ASSIGNMENT

Course Code : MS-03

Course Title : Economic and Social Environment
Assignment Code : MS-03/TMA/SEM-II/2016
Coverage : All Blocks
Note: Attempt all the questions and submit this assignment on or before 31st October, 2016
to the coordinator of your study centre.
1. Discuss socio-cultural environment of business and its importance to business giving
examples.
2. What are the objectives of public sector and how far these objectives have been achieved?
Critically analyse.
3. What reforms have taken place in the small scale sector and what is their contribution?
Discuss with examples.
4. In what way trade policy reforms contribute to enhancing India’s competitiveness in the
International Market? Explain in detail.
5. Discuss in detail various measures involved in the process of privatisation.
6. “Neglect of agriculture is the major sin of economic reforms.” Examine the statement in
detail.

Answer
1. Discuss socio-cultural environment of business and its importance to business giving examples.
Ans.: Social and cultural factors are important to consider while creating and implementing a
marketing strategy of a company. These often-linked but somewhat different factors have diverse
effects on the decisions of consumers and buyers. Basically, sociocultural factors are customs,
lifestyles and values that characterize a society. More specifically, cultural aspects include aesthetics,
education, language, law and politics, religion, social organizations, technology and material culture,
values and attitudes. Social factors include reference groups, family, role and status in the society.
Small-business owners should be aware of and understand these factors' connection with buying
habits.
Businesses do not exist in a vacuum, and even the most successful business must be aware of changes
in the cultures and societies in which it does business. As society and culture change, businesses must
adapt to stay ahead of their competitors and stay relevant in the minds of their consumers.
A major socio-cultural factor influencing businesses and business decisions is changing consumer
preferences. What was popular and fashionable 20 years ago may not be popular today or 10 years
down the road. Different styles and priorities can undermine long successful products and services.
For example, a clothing company must constantly be aware of changing preferences when creating
new products or it will quickly become outdated.
Changes in demographics are also a significant factor in the business world. As populations age, for
example, markets for popular music and fashions may shrink while markets for luxury goods and

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health products may increase. Additionally, changes in the proportion of genders and different racial,
religious and ethnic groups within a society may also have a significant impact on the way a company
does business.
Advertising is perhaps the area of business most closely in touch with socio-cultural changes.
Advertising often seeks to be hip and trendsetting, and to do this, advertising agencies and
departments cannot lose track of the pulse of the societies in which they engage in business. Changes
in morals, values and fashions must all be considered when creating outward facing advertising.
In addition to a company's interactions with the market and its customers, socio-cultural factors also
impact a company's internal decision-making process. For example, changing gender roles and
increasing emphasis on family life have led to increased respect for maternity and even paternity leave
with organizations. Additionally, attitudes towards racial discrimination and sexual harassment have
changed drastically over the years as a result of socio-cultural change.
A business must utilize and adapt to its external social environment, or it will not survive. A business
must be keenly aware of the society's social preferences regarding its needs and wants. These
preferences and needs and wants will be influenced by a population's values, beliefs and practices.
Let's look at some examples. A change in beliefs and values towards energy conservation and global
climate change may create a change in consumer preference away from gas guzzling SUVs to hybrid
sedans. Some cultures treat the meal as a long social event, and fast food just won't cut it. Social
preferences relating to fashion are constantly changing. Skirt lengths go up and down depending upon
the years, as do the preference for single-breasted and double-breasted suits.
If a business refuses to adapt to changing social preferences, its sales will drop, and it will fail. Of
course, sometimes the change in social preferences may be so large that a business simply can't adapt.
For example, a social movement led to the outlawing of alcohol in the early 20th century, which was
known as Prohibition. During Prohibition, it was illegal to sell alcohol. Distilleries were put out of
business until Prohibition was repealed.
While there are risks with social change, there are also opportunities. Businesses often try to influence
social values through the use of marketing, advertising and targeted public relations strategies.
Marketing campaigns are used in an attempt to create trends. The fashion industry is a prime example.
Public relation campaigns are often used to build up or repair a business' image.
For example, BP launched a massive public relations campaign to improve its image after a massive
oil leak in the Gulf of Mexico caused by offshore drilling. Fast food restaurants may include healthier
choices on their menus and sponsor health-related activities.
Broader social values will also affect the success of a business. A society that values higher education
will provide a better workforce that will lead to more productivity and innovation. Likewise, a society
that supports investment in public infrastructure will have access to good transportation and
communication systems. And if the social values of a community include a hard work ethic, a
business will have access to productive workers and a population that has money to spend on goods
and services.
2. What are the objectives of public sector and how far these objectives have been achieved?
Critically analyse.
Ans.: At the time of independence, India was backward and underdeveloped – basically an agrarian
economy with weak industrial base, high rate of unemployment, low level of savings and investment
and near absence of infrastructural facilities. Indian economy needed a big push. This push could not
come from the private sector because of the lack of funds and their inability to take risk with large

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long-gestation investments. As such, government intervention through public sector was necessary for
self-reliant economic growth, to diversify the economy and to overcome economic and social
backwardness.
The public sector aims at achieving the following objectives:
 To promote rapid economic development through creation and expansion of infrastructure
 To generate financial resources for development
 To promote redistribution of income and wealth
 To create employment opportunities
 To promote balanced regional growth
 To encourage the development of small-scale and ancillary industries, and
 To promote exports on the one side and import substitution, on the other.
Role of Public Sector: The public sector has been playing a vital role in the economic development
of the country. Public sector is considered a powerful engine of economic development and an
important instrument of self-reliance. The main contributions of public enterprises to the country's
economy may be described as follows:
1. Filling the Gaps in Capital Goods: At the time of independence, there existed serious gaps
in the industrial structure of the country, particularly in the fields of heavy industries such as
steel, heavy machine tools, exploration and refining of oil, heavy Electrical and equipment,
chemicals and fertilizers, defense equipment, etc. Public sector has helped to fill up these
gaps. The basic infrastructure required for rapid industrialisation has been built up, through
the production of strategic capital goods. In this way the public sector has considerably
widened the industrial base of the country.
2. Employment: Public sector has created millions of jobs to tackle the unemployment problem
in the country. Public sector accounts for about two-thirds of the total employment in the
organised industrial sector in India. By taking over many sick units, the public sector has
protected the employment of millions. Public sector has also contributed a lot towards the
improvement of working and living conditions of workers by serving as a model employer.
3. Balanced Regional Development: Public sector undertakings have located their plants in
backward and untrodden parts of the county. These areas lacked basic industrial and civic
facilities like electricity, water supply, township and manpower. Public enterprises have
developed these facilities thereby bringing about complete transformation in the socio-
economic life of the people in these regions. Steel plants of Bhilai, Rourkela and Durgapur;
fertilizer factory at Sindri, are few examples of the development of backward regions by the
public sector.
4. Contribution to Public Exchequer: Apart from generation of internal resources and
payment of dividend, public enterprises have been making substantial contribution to the
Government exchequer through payment of corporate taxes, excise duty, custom duty etc. In
this way they help in mobilizing funds for financing the needs for the planned development of
the country. In recent years, the total contribution from the public enterprises has increased
considerably, between the periods 2002-03 to 2004-05 the contribution increased by Rs
81,438 crores on the average.
5. Export Promotion and Foreign Exchange Earnings: Some public enterprises have done
much to promote India’s export. The State Trading Corporation (STC), the Minerals and
Metals Trading Corporation (MMTC), Hindustan Steel Ltd., the Bharat Electronics Ltd., the
Hindustan Machine Tools, etc., have done very well in export promotion. The foreign

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 exchange earnings of the public sector enterprises have been rising from Rs 35 crores in
1965-66 to Rs 42,264 crores in 2004-05.
6. Import Substitution: Some public sector enterprises were started specifically to produce
goods which were formerly imported and thus to save foreign exchange. The Hindustan
Antibiotics Ltd., the Indian Drugs and Pharmaceuticals Ltd. (IDPL), the Oil and Natural Gas
Commission (ONGC), the Indian Oil Corporation Ltd., the Bharat Electronics Ltd., etc., have
saved foreign exchange by way of import substitution.
7. Research and Development: As most of the public enterprises are engaged in high
technology and heavy industries, they have undertaken research and development
programmes in a big way. Public sector has laid strong and wide base for self-reliance in the
field of technical know-how, maintenance and repair of sophisticated industrial plants,
machinery and equipment in the country. Through the development of technological skill,
public enterprises have reduced dependence on foreign knowhow. With the help of the
technological capability, public sector undertakings have successfully competed in the
international market.
In addition to the above, the public sector has played an important role in the achievement of
constitutional goals like reducing concentration of economic power in private hands, increasing public
control over the national economy, creating a socialistic pattern of society, etc. With all its linkages
the public sector has made solid contributions to national self-reliance.

Limitations: Despite their impressive role, Public enterprises in India suffer from several problems
and shortcomings. Some of these are described below:
1. Poor Project Planning: Investment decisions in many public enterprises are not based upon
proper evaluation of demand and supply, cost benefit analysis and technical feasibility. Lack
of a precise criterion and flaws in planning have caused undue delays and inflated costs in the
commissioning of projects. Many projects in the public sector have not been finished
according to the time schedule.
2. Over-capitalization: Due to inefficient financial planning, lack of effective financial control
and easy availability of money from the government, several public enterprises suffer from
over-capitalization The Administrative Reforms Commission found that Hindustan
Aeronautics, Heavy Engineering Corporation and Indian Drugs and Pharmaceuticals Ltd were
over-capitalized. Such over-capitalization resulted in high capital-output ratio and wastage of
scare capital resources.
3. Excessive Overheads: Public enterprises incur heavy expenditure on social overheads like
townships, schools, hospitals, etc. In many cases such establishment expenditure amounted to
10 percent of the total project cost. Recurring expenditure is required for the maintenance of
such overhead and welfare facilities. Hindustan Steel alone incurred an outlay of Rs. 78.2
crore on townships. Such amenities may be desirable but the expenditure on them should not
be unreasonably high.
4. Overstaffing: Manpower planning is not effective due to which several public enterprises
like Bhilai Steel have excess manpower. Recruitment is not based on sound labour
projections. On the other hand, posts of Chief Executives remain unfilled for years despite the
availability of required personnel.
5. Under-utilisation of Capacity: One serious problem of the public sector has been low
utilisation of installed capacity. In the absence of definite targets of production, effective
production planning and control and proper assessment of future needs many undertakings

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 have failed to make full use of their fixed assets. There is considerable idle capacity. In some
cases productivity is low on account of poor materials management or ineffective inventory
control.
6. Lack of a Proper Price Policy: There is no clear-cut price policy for public enterprises and
the Government has not laid down guidelines for the rate of return to be earned by different
undertakings. Public enterprises are expected to achieve various socio-economic objectives
and in the absence of a clear directive, pricing decisions are not always based on rational
analysis. In addition to dogmatic price policy, there is lack of cost-consciousness, quality
consciousness, and effective control on waste and efficiency.
7. Inefficient Management : The management of public enterprises in our country leaves much
to be desired. Managerial efficiency and effectiveness have been low due to inept
management, uninspiring leadership, too much centralisation, frequent transfers and lack of
personal stake. Civil servants who are deputed to manage the enterprises often lack proper
training and use bureaucratic practices. Political interference in day-to-day affairs, rigid
bureaucratic control and ineffective delegation of authority hamper initiative, flexibility and
quick decisions. Motivations and morale of both executives and workers are low due to the
lack of appropriate incentives.
3. What reforms have taken place in the small scale sector and what is their contribution? Discuss
with examples.
Ans.: The small scale industry (SSI) sector has emerged as a highly vibrant and dynamic secotor of
the Indian economy. It has made significant contribution towards building a strong stable national
economy. In an economy with a pre-dominant primary sector and agriculture depending on the
monsoon, such a diversification has to be in the direction of industrial sector in general and small-
scale sector in particular. Although agriculture is the backbone of our economy and the largest
contributor to G.D.P, too much dependence on this sector is unwise. In spite of the fact that millions
of people depend on agriculture, this sector is unable to absorb all and provide productive
employment. There is a widespread disguised unemployment in this sector. In view of this, there is a
need to diversify economic activities and shift the disguised unemployed from agriculture to other
sectors where they can be productively employed. Small-scale sector is one such sector that is labour
intensive and hence provides scope to absorb such labour.
The historical remarks of Mahatma Gandhi that ‘the poor of the world cannot be helped by mass
production but only by production by the masses’ guided the industrial policies in India since
independence. The routing of craft centers by large scale European imports under British rule only
steeled this belief. In spite of the elaborate Mahanabolis model under Nehruvian emphasis on
industrialization based on state led large industries, the Mahatma’s words kept echoing in minds of
the policy makers. The SSIs are defined under Industries (Regulation and Development) Act , 19511.
The definition since 1960, is purely based on investment limit in plant and machinery and at present
the limit is Rs. 1 cr. The different agencies use different criteria for defining the sector ; excise and
sales tax departments use turnover as the criteria, RBI uses expanded definition by including the
traditional industries as well, the NSSO and CSO define the entire industry in terms of organized and
unorganized as well as industrial enterprises run by households and non-households.
Because of the multiplicity of definition used by different agencies in formulating policies and
collecting the data, the sector suffers from acute data constraints. Taking into consideration, only
those figures on which most of the people tend to agree, the facts high- lighted about the sector are
well known :
 SSIs are the largest employer in India after agriculture

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  SSIs contribute 40% to manufacturing out-put of the country
 SSIs contribute 35% to the direct exports from India
Two things need consideration here. First, the SSIs manufacture about 7,500 products of which only
8002 odd products are reserved for exclusive manufacture from SSIs. Second, the high-lights
mentioned above are the results of decades of rather active policy intervention . I think, these figures
could have been substantially higher had there been a more liberal policy regime particularly after
1995. On the ground, for small industries, it meant growth of business, considerable increase in
competition and radical increase of both opportunities and threats. Growth of the sector is vindicated
by the fact that during the entire reform period, SSIs outperformed the rest of the manufacturing
sector. Whereas the average rate of growth of manufacturing sector during 1991-92 to 1999-2000
period had been around 6%, SSIs recorded 8% growth2. At the same time, whereas number of non-
SSI sick units during 1991 to 1999 increased by 19.4%, the increase for SSIs during the
corresponding period had been almost double i.e. 38%.
Further, the reform process also saw the increase in SSIs’ participation in international trade. During
1990-91 the SSI export as percentage of their production and percentage to total Indian exports had
been 6.2% and 29.7% respectively. The corresponding figures for the year 1999-2000 had been 9.2%
and 33% . The developments are very important in view of the fact that from 1973-74 to 1989-90, the
percentage of SSI export to their total production had hovered around 5.54%.
Facilitated by real export thrust of the government in the initial reform period and substantial
liberalization of foreign exchange regime, the entrepreneurs participated in international trade which
led to diversification of markets, identification of both more growth opportunities and technology
gaps. I feel, the period highlights the Schumpeterian principles of creative destruction as, on one hand,
a large number of SSIs either closed shops or went down hill, on the other hand, if not greater, an
equally large number of SSIs made substantial investment in the upgradation of their plant and
machinery and streamlining their production processes. I am not aware of such a study but I feel that
probing the capital investment expenditure among SSIs in pre and post reform period should spring
interesting results.
4. In what way trade policy reforms contribute to enhancing India’s competitiveness in the
International Market? Explain in detail.
Ans.: Trade can be a key factor in economic development. The prudent use of trade can boost a
country's development and create absolute gains for the trading partners involved. Trade has been
touted as an important tool in the path to development by prominent economists. However trade may
not be a panacea for development as important questions surrounding how free trade really is and the
harm trade can cause domestic infant industries to come into play.
India's economic reforms and trade liberalization policies contributed to a dramatic increase in its
economic growth in the mid‐1990's. Larger flows of inward foreign investment and increased
international trade helped India achieve annual average growth rates of 7 percent from 1993 to 1996.
Economic growth slowed, however, in 1997 and, according to a new WTO Secretariat report on
India's trade policies and practices, India should continue liberalizing its trade and investment regime
to ensure strong and stable economic growth.
The WTO Secretariat report and a policy statement prepared by the Government of India, will provide
the basis for a review of India's trade policies and practices on 16 and 17 April, 1998. The focus of the
WTO's report is on India's policy and trade measures affecting imports, exports and production. The
report notes that India recognizes the need to continue economic reform, with an increased emphasis
on improving its industrial infrastructure. The latter has proved to be a constraint on expanding

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economic activity and stimulating exports. Other measures under consideration are reductions in
tariffs and non‐tariff measures, reforming the subsidies structure (estimated to account for 14 per cent
of GDP), and restructuring public sector enterprises.
The Indian Government initiated a major programme of economic reform and liberalization in 1991.
Reforms in the manufacturing sector have been widespread, including reductions in average tariff
rates, import licensing restrictions for industrial inputs and capital goods and compulsory industrial
licensing; the agricultural sector and consumer goods trade have, as yet, been relatively untouched by
government reform efforts. While there has been some liberalization, there has been no change in the
structure of agricultural incentives and subsidies.
India's financial services are gradually being liberalized while significant headway has already been
made in liberalizing telecommunications. Other services, such as shipping, roads, ports and air, are
beginning to open up, but, the report states, foreign participation remains relatively low and
significant administrative barriers remain. India amended its Copyright Law in 1994 to comply with
its obligations under the Trade‐Related Intellectual Property Rights (TRIPS) Agreement. As a
developing country, India has until the year 2000 for most products, but until 2005 for some goods, to
comply with the TRIPS Agreement but is currently required to provide means for receiving product
patent application in certain areas. On this issue, a decision by a WTO dispute settlement panel and
the Appellate Body has stated that India was in violation of its obligation. Tariffs have been reduced
from an average of 71 per cent in 1993 to a current average of 35 per cent. The report notes, however,
that the tariff structure remains complex and that escalation remains high in several industries, notably
paper and paper products, printing and publishing, wood and wood products, and food, beverages and
tobacco. In general, bound tariffs remain substantially higher than applied rates, especially on
agricultural products.
The report observes that import licensing remains India's main non‐tariff barrier, although reforms to
the system of restrictive import licensing have moved ahead steadily. The number of goods subject to
import licensing has been gradually reduced ‐ albeit with an emphasis on industrial and capital goods,
rather than consumer products. The report notes that last year India presented a phase‐out programme
for the remaining restrictions to its trading partners. Agreement was reached with all major partners
except the United States, with which India is currently in dispute settlement proceedings over its
remaining restrictions.
The report observes that reforms in tariffs and non‐tariff barriers have not been accompanied by
similar reforms on export subsidies and incentives. India continues to maintain a large number of
incentive programmes for exports. These include income tax exemptions, subsidized credit, export
insurances and guarantees. The overall scope of such incentives has been enhanced, resulting in more
explicit export‐oriented policies, which have increased the possibility of resource misallocation. The
report notes that India has simplified its foreign investment regime and opened up a number of sectors
to foreign direct investment. This is the case in manufacturing where foreign participation of up to 51
or 74 per cent can take place automatically in a number of sectors. Production in the food
manufacturing sector has grown rapidly following increased foreign investment. In this sector, up to
50 and 100 per cent of participation is allowed automatically for foreigners and non ‐resident Indians.
In the automobile sector, 51 per cent foreign equity participation is granted automatically and up to
100 per cent foreign equity participation is also allowed if approved by government authorities. This
has triggered a high rate of foreign investment, mostly through joint ventures with Indian
manufacturers. Major policy changes since 1993 have also included automatic permission for foreign
equity participation of up to 50 per cent in some mining activities. This also applies to oil exploration

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where the government seeks to reduce its dependence on imports and now offers investors incentives
such as tax holidays.
The report concludes that India's increased openness and integration with the world economy are
important factors in explaining the healthy economic growth recorded in the mid‐1990s. However, the
recent economic slowdown demonstrates the need for continued and even accelerated reform. Greater
transparency in decision‐making, for example, could complement India's ongoing trade liberalization
process in promoting a more efficient and productive economic structure. Such reforms, notes the
report, should lower the anti‐export bias that is still inherent in both the trade and industrial support
structures and allow the government to lower export incentives and move towards a more outward,
rather than export‐oriented policy framework. Such steps would not only help to further India's
integration into the world's economy but provide it with a firm basis for future sustained growth.
In recent years, support of trade growth has moved beyond trade policy to embrace a wider set of
'behind the border' issues, focused on establishing an environment conducive to the emergence of
firms that are competitive in both export and domestic markets. Competitiveness is central to
stimulating private sector growth and job-creation. This, in turn, is vital to the World Bank Group’s
twin goals of eliminating poverty and increasing the incomes of the poorest 40 percent in countries
around the world. Better integration in global flows of trade and investment helps firms to be
competitive and, in turn, generate higher incomes through better-paid jobs.
Trade competitiveness is no longer about viewing exports and export performance in isolation.
Increasingly, it is the result of strong interdependencies between imports and exports, as well as
international flows of capital, investment, and know-how. In addition, modern, competitive services
are vital as intermediate inputs to a high-performing private sector. Indeed, the interactions between
all of these factors determine firm productivity. Through trade and foreign investment, developing
countries can benefit from a range of ideas that come from abroad: intellectual property, trademarks,
managerial and business practices, marketing expertise, and organizational models. The flows of
goods, services, people, ideas, and capital are now interdependent and should be assessed jointly.
5. Discuss in detail various measures involved in the process of privatisation.
Ans.: Privatization is the practice of engaging the private sector in some aspect of the functions and
responsibilities of government operations. Ultimately, governments must decide if acquiring a desired
service is best done through by their own public agencies or if it should be purchased from private
vendors at a price dictated by the market. This simple question of ‘make or buy’ is the very essence of
privatization policy and process. Arriving at an answer to that question, however, is as complex and
diverse as the services governments provide and the public that they serve.
While virtually all governments at any level seek some form of service from private service providers,
whether for-profit or not-for-profit, the true scope of privatization is widely misunderstood. As a
result, political discourse regarding privatization has adopted a simplistic, contentious and often
inaccurate understanding of the merits and implementation of the practice. The past twenty years have
seen numerous instances of partisan debates over privatization which embrace universal ideologies
either in favor or opposed to privatization as a whole. This has led to a myriad of privatization
proposals that have failed to benefit the governments enacting them, and, in certain cases, has even
served to harm the politicians, workforce, citizens and service recipients in the process.
While these failures have led some to believe that privatization is inherently dangerous and should
therefore be avoided, others continue to support any effort to shift a public service to the private
sector in order to limit the size and role of government. The fact is that privatization is rarely
effective, or even possible, when either paradigm is used to examine it merits. In practice,

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privatization is most successful when used to ensure that government, taking into account its needs,
capabilities and limitations, strives to find the best possible answer to the ‘make or buy’ question.
This paper will, in four distinct parts, seek to examine nature of privatization in both practice and
theory, with particular attention toward fiscal impact, efficiency and quality of service.
Despite receiving a good deal of attention in partisan and electoral politics, the true scope of
privatization, where it already exists and its capabilities, are widely under recognized or
misunderstood. Privatization is neither new nor is it a trend. Examples of long-standing and successful
privatization programs can be found in all levels of government in a multitude of nations around the
globe. Bridge repair, public transportation and even the US Post Office, all are areas where
privatization has been quietly and successfully implemented. In Massachusetts, for example, most
residents are unaware that nearly 50% of the State’s budget is spent directly on private contractors and
service providers.1
Unfortunately, discussions over privatization often do not look past the practice of contracting. While
contracting is the most utilized and best understood form of privatization, understanding that
privatization and contraction are not synonymous is essential in analyzing the merits and
implementation of privatization programs. In addition to contracting, there are at least nine other
unique forms of privatization that available to public executives and administrators when evaluating
their programs and spending.
In economic theory, privatization has been studied in the field of contract theory. When contracts are
complete, institutions such as (private or public) property are difficult to explain, since every desired
incentive structure can be achieved with sufficiently complex contractual arrangements, regardless of
the institutional structure (all that matters is who are the decision makers and what is their available
information). In contrast, when contracts are incomplete, institutions matter. A leading application of
the incomplete contract paradigm in the context of privatization is the model by Hart, Shleifer, and
Vishny (1997). In their model, a manager can make investments to increase quality (but they may also
increase costs) and investments to decrease costs (but they may also reduce quality). It turns out that it
depends on the particular situation whether private ownership or public ownership is desirable. The
Hart-Shleifer-Vishny model has been further developed in various directions, e.g. to allow for mixed
public-private ownership and endogenous assignments of the investment tasks.
6. “Neglect of agriculture is the major sin of economic reforms.” Examine the statement in detail.
Ans.: Economic reforms were introduced to attain lore employment, stabilization of prices of articles
of essential consumption or control of inflation, a better spread of growth benefiting the weaker
section of the society. Though growth rate increased, inflation was controlled, globalization &
privatization were introduced but the goals of full employment self-reliance, reduction of inequalities
of income & wealth, reduction of almost unachieved or partially growth with social justice & equity
remained ignored.
The performance of Indian agriculture over last fifty years has revealed both its strengths &
weaknesses its strength & weaknesses. Its main achievement has been output growth, particularly of
food grains. This achievement has been counter balanced by several other factors:
i) Declining growth rates in productivity for major crops,
ii) Slow expansive of irrigated areas,
iii) Falling public investment in agriculture,
iv) Inadequate extension service,
v) Extremely low investment allocation for agricultural research,

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vi) Infective utilization of land & water resource along with degeneration of natural resource
base,
vii) Problems of dry land agriculture.
Growth in agriculture GDP declined from 3.4% in 1980s to 3% in 1990s. In post liberalization period
it declined from 4.7% in VIII plan period to 1.8% in IX plan period .Due to revival of monsoon
agriculture during II quarter of 1003-04.Was 7.4%. The expected high growth was due to better rain
fall. Thus, the economic reforms have not impacted agriculture as much as they did the industrial
sector.
A common criticism of India’s economic reforms is that they have been excessively focused on
industrial and trade policy, neglecting agriculture which provides the livelihood of 60 percent of the
population. Critics point to the deceleration in agricultural growth in the second half of the 1990s as
proof of this neglect. However, the notion that trade policy changes have not helped agriculture is
clearly a misconception. The reduction of protection to industry, and the accompanying depreciation
in the exchange rate, has tilted relative prices in favor of agriculture and helped agricultural exports.
The index of agricultural prices relative to manufactured products has increased by almost 30 percent
in the past ten years. The share of India’s agricultural exports in world exports of the same
commodities increased from 1.1 percent in 1990 to 1.9 percent in 1999, whereas it had declined in the
ten years before the reforms.
But while agriculture has benefited from trade policy changes, it has suffered in other respects, most
notably from the decline in public investment in areas critical for agricultural growth, such as
irrigation and drainage, soil conservation and water management systems, and rural roads. As pointed
out by Gulati and Bathla (2001), this decline began much before the reforms, and was actually sharper
in the 1980s than in the 1990s. They also point out that while public investment declined, this was
more than offset by a rise in private investment in agriculture which accelerated after the reforms.
However, there is no doubt that investment in agriculture-related infrastructure is critical for
achieving higher productivity and this investment is only likely to come from the public sector.
Indeed, the rising trend in private investment could easily be dampened if public investment in these
critical areas is not increased.
The main reason why public investment in rural infrastructure has declined is the deterioration in the
fiscal position of the state governments and the tendency for politically popular but inefficient and
even iniquitous subsidies to crowd out more productive investment. For example, the direct benefit of
subsidizing fertilizer and underpricing water and power goes mainly to fertilizer producers and high
income farmers while having negative effects on the environment and production, and even on
income of small farmers. A phased increase in fertilizer prices and imposition of economically
rational user charges for irrigation and electricity could raise resources to finance investment in rural
infrastructure, benefiting both growth and equity. Competitive populism makes it politically difficult
to restructure subsidies in this way, but there is also no alternative solution in sight.
Some of the policies which were crucial in promoting food grain production in earlier years, when this
was the prime objective, are now hindering agricultural diversification. Government price support
levels for food grains such as wheat are supposed to be set on the basis of the recommendations of the
Commission on Agricultural Costs and Prices, a technical body which is expected to calibrate price
support to reasonable levels. In recent years, support prices have been fixed at much higher levels,
encouraging overproduction. Indeed, public food grain stocks reached 58 million tons on January 1,
2002, against a norm of around 17 million tons! The support price system clearly needs to be better
aligned to market demand if farmers are to be encouraged to shift from food grain production towards
other products.

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Agricultural diversification also calls for radical changes in some outdated laws. The Essential
Commodities Act, which empowers state governments to impose restrictions on movement of
agricultural products across state and sometimes even district boundaries and to limit the maximum
stocks wholesalers and retailers can carry for certain commodities, was designed to prevent exploitive
traders from diverting local supplies to other areas of scarcity or from hoarding supplies to raise
prices. Its consequence is that farmers and consumers are denied the benefit of an integrated national
market. It also prevents the development of modern trading companies, which have a key role to play
in the next stage of agricultural diversification. The government has recognized the need for change
and recently removed certain products -- including wheat, rice, coarse grains, edible oil, oilseeds and
sugar -- from the purview of the act. However, this step may not suffice, since state governments may
be able to take similar action. What is needed is a repeal of the existing act and central legislation that
would make it illegal for government authorities at any level to restrict movement or stocking of
agricultural products.

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