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Students Corner - A Decade of Economic
Reforms in India - A Review

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Performance Of Agriculture Sector exhibited a deceleration in output growth during the reform period. Apart from exploring issues like decelerating public investment, credit availability and near stagnating yields, attention is also focused in this article of the module and the next on a phenomenon of topical interest, viz., burgeoning food stocks, with an emphasis on their fiscal and monetary implications.

Agriculture witnessed an improved growth of 3.2 per cent during the 1980s, after a span of relative stagnation during the previous two decades. The growth performance was somewhat subdued in the 1990s with real GDP originating from agriculture growing at a modest 2.9 per cent resulting from near stagnation in crop yields and falling rate of public sector capital formation in this sector, despite consecutive good monsoons. Within the agricultural sector, a sharper decelaration was observed in the non-food grain production. While there was deceleration in output growth, the variability of the growth process has significantly declined during the 1990s as compared with the 1980s.

The reasons for slowdown in agricultural growth were many. The pre-occupation with food security led to restrictive trade policies regulating trade in agricultural commodities. Alongwith this, high protection to industry resulted in unfavourable terms of trade for agriculture until the early 1990s. The negative consequences of such policies were to be offset by the provision of high subsidies on inputs such as irrigation and fertilisers. However, such input subsidies assumed large proportions over time and reduced the capacity of the Government to invest in agricultural infrastructure. Further, the distortionary pricing system of agricultural commodities with Minimum Support Prices (MSP) favouring production of rice and wheat, provided adverse incentives for crop diversification. The falling world prices of agricultural commodities during the latter half of 1990s further reduced the competitiveness of the agricultural exports. The relatively higher MSPs on the one hand, and the increasing production of rice and wheat on the other, all led to increased procurement of foodgrains, and in the face of lower off-take, resulted in piling up of foodgrain stocks. Thus, the slowing down of agriculture growth in the 1990s, despite a generally favourable macroeconomic environment, could be attributed to limited reforms in this sector. Limited progress has been made in removal of restrictions on domestic trade and processing, rationalisation of price interventions and reforms in rural infrastructure

It is apparent that Indian agriculture is characterised by deceleration in its performance in the 1990s coupled with a large stock of foodgrains. While plateauing of yield gains (i.e., productivity) in foodgrains could, in part, explain the observed deceleration in production performance, there is no denying of the fact that higher growth in agriculture will, clearly, need diversification. Notwithstanding the limited reforms directly affecting agriculture, some policy measures were undertaken to provide incentive framework for agriculture to make it more competitive. The reform measures taken during the 1990s included,

1. restructuring of Public Distribution System (PDS), initially through the Revamped Public Distribution System (RPDS) and subsequently by replacing RPDS with the Targeted Public Distributions System (TPDS);

2. replacement of the quantitative controls by tariff restrictions;

3. introduction of forward trading in important commercial crops; and

4. relaxation of restrictions under the Essential Commodities Act, 1955.

It may be noted that most of these reforms in agricultural sector were introduced only towards the end of the 1990s and are still in the process of being operationalised.

These reform measures have brought in some changes in the agricultural sector. Deregulation of industrial sector improved the terms of trade for agriculture (Vyas and Reddy, 2002; Mohan, 2002). The gradual reliance on the market seems to have brought some changes in the cropping pattern, causing diversion towards non-foodgrains from foodgrains. However, within the foodgrains, there has been area diversion towards input intensive cultivation of rice and wheat from coarse cereals and pulses, reflecting the impact of subsidies on inputs such as fertiliser and fuel for irrigation.

Against this backdrop, this Section seeks to analyse two distinct issues. First, the deceleration in agricultural growth during the 1990s and its product-specific profile are analysed. Second, the phenomenon of burgeoning buffer stocks of foodgrains including their fiscal and monetary implications is discussed in some detail.

Foodgrains

The deceleration in the growth of foodgrains production to 2.0 per cent in the 1990s from 2.9 per cent in the preceding decade was caused predominantly by declining yield growth, reflecting a diminishing growth in productivity. Among foodgrains, growth in rice production decelerated due to a decline in yield growth, despite a marginal increase in the growth of area under cultivation. On the other hand, production of wheat in the 1990s witnessed an identical rate of growth to that of the 1980s, due to substantial increase in acreage, even as yield growth decelerated. The increased area growth in wheat and rice during the 1990s led to a decline in area under coarse cereals and pulses. Despite a decline in acreage, production of coarse cereals was maintained almost at the levels attained in the preceding decade on account of increased yield growth. Growth in pulses production decelerated in the 1990s due to a deceleration in yield growth coupled with a decline in acreage. Following the changes in acreage under foodgrains during the 1990s, the shares of rice and wheat increased and those of coarse cereals and pulses declined, which had implications for input usage and procurement of foodgrains.

The decelerating growth in the index of non-foodgrains production to 2.6 per cent in the 1990s from 3.8 per cent in the earlier decade was also marked by a slowdown in the yield growth. Within non-foodgrains, oilseeds production growth witnessed a sharp deceleration from 5.5 per cent in the previous decade to 2.3 per cent in the 1990s due to a decline in yield growth and stagnation in area coverage. Stagnation in area under these crops seems to have been induced by the freeing of imports of major edible oils in 1994 that had considerably weakened the protectionist atmosphere in respect of the oilseeds sector. The growth in sugarcane production during the 1990s was identical to that in the 1980s, due to some acceleration in area growth, while yield growth decelerated marginally. In the case of cotton, the substantial yield growth attained in the 1980s appears to have influenced the farmers’ preference to cultivate cotton in the 1990s with acreage increasing substantially by 2.7 per cent per annum. This increase in acreage led to an increase in output of cotton by 2.3 per cent even as yield growth turned negative to 0.4 per cent

The deceleration in yield growth, spread across both foodgrains and non-foodgrains, led to a perceptible slackening in the growth of agricultural production to 2.3 per cent in the 1990s from 3.2 per cent in the earlier decade. Moreover, increased variability in agricultural production during the latter part of the 1990s, primarily emanating from the fluctuations in acreage in case of foodgrains, and from fluctuating yields in case of non-foodgrains is also a matter of concern.

Apart from these traditional foodgrains and non-foodgrains, India produces a large number of horticultural crops such as fruits, flowers, vegetables, potato, tropical tuber crops, spices, and plantation crops like coconut, cashewnut and cocoa as also livestock products. Given the diverse agro-climatic conditions in India, horticultural crops have the potential to turn agriculture more profitable as also create employment in rural areas. India has emerged as the largest producer of coconut, arecanut, cashewnut, ginger, turmeric, black pepper and the second largest producer of fruits and vegetables in the world. It needs to be recognised that these allied products of agriculture have high value added with a higher potential for exports. The sustainability of growth in the agriculture would, however, require much faster diversification away from traditional items to these non-traditional agro-products.