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Agricultural Economics Research Review
Vol. 26 (No.2) July-December 2013 pp 135-157

Presidential Address

Agricultural Policies in India: Retrospect and Prospect§

V.P.S. Arora
Vice-Chancellor, Supertech University, Rudrapur, Uttarakhand

Agriculture continues to be an important sector of revolution. During the Eleventh Five-Year Plan, the
Indian economy, though its share in the gross domestic agriculture and allied sector has registered an average
product (GDP) has declined from about 50 per cent in annual growth rate of 3.6 per cent, slightly lower than
early-1950s to 14 per cent in 2011-12. Employment in the target of 4.0 per cent, but higher than the average
agriculture has also shown a decline, albeit slowly, and annual growth rate of 2.4 per cent attained during the
presently it accounts for 52 per cent of the country’s Tenth Plan. This improved performance in recent years
total labour force. The declining share of agriculture is also credited to the impressive growth in capital
in GDP and employment is consistent with the theory formation in the sector. The gross capital formation in
of economic development. However, a faster and agriculture and allied sector has more than doubled in
sustainable growth in the sector remains vital for the past 10 years with an average annual growth of 8.1
creation of jobs, enhancing incomes, and ensuring food per cent.
security.
As per the latest Agricultural Statistics at a Glance
India has 140 million hectares of net cropped area, (2012), India is the world’s largest producer of pulses,
next only to that of the USA. Similarly, India’s irrigated milk, many fresh fruits and vegetables, major spices,
area (63.26 Mha net and 86.42 Mha gross) is also the select fresh meats, select fibrous crops such as jute,
second largest in the world, next only to China. The several staples such as millets and castor oil seed. India
country is well-endowed with natural resources and is the second largest producer of wheat and rice,
diverse climatic conditions, and much of the land in groundnut, fruits, vegetables, sugarcane, and cotton.
India can be double cropped. Traditionally, crop India is also the world’s third largest producer of
production has accounted for over four-fifths of the cereals, rapeseed, tea, tobacco, eggs, several dry fruits,
agricultural output, but over the past two decades or and roots and tuber crops.
so the situation has changed dramatically. The share
of livestock in the agricultural production has risen Evolution of Agricultural Policies
sharply and now accounts for close to 30 per cent of
the total agricultural output. Overall, the composition Agriculture has remained a highly regulated sector
of agricultural output has gradually been shifting in India with government agencies and parastatals
towards high-value crops and animal products, exercising a pervasive influence over it. These
especially milk. regulatory controls are imposed by both central and
state governments. The state governments, however,
The performance of agricultural sector has been continue to retain the constitutional authority over the
quite impressive, making the country self-reliant in sector. After independence, India pursued a policy of
food. The country has even started exporting some food
food self-sufficiency in staple foods — rice and wheat.
products. This performance is due largely to green
The policies were initially focused on the expansion
of cultivated area, introduction of land reforms,
§ Based on Presidential Address delivered on 10 September,
2013 at the 21st Annual Conference of Agricultural Economics
community development, and restructuring of rural
Research Association (India) held at SKUAST-Kashmir, credit institutions. Trade was strictly regulated through
Srinagar. quota restrictions and high tariff rates.
136 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

The main policy measures in the agriculture sector Phase II: Green Revolution Period (1965-80)
were adopted in the mid-1960s. These included input
The second phase of agricultural and food policy
subsidies, minimum support prices, public storage,
started in the mid-1960s with the advent of green
procurement and distribution of foodgrains, and trade
revolution. The adoption of improved crop
protection measures. The gains from green revolution
technologies and seed varieties became the main source
technologies continued through the mid-1980s, but
slowed down thereafter. Unlike reforms in other of growth during this period. The Government of India
emerging economies of the world (e.g. Brazil and adopted the approach of importing and distributing the
China), a series of reforms instituted in India in the high-yielding varieties (HYVs) of wheat and rice for
early-1990s, left its agricultural sector relatively cultivation in the irrigated areas of the country. This
untouched, except for the removal of export controls. was accompanied by the expansion of extension
While reforms in agriculture have been modest, the services and increase in the use of fertilizers, agro-
macroeconomic reforms of the 1990s had two chemicals and irrigation. A number of important
important impacts. First, the reforms increased per institutions were set up during the 1960s and 1970s,
capita income and strengthened the domestic demand. including the Agricultural Prices Commission (now
Second, they reduced industrial protection and Commission for Agricultural Costs and Prices), the
improved agriculture’s terms of trade to attain food Food Corporation of India, the Central Warehousing
self-sufficiency, ensure remunerative prices to farmers, Corporation, and State Agricultural Universities.
and maintain stable prices for consumers. India’s Another major policy decision was the
protectionist trade policies, introduced in the 1960s, nationalization of major commercial banks to enhance
continued virtually unchanged, until the major credit flow to the agricultural sector. Several other
economic reforms were introduced after signing the financial institutions, for example the National Bank
AoA (Agreement on Agriculture) under WTO. for Agriculture and Rural Development (NABARD)
and Regional Rural Banks (RRBs), were also
Phase I: Pre-Green Revolution Period (1950-65) established to achieve this objective. The cooperative
The main policy thrust in the first phase (after credit societies were also strengthened.
Independence) was on enhancing food production and This strategy produced quick results with a
improving food security through agrarian reforms and quantum jump in crop yields and consequently, in the
large-scale investment in irrigation and power. The first foodgrain production. However, impact of the green
major agricultural legislation enacted by the state revolution technology was largely confined to two
governments after Independence was the Zamindari crops, wheat and rice, and in the irrigated regions. The
Abolition Act (1950s). The basic objective of this traditional low-yielding varieties of rice and wheat were
policy was to eliminate land intermediaries, ensure replaced by the high-yielding varieties. Today, more
ownership rights to the tillers of land, and ensure a than 80 per cent of the area under cereals is sown with
permanent improvement in the quality of the high-yielding varieties. The use of fertilizers (NPK)
landholding. The government made additional changes has risen sharply over the past three decades, albeit
to the land ownership policy to ensure greater equity from a low base. In 2011-12, the Indian farmers used
in the rural society. These decisions involved placing almost 144.3 kg of fertilizer per hectare of cultivated
a ceiling on the size of holdings, state control on idle land. The use of pesticides, including herbicides,
or unused lands, and the distribution of some of the increased until 1990, but has fallen steadily, partly due
idle land to the underprivileged rural people. Provisions to the shift in emphasis, away from the heavy use of
were also made to ensure that recipients of this land
chemical pesticides to a more environment-friendly
do not lease out or sell the land. The consolidation of
integrated pest management system.
fragmented and scattered landholdings was encouraged
so that farmers could have better access to The biggest achievement of the green revolution
mechanization and land improvements could be made. era was the attainment of self-sufficiency in foodgrains.
Other policy measures during this period included The green revolution also had an impact on the
enhancing of farmers access to credit, markets and agricultural input industry, resulting in a rapid growth
extension services. in the fertilizer, seed and farm machinery industries. A
 Arora : Agricultural Policies in India: Retrospect and Prospect 137

significant increase in the funding of agricultural However, there were several policy challenges
research and extension, marketing of agricultural facing the agricultural sector, including the need to
commodities and provision of credit to farmers was reverse the sharp decline in output growth, which
also noted. occurred in the late-1990s, and the need to ensure more
sustainable use of the existing natural resources. A
Phase III: Post-Green Revolution Period steady fall in the public sector investment in agriculture
(1980-91) posed a big challenge which necessitated policy
The third phase in agricultural policy development initiative to attract private investment in agriculture
started in the early-1980s and was characterized by for the long-term growth and competitiveness of the
the expansion of green revolution technology to other sector. Another important challenge during this phase
crops and regions. This resulted in a rapid growth in was on improving competitiveness along the agro-food
agricultural output. During this period, the main chain, especially through enhancing efficiency in
production, marketing and processing of agricultural
policies aimed at encouraging investment in the sector.
commodities.
Moreover, the agricultural economy started
experiencing the process of diversification towards In 2000, the Government of India, for the first time,
high-value commodities like milk, fish, poultry, published a comprehensive agricultural policy
vegetables and fruits. The growth in output of these statement — the National Agricultural Policy (NAP)
commodities accelerated. Finally, the ongoing research that sets out clear objectives and measures for all the
on pulses, oilseeds and coarse grains started showing important sub-sectors of agriculture. Over the next two
a positive impact with the expansion of these crops decades, this policy aims to attain an agricultural
into the drier areas. growth rate in excess of 4 per cent per annum. The
main elements of the policy include:
Phase IV: Economic Reforms Period (1991 • Efficient use of natural resources, while
onwards) conserving soil, water and biodiversity.
Following several decades of sustained output • Growth with equity, i.e. growth which is
growth, the focus of agricultural policy since 1991 has widespread across regions and farmers.
shifted to improving the functioning of markets,
• Growth that is demand-driven and caters to the
reducing excessive legislation, and liberalising
domestic markets and maximizes benefits from
agricultural trade. Economic reforms launched in the
exports of agricultural products in the face of
1990s virtually by-passed the agriculture initially.
challenges arising from economic liberalization
However, the subsequent trade policy reforms have
and globalization.
been aimed at liberalizing the export and import of
agricultural and food commodities by gradually • Growth that is sustainable technologically,
removing various restrictions and controls on environmentally and economically.
agricultural trade. The policy also seeks to utilize large areas of
Over the past 10-15 years, India’s share in world wasteland for agriculture and afforestation. Moreover,
agricultural trade has been gradually increasing, albeit the NAP calls for special efforts to raise crop
from a low base. India has also taken an active role in productivity to meet the growing domestic demand for
promoting regional economic co-operation and trade food and agricultural products. The major focus is on
in South Asia through the South Asian Association for horticulture, floriculture, roots and tubers, plantation
Regional Cooperation (SAARC). In April 1993, a crops, aromatic and medicinal plants and bee-keeping.
regional trading block was formed with the signing of Higher emphasis is also placed on raising the
the SAARC Preferential Trading Agreement, which production of animal and fish products.
was improvised in 2004 in the form of an Agreement While the overall investment (public and private)
on South Asian Free Trade Area (SAFTA) that in agriculture remains low (1% of the GDP), the
supersedes the Agreement on SAARC Preferential reforms in domestic regulations would improve the
Trading Arrangement. incentive structure for increasing private sector
138 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

investment in the agro-food sector and thus enhancing responsibility of respective state governments. The
productivity growth. The new policy also proposes to allocation of funds to agriculture is guided by the
re-channel resources from agricultural input and price Planning Commission and is routed primarily through
support measures to capital investment in the sector. the Ministry of Agriculture to various departments. Box
The NAP also mentions private sector participation 1 gives an idea of the number of ministries,
through contract farming, assured markets for crops, departments, and institutions involved in evolving,
especially for oilseeds, cotton and horticultural crops, implementing and monitoring agricultural policies.
increased flow of institutional credit, and strengthening
and revamping of the cooperative credit system and Land Reforms
agricultural insurance as other important issues
Indian agriculture is dominated by a large number
deserving policy attention. The NAP is a very
of small-scale operators that are predominantly owner-
comprehensive statement covering almost all
operators. In 1995-96, there were 115 million farmers
dimensions of the Indian agriculture. The land reforms
operating on an average holding size of 1.41 hectares.
launched during the 1950s and revisited in 1970s also
This number increased to 137.76 million in 2010-11.
find place in this document. The policy states that
About 67 per cent of the landholdings have an average
“Indian agriculture is characterized by pre-dominance
size of only 0.38 ha, and another 17.9 per cent have an
of small and marginal farmers. Institutional reforms
average size of 1.42 ha.
will be so pursued as to channelize their energies for
achieving greater productivity and production. The Land reforms now need to address three important
approach to rural development and land reforms will issues:(i) to map land carefully and assign conclusive
focus on the following areas: titles, (ii) to facilitate land leasing, and (iii) to create a
• Consolidation of holdings all over the country on fair but speedy process of land acquisition for public
the pattern of north-western states; purposes. The National Land Records Modernization
Programme (NLRMP) which started in 2008, aims at
• Redistribution of ceiling surplus lands and waste updating and digitizing land records by the end of the
lands among the landless farmers, unemployed Twelfth Plan. Eventually, the intent is to move from
youths with initial startup capital; presumptive title — where registration of land does
• Tenancy reforms to recognize the rights of the not imply that the owner’s title is legally valid — to
tenants and share croppers; conclusive title, where it does. Digitization will help
enormously in lowering the cost of land transaction,
• Development of lease markets for increasing the
while conclusive title will eliminate legal uncertainty
size of holdings by making legal provisions for
and the need to use the government as an intermediary
giving private lands on lease for cultivation and
for acquiring land so as to ‘cleanse’ the title. Given the
agribusiness;
importance of this programme, its rollout in various
• Updation and improvement of land records, states needs to be accelerated.
computerization and issue of land pass-books to
the farmers; and For large public welfare projects, such as the
proposed National Industrial and Manufacturing Zones
• Recognition of women’s rights in land. and National Highway Project, large-scale land
acquisition may be necessary. Given that the people
Current Agricultural Policies currently living on the identified land will suffer
The process of formulating and implementing significant costs, including the loss of property and
agricultural policies in India is very complex, involving livelihoods, a balance has to be drawn between the need
a number of ministries, departments and institutions at for economic growth and the costs imposed on the
both the centre and the state levels. The Union Ministry displaced. The Land Acquisition, Rehabilitation and
of Agriculture, under the guidance of the Planning Resettlement Bill 2011 passed by the Lok Sabha
Commission, provides the broad guidelines for recently, is likely to ensure the Right to Consent, Fair
agricultural policies. However, the implementation and Compensation and Transparency to farmers in the
administration of agricultural policies remain the process.
 Arora : Agricultural Policies in India: Retrospect and Prospect 139

Box 1
Ministries and public institutions involved in implementation and monitoring of agricultural policies in India

Particulars Agencies at central level Agencies at regional/state level

Production Ministries of Agriculture, Food Processing, Ministries of Agriculture, Horticulture, Food

Water Resource, Energy, and the ICAR Industry/ Processing, Irrigation, Power, SAUs
Prices Ministries of Agriculture, Food Processing, Ministries of Agriculture and Finance, SAUs
Commerce, and Commission on Agricultural
Costs and Prices
Marketing Ministries of Agriculture, and Rural Ministry of Agriculture, Directorate of
Development, APEDA, Directorate of Agricultural Marketing, State Level -
Marketing and Inspections, NAFED, Food Agricultural Cooperative Marketing Federation,
Corporation of India (FCI), Cotton State Level – Agricultural Marketing Boards,
Corporation of India (CCI), Central Primary, Central and State level marketing
Warehousing Corporation (CWC), Jute societies/unions, Special marketing/processing
Corporation of India (JCI), National Dairy societies, Tribal Cooperative Marketing
Development Board (NDDB), Special Federation (TRIFED)
marketing/processing corporations,
Commodity Boards,
Credits Ministry of Finance, Reserve Bank of India, Ministry of Finance, State Level Bankers
and National Bank for Agriculture and Rural Committee, Regional Offices of NABARD,
Development (NABARD) Commercial Banks, Credit Cooperatives,
Regional Rural Banks
Trade Ministry of Commerce, Commodity Boards, Agri Export Zones (AEZs), Ministry of
Agricultural and Processed Food Export Agriculture
Development Authority(APEDA), National
Agricultural Cooperative Marketing Federation
(NAFED)
Research Indian Council of Agricultural Research, State Agricultural Universities, Private
Veterinary Council of India (VCI), Indian Council Agricultural Colleges, Private Institutions and
of Forest Research (ICFR), Central Agricultural Autonomous Institutions
Universities, Deemed Universities
Education Indian Council of Agricultural Research, Indian State Agricultural Universities, Private Colleges,
Institute of Management, Central Agricultural Agribusiness Management Institutes (e.g.
Universities, MANAGE, IRMA, NIAM CABM)
Extension Ministry of Agriculture, Indian Council of State Agricultural Universities, Krishi Vigyan
Agricultural Research Kendras, Krishi Gyan Kendras, State
Government Departments

Agricultural Credit Policy scheme involved commercial banks, cooperative

institutions, government, and semi-government
The Third Five-Year Plan emphasized the urgent agencies in the process of economic development. The
need to create an institution to provide funds for nationalisation of 14 scheduled commercial banks in
investment in the agricultural sector. This resulted in 1969 made this transition easier and influenced further
the establishment of the Agricultural Refinance developments in banking for agriculture. However,
Corporation (ARC) in 1963. In 1969, the Lead Bank during 1990s, a cut on bank branch network in the rural
Scheme was introduced with the primary objective of areas; fall in the credit-deposit ratios; disproportionate
taking a territorial approach to rural development. The decline in credit to small and marginal farmers; and a
140 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

worsening of the regional inequalities in rural banking Marketing (Development and Regulation) Act was
were noted. The gap so created was attempted to be formulated in 2003 and circulated to all the state
filled with expansion of micro credit projects in the governments for amending respective Act. The rules
rural area. However, this met with only limited success under the Act were also circulated in August 2007. The
due to high transaction costs. reforms proposed under the Act include :
Several issues in the area of rural credit still remain • Replacement of fragmented nature of markets by
to be addressed. The major one relates to the provision an integrated and unified market place
of cheap and timely credit to the small and marginal
• Permission for direct procurement from farmers
farmers with low transaction costs and associated risks.
Another issue relates to the developing of ways to • Promotion of grading and quality control services
provide working credit to tenant farmers. The recent
• Introduction of single point reasonable market fee
developments in credit policy include agricultural loans
within the state.
waiver of margin/ security; advances granted for
agricultural purposes being treated as NPA (non- • Formulation and implementation of legal and
productive assest); incentives to bank branches to institutional framework for contract farming
finance self-help groups with minimum of bureaucratic • Simplification and introduction of a “unified”
procedures; and launching of Kisan Credit Card single licensing system
Scheme.
• Single window clearances to replace multiple
Marketing Reforms and Policies authorities for various market operations.
The process of market regulations started in the • Simplification of market tax laws
mid-1960s with the enactment of Agricultural Produce • Encouragement of private investment in market
Market Regulation Act (APMC). It is, however, noted infrastructure development
that in many ways the physical markets are restrictive,
over-regulated and monopolistic. Direct procurement • Permitting functioning of private mandis outside
from the farmers was seldom permitted; in most states the purview of the APMC Act
private players were not permitted to create private • Creation of ‘Special Markets’ for commodity or
mandis; cartelization of local traders often resulted in commodity group specific
lower price realization by the farmers; and there was
often lack of transparency in the process of price • Permitting electronic pan-geographic spot mandis
formation and dissemination. • Promotion of commodity exchanges
There has remained a huge variation in the density • Linking spot markets closely with futures markets
of regulated markets in different parts of the country. for price discovery
While the all-India average area served by a regulated
• Managing market committees more professionally
market is 459 sq km, the same is 103 sq km for Punjab
and 11,215 sq km in Meghalaya. The National • The Essential Commodities Act should be either
Commission on Farmers had suggested that the services repealed or provisions relating to stock limits and
of a market should be available within a radius of 5 movement restrictions removed from its purview.
km. This and the monopoly of APMCs have led to large
In 2004, there were 7418 (2402 principal markets
intermediation and have effectively resulted in limiting
and 5016 sub-market yards) regulated markets, to
the access of farmers to market.
which the central government provided assistance in
The agricultural marketing policies in the country establishing the required market infrastructure and in
have moved considerable distance away from the setting up rural warehouses. The number of regulated
restrictive regulations of 1960s and 1970s, dominated markets, however, came down to 7190 (2456 principal
by the excessive and needless use of the Essential and 4734 sub-market yards) as on 31st March 2013
Commodities Act and other restrictive laws. To further with the Bihar State Government repealing the APMC
reform the sector, a model Agricultural Produce Act.
 Arora : Agricultural Policies in India: Retrospect and Prospect 141

There is an urgent need to legalize contract farming inadequate post-harvest handling, cold storage, and
in the interest of farmers as well as the “sponsors”. processing facilities and convenient marketing
There should be an institutional arrangement to record channels. A huge quantity of grains too is wasted
all contractual arrangements with a government body because of improper handling and storage, pest
or a local body such as the Panchayat. There is a strong infestation and poor logistics management. The farmer
need for an independent market regulator for the issue gets low price as his produce varies in size, shape and
of single registration/license to the market functionaries quality. The small harvest lots do not bring economies
to transact their business in the entire state and collect of scale in transportation and lower net realization. With
single point market fee, specially for ‘Contract the growth of organized retailing, new supply chain
Farming’ (including recording, registration and dispute structures, using global technologies and best practices
settlement) and direct marketing or sourcing of produce and offering customized product and services, will
from the farmers, setting markets in more than one become possible. Involvement of global players in
market area and to ensure transparency and quality retailing would improve services to consumer and
service to the farmers. would lead to efficiency in supply chain, reducing costs
and realization of better prices, benefiting both the
The Terminal Markets are wholesale markets
supplier and the end consumer.
which ensure better price realization and timely
payment of sales proceeds to the producer, lower price The enactment of the Warehousing (Development
payable by the final consumer, and remove and Regulation) Act 2007 in October 2010 should
impediments to smooth supply of raw materials to agro- facilitate improved commodity financing and also give
industries and minimize post-harvest losses and a fillip to attracting investment in warehousing. This
wastages by allowing direct procurement from the along with initiatives being taken both by the
producer. The private sector can bring in the required government and the private sector in setting up cold
investment and management skills for successful storages and grading, standardization and quality
development of these markets. certification would significantly contribute to
modernizing agricultural marketing practices. Under
The Central Government is committed to support
the legislation, Warehouse Receipts (WRs) have
the initiative by providing equity assistance up to 49
become negotiable instruments that can be traded. The
per cent of the project equity, returnable at par on
legislation also provides for the establishment of a
successful operation of the project through the Venture
Warehouse Development and Regulatory Authority
Capital Fund of the Small Farmers Agribusiness
(WDRA) to regulate the WR system. Notwithstanding
Consortium. The Terminal Market Complex (TMC),
the lacunae in the legislation, this is landmark
based on PPP model, at Patna (Bihar) and Perundurai
legislation and will provide a lot of fillip to both
and Chennai (Tamil Nadu) have been approved under collateral commodities financing as well as the growth
the National Horticulture Mission (NHM). of private sector investment in agriculture warehousing.
The recent rapid growth in the organized retail has The establishment of commodity exchanges in
attracted attention of media as well as elected recent past has provided a new platform for price
representatives. The critics fear that organized retail discovery and price risk management for the farming
will be to the detriment of the large multitude of small community. The challenge is to widen farmer
retailers. These fears appear to be largely misplaced as participation in the exchanges and ensure that the
the retail space that would be occupied by the large exchanges provide a platform for genuine price
corporates would remain insignificant. It also needs to discovery and hedging opportunities for the farming
be recognized that small retailers in India have inherent community. Futures markets, by themselves cannot
advantages. They are located next to the consumer, improve supply efficiency and boost agriculture credit
know them well, some even by name, offer sale on and financing of the agricultural sector unless
credit, and enjoy low fixed costs. concomitant reforms take place along the entire value
The organized food retail business in India is chain. The next generation of reforms should facilitate
among the least developed in the world. A large chunk emergence of pan-Indian electronic trading platforms
of fresh fruits and vegetables is lost because of (Spot Exchanges) leading to an integrated market.
142 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

Simultaneously, there should be freeing of the “futures” recent years, and India has been no exception. Apart
market by providing autonomy to the Forward Markets from the increase in money supply which has
Commission (FMC), empowering it to regulate the contributed to the price rise, inflation in food articles
‘futures’ market professionally sans government has been primarily due to continuous shortages on the
control and interference. supply side and increase in demand which has led to
an upward thrust to prices. Further, global shortages
An electronic spot exchange will ensure greater
transparency in price determination as electronic screen in agricultural commodities also got translated into
terminals across the country will display the prices and higher domestic prices with the correlation between
quantities of various commodities traded. Transparency international and domestic prices being very strong. It
of transaction would help governments in addressing needs to be noted that the annual average inflation in
evasion of mandi taxes. Electronic exchanges will both pulses and cereals has been generally higher than
promote quality standardization which would ensure the overall inflation rate even in the period prior to the
greater access to finance from banks and other financial introduction of futures trading in these commodities.
institutions (FIs) to the farmer. Transaction costs are Growing current account deficit and fiscal deficit are
lower under the electronic auction system as compared also responsible for inflation in the country. Some
to the current mandi system by about 10 per cent. observers have noted that the benefit of futures trading
to farmers has been limited due to lack of awareness.
Futures markets provide a platform for risk It is true that the direct participation of farmers on the
mitigation, price discovery, arbitrage and clearing and futures trading platform has been limited in India as
settlement. For speculators, hedgers, and other traders, elsewhere.
trading in the futures markets offers an opportunity
for financial leverage. The participants in the exchange Price Policy
are able to control a large quantity of a commodity
The major objective of the price policy is to protect
with a comparatively small amount of capital, because
both producers and consumers. Currently, food security
of the small margin, normally set at 2-5 per cent of the
system and price policy basically consist of three
value of commodity.There are, however, a number of
instruments: procurement prices/minimum support
misconceptions and concerns about future exchanges,
prices (MSP), buffer stocks operations, and the public
few of which are briefed hereunder.
distribution system (PDS). Originally, the price support
Price Volatility — Empirical evidence suggests that policy of the government aimed at providing a safety
the introduction of derivatives does not destabilize the net or insurance to farmers against sharp fall in farm
underlying market; either there is no effect or there is gate prices. Subsequently, however, need was felt to
a decline in volatility. Further, the literature strongly provide remunerative prices to farmers for maintaining
suggests that the introduction of derivatives tends to food security and increase farm incomes. The policy
improve the liquidity and informativeness of markets. has had a positive effect on farm income and led to
To the extent that carrying costs are predictable, price economic transformation, particularly in well-
smoothing through storage becomes an arbitrage endowed, mainly irrigated, regions.
activity. If agents are risk averse, this should lead to
Besides announcement of MSP, the government
increase inter-temporal price smoothing. Futures
also organizes procurement operations of concerned
markets may also influence spot prices if they have an
agricultural commodities through various public and
effect on the behaviour of producers. Since futures
co-operative agencies such as Food Corporation of
markets allow the producers to hedge price risk, the
India, Cotton Corporation of India, Jute Corporation
existence of futures may affect a producer’s decision
of India, Central Warehousing Corporation, National
of what to produce, how much to produce, and what
Agricultural Co-operative Marketing Federation of
production techniques to use. In addition, the futures
India Ltd, National Consumer Co-operative Federation
price may contain information about anticipated
of India Ltd and Tobacco Board. The state governments
demand that can feed back into production decisions. also appoint state agencies to undertake price support
Futures Trading and Inflation — It is widely scheme (PSS) operations. The Department of
recognized that prices of several agricultural Agriculture and Cooperation is the nodal agency to
commodities have been rising at the global level in implement PSS.
 Arora : Agricultural Policies in India: Retrospect and Prospect 143

Market Intervention Scheme (MIS) — For agricultural commodities as an opportunity for realizing
horticultural and agricultural commodities, not covered more revenues. Thus, it is noted that the rate of VAT
under the MSP, Market Intervention Scheme (MIS) has been increased in Punjab and Andhra Pradesh, and
provides ad hoc support measure. If price of a purchase tax has been imposed in Madhya Pradesh.
commodity covered under MIS falls below the The high level of taxes and other statutory duties in
specified “economic” level, the Government of India states like Punjab, Haryana, Andhra Pradesh have
can intervene, on the request of the state government, driven away the private traders and bulk purchasers
by purchasing the product at intervention price, not from the market, forcing the government agencies to
exceeding the cost of production. The central and state step into procure more so as to protect farmers from
governments share equally the losses incurred in the market risks.
implementation of MIS. However, the loss is restricted
Some states announce bonus on procurement of
up to 25 per cent of the total procurement value
wheat or rice over and above the MSP fixed by the
including Market Intervention Price (MIP) paid to the
central government that cause price distortions in the
farmer plus permitted overhead expenses. Profit earned,
market at national level. Since MSP takes care of all
if any, in the implementation of the MIS is retained by
the procuring agencies. The MIS is implemented when the relevant economic factors like cost of production,
there is at least 10 per cent increase in production or marketability and cost of living, etc. and the
10 per cent decrease in the ruling prices over the government decides the MSP by taking into account
previous normal year. various socio-political and economic considerations,
there is no justification for any state announcing such
Procurement of Foodgrains — With increasing MSP a bonus over and above the national MSP.
over the years and assured purchase through more
robust procurement machinery, the percentage of Reforming Price Policy — So far, the price guarantee
procurement of foodgrains like wheat and paddy to to farmers could not be implemented in all the states
the total quantity produced is also increasing (around and markets for obvious reasons. Further, it has not
42% of total production of wheat in 2012-13 and 36% been found feasible for the public agencies to procure
of rice in 2011-12). The procurement of wheat and rice the marketed surplus of each and every commodity
is done in both centralized (through FCI) and de- everywhere in the country to prevent price falling
centralized (State agencies) modes. below a floor level; nor would this be desirable. Thus,
some innovative mechanisms have to be devised to
The scheme of Decentralized Procurement (DCP) protect producers against the risk of the price falling
of foodgrains was introduced in 1997-98 for rice and below the threshold level throughout the country. One
wheat with a view to enhance the efficiency of way of doing this is to provide a price guarantee for all
procurement and the Public Distribution System and the major crops grown in each state either through
to encourage local procurement and reduce out go of MSPs or a Minimum Insured Price (MIP). The basis
food subsidy. At present, the states of West Bengal, for the MIP could be the paid-out cost or average price
Madhya Pradesh, Chhattisgarh, Uttarakhand, Andaman of the past three or four seasons. The MSP should be
and Nicobar Islands, Odisha, Tamil Nadu, Karnataka restricted to basic staples like paddy and wheat, and it
and Kerala are procuring rice under the decentralized should be made effective through a procurement
procurement scheme. The Government of India is mechanism in all the districts that have a reasonable
actively pursuing this issue with the remaining state surplus of the crops. All other major crops should be
governments to adopt the DCP scheme. covered by the MIP.
The average annual combined procurement of Food Security Concerns — To ensure the food
wheat and rice has increased from 38.22 Mt during
security in the country, the agricultural price policy
2000-01 to 2006-07 to 56.99 Mt during 2007-08 to
should shift focus on harnessing the agricultural
2010-11. The comfortable position of central stocks of
potential of low productivity regions like Bihar, eastern
foodgrains and procurement increase helps deliver
Uttar Pradesh, Odisha, Assam, Madhya Pradesh, and
more towards the food security.
Chhattisgarh. This can be done by extending
Market Taxes on MSP — Some of the state procurement operations under MSPs therein including
governments have viewed the growing size of procured remunerative and assured prices. It is stated that the
144 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

Government of India is focusing on the eastern region 3. Eligible households to be identified by the states
of the country where there is good potential to harness 4. Special focus on nutritional support to women and
ample natural resources for enhancing agricultural children
production under a programme namely, “Bringing
5. Food security allowance in case of non-supply of
Green Revolution to Eastern India (BGREI).” As a
foodgrains
result, against an average production of 42.60 Mt of
rice in the 7 Eastern States of Assam, Bihar, 6. States to get assistance for intra-state
Chhattisgarh, Jharkhand, Odisha, Uttar Pradesh transportation and handling of foodgrains
(eastern part) and West Bengal prior to launch of 7. Reforms for doorstep delivery of foodgrains
BGREI, the production increased to 46.97 Mt in 2010- 8. Women empowerment—Eldest women will be the
11, 55.27 Mt in 2011-12 and 55.62 Mt in 2012-13. head of a household
The Targeted Public Distribution System is one of 9. Grievance redressal mechanism at district level
the core programmes of the Government of India which 10. Social audits and vigilance committees to ensure
plays a vital role in ensuring food security of the people. transparency and accountability, and
Under the TPDS, subsidized foodgrains are provided
11. Penalty for non-compliance.
to about 18 crore households under Below Poverty Line
[including Antyodaya Anna Yojana (AAY)] and Above Agricultural Subsidies and Investment
Poverty Line categories, through a network of more
than 5 lakh fair price shops in the country. Besides, the Agricultural subsidies are of two kinds: investment
government is also implementing schemes to subsidies and input subsidies. Investment subsidies aim
specifically address the nutrition-related concerns, to improve the farm productivity on sustainable level
especially among women and children, through by encouraging farmers to develop infrastructural
schemes like Integrated Child Development Services, facilities like installation of drip irrigation system,
Mid-Day Meals, etc. If the 1960s saw India as an construction of rain water harvesting system, and
importer of food aid, today, India is poised to commit acquiring farm implements. The input subsidies are
over 60 Mt of home-grown and nutri-millets to fulfill provided primarily through subsidizing fertilizers,
the legal entitlements under the Food Security Act. The irrigation water, and power (electricity) used for
National Food Security ordinance has been passed in irrigation and other agricultural purposes. From time
July, 2013 and government is keen to implement the to time, input subsidies have also been provided on
same in different states. seeds, as well as on herbicides and pesticides. In
addition, commercial banks, cooperatives and regional
Food Security Bill 2013 rural banks are required to provide credit to agricultural
producers at interest rates below the market rate.
The Food Security Bill, 2013, was passed by Lok
One of the most contentious issues in India about
Sabha in August 2013. It gives right to the people to
input subsidies is how much of these subsidies actually
receive adequate quantity of foodgrains at affordable
find their ways to the farmers and how much are
prices. The Bill has special focus on the needs of
siphoned away along the path. Further, the debate is
poorest of the poor, women and children. In case of
also about the real beneficiaries of the subsidies, small
non-supply of foodgrains, people will get Food
or large, poor or rich, and well-endowed or less-
Security Allowance. The Bill provides a wide scale endowed areas. Other issues of concern are to what
redressal mechanism and penalty for non-compliance extent input and price support subsidies are essential
by public servant or authority. Other features of the for sustaining increased farm productivities or to what
Bill are as follows: extent these subsidies damage the environment.
1. Coverage of two-thirds population to get highly The fertilizer subsidy has increased significantly
subsidized foodgrains from 0.85 per cent of GDP in 1990-91 to about 1.50
2. Poorest of the poor continues to get 35 kg per cent of GDP in 2011-12. Further, these subsidies
foodgrains per household per month at subsidized are concentrated in a few states, namely, Uttar Pradesh,
price Andhra Pradesh, Maharashtra, Madhya Pradesh, and
 Arora : Agricultural Policies in India: Retrospect and Prospect 145

Punjab. Rice is the most heavily subsidized crop, Table 1. Public and private investment in agricultural
followed by wheat, sugarcane and cotton. These four and allied sectors as percentage of total GDP
crops account for about two-thirds of the total fertilizer
Year Public Private Total
subsidy. The small and marginal farmers have a larger
investment investment investment
share in fertilizer subsidies as against their share in the
total area cultivated by them. Thus, any cut in fertilizer 2004-05 0.5 1.8 2.3
subsidies will hurt the small and marginal farmers most 2005-06 0.6 1.9 2.4
as they are not benefitted much from price support 2006-07 0.6 1,8 2.4
programme. 2007-08 0.5 1.9 2.5
The biggest problem in agricultural subsidy is its 2008-09 0.5 2.4 2.9
targeting to the deserving beneficiaries. Only 30 per 2009-10 0.5 2.3 2.7
cent subsidies go to marginal, small, and medium 2010-11 0.4 2.3 2.7
farmers. There is an urgent need to increase the Source:National Accounts Statistics (various issues), Central
subsidies to investment categories and to make the Statistical Organisation, GOI.
distribution of subsidies transparent, targeted, and
short-term in nature.
consisting of ICAR with its wide network of research
Until 1980, the public investment in rural/ institutions and SAUs. The strong emphasis on research
agricultural infrastructure continued to rise and has contributed to a number of technology driven
contributed to the rapid growth in agricultural output. revolutions including the green (foodgrains) revolution,
Since early-1980s, however, the increase in investment white (milk) revolution, blue (fish) revolution and the
in rural infrastructure ceased and has steadily fallen golden (oilseeds) revolution.
over. More specifically, from 4 per cent of total GDP
in the early-1980s the public investment in agriculture The number of ICAR research units increased as
fell to about 1.5 per cent in 2002. The decline in public well as the number of coordinated research programmes
investments in agriculture is considered to have had rose from a handful to about 100 and that of State
an adverse impact on the development of rural Agricultural Universities rose to over 50. Moreover,
infrastructure and on the long-term growth prospects ICAR’s involvement and investment in extension
for the farm sector. However, the policy measures through training by Krishi Vigyan Kendras (KVKs) and
initiated during the previous decade resulted in gradual frontline demonstrations also increased substantially.
rise in public investment and also attracted private The World Bank sponsored National Agricultural
investment too. In the year 2010-11, the total Technology Project (NATP) was established in 1998
investment in agriculture and allied sector was and ambitious National Agricultural Innovative Project
estimated at 2.7 per cent of the total GDP (Table 1). in 2008 to give boost to research activities. The NARS
continues to be largely publicly funded sharing less
Agricultural Research, Extension, and than one per cent of agricultural GDP.
Education
Agricultural Trade Policies
The major reforms in agricultural research and
education took place in the 1960s with the Despite having a comparative advantage in
establishment of first Farm University at Pantnagar on production of many agri-food products, India’s share
the land grant system in the US. This resulted in the in international trade remains as small as about 1.5 per
development of the State Agricultural University cent. By commodity, India’s share in total world exports
System in the country. This approach revolutionized of dairy products is 0.2 per cent, of cereals 1.4 per
the system of agricultural education, research, and cent, of coffee, tea and spices 4.4 per cent; and of
extension in India, under the auspices of the Indian fisheries 2.6 per cent. Brazil gives India tough
Council of Agricultural Research (ICAR). As a result, competition in case of sugar, coffee, tobacco and
a strong agricultural research and development mango. USA competes for groundnut, rice, tobacco,
programme has emerged through the publicly funded grape, apples, wheat, poultry meat and fish exports
National Agricultural Research System (NARS) while China has recently emerged as a major
146 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

Table 2. Competitive strength of India’s agricultural exports

(in per cent)

Commodity Major exporting countries/major competing suppliers for India India’s share in
world exports

Groundnut Argentina (32.7) 17.2

Tea Sri Lanka (23.3), Kenya (18.6) 8.7
Rice Thailand (35.2), Viet Nam (12.5), USA (11.3), Pakistan (11.1) 4.1
Sugar Brazil (43.6), Thailand (10.6), France (5.2), Mexico (3.5), Germany (2.4) 2.3
Coffee Brazil (22.3), Viet Nam (7.8), Germany (7.7), Colombia (7.4), Switzerland (4.8) 2.0
Tobacco Germany (14.3), Netherlands (14.2), Brazil (7.5), Poland (4.6), USA (4.3) 1.7
Mangoes Mexico (15.9), Netherlands (12.8), Brazil (10.9), Peru (8.9), Thailand (7.4) 1.1
Potatoes Netherlands (22.3), France (15.5), Germany (8.8), Egypt (5.8), Canada (5.2) 1.0
Tomatoes Mexico (25.2), Netherlands (18.4), Spain (14.1), Morocco (5.4), Turkey (5.2) 0.9
Grapes Chile (19.4), USA (15.2), Italy (9.3), Netherlands (7.9), Turkey (7.9) 0.8
Wheat USA (23.7), France (14.4), Australia (13.4), Canada (12.2) 0.1
Rapeseed Canada (43.2), Australia (10.2), France (10.1), Ukraine (5.9), UK (3.9) 0
Cocoa Côte d’Ivoire (29.2), Ghana (25.5), Nigeria (8.7), Netherlands (6.6), Indonesia (6) 0
Apples Italy (14.2), USA (13.6), China (13.1), France (10.6), Chile (9.7) 0
Bananas Ecuador (24.2), Belgium (14.3), Colombia (8.8), Costa Rica (7.8), Guatemala (5.1) 0
Cucumbers Spain (28.3), Netherlands (20.5), Mexico (13.1), Canada (6.9), Jordan (6.3) 0
Poultry meat Brazil (28.4), USA (17.7), Netherlands (8.9), France (5.8), Poland (4.7) 0
Fish China (11.5), Norway (9.4), USA (5.3),Viet Nam (4.4), Canada (3.9) 2.6
Eggs Netherlands (21.6), USA (9.1), Turkey (8.9), Germany (7.4), Poland (6.3) 0.2
Source: Author’s compilation from ITC Trade Map, 2012
Note: Figures within the brackets are the percentage share in total world export of respective countries.

competitor for groundnut, apples and fish. Relative 2. In the phase starting from the mid-1960s, this
competitive strengths of Indian major agri-products is policy was pursued more rigorously, and food self-
shown in Table 2. sufficiency became the corner stone of the
development strategies in agriculture. Two severe
The agricultural trade policy has been basically
droughts in 1965-66 and 1966-67, and the
designed to pursue twin objectives of food self-
difficulties in importing foodgrains from food
sufficiency and promotion of exports of the so-called
surplus countries forced the policymakers to opt
‘commercial crops’. These twin objectives witnessed
for such a policy. The policy continued till early-
four phases of implementation of the policy:
1990s.
1. The county adopted the policy of protectionism
3. The economic reforms of 1991-92 brought about
after Independence under which agricultural trade
major changes in India’s import trade barriers.
was strictly regulated with high tariffs and
India’s agricultural export policies liberalized in
quantitative restrictions and was channelled
part since 1994 in terms of reduction in products
through public trading agencies. Regulation and
subject to state trading, relaxation of export quotas,
control of agricultural trade was taken over by the
and removal of minimum export prices.
canalizing agencies, State Trading Corporation
(STC) and the cooperative federations. Public 4. Finally, under the WTO regime, India had to
sector agencies played the important role of revamp its policy of import substitution to an open
importing inputs, particularly fertilizers and economy with export-oriented growth in
chemicals. agriculture. Agricultural trade policies of India
 Arora : Agricultural Policies in India: Retrospect and Prospect 147

were to be structured in line with the WTO market access regime for agricultural products did not
commitments under three pillars of Agreement on undergo a parallel process of liberalization. The rules
Agriculture (AoA) (i) Market access (reduction of the WTO agreement fortunately permitted India to
in import tariffs), (ii) Domestic support (reduction maintain quantitative restrictions on agricultural
in farm subsidies) and limits on public stock products under the balance-of-payments exception and
holdings of grains for food security, and (iii) during the negotiations they were allowed to offer
Export subsidies. ceiling bindings on the products on which such
The Government of India utilizes a variety of restrictions were maintained.
policy instruments in attempting to achieve the Consequently, India had bounded its agricultural
commitments made at the WTO front. These measures tariffs at 100 per cent for commodities, 150 per cent
include: for processed products and 300 per cent for some edible
• Border measures such as tariffs, quotas, and non- oils. Only on a few products including cereals and milk
tariff measures to protect domestic producers from products, the pre-existing GATT bindings at zero tariffs
import competition, manage domestic price levels, were carried forward. With such high bound levels
and guarantee domestic supply. India was under no pressure to bring down its applied
levels of tariffs. Even so, the applied rates of duty
• Domestic subsidies to inputs, outputs, trended lower. It was not until April 1, 2001 that India
transportation, storage, and consumption to reduce decided to lift all quantitative restrictions, following
producer costs and consumer prices. the ruling in a WTO dispute that the balance-of-
payments justification for these restrictions had ceased
Market Access to exist.
Even though export-oriented measures were taken The elimination of tariff restrictions in 2001 led
in the post-WTO period, the issue of import protection India to increase tariffs in a number of agricultural
continued to be important in the agricultural trade products because of the fear of large-scale imports. In
policies. This is justified due to the reason that the early the year 2000, in view of the impending phase-out of
years of the Uruguay Round Agreement did not cause quantitative import restrictions, India re-negotiated the
much difficulty because international prices of bulk bound tariffs and raised them from zero to 60 per cent
products were high. Subsequently, as international for skimmed milk powder, from zero to 60 per cent to
prices fell, India’s imports started to steadily rise. Over 80 per cent for maize, rice and certain other cereals,
the three year period of 1996-99, imports almost and from 45 per cent to 75 per cent for rapeseed, colza
doubled to reach a peak of USD 3.7 billion in 1999. and mustard oils. In these re-negotiations, India made
This caused concern as policymakers’ expectation of compensatory reductions in a number of agricultural
big gains in export earnings in the post-WTO period products. A wide gap between applied and bound tariff
through increased market access to developed country’s rates still existed for most products. These gaps
markets did not materialize. This surge in imports provided India with the discretionary ability to adjust
threatened the domestic production of the staple food tariffs to balance competing producer and consumer
products. For example, the world price for cereals in interests. In order to further protect the domestic
2001 was only 50 per cent of the price recorded in the economy with import surge, India offered tariff-rate-
mid-1990s. This occurred at a time when India had quotas (TRQ) at a lower in-quota tariff in respect of
large and rising stocks of rice and wheat. skimmed milk powder, maize and rape, colza and
Understanding that the international prices were mustard oils (Table 3).
far more volatile than domestic prices, allowing The wide gap between India’s bound and applied
foodgrains imports to any sizeable extent would have tariffs on agricultural products has been a matter of
been tantamount to importing price instability. It was concern for India’s trading partners. The gap occurred
this concern of the policymakers which prompted India principally because India has been reducing the applied
to find out measures of WTO compatible import tariffs unilaterally and autonomously. For instance, in
protection measures. Therefore, while quantitative the case of certain edible oils, the duty has been
restrictions were eliminated on industrial products, eliminated, although the bound level is as much as 300
148 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

Table 3. Basic customs duty on selection products

Product Bound rates Schedule rates Remarks Rates under exemption

ad valorem (%) of BCD

Meat and poultry 35-150 30-100 All tariff lines are

at 30 except chicks
cut in pieces at 100
Milk 40-100 TRQ of 30-60 TRQ of 50,000 tonne at zero
10,000 tonne bound for SMP
at 15 for SMP
Peas, beans, 100 30 Zero from 2007-08 onwards
lentils
Fresh fruits 30-150 25-50
Rice 70-80 70-80 The BCD of 70 on milled rice
was fully exempted during
2009-12 but raised in
2012-13
Wheat 100 50-100 Zero until 1.4.2013
Tea, coffee 100-150 100
Spices 100-150 30-70
Vegetable edible 45-300 TRQ of 0-7.5 Zero for crude oil
oils 150,000 for rapeseed, and 7.5 for refined
coiza and mustard
oils at 45
Sugar 100-150 100 10 for raw and white sugar
(conditional on end-use and
registration)
Wool 25-100 5-10
Cotton 100-150 0-30 BCD on cotton,
carded not carded
and combed is zero
Source: Goyal, Arun BIG’s Easy Reference Customs Tariff 2013-14, 34th Budget edition

per cent ad valorem. High bound or statutory applied the exempted levels, particularly in cases in which the
tariffs on some basic foodstuff products are needed in exempted levels have remained low for many years.
India in the context of high volatility in international
commodity prices, which in the past has been Input Subsidies
exacerbated by the domestic support and export subsidy
practices of industrialized countries. India cannot afford The input subsidies are the far most expensive
to allow a situation to develop in which a sudden drop instrument of India’s food and agricultural policy
in international prices threatens to rob millions of regime, requiring a steadily larger budget share. The
farmers of their livelihood. Once special agricultural government pays fertilizer producers directly in
safeguards have been agreed to in the WTO, during exchange for the companies selling fertilizer at lower
future multilateral negotiations there would be greater than market prices. Presently (November 2012),
willingness on the part of India to bring down the bound farmers pay only 58 to 73 per cent of the delivered
duties on agricultural products across the board. In the cost of potassic and phosphatic fertilizers, while the
meantime, in order to impart greater stability to the rest is borne by the government as subsidy. Irrigation
applied tariff regime, India could take a step and electricity, on the other hand, are supplied directly
autonomously towards lowering the statutory rates to to farmers at prices that are below the production cost.
 Arora : Agricultural Policies in India: Retrospect and Prospect 149

Waiver/relief for farmers excluding

marginal and small farmers
Subsidy in other schemes
Subsidies (in billion USD)

Interest subvention for providing

Percentage
short-term credit to farmers
Irrigation subsidy

Fertilizer subsidy

Electricity subsidy for agricultural

use
Subsidy as a % of total value of
output

Year
Figure 1. Trend in non product specific subsidies in India

The cost of agricultural input subsidies as a share of can be made of hemp instead of trees and cotton.
agricultural output almost doubled from 6.0 per cent Soybean plant cellulose can replace plastic (made from
in 2003-04 to 11.6 per cent in 2009-10, driven mostly oil). Ethanol from farm waste or hempseed oil can
by large increase in the subsidies to fertilizer and replace gasoline. Rainforest medicinal plants grown
electricity (Figure 1). locally can replace many imported medicines. Such
According to GoI reports, input subsidies have measures can reduce farmers’ dependency on
resulted in overutilization of inputs. This overutilization subsidies.
has in turn led to soil degradation, soil nutrient The first task in fertilizers must be to extend the
imbalance, environmental pollution, and groundwater Nutrient Based Subsidy (NBS) scheme to urea. The
depletion, all of which have caused decreased NBS should be fixed in nominal terms, allowing
effectiveness of inputs. The growing cost of input and inflation to erode it in real terms over time. An
food subsidies has also contributed to fiscal deficits in alternative could be to shift to the system of conditional
many states. cash transfers, whereby direct payments are made on
Food subsidies were instituted to minimize the the condition that farmers get soil analysis done and
impact of higher food prices on the consumers. In know the proportions of nutrients suitable for their
general, domestic support to agriculture needs to move holdings.
from measures that cause more than minimal trade- Agricultural credit subsidy may be phased out and
distortion and effects on production to measures that the policy initiatives in future must aim at improving
do not have such effects, from input to investment the adequacy of credit. To avoid the pitfalls of leakage
subsidies and from consumption subsidies in kind to and diversion of benefits, the TPDS must be replaced
direct or conditional cash transfers. The funds so saved by a system of conditional cash transfers, in which the
might be used for greater public investment in physical transfers are conditional on the beneficiary families
infrastructure and in research, extension and measures sending children to primary schools and meeting basic
to safeguard animal health. Moreover, organic health care requirements. To cut down the burden of
agriculture, which uses little pesticides and experiences Food Corporation of India of open-ended procurement,
relatively little nitrate runoff, should be encouraged the private sector be engaged in foodgrains trade by
with subsidies. not limiting exports, reducing or eliminating purchase
Replacement crops can also reduce the country’s tax, abolishing levies on rice-millers, and finally
reliance on subsidies. For instance, instead of importing eliminating restrictions on stocks and inter-state
sugar, a nation can make sugar from sugar beets, maple movement. Alternatively, schemes such as deficiency
sap, or sweetener from stevia plant. Paper and clothes payments may be introduced.
150 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

Export Controls (in the G20) and elsewhere for a worldwide political
consensus on prohibiting such restrictions. The time
India’s policy on exports of key agricultural has, therefore, come for the government to go for the
product in the past has reflected a greater concern for alternative of limiting exports, if needed, through
the consumer than for the farmer. Exports are curtailed export duty rather than prohibition or quantitative
or prohibited if there is an estimated shortfall in restriction.
domestic production in order to pre-empt an upward Despite efforts at WTO forum, Indian exports have
pressure on prices. Recently, however, the government not been able to make their mark in most of the agri-
has tended to show greater sensitivity to the interests importing countries. India’s agricultural products’
of the farmer and there has been a willingness to give export markets do not coincide with the major
them the opportunity to sell the produce in the importing countries for the respective products in the
international market in which they can earn a better world market (Annexure I). This implies that Indian
price. The government has been influenced also by the export products do not get acceptance in these markets.
criticism coming from outside the borders as export The possible reasons for the mismatch and absence of
control measures have played a role in exacerbating India in major importing countries are as follows:
price spikes on global markets at times of shortages. One of the reasons of losing our export share in
Since a number of countries have adopted measures major importing nations for the commodities of export
for restricting exports of foodstuffs in particular, and interest to India is the high final landing price in these
effective disciplines on such restrictions are lacking in markets as compared to other competing suppliers.
the WTO Agreement, there has been a growing demand Figure 2 supports the situation, taking the instances of

Mangoes in USA Tea in USA

Rice in UK Refined sugar in Australia

Figue 2. Price comparisons for select export items in major importing countries
Source: Author’s calculations
 Arora : Agricultural Policies in India: Retrospect and Prospect 151

prices of mangoes and tea in case of USA, rice in case Bangladesh, India’s major trading partner, imposes a
of UK and sugar in case of Australia. tariff of 37.5 per cent on milk imports. On other
livestock products, Oman imposes a 5 per cent duty
The poor price competitiveness in the form of high
on eggs and no duty on sheep meat. Malaysia also does
C.I.F is further aggravated by the presence of high
not impose any duty on sheep meat. The tariff on coffee
tariff/import duty rates levied in the importing
imports to Russia was 5 per cent and zero per cent in
developed country markets. The European Union,
the US. The EU imposed zero per cent duty on
Japan, and the United States use, to varying degrees, caffeinated coffee that is not roasted and 8.3 per cent
such protection tools: low but highly dispersed ad duty on de-caffeinated coffee. Duty rate on roasted
valorem tariffs, specific duties, seasonal tariffs, tariff coffee is 7.5 per cent for non-decaffeinated and 9 per
escalation, and preferential access along with tariff- cent on caffeinated. Like coffee, Russia imposes a 5
rate quotas. per cent duty on tea imports. Duty on tea imports into
Marine products, which are the highest export the EU varies from zero to 3.2 per cent, and from zero
earner of India, attract zero per cent duty in USA and 5 to about 6.3 per cent in the US. The rate of duty on
per cent in Japan (refers to shrimp and prawns). In the tobacco is 5 per cent in Russia. The EU and the US
European countries, duty on shrimp is around 7 per impose specific duties on tobacco. In the EU, flue cured
cent to 8.5 per cent and for different marine products Virginia tobacco from India is charged at EUR 18.4 to
duty rate varies from 0 to 18 per cent. China, which is EUR 22 per 100 kg, while the rate of duty in the US
the third largest importer of fish from India, applies 21 ranges from USD 0.77 to USD 0.85 per kg.
per cent MFN duty though general duty in China is 70 The prevalence of non-tariff barriers, as highlighted
per cent. Oil meal and cakes are the second biggest in Annexure II and high cost of compliance worsen
agricultural exports of India. Their import to Indonesia the price competitiveness of Indian agro-exports. The
is free. Korea and Japan levy 3 per cent and 4.2 per compliance of sanitary and phyto-sanitary requirements
cent duty on oil cake. The duty rate in Singapore is 12 of most trading partners calls for substantial investment
per cent, while Bangladesh applies highest duty at 15 in developing quality standards and infrastructural
per cent, MFN. India’s rice export attracts zero per cent facilities. These non-tariff barriers are important in
duty in South Africa, Bangladesh and Malaysia and view of WTO commitments. This becomes important
50 per cent in Philippines. Indonesia imposes specific due to the fact that about 14 per cent of Indian
duty of Indonesian Rupiah 430 per kg. agricultural exports are subject to only NTMs and 79
per cent are subject to both Tariffs and NTMs.
Wheat from India is imported freely into Indonesia
and Malaysia, while other trading partners impose a It is generally expressed that farm exports from
small duty, e.g. Korea Republic imposes a duty of 1.9 India are not given fair treatment in some developed
countries. It is also believed that sanitary and phyto-
per cent, Bangladesh 5 per cent and Philippine impose
sanitary (SPS) measures are applied in the guise of
a 7 per cent duty on feed grade wheat and 3 per cent on
protecting plant, human and animal life to keep a check
other wheat. There is no duty on India’s maize exports
on exports. These measures are believed to be applied
to Bangladesh and Indonesia, while Sri Lanka and the
in an indiscriminate manner, lack transparency and are
Philippines impose tariffs of 35 per cent and 40 per costly in compliance. These apprehensions are largely
cent, respectively. Oilseeds like rapeseed/ mustard and based on the survey of exporters whose exports were
groundnut are imported without duty into the EU, detained or rejected in the importing countries and
Oman and Japan; Singapore and Nepal levy 11.7 per provide anecdotal evidence of NTBs on selected
cent and 10 per cent duty, respectively. products. These relate to export of spices, fishery
The duty imposed on sugar varies from zero per products, rice, tea, and egg powder. Moreover, there
cent in Malaysia and the EU for limited shipments are also general bans on the exports of some products.
under the SP agreement to 20 per cent in Indonesia Export of meat and milk to the EU and that of
and Pakistan and 25 per cent in Bangladesh. There is mango to US and Japan is subject to strong conditions.
no duty on India’s cotton exports to major destinations, The EU bans imports of meat from India due to
except China, which imposes a duty of 54 per cent. rinderpest disease in Indian livestock (cattle, buffaloes,
152 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

sheep, goat, etc). While the country has been free of • Export of plant portions, derivatives and extracts
rinderpest since 1995, the ban has not yet been lifted. has been liberalized with a view to promote
Exports of milk to the EU are not permitted due to exports of medicinal plants and herbal products.
quality control measures. The research literature
Export policy for food commodities and non-food
supports the existence of non-tariff barriers in the case agricultural commodities is expected to vary. The well
of exports of spices, peanut, fish products, rice, tea, established policy of encouraging exports of
and egg powder. India’s exports of chilli and pepper commercial crops has to continue. Further, our trade
have faced NTBs in Spain, Italy and Germany. India’s policy needs to be inclined towards the commodities
peanut exports also face severe standard requirements in which we have a comparative advantage. A study
in the EU markets. Some tests are required only for by Reddy and Badri Narayanan (1992) has revealed
products from India and Egypt, whereas exports from that we do not have any comparative advantage as a
other countries are exempt from these tests. India has wheat exporter. Therefore, our policy should not
made good progress to improve aflatoxin standards of encourage the export of wheat. We have distinct
peanut and to meet the various regulations and advantages in rice, and can emerge as a moderate
requirements of the EU. There are several reports of exporter of rice. We need to continue the export of
the rejection of basmati and non-basmati rice shipments basmati rice to West Asia, Europe and the US, but
to the US on the grounds of low hygiene standards. should recognize the limit beyond which we will not
The US regulations require the manual sorting of rice be able to export basmati and other fragrant rice
and the treatment for weevils. The issue of pesticides varieties. The potential market for rice is in South East
residues is frequently raised by the EU and Japan. Asian countries, Indonesia, Malaysia and Philippines
Pesticide residues are also a concern in the case of tea and in East Asian countries, Japan and South Korea.
exports to the EU.
To summarize, the following could be used as
In the light of strict import controls in both guidelines:
developed as well as developing countries in the form
• Commodities such as cereals deserve an export
of tariff as well as non-tariff measures, it is important
thrust only after the domestic demand is satisfied.
for India to develop a focused and suitable trade policy
which ensures a strong linkage between the domestic • Commodities with large fluctuations in the supply
and international markets. The policy should take or in prices (cotton, sugar) should be traded with
holistic view of food security, poverty alleviation, caution, unless compensatory mechanisms are put
sustainable development, WTO rules and India’s in place, such as forward trading to compensate
commitments therein. Some of the steps taken under for the risk and uncertainty.
Foreign Trade Policy in this context include: • Commodities where we have dynamic
• A new scheme called Vishesh Krishi Upaj Yojana, comparative advantage, such as fruits and
has been introduced to boost the exports of fruits, vegetables (because of diverse climate and soil
vegetables, flowers, minor forest produce and their conditions), and dairy products (because of large
value-added products. cattle herd and low cost of production) should
receive special attention.
• Duty-free import of capital goods under the Export
Promotion Capital Goods (EPCG) scheme. • The commodities having growing world market
(rice for the East Asian markets, millets for cattle
• Capital goods imported under EPCG for feed, and maize and barley as industrial raw
agriculture permitted to be installed anywhere in materials) should be given high priority in our
the agri-export zones. export strategy.
• Assistance to States for Infrastructure
Development of Exports (ASIDE); funds to be also Concluding Remarks and Implications
utilized for the development of agri-export zones. Indian agriculture is becoming export-oriented
• Import of seeds, bulbs, tubers and planting material after having attained nearly self-sufficiency in basic
has been liberalized. food production. In addition to the traditional export
 Arora : Agricultural Policies in India: Retrospect and Prospect 153

commodities, India is now also an exporter of rice and attain maximum yield and also to maintain the soil
wheat, as well as livestock products. The direction of health in a sustainable manner. Small landholders
trade is also changing. Although, trade with the will prefer to lease out their fields without the risk
neighbouring countries in the region continues to of losing title and will seek engagement elsewhere.
dominate, trade with OECD country markets is This will lead to consolidation of landholdings and
becoming important, especially for exports of high- size of holdings will become sufficiently large for
value food products. The emerging agricultural policy adoption of technology.
directions include liberalization of the sector by cutting • Liberalization of APMC Act — Flexibility in
tariffs, removing QRs, globalization of agriculture by APMC Act will enable farmers to benefit from
providing outward look to the mindset; and focusing demand–supply phenomenon. Currently, this
on commercial dimensions of agriculture as never benefit is reaped in by middlemen, as buyers are
before. As a result, there has been an increase in the not allowed to trade directly with farmers.
private investment in agriculture (besides public Investment in food processing industry is also not
investment), farmers are becoming market-oriented, happening due to this reason. Under APMC Act,
level of value addition has gone up, agricultural exports operating cost is high which is keeping the
are growing, and farm income is rising. investors away.
None the less, a number of critical issues remain • Investment in Infrastructure in Agricultural
to be solved such as significant dependence of Sector — The infrastructures like roads, canals,
agriculture on vagaries of nature, monsoon being micro irrigation, tube-wells, warehouses, food
inconsistent and unpredictable; small and fragmented processing facility, etc. are important for the
landholdings, land reforms not being pursued; lack of growth in agriculture. Investment in such
infrastructure for marketing of perishable commodities infrastructure is to be made by the government as
efficiently and effectively; shortage of labour for farm well as attract private investment to make
operations in general and of skilled labour in particular; agriculture processing viable. Higher the
high cost of critical farm inputs, e.g., hybrid seeds, investment, better would be the growth and income
agro-chemicals, etc; lack of market assurance; low and of farmers.
stagnating returns per unit area; and inadequate • Skill Development — Skill deficit in agriculture
government support. has been a major concern. It hampers the adoption
The major challenges before the policymakers are of technology and mechanization of agriculture.
sustainability of farm productivity; protection of Looking at the importance of agricultural
environment; degradation of natural resources like productivity to ensure food security, mechanism
land; depleting sources of water; and value addition to institutionalize skill development is critical to
and agribusiness. Moreover, the drive for more growth. Skilled drivers, operators and technicians
downstream processing of agricultural products and in agriculture will arrest the growing inefficiencies
greater competitiveness along the agro-food chain are and encourage farmers to adopt modern
also key priorities. Addressing of the problems being technology for higher yields.
confronted by farmers as mentioned above and macro • Accurate Forecast of Monsoon — More than 50
level challenges before policymakers call for inclusion per cent of foodgrains production is dependent on
of the followings in the policy framework: monsoon. Accuracy in forecast of monsoon is
• Legalization of Leasing of Agricultural Land important for sustaining and enhancing
— The leasing of land for agricultural use is not productivity. Scientific technology is available for
permitted in many states, except Punjab, West proper forecasting for adoption.
Bengal, Maharashtra, and Tamil Nadu. Though • Producer Company at Village Level —
land lease is in practice. Legalization of land- Landholdings are fragmented making agriculture
leasing will attract entrepreneurs with passion for less remunerative. Concept of producer company
agriculture to undertake commercial farming. Such is well thought out proposition for small farmers
entrepreneurs will adopt scientific technology to to aggregate not only resources for efficient
154 Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

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Annexure I
India’s export markets do not match with the major importers

Commodities India’s top export Major Competing suppliers in importing India’s share
partners# importing markets* in import
countries markets (%)

Grape UAE (54.81), USA Chile (60.2), Mexico (32.7), Peru (3.7) 0
Bangladesh (37.50) Netherlands South Africa (36.6) , Chile (18.1) , Brazil (6.9) 4.9
UK Turkey (15.7), South Africa (15.5), Chile (14.3) 2.9
Mangoes Saudi Arabia (33.88), USA Mexico (56), Peru (11), Brazil (8.8) 0.5
Netherlands (18.60), Netherlands Brazil (47.6), Peru (25.1), Mexico (3.3) 0
UK (10.33) China Thailand (81), Indonesia (15.2), 0
Oranges Bangladesh (93.32), Russian Fed Egypt (29.5), South Africa (26.1) Turkey (15.7) 0
Nepal ( 3.11) France Spain (73), South Africa (11) , Tunisia (3.8) 0
Netherlands South Africa (40.5), Spain (20) 0
Onions Bangladesh (26.88), USA Mexico (65.2), Canada (13.5), Peru (11.4) 0
Malaysia (23.20), UK Netherlands (40), Spain (18.3) , Poland (8.5) 0.3
UAE (17.99),
Sri Lanka (10.09)
Tomatoes Pakistan (49.67), USA Mexico (83), Canada (15.9), Guatemala (0.4) 0
UAE (32.80), Germany Netherlands (27.8), Egypt (15.2) , France (7.9) 0
Bangladesh (11.95)
Source: Author’s compilation from ITC Trade Map, 2012
Note: Figures within the brackets are the percentage share in total world export of respective countries
 Arora : Agricultural Policies in India: Retrospect and Prospect 157

Annexure II
Non-tariff barriers on India’s agricultural exports to the EU, USA and Japan

Product Non-tariff barriers Country

Spices No uniform standard and common regulation in EU. No fixed permitted level Spain, Italy
(chillies) of aflatoxin or pesticide residue. Adversely affecting spices exports from India. and Germany
Meat India free from rinderpest since 1995 still export to EU not permitted EU
Milk Exports to EU not permitted as Indian cows are not mechanically milked EU
Fishery EU put a ban in 1997. Allows only the form at its approved plants in India. EU
product standards for fishery products are very stringent, cumbersome, and costly EU
Peanut Aflatoxin standards of EU are more stringent than international standards on EU
India’s export. Prescribed testing method known as Dutch code and other
required methods are very rigorous and very costly. Permissible limits are
different in different countries and keep changing. Some tests are required only
for India and Egypt and not for exports from USA and Argentina.
Mango and Requirement of costly vapour heat treatment for export of fresh mango, US, Japan,
mango pulp labelling, pesticide residues. and Jordan
Rice Pesticide residues consignment of basmati and rice rejected in US on ground of EU, Japan, USA
being filthy and containing foreign matter. US regulation require manual sorting
of rice and fumigants and weevils have to be blown out. Delay in clearing
consignments, repeated tests.
Tea Pesticide residue. Complaint of high residue level of Ethicon in Darjeeling tea EU and Germany
Fish Anti-dumping duty imposed by US on Indian shrimp in 2005 USA
Tobacco Internationally permissible level of DDT residue is 6 ppm while Japan and USA Japan, USA
had set their DDT levels at much lower level; Japan insists on 0.4 ppm of DDT
level Indian tobacco has DDT level of 1-2 ppm which is well below the
international standard but Japan does not allow tobacco import from India.
Egg powder Consignment first time subjected to additional criteria of MRPL (minimum EU
required performance limit) in May 2003 despite valid equivalence issued by
EU. No action on applications for equivalence for 7-8 years.
Sources: Adapted from Jha (2003 ); Mehta and George (2003); RIS (2003)