Indian Agricultural Trade Its Composition and Reason For Shift

Dipamoy Baral (11/MBA/27)

Indian Agriculture
The importance of agriculture in the Indian economy becomes quite clear. Though other sectors contribute a greater share to the national income, more than three quarters of Indias rural population is still dependent on agriculture as the primary driver of income. India has come a long way from an era of vulnerability to food shortages in the sixties when two severe drought years led to extremely low growth of agricultural GDP of just one per cent a year.

Indian Agriculture
The Indian economy has undergone structural changes over time with the anticipated decline in the share of agriculture in the GDP. Despite a fall in its share from 55.1 per cent in 1950-51 to 17.0 percent in 2008-09 the importance of agriculture has not diminished for two major reasons.

Agriculture has not diminished for two major reasons.

The pressure on agriculture to produce more and raise farmers income is high Second, the dependence of the rural workforce on agriculture for employment has not declined in proportion to the sectoral contribution to GDP.

Changes in Cropping Pattern

The cropping pattern in India has undergone significant changes over time. As the cultivated area remains more or less constant, the increased demand for food because of increase in population and urbanization puts agricultural land under stress resulting in crop intensification and substitution of food crops with commercial crops.

Crop Output Growth

The growth performance of the crop sector is influenced by several factors such as use of physical inputs by farmers, markets, irrigation, credit availability, weather conditions and government policies. The aggregate production function can be specified as Y = F (F, K, R, CI, IRR) Where Y is the aggregate crop output value (1999-00 prices), F is fertilizer consumption, R is the rainfall, CI is cropping intensity and IRR is the gross irrigated area.

Agricultural growth
Agricultural growth moved up only in the eighties and for the past three decades, growth has averaged three per cent a year despite drought years. However, more than half the cropped area remains dependent on rains, investment in agriculture lagged in the nineties and there is a severe problem of productivity in many crops the target of four per cent set in the Ninth Plan has remained elusive. As with all regional-level analyses, there is wide disparity in growth of agricultural gross state domestic product (GSDP). For the latest five years for which data are available for all states, 2004-05 to 2009-10.

Agricultural growth
195051 to 1959-60 Average share in GDP Average annual growth 1960-61 to 196970 1970-71 to 197980 33.0 1980-81 to 198990 27.0 1990-91 to 199900 2000-01 to 200910

42.0

37.0

23.0

17.0

2.9

1.3

1.9

3.1

3.4

3.0

Indian Agro Export

Indias agricultural import on the other hand constitute only a small portion of countrys total imports and is barely about 4 per cent of the total imports into the country. The import of agricultural products into the country mainly comprises of vegetable oil, which alone accounts for about 72 per cent of the total agricultural imports in terms of value.

Indian Agro Export

India has fairly good competitive trade advantages in horticulture produce, especially processed fruits and vegetables, floriculture products and medicinal plants, where new modern contract based farming techniques are being followed. Besides, other conventional plantation products like spices, tea tobacco and coffee are among other areas where the trade advantages with India are quite lucrative as well. Higher costs of agricultural produce in India coupled with higher costs of transportation have in fact been one of the key problems in raising the level of agricultural exports.

A Timeline of Indias Policies

Before Indias independence its trade with the rest of the world was determined by Great Britain. Great Britain restricted Indias exports to agricultural commodities, primarily jute, tea, and cotton. Its major imports mainly included machinery, chemicals, and basic inputs for production (citation) .

 Post Independence, 1947 to 1969 :-After independence, India pursued a closed market development strategy. This called for the government and public sector to play a large role in guiding the economy. As part of this strategy India imposed highly restrictive trade policies as it pursued self-sufficiency in food and import substitution in industrial development. Exports were allowed to cover the cost of imports. Government-owned industries faced little competition and became inefficient. As a result Indias share of world trade shrunk as Indias markets became isolated from world markets.

 Agricultural Trade Liberalization in 2001 :-As part of its obligations under the 1995 WTO agreement, India eliminated quantitative restrictions (QRs) on most consumer and agricultural imports. These were largely implemented in 2001. India retains export subsidies and incentives although they are negligible at this point. Nearly all items can be imported subject to tariff and sanitary and phytosanitary restrictions. India maintains high tariff band rates, but lower flexible applied rates for agriculture. Applied tariffs on agriculture products remain high.

Agricultural Exports
India's growth rate in total agricultural exports (includes cereals, rice and oil meals) began to increase in 1986, well before the 1991-93 reforms. It continued to increase during the initial 1991-93 trade reform period, but declined shortly after the initial set of major reforms were implemented. Growth in total agricultural exports declined from nearly 9 percent in 1993 to about 4 percent in 1999. The rate of growth in agricultural exports began to increase in 2000 Following the 2001 reforms the rate of growth in agricultural exports increased significantly across all regional groupings except the United States. The rate of growth in India's agricultural exports to the United States continued to decline through 2006.

Trade
The Indian economy has seen high growth rates of more than 8% since 2003. In 2005 and 2006 GDP grew at a rate of over 9%. Globally Indias growth is surpassed only by that of China. This is expected to continue with growth just under 7% by 2015. Graph 1 compares GDP growth in India, China and Brazil, where growth has been much slower.

Trade
Agriculture plays an important, though declining role in the economy. Its share in overall GDP fell from 30% in the early nineties, to below 17.5% in 2006 (graph 2). This is high compared to China and Brazil, at 12% and 5% respectively. Over this period the share of industry has stayed relatively constant, reaching nearly 28% in 2006. Despite Indias economic development, over 70% of the population still live in rural areas. Agriculture is the key employer with around 60% of the labour force, down from 70% in the early nineties. This compares with 44% in China (2002) and 21 % in Brazil (2004).

Top 10 sectors of India & world rank

Commodity Rank India World Rank 2005 Production Avg 2003-2005

Billion $ Million T

Paddy rice Buffalo milk Wheat Cow milk Fresh vegetables Sugar cane Potatoes Groundnuts Pimento Buffalo meat

1 2 3 4 5 6 7 8 9 10

2 1 2 2 2 2 3 2 1 9

27.5 25.2 10.9 10.0 6.6 5.2 3.6 3.4 3.3 3.1

129.2 50.5 69.7 37.5 34.9 250.0 25.0 7.1 1.1 1.5

 India is a big country and a big producer of agricultural products, but still is a relative minor player with respect to agricultural trade. In absolute terms both exports and imports are on the rise, and Indias trade surplus increased from 0.8 billion dollars in 1999 to 2 billion dollars in 2004.

Shift
Diversification offers a wider choice in the production of crops in the given area. The shift in cultivation from traditional, less-remunerative crops to higher-value crops leads to higher incomes for the producer. At the same time, cultivation of a variety of crops reduces risk. Several factors can induce a shift in the crops grown. These include government policies that promote specific crops, development of infrastructure like roads and markets, and relative profitability of crops.

Future Prospect in Agro Industry

The leading forecasting institutions expect that India will play a bigger role in world markets in future. In a number of markets it is expected to consolidate its position among the worlds leading importers (vegetable oils) and exporters (rice). Given the size of Indian agriculture, changes in its balance sheets for key commodities have a potentially large impact on world markets.

Conclusion
Agriculture occupies a prominent position in Indian policy-making not only because of its contribution to GDP but also because of the large proportion of the population that is dependent on the sector for its livelihood. The growth in population and wealth has stimulated demand to the extent that domestic production has not always been able to keep up and there is increasing speculation that the Indian economy may be overheating leading to inflation.

Conclusion
The downside of the increased import demand and the current commodity boom is that Indias food import bill will rise sharply. However it is clear that Indias agricultural sector has made huge strides in developing its potential. The green revolution massively increased the production of vital food grains and introduced technological innovations into agriculture. This progress is manifested in Indias net trade position. Where once India had to depend on imports to feed its people, since 1990 it is a net exporter of agri-food products

Conclusion
. Its agriculture is large and diverse and its sheer size means that even slight changes in its trade have significant effects on world agricultural markets. How India will develop is still a big unknown, with the picture changing rapidly. Questions have arisen about Indias capacity to compete in global markets under the current farm structure and farm policy. As the service economy grows, the share of agriculture will diminish, which may also have implications for Indias stance on trade and agriculture policy in the future.