Thursday, March 7, 2013
Wednesday, October 12, 2011
Regional Trading Agreements
Monday, October 3, 2011
Regional Trading Agreements
Wednesday, July 20, 2011
Micro finance-Bridging the development divide
Rising Indian Exports
Indian Export Strategy: Post Independence
Rising out of colonial subjugation under the British rule export policy of the new government in the initial years of independence has been termed as that of "export pessimism" by the critics. In line with the development thinking for developing countries prevalent at the time, it was argued that primary exports from developing countries like India faced a stagnant world demand along with a secular decrease in prices over time deteriorating their terms of the trade. In order to achieve a better return on their exports in future it was argued that India should first concentrate on establishing the industries that tend to substitute goods imported from abroad. Economies of scale obtained in production along with the experience gained in serving the large domestic market was expected to contribute larger export volume and value in future years. Export policy, therefore became subjugated to the larger economic goal of import substitution based industrialization. The government sought to control the heavy foreign exchange expenditure necessitated by the new development strategy for the import of capital equipments, machinery, raw-materials, intermediate goods and technological know how etc through severe import restrictions and an overvalued exchange rate which further worked against the export sector. As a result while the world trade expanded rapidly during the 50s and 60s and several developing countries showed a large increase in their shares exports from India stagnated. However by the time of fourth five year plan the regular Balance of Payment crises forced the government to have a re-look on its export policy and the currency was devalued in 1965 and export subsidy scheme introduced next year. After the oil-crisis in 1973 the government started according higher priority to the exports with incentives enhanced for export production and a more favorable currency regime.
Policy Changes post reform
Trade reforms formed an important component of the wide ranging economic restructuring carried in the country post the 1991 Balance of Payments crisis. Increasing competitiveness of domestic exports in the international market was considered an important component of the stabilization and structural programme.Trade policies were further restructured with India’s accession to World Trade Organization which called for elimination of quantitative restrictions and restructuring and reduction of import tarrifs.Exchange rate management was progressively liberalized to reflect market forces. Import liberalization aimed at making Indian industrial sector face the international competition to increase their efficiency of operations. The period witnessed promotion of exports being integrated as an integral part of industrial and development policy with increasing emphasis on technological upgradation, large plant size and greater exposure to domestic and international competition. The period also witnessed the beginning of the formulation of long term perspective trade policies in contrast to the short term visions of the earlier plan. The government has also drawn of various schemes like those of Trading Houses, Special Economic Zones, Export Oriented Units, Agricultural Export Zones and identification of specific thrust areas to promote exports. Exports in the country also achieved a major boost through making inroads in hitherto unexplored countries and trading agreements with various nations.
Performance of the Export Sector
Rising from a level of $1.2 billion in 1952-53 Indian exports grew to $2.1 billion in 1971, amounted to $17.85 billion in 1991 and now stand at a record high of $ 245.86 billion in 2010-11. There has been a significant change in the commodity composition of exports with gradual decline in the share of primary products including agriculture and a movement towards the high technology manufactured goods. While the share of primary products in total exports declined from 44.2 percent in 1960-61 to 9.3 percent in 2009-10, the share of manufactured goods have increased from 45.6 percent in 1960-61 to 68.9 percent in 2009-10.Even among the manufactured products share of traditional items like Cotton yarn, fabrics, jute and lather products have declined the share of engineering goods, chemical and allied products, machineries and gems and jewelries have witnessed significant growth. There has been a significant increase in the export of services sector in the country which touched a record high of $108 billion in 2008-09.With more than 130 Special Economic Zones exporting in the country, SEZs now contribute to 30 percent of the total exports. India’s export growth at more than 20 percent per annum since 2000 has been significantly larger than world export growth rate.
Problems in the export sector
Despite rapid growth achieved in the exports sector in recent years India continues to be a marginal player in the world market. The country contributed to less than 1.4 percent in world exports in 2009-10, much below the contributions of relatively smaller economies like Korea, Singapore, Hong Kong and Taiwan. Export growth has also failed to meet the increasing import demands caused by the growth in the economy. Trade deficit widened in the country from $9.4 billion in 1990-91 to $12.4 billion in 2000-01 and further $104.8 billion in 2010-11. The Indian experience is further belittled by the rapid strides made by the neighboring giant China which commands an impressive share of 10 percent in world exports and runs a trade surplus of more than $20 billion with India, achieving a four-fold increase during 2005-10. It is argued by the critics that the country has not done enough policy reforms to promote the export sector. In particular they point towards the cumbersome labor laws, infrastructural constraints, restricting Foreign Direct Investment Policy, tariff structures, lack of technology and low investment in Research and Development contributing to the poor export performance. Exports from the country face a dual competition from the high labor-productivity developed world on the one hand and low cost competitors on the other.
New Export Strategy
In order to develop a long term vision in the foreign trade sector the government has been releasing long term vision documents covering five year periods since 2004.The ministry of commerce and ministry in its mid term review to policy document 2009-14 has set a target of achieving a compound average growth rate of 26 percent to double country’s merchandise exports to $500 billion. The new strategy calls for building on country’s strength in sectors with large growth potentials like engineering goods, chemical industries, Pharmaceuticals electronics etc to achieve a greater share in world exports. It also aims at encouraging light manufacturing exports with higher value addition and high employment generating sectors like gems and jewelries and agricultural products. The government also intends to undertake more country specific trading agreements and discover export opportunities in these markets for new products. In order to achieve higher values for country’s export the importance of moving up the value chain in production has been realized and the new policy calls for greater investment in research and development and thrust for quality upgradation.Need for reduction in trade related transaction costs through streamlining of laws and procedures and greater credit support to the exports sector has been advocated. Need for removing the infrastructural constraints like roads, electricity, railways, and port facilities have been realized in the policy document.
The way ahead
Reflecting resilience of the Indian exports sector the recent economic recession in the major world markets produced a relatively little dampening effect on growing Indian exports. Nevertheless, achieving a corresponding share in world exports according to its economic size remains a major challenge for Indian exports. In 1990, shares in world exports of China and India were 1.8 per cent and 0.5 per cent respectively and in 2009, their respective shares stood at 9.7 per cent and 1.3 percent. Even attaining half the level achieved by Chinese exports the resultant impact on manufacturing and employment opportunities in the country would be enormous. There is also a significant need to achieve substantial diversification in export baskets in tune with the world demand to draw growing benefits from the international trade. A further liberalization to financial flows would lead to greater investment in export sectors. India needs to utilize its diversified industrial base, low wage costs, skilled man power and demographic advantages to increase its share in the world export markets. A rapid growth in exports combined with policies to make the export sector more integrated with the domestic economy will go a long way in sustaining inclusive growth.
Monday, June 27, 2011
Ensuring food to all through PDS
“The only lasting solution for food price inflation lies in increasing agricultural productivity ... the public distribution system needs to be strengthened...”Manmohan Singh, Prime Minister. The above excerpt from the speech of the Prime Minister Manmohan Singh at the recently concluded Chief Secretary's conference in
Public Distribution System
Operated through a network of more than 4.99 lac Fair Price Shops across the country
How Does PDS operate
The main objectives of food management in India is procurement of food grains from farmers at remunerative prices, distribution of food grains to consumers, particularly the vulnerable sections of society at affordable prices and maintenance of food buffers for food security and price stability. Public Distribution System in the country works with the aforesaid mentioned objectives under the joint responsibility of the central and the state governments. The responsibility of the Union government involves procurement, storage, maintenance of buffer stocks, transportation and distribution of food grains among the states. Food Corporation of
Criticisms of the System
Public Distribution System has been the most important constituent of the strategy for poverty eradication and meeting nutritional standards of the people in the country since independence. However, serious criticisms have been labeled against its functioning ever since its inception. A recent World Bank report has categorically pointed that despite spending 1 percent of the country’s GDP, the impact of PDS on poor is very limited in many states, particularly a number of lagging states. Similarly a report by the Planning Commission in 2005 observed that for every Rupee four spent on the poor only Rupee one reaches the poor and fifty-seven percent of the intended food grain does not reach the intended people. Indeed there are many systemic challenges that plague the Public Distribution system of the country the most important being- limited benefit of food subsidies to the poor, high rate of leakages of the food grains to the open market, lack of transparency and accountability in functioning, regional and rural-urban disparities in the working of the system and the high burden of food subsidy that it imposes on the government. According to the National Sample Survey 2004-05 only 41 per cent of the grains released by government reach the intended households, rest of it lost in transportation, storage and diversion to the open markets.The system also appears to have a limited impact on the reduction of poverty in the country and as par some estimates the addition to per capita income due to the Public Distribution System has been Rs 2.01 per month in rural areas and Rs 3.40 per month in urban areas and for the country as a whole, the reduction in poverty due to PDS is hardly two percentage points of the poverty ratio. Operational costs of the public distribution have also been estimated to be too high and total food subsidy bill of the government has increased from Rs.9200 crore in 1999-00 to Rs.58, 242 crore in 2009-10.It has been reported that government has to undertake an total expenditure of Rs.4.27 to transfer one rupee of food and non-food income to the poor. There are also considerable regional disparities in the distribution of PDS benefits across the country-off takes of the food grains from the central pool by Northern poor states have traditionally lagged behind those in the richer Southern states.TPDS was started by the government in 1997 with a special focus on people below the poverty line but it has also failed to produce the desired impact. Apart from conceptual difficulties in determining an adequate measure of poverty in terms of income or nutritional status, there have been reports of large scale corruption in the identification of beneficiaries of the scheme. Dual price system applicable to BPL and APL families under TPDS has reduced the demand of food grains from the APL families putting adverse impact on the viability of fair price shops. Food subsidy bill of the government has further increased with the introduction of Antyodaya Anna Yojna by the Government in 2001 which envisages the supply of wheat and rice at only Rs. 2 and 3 per Kg respectively to one crore poorest of the poor families.
Streamlining the Public Distribution System
In its recently submitted report to Supreme Court the Central Vigilance panel led by retired Justice D P Wadhwa categorically remarked that Public Distribution System in the country is stinking of corruption, hoarding and black marketing. The committee observed that the Subsidized PDS food grain does not reach the poor who desperately need food grain in proper quantity and quality. In the context of the low nutritional status of country’s population, rising food prices, growing hunger and inequality the government has decided to put in place a comprehensive National Food Security act. The act proposes an allocation of 35kgs per household per month at Rs 3,2and 1 for rice, wheat and
millet for priority category households and 20 kgs at half of the Minimum Support Price for General population. The draft bill as circulated by the National Advisory Council intends to cover at least 90 percent and 50 percent of the population in the rural and urban areas with 46 percent and 28 percent covered under the priority categories respectively. Aside from creating new food entitlements, the landmark legislation intends to place the existing food related schemes on a new footing and envisages a new revamped role for the Public Distribution system in setting new standards for transparency and accountability in social programmes.
Aaadhar and the PDS
A wide ranging reform is expected in the Public Distribution of the country with the creation of Unique Identification Authority of India (UIDAI).The authority has been mandated to develop and implement the necessary institutional, technical and legal infrastructure to issue unique identity numbers to Indian residents. The unique identity numbers are expected to work as a single source of identity verification facilitating access to government and private sector services to poor and under-privileged citizens. The over-arching objective of Aadhar is to make public service delivery by Government more efficient ensuring that welfare scheme reach the intended benificiaries.The government is seriously considering the idea of linking the Public Distribution System of the country to Aadhar.The all India database created under the Aadhar programme can be effectively used to improve the coverage of the PDS system and better identification of the beneficiaries leading to better targeting and transparency in the system. The programme will also help in detection of duplicate and bogus ration cards and authentication of actual off take by the beneficiaries’. On more progressive fronts it is being argued that Aadhar numbers printed on the ration cards can be used to provide flexibility to the consumers on the choice of ration shops thus increasing competition among the shop-owners in providing services. The identification numbers issued will also help poor and marginalized people in opening bank accounts and the government can transfer direct food-subsidies to them through cash transfers.
The Way Ahead
Public Distribution System in has been at the center stage of the government’s welfare policies, tied to the implementation of the most rural development programs.However, the system has failed to deliver required benefits both in terms of expenditure involved and intended impact on the benificiaries.The country achieved self sufficiency in food grains production by early 70s but the achievement of food grain security at the national level has not percolated into the food grain security of individual households and level of chronic food in-security still remains high in the country. Despite running one of the most ambitious programmes of public distribution of food and other essential commodities,
Goods and Services tax
A major step towards implementing a comprehensive Indirect Tax reform in the country has been taken with the introduction of the Constitution (115th Amendment) Bill, 2011 by the Government on March 22 in the Lok Sabha.The bill, commonly referred to as the Goods and Services Tax bill seeks to pave the way for the introduction of a nationwide Goods and Services Tax that would subsume all indirect taxes like excise duty and service tax at the centre level and value added tax (VAT) at the state level. The bill intended to usher a nation wide common market for goods and services will simplify the indirect tax structure, broaden the tax base and lower the average tax burden on goods and services companies through the removal of “cascading effects.”
Taxation in
Apart from removing the restrictions that curtailed the efficient functioning of the private sector, economic reforms carried in
Indirect tax reforms
Tax reforms aimed at greater collections to finance developmental needs have been a priority to the government since independence. A comprehensive Indirect Taxation Inquiry committee was set by the government in 1976 under the chairmanship of L.K.Jha. The committee drew government attention towards lack of integration between different indirect taxes leading to distortion in allocation of resources. It noted that the taxation on the inputs of production distorts the production structure in the economy-phenomena called in mainstream economics as “cascading effect” .These taxes also lacked built-in flexibility and often tax rates needed to be raised to enhance collections. The committee recommended for a movement towards the taxation of final products by introducing a modified form of value added tax. In committee’s opinion a major obstacle to indirect tax reform in the country was multiplicity of taxing authorities-centre, state and local providing opportunities for evasion.Some, major reforms in taxation system of the country were introduced in the country with the announcement of Long Term Fiscal Policy in 1985.A modified form of value added tax named MODVAT was introduced by the government in the place of Union excise after a reduction in the number of effective rates and harmonization of tax structure. A value added Tax is essentially an indirect tax levied at every stage of the value addition chain with tax-payers receiving credit for taxes already paid on the procurement stage of the raw-materials. Say, we have a manufacturer who buys raw-materials worth Rs.100 and after doing some value addition on it sells it for Rs.120 to a retailer, the retailer sales it to the final consumer for Rs.150.Now with a GST rate of 10 percent in place the total tax paid by the manufacturer would be Rs.2, i.e. 10 percent of Rs.20 (manufacturers value addition).Similarly the retailer would be charged with Rs.3,10 percent of his value addition of Rs.30.
Chelliah Committee further simplified the MODVAT structure in the country with three rates of taxes of 10,15 and 20 percent under the MODVAT regime. The multiple rate MODVAT was finally replaced by a single Central Value Added tax (CENVAT) IN 2000-01.A system of value added tax on services at central government level was introduced at central level in 2002.Sales tax reforms at the states level received a significant boost with the introduction of Sales Tax Value Added Tax (VAT) effective from April1, 2005. The proposed move intended to remove the unhealthy sales tax war among the states, removing the cascading effects and increase compliance. Two basic rates of 4 percent and 12.5 percent operate under VAT beside an exempt category and a special rate of 1 percent for a few selected items.
Goods and Services tax
A government task force headed by Vijay Kelkar for implementing the Fiscal Responsibility and Budget Management Act,2003 suggested for an all India Goods and Services Tax(GST) which would help achieve a common market ,widen the tax base improving the revenue productivity and enhance welfare through improved resource allocation. The finance minister made an announcement in the budget, 2007-08 for the introduction of a comprehensive Goods and Services tax from April 1, 2010. An empowered group of state finance ministers was created to chart out the necessary roadmap for the introduction of GST. Goods and Services Tax as intended to be introduced in the country is a tax on goods and services with continuous chain of set -off benefits from the producer’s point and service provider’s point up to the retailer level. It is essentially a tax only at value addition in each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism the GST paid on the purchase of goods and services. The final consumer thus bears only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. Thus, after the introduction of the value added tax in the country GST forms the next logical step towards a comprehensive indirect tax reform.As,noted earlier the introduction of CENVAT at the central and sales tax VAT at the state level have removed the phenomena of multiple taxing and cascading but they still show certain incompleteness. The shortcoming in CENVAT at the centre lies in non-inclusion of several Central taxes like additional customs duty, surcharges etc in the overall framework of CENVAT thus keeping the benefits of comprehensive input tax and service tax set-off out of reach for manufacturers. Besides, no steps have yet been taken to capture the value-added chain in the distribution trade below the manufacturing level in the existing scheme of CENVAT. Thus, introduction of GST at the central level will not only include more of central taxes and integrate goods and services tax for the purpose of set-off relief, but also lead to revenue gain for the centre through widening of the dealer base by capturing value addition in the distributive trade and increased compliance. Similarly, at the state level several indirect taxes like entertainment tax, luxury tax etc are yet to be subsumed under VAT. More importantly value load of CENVAT continue to be included in the states calculation of VAT contributing to the cascading effect. Moreover, production of a good requires inputs of both goods and services. States have no power to levy taxes on the services and to that extent there is need to achieve integration of VAT on goods and services at the state level as achieved at the centre for removing the cascading effects of CENVAT and services tax.
Proposed model for GST in
Federal nature of Indian constitution with separate power for centre and states to levy and collect taxes to carry out the development activities calls for an introduction of dual-GST in the country.Thus, GST in India will have two components one levied by the centre, Central GST and another levied by the state-State GST.However,the basic features of the law like chargeability, definition of taxable persons and events, valuation provisions and basis of classifications are intended to be similar. Both the taxes would be applicable to all transactions of goods and services except those exempted, outside the purview and below thresh-hold limit. The proposed central GST will include central excise duties, additional excise duties, service tax, counter-vailling duties, surcharges and cesses among others. The state GST will subsume VAT/sales tax, entertainment tax, luxury tax, taxes on lottery, gambling etc, and state cesses and surcharges among others. A two rate structure of taxes will be adopted under GST,a lower rate for necessities and goods of basic importance and a standard rates for goods in general. There would also be a list of exempted items and a higher rate for precious metals. Exports will be zero-rated. The GST will not cover petroleum products and alcohol but will allow the Centre to levy taxes on supply of goods in inter-state trade.
Conclusion
Movement to a flaw-less Goods and Services tax regime is expected to be a big leap in the Indirect tax reform in the country giving a new impetus to its economic growth. The finance ministry has estimated a net vale gain from GST amounting to half a trillion dollar. The thirteenth finance commission has estimated of an increase of prices of agricultural goods under the Goods and Services tax benefitting farmers and reduced production cost for manufactured goods increasing their competitiveness. The proposed reform would also lead to greater tax collections through increased compliance and greater tax base.GST is the preferred tax model in more than 140 countries across the world and an early implementation of GST will go a long way in increasing our international competitiveness.
Wednesday, June 15, 2011
Ushering Second Green Revolution
The frequent spike in food inflation and the growing public concern of it has again brought the agricultural sector to the fore-front of Indian economic policy making agenda. It is being increasingly felt that agricultural sector is trailing behind in providing an adequate food safety-net to a fast growing billion plus population and meeting the diverse food-requirements of the rapidly growing economy. Besides, an enhanced production and productivity in agriculture has become important for sustaining a high level of economic growth through increasing domestic demand and greater investment. The first green revolution ushered in the country in the 1960s more than quadrupled the food-production in the country (though with lopsided production and distribution), saving the people from the tragic famines characteristic of the British rule. But it is being increasingly felt that the gains in production and productivity made during the first green revolution have largely plateaud and agriculture in India has fatigued due to increasing production cost, dwindling resource base and adverse climate change. In fact, as succinctly remarked by the recent Economic Survey (2011), Indian agriculture has not witnessed any significant technological breakthrough post the first green revolution phase. There is thus an urgent need to trigger an environmentally sustainable, inclusive high growth rate in agriculture through right strategies, policies and interventions.
Agriculture in Indian Economy:
Despite declining contribution to the national income, growth in the agriculture sector still continues to be a critical factor in the overall performance of the economy. The contribution of agriculture in the Gross Domestic Product (GDP) of the country has progressively declined from 55.1 percent in 1950-51 to 37.6 percent in 1981-82 and further to 14.2 percent of GDP in 2010-11. However, far-less spectacular has been the decline of labour force engaged in agriculture and allied occupations-it accounted for 69.5 percent of the working population in1951 declining marginally to 66.9 percent and even in 2001 it accounted for 56.7 percent of the total employment in the country. While the declining contribution of agriculture to the national income has been observed all across the world as a hallmark of industrialisation the worrisome fact in Indian context has been the meagre decline in the workforce engaged in agriculture. Growth of employment in the Industrial and services sector have constantly lagged behind the growth of work-force in the country resulting in an overburdened agricultural sector. More-over the decline in the contribution of agricultural sector to the overall GDP has been obtained by the sector continuously clocking a lower growth rate compared to the other sectors. The overall GDP has grown by an average of 8.62 percent during the period 2004-05 to 2010-11 but agricultural sector GDP has increased by only 3.46 percent during the same period.
Agriculture in India continues to be a gamble with the monsoon increasing the economic vulnerability of two-third of Indian population that are directly or indirectly dependent on it. During the current five-year plan (2007-12), for the first three years agriculture averaged 2.03 percent against the plan target of 4 percent and even this dismal performance contained wide erratic fluctuations-after achieving an impressive growth rate of 5.8 percent in the first year of the plan it ventured into the negative territory of -0.1 percent in 2008-09 recovering marginally to 0.4 percent next year. As per the advance estimates for 2010-11 agriculture sector is expected to grow at 5.4 percent but to achieve the plan target of average 4 percent the sector needs to grow 8.5 percent for the rest of the plan period.
Besides feeding to the rapidly increasing urban population, agriculture provides raw-material to various agro-based industries. With diversification of production base in the economy the contribution of agriculture to foreign exports from India has declined but it still manages to contribute more than 10 percent of the total foreign exchange earnings. Most importantly a balanced growth of the agricultural sector is an absolute necessity for realising the goal of inclusive development and increasing prosperity in the rural sector can be a potential source of domestic demand and investment surplus.
The First Green Revolution
Facing the increased demand for food and other agricultural commodities, government of India started making sincere efforts to increase agricultural production and productivity from the latter half of the Second Five Year plan. Following the adoption of new high yielding varieties of wheat developed by Mexican Agricultural scientist Norman E Borlaug in different parts of the world, a new agricultural strategy was unveiled in India as well, depending on the extensive use of high yielding seeds, fertilizers, pesticides, insecticides, farm mechanisation and irrigation. The new programme resulted in massive increase in agricultural production and productivity in the regions selected for the endeavour. The food output in the country increased from 72 million tonnes in 1965-66 to 108 million tonnes in1985-86 and yield per-unit of the farmland in the green revolution region increased by at least 30 percent. This agricultural success termed as the Green revolution succeeded in eliminating the 'farm to mouth' nature of Indian farming and firmly established India as one of the largest agricultural producers in the world. No less important were the secondary contributions to the industrial growth in the country through the setting up of fertiliser, pesticides, farm-machinery and hydro-electric plants. The latter created on huge water reservoirs needed for irrigation purposes in different parts of the country.
However the first green revolution didn't prove to be an unmitigated blessing for the nation. For, a long time increase in production remained restricted to wheat and to some extent rice. Production of wheat often termed as the main stay of the green revolution increased from just over 11 million tonnes in 1960-61 to 36.3 million tonnes in 1980-81. Production of pulses, oil-seeds and other horticultural products effectively remained outside the ambit of green revolution. Pulse-production in the country Infact declined from 12.7 million tonnes to 10.6 million tonnes over the same period. The revolution remained restricted to the selected regions of the country particularly Punjab, Haryana and Western Uttar Pradesh, largely benefiting the large farmers there who had the financial capacity to undertake the required investment for high cost farm resources leaving aside other regions and small and marginal farmers. The most obnoxious of the results of the first green revolution as it is being debated among agricultural scientists, environmentalists and economic policymakers is its lavish dependence on expensive agricultural inputs which in the long run have proved to be environmentally hazardous, ecologically unsustainable and economically unviable for small and marginal farmers which constitute the majority of Indian farm-holdings.
Issues in Indian Agriculture
Given its politically sensitive nature and dependence of more than two-third of the population for livelihood, agricultural sector in the country was largely kept aloof of the wide swapping economic reforms carried in the country after the post 1991 crisis (why do we call it a crisis?. Agriculture was indirectly expected to be benefited from the reforms in other sectors through the increased and diversified demand for agricultural products and lower costs for agricultural inputs made possible by increased income and productivity. However, growth rate in agriculture secularly (??) declined from those achieved during the 70s and 80s throughout the post reform period. Compared to a compound annual growth rate of 3.4 percent during the period 1980-81 to 1990-91, the growth rate in agriculture remained restricted to less than 2 percent for the period 1990-91 to 2002-03. The sector has witnessed some revival in growth after 2004 but it continues to be widely fluctuating and remains well below the plan targets of 4 percent.
The slow growth in agriculture post reforms has partially undone the gains made during the green revolution. The per capita food grain availability in the country has declined from 177 kg per head in 1990-91 to 154 kg per head in 2004-05. Famine like situations often emerge in different parts of the country and the government has to often resort to imports to ensure availability and contain prices of the food grain. India continues to be poorly placed at the rank 67 among the 84 countries in the Global Hunger Index calculated on the basis of child malnutrition, infant mortality and calorific deficiency of the population. More than 42 percent of Indian population fall below the international poverty line of $1.25 per day, child mortality rate in the country is at alarmingly high level of 72 per thousand and over 80 million Indian children are mal-nourished.
Causes of Agricultural Crisis
One of the most important causes of the decline in the growth rate of agriculture has been the progressive decline in the overall investment in the sector including that from the public. Gross capital formation in agriculture which was around 10 percent of total capital formation in the economy in 1990-91 declined drastically to 3.5 percent in 1999-00, though capital formation in the sector has revived of late to 9 percent it is still not sufficient to trigger a high growth rate.
Equally important has been the lack of any significant technological break-through in the sector since the first green revolution period, a phenomenon further compounded by increasing social resistance to genetically modified varieties developed outside India and dismal expenditure on agricultural research and development. The levels of adoption of high yielding production technologies and improved farm practices have remained un-even in different parts of the country.
One of the adverse consequences of government policy of providing input subsidies for agriculture has been the unbalanced use of fertilisers, pesticides and water, taking its toll on soil-health reducing the yield. Farming in India has been further handicapped by low credit delivery to the sector reducing the farmer's capacity to undertake investments in productivity enhancing tools/techniques and making inadequate investment in storage, ware-housing and marketing facilities. Even after huge investments taken in the country to improve irrigation facilities, more than 60 percent of Indian agricultural land is still rain-fed reducing the intensity of cropping and adding to the fluctuations of output.
Needed a second green revolution
Population of India is projected to cross 1.6 billion by 2050, placing a requirement of around 450 million tonnes, almost a double from the current level of around 230 million tonnes of food grain onus on the agricultural sector. The current growth performance of the agricultural sector can hardly be expected to meet the necessitated requirement. Opening of agriculture to international trade also cannot achieve a reliable food security for the country as the world output of food grains have been showing wide fluctuations and a constant tendency of hardening of the prices. There emerges thus an urgent need to break the low growth path obtained in the agricultural sector through ushering a cost-effective, environmentally sustainable second green revolution in the country. Growing economic prosperity in the country also calls for a new direction in the agricultural growth for meeting the diverse nutritional requirements related to dairy, poultry and horticultural products. Growth in agriculture has become an absolute necessity to obtain inclusive growth as continued disparity may result in social unrest jeopardising our development efforts. Indeed an enhanced productivity in the farm sector can be an important source of increased domestic demand and a well-nourished work force raising the growth potentials of the economy.
The way forward
The course charted by the agricultural sector for the much needed spurt in growth rate needs to be effectively different from those in the first phase of the green revolution. Practically, the chances of expanding arable farmland in the country have dried up, and average farm land size in the country have shrunken further due to partition and requirement of land for housing, industrial and other purposes. Land qualities as well as climatic conditions in the country have become further averse to increasing agricultural productivity.
Thus, the fore-most requirement in the country is to unveil an agricultural growth strategy that is environmentally sustainable and that climatically satisfies the requirements of diverse agro-climatic zones in the country. Food output basket in the country needs to be diversified to include pulses, oil-seeds, fruit, vegetables, dairy products and coarse grains. A major technological breakthrough in the form of drought resistant seed varieties and farming technique is needed to increase crop-productivity in dry land and rain-fed areas hitherto untouched by the green revolution. The eastern region of the country with an equally productive land and adequate irrigation facilities has largely remained unaffected by the green revolution. These regions have immense potential to contribute to agricultural growth if supported by right mixture of credit, research and marketing policies.
The declining trend of the public investment in the agricultural sector needs to be arrested. The public investment works as a valuable add on to the private investment in the sector. The research, extension, infrastructure, credit and marketing facilities extended to agriculture continues to be meagre in the country producing adverse effects on farmers incentive and agricultural productivity. Given the economic vulnerability of a large section of Indian farming community there is an urgent need to develop economically viable low cost production techniques affordable to them.
A significant breakthrough in agriculture also necessitates an active involvement of the private sector. They can effectively contribute through their active research and extension facilities, establishing efficient supply chain management and setting up of agro-processing industries leading to value addition of the agricultural products and remunerative return for the farmers. They are also important repositories of new technological breakthrough in agriculture like genetically modified seeds and nano-technologies holding promise for the future. Though, the country definitely cannot compromise on the livelihood interests of millions of small and marginal farmers; a change in people's mindset is needed to develop a receptive climate for the adoption of new agricultural innovations in the country.
Conclusion
A further neglect of the agricultural sector can be self defeating to India’s developmental efforts. There is an urgent need to develop enabling programme and policies for the agricultural sector to usher an environmentally sustainable, climate friendly change in agricultural production and productivity. A prosperous agricultural sector holds the key to the national agenda of inclusive development.