An Analytical Study on Impact of WTO on Agricultural Trade in India.

Introduction
India is a nation known for villages. Today, even after 69 years of independence,
agricultural sector is still the main stay of the Indian economy. It provides employment to about
48.9 percent population, contributes 17.4% of GDP (Economic Survey, 2015-16). Some
important agricultural products are exported (rice, tea, coffee, cashew, spices, tobacco, leather,
etc) and hence a good foreign exchange earner for our country.
Agricultural sector also plays a vital role in forward and backward linkages, it is also a source of
raw material for agro – based industries including sugar, textiles, processed food, food products,
paper, jute and provides market for capital goods like trackers, pump sets, other machinery and
inputs like fertilizers, pesticides, insecticides and light consumer goods. During the first three
Five Years Plans, agriculture was given prime importance by policy makers to overcome the food
shortage created by the partition of the country. Since then the nation has been investing huge
resources in agricultural sector, in terms of investment subsidies and minimum support prices.
However, the rate of growth of public investment in agricultural sector was negative during the
decade of 80’s and 90’s.
The technology led investments in agriculture have made the country self-sufficient and a
leading producer of several agricultural commodities in the world. The green revolution in food
grain crops, the yellow revolution in oil seeds, the white revolution in milk production, the blue
revolution in fish production and the golden revolution in horticultural crops bear ample
testimony to the contribution of agricultural research and development that took place during the
post independence period. Despite all the contributions being one of the largest producers of
variety of crops, the productivity levels of agricultural sector is not commensurate and has
remained much below the global level. The main contributors to this unbalanced growth are
institutional and technological factors. The lack of irrigation facilities, inadequate use of
fertilizers, limited use of high yielding seeds, inadequate plant protection, improper harvesting
techniques, and lack of farm mechanization. As regards the institutional factors such as failure of
land reforms, fragmentation of land holdings, absentee landlordism, improper marketing
facilities, lack of financial and credit assistance for reinvestment in agriculture and cob-web of
rural indebtedness. These are some of the factors, which still exist, and proliferate negative effect
on farm productivity. The answer lies in the question itself. The present policies should be
effectively implemented so that the economic surplus is generated. The process can trickle down
to the poorest of the poor farmers and the much-desired rate of growth in agriculture sector can
be generated. Declaring agriculture sector as the thrust sector in the Exim Policy of India,
formation of NABARD, APEDA are some of the steps taken by the government in right direction
to bring Indian farm sector on a global level.
The sheer fact that agriculture at last came within the multilateral trading system during the
Uruguay Round of trade negotiations, more than forty years after the creation of the General
Agreement on Tariffs and Trade (GATT) and at the birth of its successor, the World Trade
Organization (WTO) in 1995, is widely acknowledged as an achievement, a positive step
forward. At international level, according to World Trade Organization (WTO) report 2015 on
International Trade statistics shows that export and import of agricultural products from India
was almost US$ 43 billion & 27 billion, respectively and the share of India in value terms was
2.5 % and 1.5 % respectively in export and import of agricultural products. India has improved
its ranking up to 10th at globally. India makes it self-sufficient in agriculture sector (food grains)
after the green revolution, which makes it possible to export agricultural products. Due to
favorable support of agriculture policy, India became stable in the export of agricultural
products. Agriculture sector is very important for the economic growth and development and
because it provides food grains and employment to its population, also important for industrial
development because these various products are used as a raw material for industries such as
Sugarcane, Cotton, Oil seeds, Jute etc.
Globalization of Indian agriculture means, exposure of Indian agriculture to international
market forces through free exports and imports· of agriculture and allied products. As a matter of
fact, India is already committed to the globalization of agricultural sector. Globalization of the
agricultural sector provides a lot of opportunities to share the international market as well as it
exposes the agricultural sector to competition from foreign supplier in the domestic market and
force the domestic production to adopt more efficient techniques of production. India is likely to
benefit from the globalization of the agricultural sector. It is the opinion of many that exports
from India are likely to increase significantly if the Government follows the policy of globalizing
the Indian economy. The export of agriculture and allied products earn foreign exchange,
provides much needed competition in products and helps to realize economies of scale, which
helps the domestic consumers. Continuous and sustained export of agriculture and allied
products encourages modernization of production and marketing.
As we are in the changing world as well as global trade agreement and development of
institutions like the World Trade Organization (WTO), the emerging world trading system may
claim to change the terms of trade in favour of agriculture and traded goods from India. The
present study will be undertaken to consider agricultural trade as the key sector to Indian
economic development. It covers the periods before WTO and after WTO. i.e., The period 1975-
76 to 1994-1995 (Pre-WTO period) and the year 1995-96 to 2014-15 (Post-WTO period).

Objectives:

1. To study the trends of agricultural trade in India during pre and post WTO regime
2. To compute the terms of trade in Indian agriculture
3. To examine the comparative advantage in India’s agricultural trade.
4. To study the instability of India’s agricultural trade and suggest appropriate policy
measures for improving the agricultural trade

Brief resume of work in India and abroad

A brief review relevant to the study is presented below:

Ramesh Chand and Tewari (1991) used the data of Food and Agricultural Organization of
the United Nations (FAO) to analyze the trends in agricultural exports for the period 1970-1973
to 1985-1988. According to their findings agricultural exports as a proportion of the total export
declined from 38.0 per cent in 1970-73 to 25.6 percent in 1985-88. During the same period,
imports declined from 33.9 per cent to 15.3 per cent. Taking individual commodities as in 1985-
88 the highest share in total agricultural exports was recorded for coffee, tea, cocoa i.e. 35.0 per
cent followed by 14 per cent for foods and vegetables. There was an increasing trend in the
shares of both in 1980's. About imports, vegetable oil accounted for the highest proportion in
1985-88 followed by fruits and vegetables. The share of both these commodities recorded an
increase in 1980's.

Ratna Reddy and Badri Narayanan (1991) analyzed the trade in exports of Indian
agricultural goods for the period 1962-85. They found a continuous decline in the share of
agricultural exports from 44 per cent in 1966 to 28 percent in 1985. Similarly, there was a
decline in the share of agricultural imports from 29 per cent to 10 per cent.

Singh, Prasad and Dinger (1992) studied trends in agricultural trade for the period 1970-
71 to 1990-91. They found that the share of agricultural exports declined from 31.72 per cent in
1970-71 to 19.40 per cent in 1990-91. Similarly, the agricultural imports declined from 27.0 per
cent to 2.61 per cent in the same period.

Bhattacharya (2004) in his analysis discovered that India's trade surplus in agriculture is
due to the higher growth of export of non-traditional commodities viz. fruits, juices, vegetables,
processed fruits and beverages etc. On the other hand export incomes had been somewhat offset
by the continuing dismal performance of India's traditional products like cashew, nuts, tea,
coffee, tobacco, spices, etc.

Chand (2005) in his analysis found India's agricultural export performance in the new
scenario had indicated that the decline in value of India's agricultural exports in the post WTO
period is more or less decline in world trade in agriculture.

Ramphul (2007) used FAO trade yearbook data and least square growth model and
nominal growth model had analyzed the trends and patterns on India's agricultural trade in pre
and post WTO phase. He had found in his analysis that in the WTO regime, the average annual
growth rates of India's agricultural exports and imports had decreased but it is worst for
agricultural exports. Due to this net agricultural export had reduced and self-reliance in
agriculture had badly affected the performance of import and export of agriculture and allied
products. This indicated that Agreement on Agriculture (AOA) had not encouraged an expansion
in India's net farm trade. He further observed that the main part of overall exports growth during
the period 1990-2004 was the result of the expansion of world market for the countries
agricultural exports products and active expansion of market share of its agricultural exports. The
reason might be that the decrease in agricultural export rate due to the deceleration in agricultural
growth. There could be other reason also, the huge amount of domestic subsidies provided by
developed countries to their farmers. The study suggested that to protect the productive
efficiency of Indian agriculture based on true comparative advantage; India needs to maintain its
agricultural tariff rates at WTO final bound level.

Technical programme of work

Place of work: Department of Agricultural Economics
Facilities available: Yes
 The present study will be based on secondary data, which will be collected from various
published and unpublished sources. The data will be collected for the period 1975-76 to 2014-15.
However, the present study will cover the periods before WTO and after WTO. i.e., the period
1975-76 to 1994-1995 (Pre-WTO period) and the years 1995-96 to 2014-15 (Post-WTO period)
Method of Least Squares
The trend of agricultural trade growth of major agricultural commodities from 1975-76 will be
obtained by using the method of least squares. This method is an algebraic device and widely
used. It gives us a straight line from which the sum of the deviations on either side will be equal
to zero. Growth rates will also be calculated.
Terms of Trade (TOT)
The Terms of Trade of agricultural trade in India will be calculated through following equation.

TOT = EQ – IQ

Where
EQ = Export quantity
IQ = Import quantity

Balassa’s Revealed Comparative Advantage (Export Performance Ratio)

The performance of major agricultural commodities’s export, import during the WTO period and
the comparison of the performance during the Pre-WTO and WTO period will be calculated by
using the Revealed Comparative Advantage (RCA) analysis. RCA Indices will be used to find
out the products in which the country has comparative advantage, by comparing India’s major
agricultural commodities trade with world average.
Coefficient of variation (CV)
The extent of variability in the growth rate of trade of major agricultural commodities over the
years, will be analysed through coefficient of variation.

S. D
C.V = ∗100
Mean

Where
C.V = Coefficient of variation
S.D = Standard Deviation
References
Ramesh Chand and S.C. Tewari (1991), "Growth and Instability of Indian Exports and Imports of Agricultural
Commodities", Indian Journal of Agricultural Economics, April-June,, Vol.XLVI, No.2, p.l59.
Ratna Reddy, V and Badri Narayanan K. (1992), "Trade Experience of Indian Agriculture: Behaviour of Net Export
Supply Functions for Dominant Commodities", Indian Journal of Agricultural Economics, January-
March, VOL.XL VII. No.1, p.49.
Singh, Prasad and Dinger (1992), "Indian Agricultural Policy in the Context of New Trade and Industrial Policy",
Indian Journal of Agricultural Economics, July -Sept. 1992, VOL XLVII, No.3, pp.357-359.
Chand Ramesh (2005), "India's Agro Export Performance and Competitiveness in Changed International Scenario"
in Hanumantha Rao, C.H., Bhattacharya B.B. and Siddharthian N.S. (Editors), Indian Economy and
Society, Academic Foundation; New Delhi.
Bhattacharya, B.B. (2004), "Agricultural Exports", Academic Foundation Publication, New Delhi.
Ramphul (2007), "WTO and India's Agricultural Trade: An Empirical Analysis" in Manoj Shankar Gupper (editor),
WTO and Indian Economy, Serials Publications, New Delhi.