casual workers only. The
condition of agricultural labour improves provided wage increase is accompanied by more
days of work. According to some studies, total earnings of casual workers have indeed
improved (Tendulkar, 2002).But this does not in a way reflect earning of the cultivating
peasantry. The latter are determined by growth of output, growth in crop productivity and
increase in per unit profitabilty. The available data point out that there has been deterioration
with respect to all these variables.
Per cent Distribution of Usually Working by Broad Group of Industry: Rural India Usual
Principal and Subsidiary Status.
Year
!983
1987-88
1993-94
1999-00

Male
Primary
77.5
74.5
74.1
7.14

Secondary
10.0
12.1
11.2
12.6

Female
Tertiary
12.2
13.4
14.7
16.1

Primary
87.5
84.7
86.2
85.4

Secondary
07.4
10.0
08.3
09.0

Tertiary
4.8
5.3
5.5
5.8

Source: Col (1999), "Household Consumer Expenditure and Employment Situation in India".
NSS Report No. 44z and 55th Round of NSSO.
Casual Wages during Different Round of NSS
Sector

1978-79

1983

1987-88

1993-94

1999-2000

At Current Price
Agr-0
Secondary
Tertiary
All 0-9

3.47
4.53
4.53
4.12

06.32
10.31
09.29
07.30
At 1993-94 Price

09.98
16.57
15.38
11.75

19.34
31.93
28.50
21.64

36.22
65.32
53.39
42.51

Agr-0
Secondary
Tertiary
All 0-9

12.44
16.46
17.07
15.10

13.55
23.90
21.60
16.53

17.67
28.41
26.45
20.39

19.34
31.93
28.50
21.64

22.39
38.17
32.75
25.73

Source: NSSO, Various rounds.


Second, the data about GDP from agriculture are equally flawed. The validity of official data
on GDP from fruits and vegetables has been questioned by no less than the Statistical
Commission of India.
Third, the official estimates about the incidence of poverty have also been seriously
questioned (sen.2002). It appears that the mix up with regard to 7 days recall period and 30
days recall period has made it difficult to put full reliance on these estimates. Some scholars
have tried to use data of consumption from 55th Round Survey on Employment and
Unemployment with a view to get independent estimates of poverty. These authors also show
hate a visible decline has taken place in the incidence of poverty although the decline as not
as large given by official data But this notwithstanding, the number of poor is still very large
in India and most of these are in rural India and belong to the agricultural labour and marginal
farmers households.
It appears that the introduction of economic reforms and the becoming founder member of
WTO have not brought about the promised benefits to a large section of the poor farming
community in India.
TABLE - 18
Percentage of People below Poverty Line 1983-2000
NSS

(Round) Rural

Urban

Combined

Rounds/Year

Absolute Numbers
in Millions Rural Urban

27 (LS) 1973-74

56.40

49.00

54.90

261.20

60.31

32 (LS) 1977-78
38(LS)1983
43 (LS) 1987-88
45 (TS) 1989-90

53.10
45.65
39.00
33.70

45.20
40.79
38.20
36.00

51.30
44.48
38.86
34.28

204.25
251.72
229.40

67.74
75.29
83.35

46 (TS) 1990-91

35.04

35.29

35.11

48(TS)1992

41.70

37.80

40.70

50 (LS) 1993-94

37.27

32.26

35.97

242.10

76.30

51 (TS) 1994-95

38.03

34.24

36.98

52 (TS) 1995-96

38.29

30.05

36.08

53(TS)1997

38.46

33.97

37.23

55th (LS) 1999-00


30 days Recall

27.09

23.62

26.10

194.44

67.48

55th (LS) 1999-00

24.02

21.50

23.33

172.54

61.68

7days Recall
LS= Large Sample, TS= Thin Sample.
Because of the changes In the methodology of data collection, these two sets of estimates
may not be strictly comparable to the earlier estimates of poverty. Economic Survey, 20002001. Page 194
Source: NSS. Household Consumption Surveys, Government of India. Various Rounds.
Terms of Trade:
The final issue is terms of trade agriculture via non-agricultural sector, which has received a
great deal of attention in India. That the relative terms of trade for agriculture via non
agriculture are continuously deteriorating is vividly brought out by an analysis of national
income and labour force data over a long period. It comes out that whereas Indian economy
registered a significant sect oral diversification in terms of income, labour force
diversification has been painfully slow. Thus whereas agriculture's share in GDP declined
from 55 per cent in 1950-51 to 27 per cent in 1999-00, the proportion of workers engaged in
agriculture only declined from about 66 per cent in 1950 to about 60 per cent in the
meantime, consequently the per worker productivity in non-agriculture which was 1.8 times
that of agricultural worker in 1950 had risen to 4.3 times that of agricultural worker by 199900. The persistent decline in the relative productivity and income of agricultural workers is a
matter of grave concern for the political economy of India
Besides this overall picture, many scholars in India have studied barter terms of trade in detail
by comparing the prices paid and the prices received by agriculture relative to nonagriculture. One of the problems with barter terms of trade is that it only refers to the fact
whether higher or lower relative prices were received by agriculture. It does not in any way
determine the relative movements in income terms of trade. Since income depends not only
on relative prices but also on productivity. One way to correct would be to look at the relative
movement in productivity along with prices. Or alternatively, implicit price deflators derived
from GDP in agriculture and non-agriculture from current and constant prices series could
give a rough idea of the movement in income terms of trade. Table 9 below and the
accompanying Figure give details of terms of trade calculated by these two methods.
The barter terms of trade bring out that there was some improvement in agriculture's terms of
trade during the 1990's. But the degree of this improvement was much smaller than during
the 1980's. Further, more unlike during the 1980'swhen a notable improvement in terms of
trade was accompanied by a significant increase in productivity, during the 1990's, a small
improvement in terms of trade was accompanied by a decline in productivity. Therefore,
nothing conclusive can be said about improvements in income terms of trade during the
1990's. It once again comes out that there was only a marginal increase in agriculture's terms
of trade via non agriculture.

Hence, contrary to expectations and despite large increases given to administered prices of
important agricultural commodities. Economic liberalisation during the 1990's did not lead to
any perceptible increase in the fortunes of the agricultural sector.
Index of Terms of trade between Agriculture and Non-agriculture as Compiled by DES
(Triennium ending 1990-91 =100)
Year

Combined

Index of

Index of

Index of

Index of

Prices

Terms of

terms of

Prices Paid

Received

Trade

(DES) Trade **B


91.7
91.3
91.6
89.8
89.3
91.3
95.7
93.1
93.8
95.8
101.1
97.4
100.0
100.2
101.2
103.5
107.0
105.59
105.4

1981-82

61.9

54.9

*A
88.7

1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00

66.0
70.1
72.4
75.2
80.2
88.3
91.8
98.1
110.2
123.8
133.5
146.1
160.5
173.7
184.8
194.9
209.9
214.0

60.3
64.2
68.0
70.4
76.7
86.0
90.3
97.5
112.3
130.8
138.7
151.4
171.1
182.9
190.6
205.9
220.8
223.1

91.4
91.6
93.9
93.6
95.7
97.4
98.3
994
101.9
105.6
103.9
103.6
106.6
105.3
103.1
105.6
105.2
104.2

NOTE: Mostly restricted means that most products or product varieties in the category are
subject to licensing or other non- tariff controls.
HIGHLIGHTS OF INDIAN PROPOSALS
India has submitted its initial negotiating proposals to the World Trade Organisation (WTO)
for the mandated negotiations under the Agreement on Agriculture in the areas of market
access, domestic support, export competition and food security with the objective of
protecting its food and livelihood security and creating increased market access opportunities
and with a view to promoting its agricultural exports. These proposals were approved by the
Cabinet Committee on WTO matters.
The summary of India's proposals is given below. Indian proposals submitted to WTO on
15.1.2001 can broadly be classified into the following 2 categories:
i)
Increasing the flexibility enjoyed by developing countries by creation of a "Food
Security Box" for providing domestic support to the agriculture sector under the
special and differential provisions as also further strengthening of trade defence

mechanisms with a view to ensuring the food security and to take care of
livelihood concerns.
ii)
Demanding of substantial and meaningful reductions in tariffs including
elimination of peak tariff and tariff escalation, substantial reductions in domestic
support and elimination of export subsidies by the developed countries to as to get
meaningful market access opportunities.
The proposals in the first category include:
Additional flexibility for providing subsidies to key farm inputs for agricultural and rural
development.
Exemption from any reduction commitments of measures taken by developing country
members for alleviation of poverty, rural development rural employment and diversification
of agriculture.
Exclusion from AMS calculations of product specific support given to low income
and resource poor farmers.
Clarifications on certain implementation issues, such as, offsetting of positive non product
specific support with negative product specific support, suitable methodology of notifying
domestic support in stable currency to take care of inflation and depreciation.
Rationalisation of product coverage of AoA by inclusion of certain primary
agricultural commodities such as rubber, Jute, coir etc.
Flexibility enjoyed by developing countries in taking certain measures in accordance with
other WTO covered Agreements should not be constrained by the provisions of AoA.
Maintenance of appropriate level of tariff bindings on agricultural products in developing
countries, keeping in mind their developmental needs and high distortions prevalent in the
international markets with a view to protect livelihood of their farming population. Also
linking the appropriate levels of tariffs in developing countries with trade distortions in the
areas of market access, domestic support and export competition.
Rationalisation of low tariff bindings in developing countries, which could not be rationalised
in the earlier negotiations.
Separate safeguard mechanisms on the lines of SSG including a provision for imposition of
QRs in the event of a surge in imports or a decline in International prices, as an SDT measure
to protect Food Security & livelihood concerns.
No minimum market access commitments for developing countries.
The proposals in the second category include:
Blue box and de-coupled and direct payments in Green Box to be included in the Amber Box
to be subjected to reduction commitments.
* Accelerated reduction in AMS so as to bring it below de minimums by the developed
countries in 3 years and by the developing countries in 5 years.
Substantial reduction in tariff bindings including elimination of peak tariffs and tariff
escalation in developed countries.
Expansion and transparent administration of TRQs pending their eventual abolition.
Elimination through accelerated reduction in export subsidies and disciplining of all forms of
export subsidisation etc.
Abolition of Peace Clause for developed countries.
TEXTS OF INDIA'S PROPOSALS
India's Proposals on Agriculture - II: Market Access:
PROPOSALS:
1. An appropriate formula with a cap on tariff bindings should be evolved to effect substantial
reduction in all tariff levels including peak tariffs and tariff escalations in developed
countries. The developed countries should make a down payment by way of bringing down
the tariff bindings, as on 1.1.2001, by 50 per cent by the end of the year 2001.

2. As a special and differential measure, the developing country members should be allowed
to maintain appropriate levels of tariff bindings keeping in mind their developmental needs
and the high distortions prevalent in the international markets. The appropriate levels of tariff
bindings will have to necessarily relate to othe trade distortions in the areas of market access,
domestic support and export competition being practised by the developed countries.
3. A separate safeguard mechanism on the lines of the Special Safeguard provisions (Article 5
of AoA) along with a provision for imposition of quantitative Restrictions under specified
circumstances, should be made available to all developing countries irrespective of
tariffication, in the event of a surge in the imports or a decline in prices and to ensure the food
and livelihood security of their people.
4. Even after the abolition of the peace clause (Article 13 of AoA), as a special and
differential provision, measures taken by developing countries under Annex 2 (Green Box)
and other domestic support measures conforming to Article 6 of AoA shall be exempt for a
period of ten years from imposition of countervailing duties under the Agreement on
Subsidies and Countervailing Measures and Article XVI of GATT 1994 and shall also be
exempt from actions based on non-violation nullification or impairment of the benefits of
tariff concessions under paragraph 1 (b) of Article XXIII of GATT 1994.
5. Tariff Rate Quotas (TRQs) should be eventually abolished. In the intervening period, there
should, however, be substantial expansion of TRQs administered by developed countries.
There should also be greater transparency in administration of TRQs by prescribing
guidelines for complete uniformity across countries and products, adopting a common base
period for calculating domestic consumption for minimum market access commitment by the
developed countries and stricter application of the MFN principle in allocation of TRQs with
special preference being given to developing countries having less than $1,000 per capita
annual income. Allocation of TRQs should be for specific products and not for aggregated
commodity groups.
6. Developed country members should not be allowed to use SPS measures for protectionist
purposes by prescribing overly stringent trade restrictive SPS measures for denying market
access to developing countries.
7. Developing country members should be exempt from any obligation to provide any
minimum market access.
8. The provision of Special Treatment as provided in Section A of Annex 5 of AoA, which is
enjoyed by a very few countries for a few products, should be removed as it is against the
basic principles of GATT.
India's Proposals on Agriculture - III: Export Competition:
PROPOSALS:
1. Export subsidies on all agricultural products should be eliminated in the first 2 years of
implementation, both in terms of export subsidy outlays and subsidised volumes. As a down
payment, the subsidy outlays and subsidised volumes should be reduced by 50 per cent from
the level maintained in the year 2000 by the developed countries by the end of 2001.
2. During the transition period also, no "rolling over" of unused export subsidies should be
allowed.
3. All forms of export subsidisation including export credit, guarantees, price discounts and
insurance programmes etc. in developed countries should be added to the export subsidies
and should be subjected to the overall disciplines applicable to export subsidies.
4. taking into account the needs and special conditions of developing countries:
i) The existing special and differential treatment for developing countries under Article 9.4 of
the AoA should continue.

ii) Special dispensation for developing countries provided under Article 27 read with Annex
VII of the Agreement on subsidies and countervailing Measures should prevail over Article 8
of AoA.
iii) Article 13 (c), which gives protection to export subsidies that conform to the provisions of
part (v) of AoA, should be abolished forthwith.
iv) After the abolition of the peace clause (Article 13 of AoA), the provisions under Article
9.1 (d) & (e) permitted to be used by developing countries without any reduction
commitments under Article 9.4 of AoA should be retained as such and should be exempt from
countervailing duties and actions based on Article XVI of GATT 1994 and the Agreement on
Subsidies and Countervailing Measures.
India's Proposals on Agriculture - IV: Domestic Support:
PROPOSALS:
1. Direct Payments along with decoupled income support and Governmental financial
participation in income insurance and income safety-net programmes (paras 5, 6 & 7 of
Annex 2) as well as direct payments under production limiting programmes (Art. 6.5) should
be included in the non-product specific Aggregate Measurement of Support and should be
subject to reduction commitment so as not to exceed the de minimums level, i.e., 5 per cent
(for developed countries) and 10 per cent (for developing countries) of the value of that
Member's total agricultural production (Article 6.4).
2. Product specific support provided to low-income resource poor farmers should be excluded
from the AMS calculations, as is the case for the non-product specific support as per para 6.2
of AoA.
3. The total domestic support should be brought down below the de minimums level within a
maximum period of three years by developed countries and in five years by the developing
country Members. The developed countries should make a down payment by the end of the
year 2001, through a 50 per cent reduction in the domestic support from the level maintained
during the year 2000; or by the amount as is higher than the de minimums, whichever is
lower.
4. A suitable methodology of notifying the domestic support in a stable currency/basket of
currencies should be adopted for taking into account the incidence of inflation and exchange
rate variations.
5. Negative product specific support figures should be allowed to be adjusted against the
positive non-product specific AMS support figures.
6.
While
product specific support should be calculated at the aggregate level, support too any one
particular commodity should not be allowed to exceed the double of the de minimums limit
of that commodity, as prescribed under Article 6.4.
7. Support extended under paras 5, 6 and 7 of Annex - 2 should be shifted from Article 13 (a)
to 13 (b) of the Peace Clause. However, the Peace Clause must lapse as already provided in
AoA.
8. The provisions of Article 6.4 of AoA should prevail over the stipulation contained in
Article 13 (b) (ii) of the Agreement.
9. After the abolition of the peace clause (Article 13 of AoA), as a special and differential
provision, measures under Annex - 2 (Green Box) and other domestic support measures
conforming to Article 6 of AoA.
10. Shall be exempt from imposition of countervailing duties under the Agreement on
Subsidies and Countervailing Measures and Article XVI of GATT 1994 and shalll also be
exempt from actions based on non-violation nullification or impairment of the benefits of
tariff concessions under paragraph 1 (b) of Article XXIII of GATT 1994.

11. All measures taken by developing countries for poverty alleviation, rural development,
rural employment and diversification of agriculture should be exempted from any reduction
commitments.