Agricultural Trade Policy

Chapter -Agriculture
B.Com(Hons)
Paper XVIII Indian Economy: Performance and Policies
Fellow:Dr.Kawal Gill, Associate Professor

Department/ College: Department of Commerce, Sri
Gobind Singh College of Commerce, University of Delhi
Author: Dr. Poonam Bewta

Department/ College: JDM College, University of Delhi
Reviewer: Dr. Uma Kapila (Retd.)

Department/ College: Miranda College, University of Delhi
Institute of lifelong learning, University of Delhi

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Table of Contents
 Indian Agriculture and Globalization

o Indian Agriculture and Globalization
o 1.8 Trade Policy- An Instrument of Food Security
o 1.9 Major Issues in the context of Globalization
o Summary

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Indian Agriculture and Globalization
In the last two sections, we have discussed how the opening up of the economy has impacted the
agriculture sector. Section 8 gives an outline of the agricultural trade policy developments with
emphasis on the past two decades. Section 9 discusses the major issues in the context of
globalization and particularly those related to agricultural growth, poverty and food security.
1.8 Trade Policy- An Instrument of Food Security
The globalisation of a sector of an economy means its integration with the rest of the world
without any controls and restrictions. Globalisation includes free imports and exports, that is,
trade liberalization and the convergence of domestic prices with the international prices. The
objectives of globalisation are
 To improve the allocative efficiency of resources and

 Orient production based on the comparative advantage of the country.
Globalisation, in the Indian context, involves reduction of import duties and freeing agricultural
exports and imports. It is argued that in this process, the terms of trade will turn in favour of
agriculture and encourage higher private investments in agriculture.Till the late eighties, the
agricultural sector in India was relatively closed as the export orientation was confined to only
some traditional tropical products like spices, tea, coffee, cashew nuts etc. and imports were
largely restricted. The imports of agricultural commodities were largely restricted with
quantitative restrictions and high level of tariffs.Even after the introduction of economic reforms,
the government did not give up control over exports of food items easily. The main reasons for
barring exports of some basic food commodities and keeping strict checks on others were the
concern for food security and to ensure that adequate food supply is available to the people at
reasonable prices. The quantitative measures and other controls ensured that prices did not
increase.
Value Addition: Historical context
Historical context
Trade Policy- An Instrument of Food Security
Source: Anwarul Hoda and C. S. C. Sekhar (2008), “Agricultural Trade Liberalization, Poverty,
and Food Security: The Indian Experience” in Ashok Gulati and Shenggen Fan (eds.), The
Dragon & The Elephant- Agricultural and Rural Reforms in China and India, Oxford University
Press, New Delhi.
India had an autarkic trade policy from 1950s to the late 1990s with respect to basic food items
with food security being given utmost important.

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ImportPolicy
India virtually banned all consumer goods throughout this period because of shortage of foreign
exchange for imports. The ban did not apply to cereals, vegetable oils and pulses.
Pulses were the only basic food commodity that was freely permitted for import (from the late
1970s) and their import was regulated by tariffs at moderate levels.
Cereals and vegetable oils were subject to quantitative restrictions administered through a state
trading monopoly until the mid 1990s. Milk and milk products were prohibited on a commercial
basis, and the only imports allowed were those of food aid consignments.
India had zero duties on wheat, rice, maize and milk ever since it made a commitment within
General Agreement on Trade and Tariffs (GATT) in 1947 to eliminate customs tariff on these
items. The duties on vegetable oils were substantial. But for the basic food items imported
through the state monopolies, the level of duties hardly mattered. Import transactions of these
state monopolies were generally exempted from the application of duties. The mark- up in
domestic sales depended on the advice of the government, and this mark- up served the same
purpose as tariffs in protecting the interests of both consumers and producers.
ExportPolicy
The exports of basic food items were also controlled. The exports were permitted only for some
traditional commodities like tea, coffee, spices etc.
The export policy for 1988-91 included milk and milk products, pulses, several oilseeds (except

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groundnuts) and several edible oils on the list of items not allowed for exports. All cereal
exports, except fine (basmati) rice, and products of the milling industry derived from them were
placed under quantitative limits for exports. Fine rice could be exported subject to minimum
export prices. Sugar exports were routed through the State Trading Corporations.
1.8.1 Emerging Trends
The share of agricultural exports in Gross Domestic Product (both in total GDP and GDP
originated in agriculture) indicates three major aspects, namely,
 The degree of openness or outward-orientation of the agricultural sector in regard to the

export activity.
 The nature of agricultural trade strategies adopted in the country.
 Supply capacity of the agricultural sector as regards exports.
An analysis of these aspects is carried out based on Table 1.8.1 by Rao and Jeromi (2000).
TABLE 1.8.1
SHARE OF AGRICULTURAL EXPORTS IN GDP IN INDIA
(Rs. Crore at Current Prices)
1970-71 1980-81 1990-91 1995-96 1998-99

GDP (Total) 39708 122427 477814 1006286 1612383
GDP in Agriculture* 16821 42466 135162 255613 428680
GDP- Rest of the Economy@ 22887 79961 342652 750673 1183703
Total Exports 1535 6711 32558 106353 141604
Agricultural Exports 487 2057 6019 20344 25225
Exports- Rest of the Economy# 1048 4654 26539 86009 116379
PERCENT SHARE
% of Agriculture Exports in 1.2 1.7 1.3 2.0 1.6
GDP (total)
% of Agriculture Exports in 2.9 4.8 4.5 8.0 5.9
GDP Agriculture
% of Total Exports in GDP 3.9 5.5 6.8 10.6 8.8
(Total)
% of Exports from the Rest of 4.6 5.8 7.7 11.5 9.8
Economy in GDP Agriculture
Note * : GDP originated in agriculture, forestry and fishery

@: Total GDP minus the GDP originated in agriculture
@@: Total Exports minus the export of agricultural products

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Source: V. M. Rao and P. D. Jeromi (2000), “Modernising Indian Agriculture: Priority Tasks and
Critical Policies”, Department of Economic Analysis and Policy, Reserve Bank of India,
Mumbai, www. rbi.org.in
It can be noted from the Table
 That after a marginal rise in the shares of agricultural exports in total GDP and in GDP
originated through the agricultural sector during the seventies, the shares were on the
decline in the eighties.
 However, since the beginning of the nineties there is a perceptible rise in the shares: the
share in total GDP rose from 1.3 per cent in 1990-91 to 2.0 per cent in 1995-96 but since
then it declined to 1.6 per cent in 1998-99.
 In case of the share of agricultural exports in GDP originated from the agricultural sector,
the rise was from 4.5 per cent to 8.0 per cent and then decelerated to 5.9 per cent, during
the above period.
From the above observations, they inferred that the degree of openness or outward orientation of
the agricultural sector, with regard to exports, has increased in recent times, even though a
marginal decline occurred since 1995-96. It reflects the effects of the liberalization of
agricultural exports and improvement in the supply capacity of the economy. Table 1.8.1 further
reveals that agricultural sector is less outward-oriented than the economy as a whole. This is
evident from the share of total exports from India in GDP (total). The share was 8.8 percent in
1998-99, which is higher than the share of agricultural exports in GDP originated from the
agricultural sector at 5.9 percent.
From a phase of gradual export orientation, the agricultural sector in India is likely to enter into a
new phase of globalization with the implementation of the various provisions of WTO.
Value Addition: Intellectual Context
Intellectual Context
Experience of India in using Trade Policy as an Instrument in meeting Food Security
Press, New Delhi.
For much of the four decades, India had a very restrictive trade policy regime for basic food
items. Where it was able to produce efficiently, this policy has contributed to the success of
domestic policies in stimulating production. Domestic production of the main cereals, sugar, and
milk increased manifold. India not only became self- sufficient, but also managed to build a large
exportable surplus in the case of major cereals. However, where it was not an efficient producer,
as in the case of edible oils, the restriction of imports did not result in self- sufficiency. In fact,
after the liberalization of quantitative restrictions, import dependence for the four major edible
oils used in the country rose steadily from 4 percent in 1993 to more than 50 percent in 2000. By
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not allowing exports of wheat or rice other than basmati rice, even after higher production was
achieved, the government denied the producers an opportunity to participate in the international
market.
When it did make the necessary changes in the policy, very large exports of rice became possible
on a sustained basis with no adverse impact on domestic prices. The decision to liberalize wheat
exports, also, proved to be correct.
The exports and imports of sugar in the past have been dependent on domestic production and
the volatile international prices.
During 1965-99, self- sufficiency in all the basic food commodities was the cornerstone of the
policy for achieving food security. International trade figured in the food economy on a residual
basis, and imports and even exports were kept to a minimum level. Imports were tightly
controlled except for pulses, and exports were not allowed at all, except in the case of high value
items such as fine rice on a sustained basis and sugar and sugar and wheat sporadically, when
international prices were high. In the post- reform period, India has been moving cautiously
toward somewhat greater reliance on international trade for achieving food security. The
quantitative restrictions on both exports and imports are gone. The level of tariffs on pulses and
edible oils has allowed increasing levels of imports. But in the case of cereals, milk and milk
products, the import duty has been hiked up to a level that precludes imports. Also, for sugar a
very high tariff level of 100 percent has been maintained.
1.8.2 India and World Trade Organisation

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The main aim of setting up World Trade Organization (WTO) in 1995 was to improve the living
standards all around the world and trade liberalization was one of the instruments to achieve the
objective. Trade liberalization was also expected to result in better allocation of world resources
and increased welfare of all its trading partners. India became a member of WTO and
consequently became obligated under the Uruguay Agreement on Agriculture (URAA). The
signing of Agreement on Agriculture (AoA) in 1995 was a major achievement for trade
liberalization in agriculture and marked a new beginning in multilateral trade negotiations. It was
expected that the Agreement would lead to a remarkable increase in world trade and benefit all
its trading members. The commitments under AoA fall under four main provisions: domestic
support, export subsidies, market access, and sanitary and phyto- sanitary measures
(Bhalla,2006).
Value Addition: FAQ
FAQ
The need for Trade Liberalization
Source: G.S. Bhalla (2008), “Globalization and Indian Agriculture” in K. L. Krishna and Uma
Kapila (eds.) Readings in Indian Agriculture and Industry, Academic Foundation, New Delhi
The rationale for trade liberalization was based on the assumption that a multilateral trade regime
leads to a significant increase in world trade and benefit all its members. In particular, the
developing countries were likely to benefit especially due to their natural comparative advantage
in agriculture subsequent to the envisaged with drawl of domestic and export subsidies by the
developed countries. But the main challenges for the developing countries would be to increase
the efficiency of production and to create institutional mechanisms to enable the small and
marginal farmers to share the benefits of agricultural diversification and increased agricultural
exports. On the other hand, the opening of all barriers to agricultural trade was also likely to pose
some critical challenges because of the possibility of large scale imports.

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The URAA imposed an obligation on members to reduce domestic support if it was above the
stipulated levels. The threshold for developing countries was 10 percent, separately for product-
specific and non-product-specific support. In India‟s case, product-specific support was negative
for most products and for a few products it was positive, but below the 10 percent limit during
the base period (1986-1988). Its non-product-specific support was also estimated to be below the
limit. Consequently, it did not have to undertake any reduction commitments on domestic
support. According to the WTO notification made by India for 1996-97 and 1997-98, the
product-specific-support was negative for all supported crops and below the stipulated level (1.8
percent) for non-product-specific support.
Under export subsidisation, all types of subsidies or payments by government or their agents for
promoting the growth of their exports, including transport or credit subsidy at concessional rates,
were subject to reduction commitments. But under the Special and Differential Treatment (SDT)
provisions, exporters in developing countries could avail of transport subsidy and other support
for promoting exports. All countries declared a schedule of base levels of tariffs. India did not
have any export subsidy programs listed for reduction in the agreement, at the time of its entry
into the URAA. Consequently, it did not undertake any reduction commitments in this area. As a
developing country it had the possibility of using subsidies to reduce the costs of marketing
exports. India has had recourse to these export subsidies in seeking to sell its accumulated stocks
of wheat and rice in the international markets.
Adherence to the URAA has not constrained India with respect to either the domestic support
programs or the external trade policies related to agriculture.

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The most important objective of market access was the introduction of a tariff only regime. This
meant that all nontariff barriers were to be converted into equivalent period tariffs called bound
tariffs. The base period was determined in different ways by different countries. Many
developing countries made use of the option to offer ceiling bindings for all previous unbound
tariffs. All the bound tariffs were to be reduced according to a laid down schedule. For the
developed countries the level of reduction is 36 percent over a period of six years. For
developing countries, the level is 24 percent and the time period is ten years.
he Agreement on Sanitary and Phyto-sanitary measures deals with food safety and animal and
plant health standards. The WTO does not set the standards. The SPS Agreement of WTO
encourages member countries to use standards set by international organizations, but it also
allows countries to set their own standards which can be higher than the internationally agreed
ones, if these are based on scientific evidence and do not discriminate between countries, and do
not work as a disguised restriction to trade. The provisions strike a balance between two equally
important objectives: helping governments protect consumers, and animal and plant health,
against known dangers and potential hazards; and avoiding the use of health and safety
regulations as protectionism in disguise (Bhalla,2006).
However, since the end of 1990s, the degree of export orientation increased considerably with
the removal of some of the restrictions and controls on export of commodities.
As on April 1, 2000, import of around 700 items belonging to the agricultural sector were
subjected to quantitative restrictions (QRs). However, a significant step has been taken for the
liberalization of imports in the Export-Import Policy of 2000-01 with the removal of QRs on 228
agricultural items. The important items on which the QRs have been removed are dairy products,
flours of cereals, coffee, tea and tobacco. Here it may be noted that even after the removal of
QRs, India can restrict the import of agricultural commodities by fixing higher import duties, as
tariff commitment on most of these agricultural items, which India has submitted to the WTO,
are very high, except in case of some items like rice, skimmed milk powder, etc. (Rao and
Jeromi, 2000).
1.9 Major Issues in the context of Globalization
Value Addition: FAQ
FAQ
Implications of Globalization of Agriculture Sector
Source: V. M. Rao and P. D. Jeromi (2000), “Modernising Indian Agriculture: Priority Tasks
and Critical Policies”, Department of Economic Analysis and Policy, Reserve Bank of India,
Mumbai at www. rbi.org.in
What will be the implication of globalisation of agriculture sector? To find an answer to the
above question, here we offer the findings from empirical studies on the subject:
A study by Subramanian (1993) revealed that with the liberalisation of trade the movement of
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terms of trade against agricultural can be moderated. Trade liberalisation will lead to higher price
transmission elasticities for all unprocessed commodities except coarse cereals. The author,
however, cautioned against extending trade liberalisation to commodities such as edible oils,
sugar and processed food as they are highly protected and in cases of those commodities whose
per capita availability is low.
Parikh, et al., (1995) revealed the following: i) trade liberalisation in the medium run increases
allocative efficiency within the agriculture sector and between agricultural and non-agricultural
sectors, ii) agricultural liberalisation increases output of all agricultural commodities except
coarse grains and other foods, iii) liberalisation leads to higher volume of exports of all
agricultural goods, except coarse grains and iv) prices of several agricultural commodities, which
were not protected, would rise with trade liberalisation.
Gulati and Sharma (1997), in terms of resource use efficiency (RUE), found that area and
production of rice, wheat, maize, sorghum, chickpea and cotton are likely to expand when the
international trade in agriculture is completely liberalised. On the other hand, groundnut,
rapeseed-mustard and sunflower may have to face deceleration in their future expansion if trade
is opened up (there may even be a contraction).
Chand (1998) found that imports to India would not be attractive in case of rice, tea, sunflower
oil and cotton. There was a strong possibility of rise in imports of sugar and edible oils after the
removal of QRs. The study observed that dismantling the trade barriers on imports would
increase volatility of Indian prices and farm incomes. On the positive side, the removal of QRs
would promote competition in the domestic market, which in turn would be beneficial to the
consumers.
Gulati (1998) found that globalisation of the economy, including agriculture, offers an
opportunity to correct the anti-agriculture bias in Indian trade policies that have been in existence
since 1950s. The study further revealed that agriculture could move on to a higher growth
trajectory if supply side bottlenecks are freed, and a protective cover is accorded to the poor.
Bharadwaj, et al, (1998) found that opening up of the economy was likely to benefit the
agriculture and agro-based industries.
Rao and Jeromi (2000) have identified the following issues to be addressed in the context of
globalisation of the agricultural sector. They are:
 Self- sufficiency in production

 Price stability
 Cropping pattern
 Adverse effects on weaker sections
 WTO commitments.
Self- sufficiency in Production

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Theoretically, if a country globalizes its agricultural sector, it cannot achieve the objective of
self-sufficiency in production. This is because of the fact that with globalization, countries will
be forced to concentrate on production of those commodities in which they have comparative
advantage in production. For countries like India, with large population and low purchasing
power, the impact of globalization on availability of food at relatively lower prices is of concern
both politically and ethically. Undue concentration on production of some agricultural
commodities in the long term may create serious consequences for the quality of land, ecological
balance and employment opportunities. We need to judiciously globalize the sector so as to
avoid the undesirable outcomes.
Price stability
Given the high level of instability of commodity prices in the international market, mainly due to
variations in crop production and speculative nature of the market, it is quite likely that prices of
commodities in the domestic market will be highly unstable, This will adversely affect both the
producers and the consumers Hence, removal of trade barriers is likely to make domestic prices
and farm incomes more volatile. The volatility in the domestic prices would be higher in case a
country having bumper harvest dumps it. Therefore, due precaution has to be taken in case of
large scale import of agricultural commodities.
Cropping pattern
As India has a comparative advantage in production of commodities like rice, wheat, maize and
cotton, trade liberalization will increase their exports, which in turn may lead to expansion of
area under these crops. At present, these crops are disprotected or indirectly taxed due to
restriction on exports. However, these commodities will be able to get higher prices with
liberalization of trade and that may promote larger cultivation. Oilseeds for example, do not have
a comparative advantage and hence, there may be a deceleration in their future expansion. Also,
they have been getting much higher level of incentives than what they are likely to get under a
free-trade scenario With liberalization of agricultural trade the country can import oilseeds at
lower price than the domestic price. Hence, achieving self-sufficiency in oilseeds production
may not be desirable given the huge cost involved in it.
Adverse effects on weaker section
Globalisation of the sector may have its adverse effects on certain areas, some crops and some
group of people. It is expected that with export promotion and globalisation, the benefits will be
accrued to only some areas which are well endowed in terms of resources, some crops which are
having comparative advantage in production and some sections of the population who are
producing the exporting commodities. Other areas, crops and people are unlikely to benefit from
the process of globalization. In other words, the benefits of globalization process may not be
neutral to areas, crops and people. Further, prices of essential commodities may increase as a
result of globalization. Thus, it will have adverse welfare consequences for the people who are
not engaged in the agricultural sector.

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WTO Commitments
The country‟s commitment to WTO is likely to have some consequences for the sector.
Currently, the commitment for reduction of subsidy may not affect the quantum of subsidy given
to the farmers. However, once the exemptions provided to the developing countries are
withdrawn, there can be some reduction of subsidy, especially the subsidy for food procurement
and it distribution through the public distribution system (PDS).
Despite some of the trade liberalization measures, food grains sector still remains largely
controlled and insulated from the global markets. In case of cash crops, exports are allowed
when there is enough surplus and are imported when there is a net deficit. Hence, there is a view
that agricultural trade is still taking place as a residual between domestic demand and supply
rather than as a policy instrument to integrate domestic agriculture with the world agriculture.
Ideally, agricultural export and import policies should move in such a way so as to avoid any
distortions in domestic prices. However, during the last few years while the agricultural exports
have been liberalized, restrictions on imports have remained more or less unchanged. While the
liberalization of exports resulted in rise in domestic prices of some of the commodities, the
restriction on imports meant that there was no access to commodities from abroad. This
mismatch in agricultural export-import policy was on account of the undue obsession to remain
self sufficient in all agricultural commodities. However, given the fact that no country in the
world can have comparative advantage in production of all commodities required by it, the
restrictions on imports in the face of liberalization of exports will not be beneficial in a
liberalized economic environment. Hence, there is a need to continue with the liberalization of
trade in agricultural commodities so as to provide a level playing field for the agricultural sector
with the industrial sector.
1.9.1 Implications of Trade Liberalization for Agricultural Growth, Poverty and Food
Security
Hoda and Sekhar (2008) have studied the impact of trade liberalization on the agricultural sector
in terms of growth, poverty and concerns regarding food security.
Agricultural Growth
In the pre-reform era, India followed import-substituting development strategy which relied on
high levels of tariff and nontariff protection. Coupled with an overvalued exchange rate system,
it resulted in diminished incentives for agriculture relative to manufacturing in India. The bias
against agriculture is clear from a comparison of the nominal protection coefficients (NPCs) for
the agricultural and manufacturing sectors and the movement of relative terms of trade (ToT)
between the two sectors. The anti-agricultural bias was considerably greater in the 1970s than in
the 1980s and 1990s. Since the early 1980s, the anti- agriculture bias declined due to a steady
decrease in protective measures pertaining to the manufacturing sector.
After the introduction of reforms, the peak tariffs on industrial products decreased from 300
percent in 1991-92 to 30 percent in 2002. Similarly, import controls were withdrawn on almost
all raw materials, intermediate and capital goods. The decline in protection to the industry led to
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an improvement in the ToT for agriculture in the 1990s, which is expected to boost investment
and employment in this sector. The index of ToT (1990-91 = 100) rose from 88.7 in 1981-82 to
104.2 in 1999-2000. The improvement in ToT had a positive effect on private investment in
agriculture, but on the other hand, the rising fiscal deficits contributed to a decline in public
investment. The public investment of Rs.73 billion in 1980-81 fell to Rs.45.2 billion in 2000-01.
There is a broad consensus that this decline had an adverse effect on the performance of
agriculture in the country in the 1990s since the infrastructural development in irrigation, rural
electrification, markets etc decreased. The growth rate of output of the principal crops came
down from 3.19 percent per annum during the 1980s to 2.28 percent in the 1990s. This major
decline in the second period is mainly attributable to the considerable drop in yield growth.
Value Addition: Did you Know
Did you Know

Protecting the Interests of the Small Farmers
Source: G.S. Bhalla (2008), “Globalization and Indian Agriculture” in K. L. Krishna and Uma
Kapila (eds.) Readings in Indian Agriculture and Industry, Academic Foundation, New Delhi
The interest of small land holders should be kept in mind. There is a need to undertake some
important institutional reforms like the consolidation of holdings and gradually reforming the
lease market after carefully registering the present tenants, keeping in mind the interests of
existing occupancy tenants.
Further, innovative institutions like integrated cooperatives such as Mother Dairy and other
service cooperatives, contract farming should be encouraged to involve the small farmers in the
process of production processing and diversification.

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Special efforts should be made to develop new technologies for the farming sector and reach
these to the small farmers. The efforts on the production front should be supplemented by the
creation of institutions like trading houses, market intelligence services and the creation of a
network of information on national and international prices and creating necessary infrastructure
in processing, marketing and grading of produce.
While liberalizing the economy, the policy makers should remember that it is only agricultural
growth, which is going to determine the fortunes of a vast majority of farmers in India and that it
is only agricultural growth that makes a dent on their poverty. It is the neglect of public
investment in agriculture during the last two decades which is primarily responsible for the steep
deceleration in agricultural growth in the post liberalization period. Further, a market driven
liberalization process in agriculture is invariably strongly biased towards rich farmers and
prosperous regions. Positive policy interventions are necessary to assure that the interests of
small farmers and of disadvantaged regions are also protected and that they are enabled to share
the benefits of trade liberalization.
Value Addition: Interesting Facts
Interesting Facts
Export of Basic Food Items

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Press, New Delhi.
The Indian experience on export policy for basic food items is also instructive. Exports of rice,
wheat, and even skimmed milk have risen impressively since liberalization. Export trade
liberalization is expected to bring gains not only for farmers, but also for agricultural labourers
through wage and employment increases resulting from increased exports. In the past, the
government shied from taking action toward the liberalization of food commodity exports from
the fear of domestic price increase. However, with plentiful domestic supplies these fears have
proved to be unfounded. When a stop-go policy is followed for exports, there may be critical
shortages and unacceptable price increases.
But, when a long-term policy is followed, production is expected to expand and take care of the
increased export demand, as has been the case of fine rice. Exports in such a situation should
have no adverse impact on the domestic prices.
Poverty
According to official estimates, rural poverty as measured by the head count ratio (HCR) showed
a continuous decline, from 56.4 percent in 1973-74 to 27.1 percent in 1999-2000. Also, for total
poverty (rural and urban), the maximum decline was between 1993-94 and 1999-2000, from 36
percent to 26 percent. The highest drop was also observed for rural poverty during the same
period. There has been a lot of controversy on the methods used to estimate the poverty figures.
Deaton and Dreze (2002) consider the HCR as the most popular indicator of poverty due to its
simplicity and communication value. They attribute the observed drop in poverty, despite the not
so favorable factors, to the “density effect” or the “bunching” of poverty around the poverty line.
Given such a density, even a small rise in the average per capita expenditure could cause a
significant number of people to cross the poverty line. However, the density phenomenon had
been noticed in the 1980s as well.
Self- Sufficiency, Food Security and Related Issues
India has made remarkable progress in increasing the production of its basic food commodities
during the past 50 years. The near closure of the domestic markets protected the agricultural
producers from imports and provided stability in prices which is necessary for growth. The
import controls were essential for the effective functioning of price support schemes, wherever
they were in operation, as in the case of wheat and rice. A notable feature of this policy was that
price support was not generally provided at levels above the prevailing international prices. More
often than not, it was justified more for conserving foreign exchange in times of severe balance
of payment crisis rather than for protecting the agricultural producers.
The high levels of protection in India for basic food crops allowed it to deal with a major feature
of international trade in agricultural commodities, which is volatility. It also sheltered the

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domestic producers from the domestic support and export subsidies provided by some
industrialized countries to their farmers. The Indian producers were protected against these
dangers by quantitative restrictions which acted as solid barriers administered through state
trading monopolies before liberalization in 2002.
Agriculture provides significant support for economic growth and social transformation of the
country. As one of the world‟s largest agrarian economies, the agriculture sector (including allied
activities) in India accounted for 15.7 per cent of the GDP (at constant 2004-05 prices), in 2008-
09, compared to 18.9 per cent in 2004-05, and contributed approximately 10.2 per cent of total
exports during 2008-09. Notwithstanding the fact that the share of this sector in the GDP has
been declining over the years, its role remains critical as it provides employment to around 52
per cent of the workforce (Economic Survey 2009-10). Hence, the government has to take into
account their interests as well.
According to recent estimates, the incidence of rural poverty has been coming down, but the
HCR (head count ratio) of the poor was still 26.8 percent in 1999-2000. There is no denying that
the consumers, particularly those in urban areas, will gain from the liberalization of trade, but the
rural poor will be adversely affected. A decision to liberalize agriculture cannot be made simply
on the basis of net social welfare, especially when it concerns the livelihood of millions of
people and knowing fully well that alternative opportunities for their redeployment are not easily
available.
It is clear that limits have to be set to the level of protection. On average, the urban population
spent as much as 48 percent of their household income on food, while the figure was 59 percent
for the rural households in 1999-2000. A balance needs to be struck between the interests of
producers and consumers. A moderate level of tariff protection would be enough to strike this
balance in normal times. We will need additional mechanisms in national and international laws
it tariff levels are to be dropped to moderate levels.
The negotiations in the Doha Round of the WTO made an attempt to obtain substantial
reductions in domestic support and market access barriers and elimination of export subsidies,
besides giving attention to a special agricultural safeguard mechanism.
Value Addition: FAQ
FAQ
Implications of Trade Liberalization for Food Security
Press, New Delhi.
Food security was defined at the 1996 Food Summit at Rome as when all people, at all times,
have physical and economic access to sufficient, safe and nutritious food to meet their dietary
needs and food preferences for an active and healthy life. While this definition raises a number

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of issues, the two main components of food security are physical availability at the national level
and economic access at the household level. Self- sufficiency as a pre-requisite for food security
is fast losing its appeal, and there is a growing consensus across the world that greater reliance
must be placed on imports with respect to commodities in which a country does not have a
comparative advantage. A few industrialized economies are keeping up their fight to maintain
uneconomic agricultural production under the pretence of nontrade concerns. While the rich
taxpayers and consumers in those economies can perhaps afford to pay the price of agricultural
protectionism, low income countries cannot. India has already moved away from the single-
minded pursuit of self-sufficiency, at least with respect to two major food items, namely pulses
and edible oils.
Value Addition: Broadening Horizons
Broadening Horizons
Agricultural Diversification
Source: Ahluwalia, Montek S (2005). „India in a Globalising World‟ , 27th Jawaharlal Nehru
Memorial Lecture, London; 20 April
Indian agriculture will also have to expand its focus beyond producing foodgrains towards
agricultural diversification, including especially dairying, poultry and horticulture. The scope for
development of food processing industries is very large.

18
Summary
In the past 50 years, the country has made tremendous progress in increasing its agricultural
production. The credit of this success cannot be totally attributed to the policy of self-sufficiency
in the main food crops and the virtual ban on imports for most of the period. In the production of
most of these crops, India had a comparative advantage. The restrictions on imports were more
to conserve foreign exchange than for the purpose of protecting the domestic producers. India
was not competitive in case of oilseeds and after agricultural trade was liberalized in mid 1990s,
very large imports of oilseeds have taken place.
For a low income country like India, self-sufficiency in food cannot be justified on the grounds
of food security. It is essential to protect the agricultural sector, since more than 50 percent of the
population depends on it, but we need to take into account the cost of protection. Hence, there is
some justification for moderate levels of protection. But in order to reduce the protection levels
further, the industrialized economies have to sharply decrease the subsidies they are giving to
their farmers. The government should also ensure that certain safeguards are provided in order to
protect the Indian producers against volatility in agriculture prices.
The reform measures initiated in 1991 have also benefitted the agriculture sector by the
corrections made in the exchange rates and the reduction in industrial protection. The terms of
trade of agricultural sector vis-à-vis the non-agricultural sector have improved continuously
since 1991. This has also led to increase in private investment in agriculture.
The focus of future reform efforts according to Hoda and Sekhar (2008) should be, on the
domestic front, on reducing subsidies, moderating price support, and stepping up public
investment in rural infrastructure, thereby increasing agricultural growth and diversification in a
cost-effective way. This would make India‟s farm products competitive and strengthen effective
food security by expanding rural employment and reducing poverty through the development of
the rural nonfarm sector.

19

Agricultural Trade Policy

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Chapter -Agriculture

Fellow:Dr.Kawal Gill, Associate Professor

Author: Dr. Poonam Bewta

Reviewer: Dr. Uma Kapila (Retd.)

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 Indian Agriculture and Globalization

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Indian Agriculture and Globalization

1.8 Trade Policy- An Instrument of Food Security

 To improve the allocative efficiency of resources and

Value Addition: Historical context

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1.8.1 Emerging Trends

 The degree of openness or outward-orientation of the agricultural sector in regard to the

(Rs. Crore at Current Prices)

1970-71 1980-81 1990-91 1995-96 1998-99

Note * : GDP originated in agriculture, forestry and fishery

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It can be noted from the Table

Value Addition: Intellectual Context

1.8.2 India and World Trade Organisation

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Value Addition: FAQ

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1.9 Major Issues in the context of Globalization

Value Addition: FAQ

 Self- sufficiency in production

Self- sufficiency in Production

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Adverse effects on weaker section

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Value Addition: Did you Know

Did you Know

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Value Addition: Interesting Facts

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Press, New Delhi.

Self- Sufficiency, Food Security and Related Issues

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Value Addition: FAQ

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Value Addition: Broadening Horizons

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