Agriculture Since 1991What Liberalisation Changed

Growth of foodgrains

• ▹India has been experiencing the increase in the production of food grains particularly after green revolution.
• ▹Annual growth rate of 2.08 per cent was recorded during 1970s. Annual growth rate of 3.5 per cent in food grains in 1980s is the hallmark of the green revolution that enabled India to become self sufficient in food grains and even a marginal exporter.
  • However, the decade of 1990s could not maintain this pace and annual growth rate. There was a steep decline in the growth rate of land productivity during the decade of 1991-2001 to 1.7 percent per annum.
  • This, however, improved slightly during the subsequent period of 2001-2009 to 2 percent per annum. It was close to the rate of growth of population. This indicates that there is no threat to foodgrain availability in India in the immediate future.
  • During the nineties, (1989-90 to 1998-99) growth rate of production for both foodgrains and non-foodgrain crops taken together has declined to 2.35 percent per annum from 3.72 percent per annum achieved during the eighties (1979-80 to 1989-90).
  • The decline in the rate of growth for foodgrains was sharper from 3.54 to 1.80 per cent per annum.
• ▹Production of food grains increased from 176.39 million tonnes in 1990-91 to 303 million tonnes in 2020-21 (the 2002 answer gives 296.65 million tonnes in 2019-20). However,
  • In 1991-92, total production of food grains came down to 167 million tonnes mainly due to fall in the production of coarse cereals and in 1993-94, the production was around 184 million tonnes.
  • In 2002-03, total production of food grains has further decreased to 174.8 million tonnes.
• ▹Productivity of food grain increased from 1380 kg/hectare in 1990-91 to more than 2300 kg/hectare in 2020-21 (the 2002 answer gives 2,070 kg/hectare in 2014-15).
  • The country's requirement for food grains in order to provide for its population is projected to be 300 million tonnes by 2025. With present production of 296 million tonnes, we are not facing any problem of foodgrain scarcity in near future.
• ▹The rate of growth of productivity per hectare of all crops taken together increased from 2.07 per cent in the decade ending 1985-1986 to 2.51 per cent per annum during the decade ending 1994-1995.
  • Although productivity gains were sustained in the 1990s after the liberalization process began, the yield rates for most of the agricultural products in India are far below comparable rates in a number of other countries.

A top producer, but not a top performer

India is the top producer of milk, spices, pulses, tea, cashew and jute, and the second-largest producer of rice, wheat, oilseeds, fruits and vegetables, sugarcane and cotton. However,

• ▹There is increasing pressure on land for non-agricultural use, and unless land productivity increases meeting the food grain needs of growing population would become a problem.
• ▹The agricultural yield/productivity is found to be lower in the case of most crops, as compared to other top producing countries such as China, Brazil and the United States.

  Example: India harvests roughly 4 tonnes of paddy per hectare against about 7 tonnes in China: the same land could feed far more people.

• ▹As per the estimates of Indian Council for Agricultural Research (ICAR), demand for foodgrain would increase to 345 million tonnes by 2030.
• ▹Farmers are still not able to earn respectable earnings.

Evaluating other impact of the 1991 reforms

• ▹Although initially after 1991 reform, with respect to agriculture, there was no major policy reform package in the 1990s, it was however anticipated that the opening up of the agricultural sector to foreign trade, the move to a market determined exchange rate and reduction of protection for industry would, over time, benefit the agricultural sector.
• ▹Ahluwalia (1996) noted that over-valuation of the exchange rate (before the Indian rupee was devalued by 18 per cent in two phases starting in July 1991) discouraged agricultural exports more than industrial exports because
  • Indian industrial policy had sought to offset the constraints faced by industries via a system of export incentives for market support. Agricultural exports on the other hand were denied any such incentives as they did not use imported inputs.
  • Ahluwalia (1996) argued that in the past, the agricultural sector was negatively protected because of the above two reasons and the fact that farmers were denied access to the world markets due to trade barriers.
• ▹Although India's economic reforms were initiated in 1991, the process of liberalization was implemented gradually.
  • One observation is that the expected increase in exports due to liberalization simply did not occur. India's share in world exports was 0.6 per cent in 1997.
  • Increased exports would bring about economies of scale and as Verdoorn's law states, output growth would lead to productivity growth.
• ▹Overall, India is not as competitive as the other countries and calculations show that India's crop yields have increased at a slower rate over the 1990s.
• ▹In addition, the agricultural sector's output growth decreased to 2.9 per cent during 1992-1993 to 1998-1999. Kalirajan and others (2001) explain that two important reasons for the slowdown are that:
  • There was no major breakthrough in developing new high-yielding varieties during the 1990s and
  • There was a decline in the environmental quality of land which reduced the marginal productivity of the modern inputs.
• ▹The reduction in the tariff rate for agricultural products from 113 per cent in 1990-1991 to 26 per cent in 1997-1998 is also expected to motivate local producers into rethinking their production techniques and efficiently utilizing the inputs and technology to keep costs of production down in order to remain competitive.
• ▹Although the reduction to protection of industry is substantial, there is reason to believe that the reduction was not necessarily sufficient to benefit the agricultural sector whose tariffs were also drastically reduced. Hence, the expected shift in resources to agriculture did not occur.
• ▹There is apparent ineffectiveness of the market determined exchange rate in boosting exports.
  • This is however not surprising as the exchange rate may not be a key factor determining agricultural export demand for India.
  • In general, unlike manufacturing industries, agriculture did not benefit much from these policies because the share of imported inputs in the value of agricultural production is small.
• ▹It is likely that a change in the mindset and attitude of farmers has yet to take place and there are delays or hesitation in embracing India's openness.
• ▹Another problem faced by Indian agricultural exporters is the protectionist measures in the form of non-trade barriers that developed countries use to restrict market access.
  • This is by tightening requirements of quality, testing and labeling, and anti-dumping and countervailing measures.
  • For example, in May 1997, the EU banned marine products from India citing unhygienic processing conditions.
  • The extra costs of meeting the standards required in export markets as well as costs associated with changes in the production mix and transactions associated with exports may well be discouraging Indian exporters and associated growth in the productivity.
• ▹Another problem of India's agricultural protection is the use of input subsidies.
  • The general argument favouring this has been that it is necessary to encourage the use of particular inputs for production for various benefits.
  • But the benefits of these subsidies have accrued to only certain classes of farmers in some regions cultivating irrigated crops.
  • Furthermore, highly subsidized prices of inputs such as irrigation water and electricity for pump sets have encouraged cultivation of water-intensive crops, over-use of water, ground water depletion/salinity and water logging in many areas.
  • Subsidy for nitrogen fertilizer on the other hand has resulted in nitrogen phosphorous potassium imbalance and acted as a disincentive for use of the environmentally friendly organic manure.
  • If not properly monitored, input subsidies can be counterproductive and, in this context, protection to lower costs of production should be done selectively in the course of liberalization.

  Example: Cheap urea makes farmers pour on nitrogen and skip potash and phosphate: the soil's NPK balance (ideally about 4:2:1) goes badly off, and yields eventually fall.

Other measures

• ▹Improvement of farm organisation and land management.
• ▹Contract farming can lead to higher price realisation, investment and productivity.
• ▹Recently introduced farm laws are expected to attract private investment and technology, boost farm incomes, and increase productivity.
• ▹Steps for the improvement of different types of agro-based industries in rural areas.
• ▹Promoting climate-resilient agricultural practices.
• ▹Restoring degraded land by avoiding water logging, reduction of erosion, reactivation of peat formation, removal of degraded land surface etc.
• ▹Effective implementation of Bringing Green Revolution to Eastern India (BGREI) program.
  • It was initiated in 2010-11 to address the constraints limiting the productivity of rice based cropping systems in Eastern India comprising of seven States which includes Bihar.