economic reforms and indian agriculture: some reflections · thrust will be to increase the...

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INTERNATIONAL JOURNAL OF INFORMATIVE & FUTURISTIC RESEARCH An Enlightening Online Open Access, Refereed & Indexed Journal of Multidisciplinary Research

Volume -1 Issue -8, April 2014

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Abstract

The economic reforms initiated during 1991 are considered to be one of the

milestones in Indian economy as they changed the market and financial scenario of

the country. It was not until 1991 that the government signaled a systematic shift to an

open economy with greater reliance on market forces, a larger role for the private

sector including foreign investment, and a restructuring of the role of the government.

These reforms put India amongst the fastest growing developing economies of the

1990s. Against this backdrop, the present paper provides an overview on two aspects,

namely, impact of reforms on overall Indian economy in general and on agriculture

sector in particular. Keywords : Economic Reforms, Gross Domestic Product, New Economic Policy, Agricultural

Sector, Gross Capital Formation,

1 Introduction Since independence, the Indian Economy has been pursuing a path in which public sector was

expected to be the engine of growth. However, the reliance on public sector proved to be ill-founded.

It only bred inefficiency that contributed to low levels of productivity. Consequently in the beginning

of the decade of the eighties, the opening up of certain areas reserved for the public sector was

undertaken but the government did not make a clear statement. The first clear pronouncement

outlining the change in policies on the public sector was made by the then Prime Minister Sh. Rajiv

Gandhi in his first broadcast to the nation in 1984 when he said, “The public sector has spread into too

many areas where it should not be. We will be developing our public sector to undertake jobs that the

private sector cannot do. But we will be opening up more to the private sector so that it can expand

and the economy can grow more freely.”

During mid-eighties a New Economic Policy (NEP) was outlined. The strategy which

included improvement in productivity, adoption of modern technology and absolute utilization of

capacity was followed to push up growth of India economy. The basic thrust of the New Economic

Policy was a greater role for the private sector. Although reforms were initiated under Rajiv Gandhi

Vanita Vashisht

Assistant Professor

Department of Economics

Manohar Memorial Post-Graduate College,

Fatehabad (Haryana)

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Economic Reforms and Indian Agriculture:

Some Reflections

http://www.ijifr.com/searchjournal.aspx

http://www.ijifr.com/

Vanita Vashisht : Economic Reforms and Indian Agriculture-Some Reflections

www.ijifr.com Email: [email protected] © IJIFR 2014 This paper is available online at - http://www.ijifr.com/searchjournal.aspx

PAPER ID: IJIFR/V1/E8/034

ISSN (Online): 2347-1697

INTERNATIONAL JOURNAL OF INFORMATIVE & FUTURISTIC RESEARCH Volume -1 Issue -8, April 2014

Author’s Research Area: Economics, Page No.: 110- 115

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regime, they did not yield the desired results. The beginning of the decade of the nineties found the

Indian economy in financial mess. Growth of GDP had slipped to the bottom and the Economy had

nosedived to a state of stagnation. By 1991 fiscal deficit had mounted to 8.4 percent of GDP, foreign

exchange reserves had dwindled, inflation had jumped to double digit, balance of trade was on the

adverse side and public sector enterprises were proving to be a liability with huge losses. In all,

economy was facing a severe crisis. With the objective of recovering from this crisis and reviving the

process of growth, the Government of India contemplated a major shift in its economic policy. In the

memorandum on economic policies submitted to IMF during early eighties it was proposed: “The

thrust will be to increase the efficiency and international competitiveness of industrial production, to

utilize foreign investment and technology to a much greater degree than in the past, to improve

performance and to rationalize the scope of public sector and to reform and modernize the financial

sector so that it can more efficiently serve the needs of economy.”.

2. Implications of Economic Reforms

An attempt has been made to understand the implications of economic reforms that were initiated

during early nineties on growth of Indian Economy in general and on agriculture in particular

2.1 Reforms and Gross Domestic Product (GDP)

India has come a long way since reforms. These reforms helped kick-start a nearly dormant economy.

The growth in GDP has shown a consistent improvement ever since 1991.whereas during the period

of 1980-81 to 1990-91 the growth rate in GDP was just 5.2 percent, it increased to nearly 9 percent

during the years 2004-05, 2005-06 and 2006-07.The fruits of liberalization reached its peak in 2007,

when India recorded its highest GDP growth rate and became the second fastest growing major

economy in the world, next only to China. During the same period, the GDP crossed over a trillion

dollar mark making India one of the twelve trillion dollar economy countries in the world. The rising

GDP has turned India into one of the fastest growing economies of the world. Financial pundits assert

that India can grow at 10 percent provided certain policies and processes are put into place on an

urgent basis.

Table 1: India’s Growth Rate in GDP at Factor Cost ( 000 Croes)

Year GDP at Constant prices Growth Rate (percent)

1980-81 641.9

1990-91 1083.6 5.2

2000-01 1864.3 4.35

2001-02 1972.6 5.81

2002-03 2048.3 3.84

2003-04 2222.8 8.52

2004-05 2967.6 7.6

2005-06 3249.1 9.48

2006-07 3564.6 9.57

2007-08 3893.5 9.32

2008-09 4155.0 6.72

2009-10 4507.6 8.39

2010-11 4885.6 8.39

2011-12 5222.0 6.88

Source: Central statistical Organisation and Planning Commission

(Growth rate till 2003-04 are at 1999-2000 prices and thereafter at 2004-05 prices)


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2

0 0

5,2

4,35

5,81

3,84

8,52

7,6

9,48 9,57 9,32

6,72

8,39 8,39

6,88

-2

0

2

4

6

8

10

12 P

erce

nt

1980-81

1990-91

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Figure 1:Status Of Growth Rate during The Years 1980-81 to 2011-12

The comparison of the annual average growth rate during the pre-reform period i.e. 1980-81 to 1990-

91 which was of the order 5.2 percent per annum, then the post-reform decade i.e. 1990-91 to 2000-01

also shows a little higher average annual growth rate of 5.8 percent of real GDP. However, there is a

distinct improvement in growth rate of GDP during the period 2001 to 2003-04 to an average of 6

percent and further to 8.7 percent in next five years from 2004-05 to 2009-10 (Table 1 & Fig. I) .

Higher GDP growth due to domestic reform policies and global boom helped in having higher

tax/GDP ratio and better allocations to agriculture in the form of public investment and credit. It may

be noted that the slowing in agriculture growth could be attributed to the structural factors on the

supply side such as public investment, credit, technology, land and water management etc. rather than

globalization and trade reforms per se. There are six deficits in Indian agriculture. These are: (a)

investment, credit and Infrastructure deficit; (b) land and water management deficit; (c) research and

extension (technology) deficit; (d) market deficit; (e) diversification deficit; (f) institutions deficit.

Therefore, further Reforms are needed to reduce these deficits in order to achieve the goals of equity

and sustainability in Indian agriculture (Dev, 2009).

During the boom, India’s growth has benefited the prospering middle class. Engaged largely in the

fast growing service sector, they are not only contributing to India’s success story but also enjoying its

benefits with an increased purchasing power in their hands which ultimately increased the demand for

goods and services. It is needless to mention that the economic reforms have accelerated the growth

process by promoting a relatively higher growth rate. The first three years were the years of crises










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management as the primary objective was to stabilize the economy. After the initial troubles for the

first years the growth rate during 1993-94 to 1997-98 had averaged to more than 7 percent per annum.

After 1991-92, the momentum of growth has been maintained providing increasing evidence that the

growth potential has improved as a result of reforms initiated in 1991.

2.2. Reforms and Agricultural Sector

The performance of Agriculture in India is important as this sector not only contributes to the overall

growth of the economy but also provides employment and food security to majority of the population

in the country. Agricultural sector is the mainstay of the rural Indian economy around which socio-

economic privileges and deprivations revolve, and any change in its structure is likely to have a

corresponding impact on the existing pattern of social equality. No strategy of economic reform can

succeed without sustained and broad based agricultural development, which is critical for raising

living standards, alleviating poverty, assuring food security, generating buoyant market for expansion

of industry and services, and making substantial contribution to the national economic growth. The

11th Five Year Plan also indicates that agricultural development is an important component of

inclusive growth approach. Reforms were introduced in India in a big way in 1991. The economic

reforms did not include any specific package specifically designed for agriculture. It was viewed that

freeing agricultural markets and liberalizing external trade in agricultural commodities would provide

price incentives leading to enhanced investment and output in this sector, while broader trade

liberalization would shift inter-sectoral terms of trade in favour of agriculture (Balakrishanan 2000 ).

The process of reforms has been severely criticized for neglecting agriculture. Food grain production

which had increased from 129.6 million tonnes in 1980-81 to 176.4 million tonnes in 1990-91

resulting in annual compound rate of 3.1 percent, after the reforms it increased from 176.4 million

tonnes in 1990-91 to 234 million tonnes in 2008-09, indicating an annual growth rate of 1.6 percent.

There has been a considerable increase in investment in the agricultural sector since the last two

decades i.e. from about 50 thousand crore to 133 thousand crore (Table 2& Fig. II). This

expansion was the result of the use of modern varieties of seeds, irrigation and use of better fertilizers.

These factors not only led to an increase in investment but also ensured higher growth in crop

production. However, technological and institutional support for a few crops like rice and wheat

brought significant changes in crop area and output composition in some regions. The results of crop

output growth model indicate that the enhanced capital formation, better irrigation facilities, normal

rainfall and improved fertilizer consumption helped to improve crop output in the country (Kannan

and Sundaram (2011).

But in proportionate terms the improvement in agriculture was not up to the mark. In proportionate

terms, the share of investment in agriculture in total GDP varies between 2 to 3 percent only (Table2).

After certain improvement during years 2001 to 2003, it slipped back to 2.4 percent. The main reason

behind this can be the seasonal variability i.e. drought conditions in the country. This similar situation

remained till the period 2009-10. It is because of the fact that Indian agriculture is mainly rain-fed

which remains highly dependent on the monsoon (Singh and Rathore, 2011). It is ironical to note that

whereas the economy indicated a sharp increase in investment to 36.5 percent of GDP in 2009-10, the

share of investment in agriculture was just 2.9 percent of GDP. It is grossly inadequate keeping in

mind the fact that agriculture provides livelihood to nearly 60 percent of population.

It can be inferred from the fact that limited investment in agricultural sector from public investment

may have caused the question of sustainability for the resource poor farmers especially the marginal

and small farmers who constitute a major proportion in the farming community as whole. Without

institutional support, it will be difficult for them to stay in risk involved small agricultural

entrepreneurship (Reddy, 2006).










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Table 2: Gross Capital Formation in Agriculture ( 000 Croes)

Year Total

Investment

Sector wise Proportionate

Share of Investment in

agriculture

Proportionate

Investment in

Agriculture

Sector to GDP Public Private

1999-00 50.2 17.7 82.3 2.8

2000-01 45.2 18.5 81.5 2.4

2001-02 59.8 18.6 81.4 2.8

2002-03 55.7 17 83 2.7

2003-04 53.8 20.8 79.2 2.4

2004-05 78.8 20.5 79.5 2.66

2005-06 93.1 21.4 78.6 2.87

2006-07 94.4 17.6 82.4 2.65

2007-08 110.0 20.9 79.1 2.83

2008-09 138.6 17.6 82.4 3.34

2009-10 133.4 N A N A 2.97

Source: Central Statistical Organization, Government of India, New Delhi

Figure 2: Extent and Nature of Investment in Agriculture Sector

It can be pointed out that whereas the public sector investment has a greater spread effect, the private

investment increases the income of only those farmers who invest in farm mechanization. Broadly the

slow as well as constant expansion in public investment in agriculture is mainly due to the diversion

of resources into current expenditure in the form of subsidies for food, fertilizers, electricity,

irrigation, credit and other agricultural inputs rather than on creation of assets. The reforms did not

pay adequate attention to expansion of irrigation facilities which resulted in lower agricultural

production and productivity during the decade of the nineties.

50,2 45,2

59,8 55,7 53,8

78,8

93,1 94,4

110,0

138,6

8,7 8,1 9,7 8,7 10,8 16,2 19,9 23,0 23,0 24,5

41,5 37,1

46,1 46,9 43,0

62,7

73,2 71,4

87,0

114,1

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Rs.

00

0 C

rore

s

Total Investment Public Private










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3. Concluding Remarks and Policy Recommendations

Conclusions: From the foregoing analysis, some meaningful conclusions can be drawn, which need

due attention of the policy makers and planners.

i.) During the reform era due attention has not been given to the agricultural sector that supports

the majority of the Indian populace. It not only provides livelihood opportunities to the

majority of Indian population but also resolves the food security issues in the country. It

contributes considerably on the export front and has forward and backward linkages with the

industrial sector.

ii.) Slow growth of the sector has affected the overall growth of the economy. It has cast a

shadow on sustainability of agricultural growth. There is an urgent need for the reorientation

of priorities with much greater emphasis on agriculture and rural industrialization.

iii.) Because of slow investment in agriculture sector in general and public investment in

particular, there is a threat of surge in unemployment among the resource poor farmers and

other weaker sections of the society.

Policy Recommendations: Some of the specific and important policy recommendations that could be

derived from the emerging conclusions are as follows:

i.) For equitable distribution of benefits of agricultural development, there is need of

intensification of reforms in the agriculture sector in terms of provision of institutional and

infrastructural support, land and water management, technology adoption and so on.

ii.) There is urgent need to give due attention to enhance the public investment in agriculture to

develop rural infrastructure like irrigational structure and market facilities to ensure the

sustainability issue in this sector especially for marginal and small farmers who constitute a

substantial proportion of the farming community..

4. References [1] Ahluwalia, M.S. (1996), “New Economic Policy and Agriculture: Some Reflections”, Indian Journal of

Agricultural Economics, Volume 51, No.3

[2] Chadha, G.K. (2009), “Agriculture and Rural Industrialization in India, Recent Developments and

Future Concerns” in Rao, N.C. and S.Mahendra Dev (eds) India: Perspectives on Equitable

Development, Academic Foundation

[3] Chandrakavate, M.S. and Birader, R.R. (2001) “Economic Reforms& Indian Agriculture: Some

Reflections”, The Asian Economic Review, Vol. 43, No.2.

[4] Dev, S. Mahendra (2009) “Structural Reforms and Agriculture: Issues and Policies” Keynote paper for

the 92nd Annual conference of the Indian Economic Association 27th-29th December, Bhubaneswar,

Orissa

[5] Gulati, Ashok (2009), “Emerging Trends in Indian Agriculture: What can we learn from these?” Prof.

Dayanath Jha Memorial Lecture, National Centre for Agricultural Economics and Policy Research,

New Delhi

[6] Kannan Elumalai and Sundaram Sujata (2011) Analysis of Trends in India’s Agricultural Growth”,

Working Paper 276, The Institute for Social and Economic Change, Bangalore

[7] MoF ( 1992) Memorandum on Economic Policies for 1991-92 to 1992-93, Ministry of Finance,

Government of India, New Delhi..

[8] Raj K.N New Economic Policy-Engine of Growth, Economic Times, December 21, 1985.

[9] Reddy, D. Narasimha (2006) Economic Reforms, Agrarian Crisis and Rural Distress, Prof. B.

Janaradhan Rao Memorial Lecture, Department of Public Administration and Human Resource

Management, Kakatiya University. Warangal, Andhra Pradesh.

[10] Sharma, Vijay Paul (2011) “India’s Agricultural Development under the New Economic Regime:

Policy Perspective and Strategy for the 12th Five Year Plan”, W.P. No. 2011-11, Indian Institute of

Management, Ahmedabad.

[11] Singh, Surjit and Rathore, M.S. (2010), Rainfed Agriculture in India: Perspective and Challenges,

Rawat Publication, Jaipur




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