India^[54]

1 Introduction

During the last five and a half decades, Indian agriculture has witnessed numerous changes. The major transformation took place with the introduction of high-yielding varieties of crops in the mid-1960s. This innovation, coupled with investments in irrigation infrastructure, expansion of credit, marketing and processing facilities led to a significant increase in the use of modern inputs. These developments raised agricultural productivity and led to a substantial increase in the supplies of various agricultural products for markets rather than for own consumption by the farm households. The “green revolution” has been followed by the “white revolution”, “yellow revolution” and then the “blue revolution”, leading to an increase in the output of milk, oilseeds and fish and fish products, respectively.

Agricultural growth, measured as the annual rate of growth in net domestic product, increased from 1.9 percent per annum before the Green Revolution period (1950-1951 to 1966-1967) to 2.3 percent during the first phase of the Green Revolution (1966-1967 to 1980-1981). The growth rate accelerated further to 3.1 percent during the second phase of the Green Revolution (1980-1981 to 2000-2001). At the same time, the share of agriculture in total GDP has fallen from about a little over half in the early 1950s to around one-fourth in the late 1990s. Similar changes have occurred in the country’s export basket as well. The share of agricultural exports in total exports of the country fell from 44 percent in early 1960s to about 14 percent in the late 1990s.

However, the majority of India’s population still continues to depend heavily on the agricultural sector for employment and as a source of income. Seventy-two percent of the population, about 742 million people, still live in rural areas, and their fortunes are also influenced by developments in the agricultural sector to a considerable extent. Coupled with the high incidence of poverty, which is predominantly a rural phenomenon (74 percent of the poor live in rural areas), these facts demonstrate the continuing importance of the agricultural sector in the Indian economy.

The implementation period for the AoA coincided with the reform process which has been under way since 1991 in response to the macroeconomic crisis that occurred as a result of the depletion of foreign currency reserves and a high fiscal deficit. To address this crisis, key reforms were initiated, by way of ending the old industrial licensing regime, more liberal policies towards foreign direct investment, significant reduction in tariffs on industrial goods and currency devaluation.

The focus of this reform process was initially on the manufacturing sector, but gradually these unilateral changes have been extended to the other sectors of the economy including agriculture. In agriculture, although there was no direct government intervention in production and investment decisions of farmers, government did, and still does, influence the legal and economic environment in which farmers and other economic agents operate. Most of these interventions in agriculture were conceived to deal with situations associated with famines and scarcities that existed before the Green Revolution period.

In the case of the domestic market, the withdrawal of the restrictions on the movement of agricultural commodities is one of the major changes that has been brought about during the present reform process. The licensing requirements and stocking limits for the wholesale and retail trade that were a part of the Essential Commodities Act (1955) have been removed recently. The system of Selective Credit Controls, which was used to regulate institutional credit to traders in commodities since 1943, has also been abandoned. Future markets, which were banned since 1942 under various statutory orders and since 1955 under the Forward Contract (Regulation) Act, are also now allowed.

As far as external trade is concerned, in the early 1990s, a few steps to liberalize agricultural trade were initiated about a year and a half after the July 1991 reforms, and these have been followed by a number of prominent reforms thereafter. Now, the exports of all major agricultural commodities, barring a few exceptions such as cotton, onion and niger seeds, have been liberalized. These reforms have brought about some significant changes in agricultural trade, which are discussed in detail in the relevant sections of this chapter.

India is a founding member of GATT. India signed the Marrakesh agreements of the UR as a permanent developing country member of GATT. Its first Trade Policy Review took place in 1993, and its second in 1998.