Agriculture under GATT: What It Holds for India

Author(s): Ashok Gulati and Anil Sharma

Source: Economic and Political Weekly, Vol. 29, No. 29 (Jul. 16, 1994), pp. 1857-1863
Published by: Economic and Political Weekly
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Agriculture under
This paper attempts to analyse the likely impact of India 's comlmnitmentson agriculture and Inte'lectual Property
Rights, especially commitnmentspertaining to miairketaccess, domestic support and export competition in the area of
agriculture.
THElong drawntalkson GeneralAgreement
on Tariffs and Trade (hereafter GAIT),
which draggedon for more thanseven years
have come to an end. The world tradetreaty
aimed at opening international'marketswas
finally signed in April 1994. In fact eight
roundsof negotiations to free international
tradehave beenorganisedsince the inception
of GAIT in 1947. The first roundof GAIT
to set the rulesof internationaltradewas held
in Havanain 1947, which produceda charter
for the International Trade Organisation
(ITO).' Since then seven more rounds have
takenplace,2the eighth in this seiies which
is commonly known as 'Uruguay Round'
was initiatedin September1986 at Puntadel
este, Uruguay.This roundhas been the most
difficult and complex one as it covers new
areas like agriculture,3services, banking.
insurance, telecommunications, etc.
The main objective of GAIT treaty is to
reformworld tradewhich is highly distorted
because of direct and indirect subsidies that
flow to various sectors of the economy in
various countries of the world. In case of
agriculture,specific attemptshavebeenmade
to measurethedegreeandextentof distortion
in the world tradeby some studies like that
of Johnson(1971 and 1991), Anderson and
Hayami (1986), Islam and Valdes (1990)
and Tyers and Anderson (1992). These
studies reveal that direct and indirect
subsidies, which flow to the agricultural
sector, manifest themselves into distorted
world prices of agriculturalcommodities.
These distortedworld prices, in turn,result
into a situation of deceptive comparative
advantage that leads to inefficient use of
world resources, which ultimately leads to
efficiency and welfare losses around the
world.Therefore,the underlyingphilosophy
of GAIT treatyis to correctthese distortions
in world trade of agriculturalcommoditie's
with a view to promote efficient allocation
and use of world resources.
India is one of the approversof this trade
treaty.In this context, it becomes important
to study the likely impact of GAIT on
varioussectorsof Indianeconomy.The prime
focus of this paper,however, is to gauge the
likely impact of this agreement on Indian
agriculture by analysing the various
commitments under GAIT in the area of
agriculture.
Economic and Political Weekly July 16, 1994
GATT: What It
Ashok Gulati
Anil Sharma
The GATT commitments in the area of
agriculturefall underthreemain categories,
namely, market access, domestic support
andexportcompetition,4whicharediscussed
separatelyin the following Section.sI to III.
An attemptis also madeto presenta scenario
relatingto tradein agriculturalcommodities
in the post-Uruguay round of GATT in
Section IV. This section also triesto identify
the commodities in which India can gain
from internationaltrade.Section V contains
concluding remarksof the paper.
I domesticmarketarebelow theirintemational
Market Access
Under market access commitments, all
membercountriesof GAIT are requiredto
(i) replace all types of non-tariff barriers
with tariff barriers,' and (ii) reduce the
levels of tariffs under a time bound
programme.These levels are to be reduced
by 24 percentin case ot'developingcountries
andby 36 percent in case of developed. The
period duringwhich thlesereductionsare to
be taken up varies fromiisix years in case of
developed countries to 10 years in case of
developing countries. The least developed
countriesarenot requiredto undcrtakethese
reductions.Inadditionto thesecommitments,
thismeasurealso callsformaintainingcurrent
access opportunitiesand the establishment
of minimum access tariff quota. This
minimum access tariff quota is to be
establislhedat reduced tariff rates for those
basic products where the current market
access is less than 3 per cent of domestic
consumption. During the implementation
period-thisminimumaccess tariffquota has
to rise gradually to 5 per cent of domestic
consumption. However, if there is a surge
of importsdue to unfairtradepracticeswhen
thesestepsarebeingimplemented.thespecial
provisions of the agreement allow any
country to impose additional duties. The
extent of these additionalduties will depend
uponthedifferencebetweenthe iimportprice
and the trigger price'.6
The implemnentationof these measures
will not have any adverse effect on Indian
agriculture during the implementation
period.7This is because importsof various
agricultural commodities in India are
subjectedto mainly quantitativerestrictions
SPECIALARTICLES
Holds for India
for balanceof paymentreasons.The special
provisions of agreementallow any country
to maintainimportlestrictions up to the end
of the implementationperiod.8In any case,
even if Indiadoes not have BOP cover, that
does not mean that India will have to
compulsorilyimport3 percentof itsdomestic
consumption.9Whatall it meansis thatIndia
will allow the importsof these commodities
at low levels of tariff. Providing access to
the domestic market does not mean that
there will be a flood of imports because,
(i) if the pricesof agriculturalproductsin the
levels, imports will not be able to compete
with the domestically produced products.
This is precisely what is true with most of
the agriculturalcommodities in India (with
a notable exception of edible oils), and
(ii) if the country from where the product
is being importedis indulging in dumping,
special provisions of the agreement allow
us to impose additional tariff barriersas
indicated earlier.
This can be explained with the help of
importdatafor the trienniumending 1988-89
(base period), which reveals that except
for edible oils, where imports constituted
28.66 per cent of domestic consumption,'"
imports of other agriculturalcommodities
wereless than3 percentof theirtotaldomestic
consumption.For instance, importsof rice,
wheatandcotton-three majorcommodities
were 0.38 per cent, 1.47 per cent and 0.92
percent of theirtotal domestic consumption
during the base period (trienniumending
1988-89). This clearly shows that there is
no adverse impact of the commitment of
marketaccess on Indian agriculture.Even
in case of edible oils, special provisions
allow India to maintainpresentrestrictions
till the end of the implementationperiod,
which is 10 years for the reasonsexplained
above and also for balance of payment
reasons."
II
Aggregate Measure of Support
Aggregate measure of support(AMS) is
the annual aggregate value of marketprice
support, non-exempt direct payments and
any other subsidy not exempted from the
reduction commitment expressed in
1857
 IN TOTAL PRODUCT SIciFnc NEGATIVE SUPIO()Rr
FIGURE: RELATIVE SHARES OF DIFFERENTCOMMODITIIES

Rice 32 per cent Rice 57 per cent

Wheat

Others 7 per cent

thers 12 per cent
Cotton,6 per cent
aize I per cent
Groundnut8 per cent Wheat 25 per cent Jowar 3 per cent
Jowar 5 per cent Maize 7 per cent
TE 1992-93
TE 1988-89

monetaryterms.Thus, to estimate AMS for If the product specific and non-product India has basically two types of support
Indian agriculture, first one works out the specific AMS does not exceed 10 per cent operations for farmers. First, market price
level of supportfor each basic product(like of the total value of agriculturarproduct support, which is in the form of minimum
rice, wheat, cotton and so on) thatit obtains in case of a developing country (5 per cent supportpricesannouncedby the government
through (a) marketprice support; (b) non- in case of a developed country), the country for different commodities, based on the
exempt direct payments, and (c) other is not requiredto reducethe productspecific recommendations of the Commission for
subsidies not exempted from reduction andnon-productspecific support.However, Agricultural Costs and Prices (CACP).
commitments. Support which falls under if the AMS exceeds 10 per cent of the total Second, the support in the form of input
the purview of non-product specific (like value of agricultural production, it is subsidies which areon-inputslike fertilisers,
Eubsidieson various inputs) is totalled into requiredto be reduced by 13.3 per cent in irrigation'electricity, credit and seeds.
one non-product specific AMS expressed case of a developing country (20 per cent The thirdtype of supportwhich falls under
in monetary terms. Policies which have in case of a developed country)of the value the head of non-exempt direct paymentsis
been excluded fromreductioncommitments that does not qualify for exemption during not given to farmers in India.
are government spending on research, the implementation period. The least Tle estimates based on support prices
disease control, infrastructure and food developed countries have been exempted reveal that productspecific AMS for India
security. .These also include structural, from these reductions. (for 17 productsout of 22 total productsfor
adjustment assistance, direct payments
under environmental programmes and TABLE 1: PRODUCT
SPECIFIC
ANDNON-PRODUCT SPECIFIC
AGGREGATE
MEASUREOF SUPPORT
regional assistance programmes.'2 (TE 1988-89 ANDTE 1992-93)
In productspecific AMS, the marketprice (Rs billion)
support is to be calculated using the gap
betweena fixed externalreferenceprice (fob SupportType TE 1988-89 TE 1992-93
unit value in a net exporting countryand cif ProductSpecific AMS
unit value in a net importing country) and (a) Based on support -242.25 -.427.89
administeredprice (domestic supportprice) prices (-27.74) (-26.33)
multipliedby quantityeligible to receive the (b) Based on farin -151.03 -295.21
administeredprice.Thereis notenoughclarity harvestprices (-17.29) (-18.17)
in the FinalAct whetherthe quantityeligible Non-productSpecific AMS 45.77 86.45
(5.24) (5.32)
to receive administered price is the total (i) Fertilisersubsidy 10.21 24.98
quantityof production,or only the marketed (ii) Irrigationsubsidy 17.93 17.15
surplus.3 The referenceprice shall be based (iii) Electricity subsidy 15.81 41.54
on theyears1986-87to 1988-89.The external (iv) Creditsubsidy 1.00 1.96
referencepriceneedsto beadjustedforquality (v) Subsidy on seeds 0.82 0.82
differences as necessary in orderto make it Total productspecific and
comparablewith the domesticallyproduced non-productspecific AMS
product. (a) Based on supportprices -196.48 -341.44
Non-exempt direct payments are to be (-22.50) (-21.01)
(b) Based on farin -105.26 -208. 76
computedby using the gap betweenexterpa1 harvest prices (-12.05) (-22.85)
referenceprice and administeredpricf.cr by
usingbudgetaryoutlays. Inputsubgidiesand Notes: Figures in parenthesesarepercentages to the total value of agriculturalproduction(excluding
other policies like marketingcost reduction forestryand fishery).
measures are to be determined by using The 17 crops included in productspecific AMS are rice, wheat,jowar, bajra,barley,gram, tur,
urad. Inoong, groundnut,rapeseed and mustard.soyabean (yellow-and black), cotton, jute,
budgetaryoutlays. However, if budgetary
tobacco and sugarcaie.
outlaysdo notreflectthefullextentof subsidy, In non-product specific AMS, the programmes included are fertiliser subsidy, electricity
the subsidy has to be worked out by using subsidy, irrigationsubsidy, credit subsidy and seed subsidy.
thegapbetwednthe subsidisedpriceof input According to the Ministry of Coinmerce product specific AMS during TE 1988-89 is
in questionanda representativemarketprice Rs (-)244.42 billion. The problemswith theirestimate have been discussed in endnotes 10, 11,
multipliedby the quantityused of thatinput. 13, 14, and 15 at relevant places.

1858 Economic and Political Weekly July 16, 1994

which India maintains market support seems to be the effect of depreciation of sugarcane which showed positive product
programmes)works out to be negative to rupee against majorcurrenciesof the world specific AMS. Similartrendswere observed
the tune of (-)Rs 242 billion. This forms duringthe last threeyears as also in relative in trienniumending 1992-93, when the total
(-)27.74 percent of totalvalue of agricultural pricesof differentcommodities.Duringthis product specific and non-productspecific
production (excluding forestry and triennium,the highestproductspecific AMS AMS turnedout to be Rs (-)208.77 billion,
fishery).'14' Non-productspecific AMS in negative was found in case of rice which which was found to be (-)12.85 per cent of
worksout to be Rs 46 billion, 5.24 per cent amountedto Rs (-)245.98 billion. After rice the total value of agriculturaloutputduring
of total value of agricultural production followed wheat and cotton with product this period.The productrangewith negative
(Table 1).16 By adding these two one gets specific AMS totalling Rs (-)107.59 billion AMS narrowedto 8 commodities and with
totalAMS which standsat (-)Rs 196 billion, and Rs (-)27.66 billion respectively. During positive support expanded to nine
which forms (-)22.50 per cent of the value this period anothercommodity in addition commodities.2' But three major crops, i e,
of agriculturaloutputduringthe base period to sugarcane which has positive product rice, wheat and cotton which accountedfor
1986.87 to 1988-89. This indicates the specific AMS is rapeseedandmustard,where 55.52 per cent of total value of agricultural
massive amountof 'taxation'thatis inflicted the product specific AMS is found to be output in 1980s [Bhalla and Tyagi 1989]
on Indian agriculture,which is contraryto Rs 6.09billion.2'Therelativesharesofmajor hadnegativeAMSamountingto Rs (-)187.33
the general impression of huge subsidies crops in total product specific negative billion, Rs (-) l 17.53 billion and Rs (-)26.25
which flow to this sector. support during triennium ending 1988-89 billion respectively. Crops with highest
This negative support(or net taxation) is and trienniumending 1992-93 are depicted positive product specific AMS were
due to the fact that prices of different.crops in the Figure. groundnutandrapeseedandmustardwherein
are fixed by the government below their The calculationsof productspecific AMS the AMS was Rs 15.44 billion and Rs 13.09
international levels (barring rapeseed- for different commodities at farm harvest billion respectively.
mustardandsugarcane).This is evidentfro,n prices" are also somewhatin line with those The above mentioned trendsof domestic
the data presentedin Table 2, which shows obtained on the basis of support prices supportin Indiaarecontraryto those found
that in terms of per unit output, the highest (Table 3), but the degree surelydiffers.The in developed countriesof the world. Almost
averagenegative supportis forbarley,which farm harvest prices have been used as an all developed countries provide positive
was found to be (-)200.30 per cent during alternative set of prices because support supportto their cultivators ranging from as
the base period.17The next highest per unit prices have no meaning in the case of those high as 72 per cent in case of Japan, 37
support(in negative) is found in case ofjute, commodities where no support operations percent in case of EuropeanCommunityand
whichamountedto (-)1 34.92 percent during are carriedon by the government.Besides, 26 per cent in case of USA [Gulati and
triennium ending 1988-89. Other product farmharvestprices are supposedto be close Sharma 1992].25 This is in sharp contrast
groups with more than 100 per cent of to the prices which farmers get for their to India which imposes net tax on its
negative sqpport,per unit of output during produce. cultivators.
the same period are maize (-127.26 per *Thoughthe productspecific AMS for 17
cent), sorghum (- 1 19.78 per cent), tobacco commodities was found to be Rs (-) 151.03 I'
(-1 15.57 per cent) and wheat (-I 11.98 per billion, the extent of taxation (both product Export Competition
cent) respectively. The only productgroup specific and non-productspecific was still
receiving positive supportwas sigarcane in quite high, i e, (-)12.05 per cent of the total In the area of export competition, GATT
which case the subsidy was found to be value of agriculturaloutputduring 1986-87 agreement calls for reducing direct export
14.82 per cent of output.'3'9 to 1988-89 base period.23There were only subsidies to a level of 36 per cent below
Because of these negative supportfigures three commodities, namely, gram, tur and 1986-88 level in case of developed countries
per unit of output, the product specific
aggregate measure of support turns out to TABLE2: ExTENTOFSUPPORT
PERUNrr OFOUrPUTBASEDONSUPPORT
PRICES
be negative, i e, price difference multiplied TE 1988-89 TE 1992-93
by total quantityof production.The highest Crop Administered Reference Product Administered Reference Product
negative product specific AMS was found Price Price Specific Price Price Specific
for wheat which totalled Rs (-)85.74 billion. (Rs/MT) (Rs/MT) Support (Rs/MT) (Rs/MT) Support
Wheatwas closely followed by rice in which (Per Cent) (Per Cent)
case the product specific AMS turned out
Rice 2280.00 3520.00 -54.39 3507.46 6834.70 -94.86
to be Rs (-)77.23 billion. These two crops Wheat 1670.00 3540.00 -111.98 2383.33 4380.30 -83.79
werefollowed by groundnut(-20:49 billion), Maize 1373.33 3121.00 -127.26 2116.67 2525.00 -19.29
maize (-16.53 billion) and jowar (-12.52 Sorghum. 1373.33 2945.00 -114.44 2083.33 3427.20 -64.51
billion)respectivelyin thatorder.The lowest Barley 1340.00 4024.00 -200.30 1966.67 2008.05 -2.10
negativeproductspecific aggregatemeasure Tur 3350.00 5243.00 -56.51 5550.00 8184.97 -47.48
of supportamounting to Rs (-)16.5 billion Gram 2766.67 4128.00 -49.20 4570.00 5563.87 -21.75
was obtained for soyabean. However, in Urad 3350.00 4385.00 -30.90 5550.00 6769.83 -21.98
case of sugarcane as explained earlier, the Moong 3350.00 4782.00 -42.75 5550.00 7821.17 -40.92
Groundnut 3966.67 6900.00 -73.95 6583.33 7786.30 -18.27
product specific AMS turned out to be 3081.00 -1.57
Soyabean 3033.33 4566.70 6322.50 -38.45
Rs 2.41 billion during the base period. Rapeseed and
These numbersclearly indicate that India Mustard 4350.00 6884.00 -58.25 6766.70 5509.90 18.57
is not requiredto reduce its support levels Cotton 16562.00 17333.00 -4.66 24892.00 40734.73 -63.65
as the product specific and non-product Jute 2383.33 5599.00 -134.92 3650.00 6665.60 -82.62
specific AMS works out to be (-)22.5 per Tobacco 1233.00 2658.00 -115.57 1592.00 3679.00 -131.09
centof thetotalvalueof agriculturaloutput.20 Sugarcane 183.33 156.16 14.82 253.33 156.16 38.36
Infactover theyears,the AMS has increased Notes: Administeredprices are minimumsupportprices.
in negativeandstoodatRs (-)341.44 billion Reference prices are c if values (except for tobacco in which case referenceprices are fob
duringTE 1992-93.This massiveincrease values). Have been derived from MonthlySatiistics of Foreign Trade, DGCIS, Calcutta
of 73.77percentin absolutevalueof AMS Source: GOI, Ministryof Agricultureand DGCIS, Calcutta.

Economic and Political Weekly July 16, 1994 1859

over a period of six years. The quantity of IV so will thetradevolumes.27Buttheestimates
subsidised exports by the developed Post-GATT Scenario of change in prices and trade vary from
countries is to be reduced by 21 per cent study to study. Even if the world prices
during the same period. In case of Having looked at the commitmentsunder remain constant, it is clear from the above
developingcountriesdirectexportsubsidies GATEin threemajorareasof marketaccess, analysis that prices of various agricultural
are to be reduced by 24 per cent and the domestic support and export competition,
quantity of subsidised exports is to be the questions that emerge are: (i) what is TABLE4: PRICESOF VARIOUSAGRICULTURAL
COMMODITIES IN RELATIONTO WHEAT
reduced by 14 per cent. These reductions likely to be the impactof these commitments
(TE 1992-93)
in case of developing countries are to be on world prices and trade of agricultural
carried out over a period of 10 years as commodities, and (ii) whetherIndia will be Crop India World
against six years in case of developed better off once these commitments are (Wheat = 100) (Wheat= 100)
countries.The leastdevelopedcountrieshave fulfilled by the developed countries. Wheat 100.00 100.00
been exempted from these reduction Although. projecting future is a tricky Rice 147.17 199.43
commitments.Exportsubsidies included in exercise as no one is yet sureof the way how Maize 88.81 74.68
reductioncommitmentsare direct subsidies developedcountriesaregoing to bringdown Sorghum 87.41 74.41
paidby the governmentor any otheragency, their AMS, as it is no more commodity Cotton $ 355.25 372.07
including payments in kind; payments that specific. Thus, which commoditieswill bear Groundnut 248.55 189.64
Soyabean 191.61 177.04
aremadefromthe proceedsof levy imposed theburdenof adjustmentremainsspeculative. Rapeseed and
on agriculturalproducts;subsidies given to It would be strongly influenced by Mustard 283.92 150.38
reduce the costs of marketing including commodity specific lobbies in developed
internalhandling, processing, international countries. Nevertheless, one can venture Notes: $ = Kapas
In case of groundnut,the ratiosareforthe
transport and freight subsidy on export speculating the expected outcome of post-
year 1989. as the international prices for
shipments. GATE scenario through the judgment of later years are not available.
In order to see the impact of these experts in the field. On theoreticalgrounds Prices in India are supportprices.
commitmentson agriculturalexports from one wouldexpect thatreducedsupportlevels World prices have been taken from FAO
India, we have to look at the nature and and rationalisation of trade barriers will Quarterly.The details of these prices are
extent of these subsidies. Indian exporters increase productionand export of various given below. The world prices are for the
following varieties:
of agriculturalcommodities do not get direct commodities in those countrieswhich have Wheat = US HRW No 2 variety, fob US
exportsubsidy.The only subsidies available comparativeadvantagein the productionof Gulf; Rice = Thai rice 5 per cent broken
to exportersof agriculturalcommodities are agricultural commodities. Similarly the variety, fob Ba-ngkok;Maize = US No 2
in the form of: (i) exemption of profits from reduction in import barriers will reduce (yellow) variety,fob US Gulf; Sorghuin=
export sales from the income tax, and (ii) consumerpricesin those countrieswherethe US No 2 (yellow) variety, fob US Gulf;
subsidies on costs of freight on export tariff barriers are very high, which will Cotton =SM 1-1/16 US Memphisvariety,
cif, Liverpool; Soyabean = Soyabean of
shipments of certain products like fruits, generate strong demand and will push up US origin, cif, Rotterdam; Rapeseed =
vegetables and floricultural products. imports.Someempiricalmodellingexercises Canadian 40 per cent, cif, NW Europe;
Since these payments by developing show that internationalprices will rise and Groundnut= Any origin, cif, Europe.
countries are exempt from the reduction
commitments during the implementation TABLE
3: EXTENT
OF SUPPORT
PERUNITOFOUTPUT
BASED
ONFARM
HARVEST
PRICES
period, the commitments mentioned above
will not have adverseimpact on agricultural TE 1988-89 TE. 1992-93
exports from India. In order to encourage Crop FarmHarvest Reference Product Farm Harvest Reference Product
Price Price Specific Price Price Specific
the exports of agricultural products these
(Rs/MT) (Rs/MT) Support (Rs/MT) (Rs/MT) Support
subsidiescanbe continuedforthetime being. (Per Cent) (Per Cent)
Once the export supplies become self
sustainingduringtheadjustmentperiod,these Rice 2828.14 3520.00 -24.46 4302.70 6834.70 -58.85
can be withdrawn. Wheat 2024.80 3540.00 -74.83 2947.50 4380.30 -48.61
It is well documented in literature that Maize 1870.40 3121.00 -66.86 2818.10 2525.00 10.40
Sorghum 1736.81 2945.00 -69.56 3103.30 3427.20 -10.44
most of the developed countries operate Barley 1812.80 4024.00 -121.98 2987.50 2008.05 32.78
exportsubsidyprogrammesto enhancetheir Thr 5550.47 5243.00 5.54 8625.50 8184.97 5.11
exports. According to one estimate [GAiT Gram 4510.55 4128.00 8.48 6251.70 5563.87 11.00
Secretariat19931developed countryexport Urad 3350.00 4385.00 -30.90 5246.70 6769.83 -29.03
subsidies amountedto $ 16.4 billion during Moong 3350.00 4782.00 -42.75 5550.00 7821.17 -40.92
the base period. These countries would be Groundnut 5615.10 6900.00 -22.88 9809.83 7786.30 20.63
required to gradually reduce their export Soyabean 3033.33 3081.00 -1.57 7031.67 6322.50 10.09
assistance programmes.This will open up Rapeseed and
new marketsfor countrieslike India, which Mustard 6194.18 6884.00 -11.14 8274.38 5509.90 -33.41
Cotton 18711.18 17333.00 7.37 25979.90 40734.73 -56.79
are efficient producers of agricultural Jute -101.85
2773.80 5599.00 4371.70 6665.60 -52.47
products.26Therefore,reductionsin export Tobacco 1670.00 2658.00 -59.16 3314.00 3679.00 -11.01
subsidies and subsidised exports of Sugarcane 183.33 156.16 14.82 183.33 156.16 14.82
developed countries will have greater
implicationsfor developingcountryexports. Notes: Farmharvestprices of urad,moong and sugarcaneare not available, therefore,theirlevels of
Countrieslike India would benefit not only supportare same as undersupportprices.
Farmharvestprices are weighted average prices, weights being shares in total productionof
from improved marketaccess opportunities
those states for which harvestprices are available.
in the developed and developing countfies, Reference prices are c;if values (except for tobacco in which case reference prices are fob
but also from the reduction of subsidised values) and have been derived from MonthlyStatistics of Foreign Trade, DGCIS, Calcutta.
exports and trade distorting production
incentives in developed countries. Source: GOI, Ministryof Agricultureand DGCIS, Calcutta.

1860 Economic and Political Weekly July 16, 1994

commodities in India are well below their that the export basket of agricultural post-GATT scenario, and sustain higher
internationallevels. India has comparative commodities is likely to witness, and growth in agro-exports.,'
advantage in agriculture because of its accordinglypreparethe countryto improve
diverseagro-climaticconditions (which are its competitive edge by working on the ANDCONCLUSIONS
SUMMARY
conducive for a variety of crops almost fundamentalsof various links from produc-
roundtheyear).Thereis no reasonto believe tion in the farms to exporting in the ships. The impact of GATr commitments in
thatexportsof this sector will not grow with In order to find out the precise natureof agriculture which fall under three main
moreopen world tradepolicy environment: such shifts in croppingpatternsandchanges categories, i e, market access, domestic
therearelargedifferencesbetween potential in exports, one may build a large model supportand export competition is explored
andactualyields, the importintensityof this (linearprogrammingor generalequilibrium in this paper.The analysis reveals thatIndia
sector is low compared to other sectors of model) but a very rough and crude idea of stands to gain ratherthan lose from trade
theeconomy andlabourcosts arereasonably this can be had from the relativeprice ratios liberalisationby the GATE members. The
low compared to other countries. Our prevailingin the domestic marketandin the domestic supportlevels in Indiaarenegative
dnderstanding,of the situation is that India internationalmarket.Price ratiosof various in- most of the agricultural commodities
is likely to gain more from its own policy agriculturalcommoditiesin relationto wheat studied here, which is in sharp contrast to
of liberalising agriculturaltrade than what (assumingwheatpriceequalto 100) in India the support levels prevailing in developed
may be expected from GATT provisions. andthe worldaregiven in Table4. A perusal countriesof the world.Almost all developed
The recenttrendsin exports reinforce these of data presented in table reveals that area countries provide positive support to their
arguments.In fact agriculturehas turnedout under oilseeds is likely to contract,as their cultivatorsand theirsupportlevels arequite
to be a star performerin terms of exports. relative prices are much lower in the high (generally more than 10 percent of the
Agriculturalexports increased by 38 per international market than those in the total value of agriculturaloutput). In India'
cent in dollar terms during the first half of domestic market.This is particularlytruefor the product specific and non-product
the year. With the tremendous increase in rapeseed-mustard and groundnut.3"The specific AMS (for 17 products out of 22
exports, the export basket of agricultural extent of these variationsdiffers and varies total products for which India maintains
productshas also diversified in the recent from 31.06 per cent in case of groundnut market support programmes)works out to
years. From tea and mate, which formed to 88.80 per cent in case of rapeseed and be negative, i e, (-)Rs 196 billion, which
nearly 40 per cent of agriculturalexports mustard.Similar changes will occur in case forms (-)22.50 per cent of the value of
fromIndiain 1960s, exportshave diversified of coarse cereals also, but the impact is agriculturaloutput during the base period
to cashew kernelsand spices to fish and fish likely to be marginalcompared'tooilseeds. 1986-87 to 1988-89. This indicates the
preparations, oil cakes, rice, fruits and On the other hand, area under fine cereals, massive amountof 'taxation'thatthe IndiaI
vegetables and processed foods. rice, wheat and fibre crop, cotton, is likely agriculture,in reality,is subjectedto, contrary
Inthe past,agriculturalexportsfromIndia to expandandthey mayemerge as important to the general impression of huge input
did not outshine because of: (i) over valued export items along with fish and fish subsidies which flow to this sector. In fa6t
exchange rate of rupee against major preparations.Thus, the share of oilcakes over the years, this negative support h/s
currencies of the world; (ii) the external (particularlynon-soya) in agro exports may increasedin absoluteamountto Rs (-)341,45
tradein mostof the agriculturalcommodities gradually come down with import billion duringTE 1992-93, butin percentage
was and in many cases still is subjected to liberalisationof edible oils. Ourresearchon terms,hasslightlycomedownto (-)21 percent.
various controls mainly non-tariff barriers the futureagro-exportbasket of the country A few studies that have been carriedout
likeexportquotas,canalisationandminimum also reveals thatit is likely to be dominated in the recent past indicate, thatinternational
export prices (MEPs); and (iii) ad hocism by fish and fish preparations,rice, wheat, prices of agriculturalcommodities will rise
in the export policy, which means export tea, tobacco, fruits and vegetables and their and so will their production and trade
marketsare 'residual' markets,i e, they are processed items. Our analysis of major volumes. Also the variabilityin worldprices
approached only in case of country has cereals,fruits,vegetablesandtheirprocessed will reduce. Though the increase may be a
surplus.28 items reveals thatIndiahas high to moderate modestone, butit can be saidwithreasonable
These pervasive controls along with competitive advantage in most of these degree of certainity that reduced support
treatingexportmarketsas residualslowered commodities [NCAER 199 1]. This calls for levels and rationalisationof trade barriers
the returns available to the producers. It makingadditionaleffortsin termsof devising will increaseproductionandexportof various
resultedin divertingtheresourcesaway from appropriatepolicies for these futureexport commodities in countries like India, which
export competitive crops. All these factors items in which the country has competitive havecomparativeadvantageintheproduction
takentogether have acted as deterrentsand advantage. of agriculturalcommodities. Diverse agro-
resultedin the lost tradeadvantagethatIndia Therefore, if the exports of agricultural climatic conditions in Indiaand the existing
has in the areaof agriculture.These irritants commodities have to increase, the time is differentials in actual and potential yields,
have outlived their purpose and must be ripe to abolish all export controls and all augur well for exports of agricultural
done away with fairly quickly, if India has regulations like canalisation, export quotas commodities. To cash on the trade
to take advantage of new post-GATT and minimumexportprices. Next on agenda opportunitieswhich will emerge from the
scenario.2YThe new exim policy of the should be infrastructuraldevelopments in postGATTscenario,Indiawill haveto change
government of India does reflect some of termsof bulkstorage andhandlingfacilities its exportstrategyof treatingexportmarkets
the concerns;however, much more remains at rail 'headsand sea ports for cereals, fast as residuals. In addition to this various
to be done. First, ministry of commerce track facilities, preferablydedicated cargo stringentmeasureswhich act as irritantslike
should set up an expertgroup to identify the terminals for perishable commodities export quotas, canalisation and minimum
commoditiesin which Indiais likely to gain (fruits, vegetables and their processed export prices must be done away with
in post-GAIT scenario. This is important items) at major'air-sea ports. Last but not completely. The -analysisalso reveals that
because the total cultivable area is almost the least, long-term investments in research future export items will be fish and fish
limited and changes in price ratios will and extension in yield and quality, eco- preparations,cereals like rice andwheat,tea
change croppingpatternsin favour of those friendly productionof fruitsandvegetables and tobacco, fruits, vegetables and their
crops which have relative comparative and their packaging material are crucially processed items. This calls for making
advantage.Second,identifythelikely change important for taking advantage from the additional efforts in terms of devising

Economic and Political Weekly July 16, 1994 1861

appropriatepolicies for these future export are applied to this particularproduct,and (iv) basis of marketed surplus of relevant
items in which the countryhas comparative minimum access opportunitiesare provided. commodities, while in 1994 the reply given
9 This apprehension has been expressed in by Indian government to GATT secretariate
advantage. Thomas et al (1994). included productionas the rnvant quantity.
10 Domestic consumptionhas beenequatedwith 14 This is a bit differentfromthe 'Ate worked
Notes net availability. Net availability includes net out by the Ministryof Commerce.According
I Inthefirstround,the 23 countriesthatfounded production(gross productionminus quantity to their calcplations the product specific
GATT exchanged tariff cuts for 45,000 kept for seed, feed and wastage), importsand aggregatemedsureofsupportisRs (-)244.42
productsworth$ 10 billion of tradeon annual changes in stocks. billion. This is because of the methodological
basis. 11 Government of India has put imports of and computstional problemswhich remainin
2 Th secondroundwas held at Annecy (France) palmolqin oil under OGL (Open General the estimates of the Ministry of Commerce.
in 1949 in which another 10 countriesjoined Licence) at 65 per cent import duty (The These have been explained in the latterpart
and customs duties were reduced for another Econonmic Times,April 19, 1994). NDDB and of the text or in endnotes.
5,000 items. Thirdroundwas held in Torquay STC, however, have been allowed to import 15 Ministry's estimate reveals that product
(Britain)in 1950-51andinvolved 38 countries. at 20 per cent import duty. specific supportforms (-) 17.40 percent of the
Fourthand fifth rounds were held in GeneVa 12 Even inputsubsidies available to low income totalvalue of agriculturalproduction,whereas
(Switzerland) in 1955-56 and 1960-62 orresourcepoorproducers(havingoperational our estimates show that it is (-)27.74 per cent
respectively.The si:cthroundwhich is known holdings below 10 hectare) in developing of total value of agricultural production. It
as the "Kennedyround"was also initiated in countries are exempt from domestic support seems they have included animal husbandry
Geneva in 1964 and was completed in 1967. commitments(WTC, 1993, page 29 andGOI, and forestry in total value of agricultural
In this roundmort than 50 countries account- Ministry of Commerce). If that is true then production, while support on these
ing for 75 percent of world tradeparticipated. altnost 80 per cent of the input subsidies will components of agriculture has not been
Seventh round of GATT negotiations was qualify for exemption, because in India included. We have corrected for this and
started in 1973 in Tokyo (Japan) but ended operationalholdings of 10 hectaresor below taken crop value only as representing
in Geneva in 1979. In this round99 countries account for 79.5 per cent of agriculturalland. agriculture.
participatedin tade negotiations. 13 Itis worthnotingthatin 1991, thegovernment 16 Inputsubsidies for trienniumending 1992-93
3 AgriculturedidappearonGATragendathrice estimated AMS for Indianagricultureon the have been worked out as follows:
beforethisround,butthefocuswas vervnarrow.
4 Anotherareaof concern in agriculturewhich
has created fears in the minds of people is
theimpactof traderelatedintellectualproperty
rightsof tarmersand plant breeders.This we
Economic Liberalization
feel is basically the areaof plant breeders,and
they should be the right persons to comment
on this issue. However, our understandingof
and
this issue is that in sui generis system of plant
protection, the proposed legislation offers
Indian Agriculture
farmers to save, use, exchange and share
seeds. Theonly thingwhich sui generis system
of intellectual propertyrights prohibitsis the
large-scale multiplication and selling of the edited by G.S. Bhalla
seed purchiaeidfrom companies.
5 The level of tariff which will result from this
process is not clearly defined in the Draft
Final Agreement.Logically, one would think
Contributors:
that the level of tariff would be equal to the
difference in the domestic and world prices
duringthe base period, 1986-88. But actually, YoginderK. Alah
it is not so. GATT secretariatehas asked its
membercountries to propose their respective G.S. Bhalla
tariff rates on various commodity groups.
India, e g, has proposed 100 per cent tariff
S.I Goyal
on agriculturalcommodities, 150 per cent on S.S. Johl
processedagro-commoditiesand 300 percent
on edible oils, despite the fact that, on the Deepak Nayyar
whole Indianagriculture's AMS is negative.
6 The additional duties will be set according
Narinder S. Randhawa
to the difference between cif importprice and C.H. Hanumantha Rao
the trigger price. The trigger price shall be
equal to 125 per cent, 110 per cent, 105 per Abhylt Sen
cent of the average cif import value of the and
precedingthreeyears, when the marketaccess
opportunitiesare less than or equal to 10 per V.S. Vyas
cent, between 10 per cent and 30 per cent and
above 30 per cent respectively. [For details
on how additionaldutieswould be determined, 1994. pp xxiii + 398 Rs. 300.00 (including Postal
see World Trade Centre, 1994].
7 Countries like Japan, South Korea and (RoyalSize) ChargeswithinIndia)
EuropeanCommunity,which have very high
tariff barriersand use border measures like
variable levies will be required to provide Orders may be placed with:
greater market access to other countries.
8 The conditions under which the restrictions
can be maintained are (i) imports constitute Director,
less than 3 per cent of the domestic
consumption of the particularproductduring
Institutefor Studies in IndustrialDevelopment
1986-88, (ii) no export subsidies have been Smtp Narendra Niketan, 1.P'.Estate, P'.O.Box 7151
New Delhi - 110 002
providedforthe particularproductsince1986,
(iii) effective productionrestrictingmeasures

1862 Economic and Political Weekly July 16, 1994

 (i) Fertiliser subsidy has been taken as 50
per cent of the amount shown in
government documents, the rest is
deemed to be going either to the fertiliser
industry or to the feedstock agencies
[Gulati, 1990].
(ii) Irigation subsidy represents the losses
made on working expenses of majorand
medium and minor imrgationschemes.
It does not include the subsidy on capital
investmentmadein these schemes[Gulati,
1994 and Gulati and Shanna 1994J.
(iii) Electricity subsidy has been taken from
Gulati and Sharma (1994).
(iv) Subsidy on farm credit represents only
the interest rate, subsidy and does not
include the,loans written-off.
(v) Subsidy on seeds has been taken from the
publications of government of India.
17 According to the ministry, it is (-)190.96 per
cent. This is again because of the wrong
information used for the selected yeprs on
prics and production.In theirestimates they
have used price information for 1987-88,
1988-89 and 1989-90.. Actually the price
should be for 1986-87, 1987-88 and 1988-
89 and corresponding production figures
should be for the crop years 1985-86 become
available for sale in 1986-87 and so on. Same
is true for wheat, gram and rapeseed and
mustard, which are all rabi crops.
18 According to the calculations done by the
Ministryof Commerce, tobacco also received
positive support. But, there appears to be a
slip in theirestimates. It seems they have used
importparty price while comparing support
price with externalreference price..However,
India being net'exporter of tobacco, it is the
exportparityprice which should be compared
with the support price 'and not the import
party price.
19 Anotherdisageement between our numbers
and the numbersworked out by the ministry
appears to be in the case of cotton. In this
case, ministry's estimates seem to have
comparedkapas (seed cotton) prices and the
prices of lint. Actually, it is the price of lint
which should be comparedwith importparity
price of lint. The like should be compared
with like only.
20 India is not required to reduce its support
levels underthe GATT agreement. However,
input subsidies my become unsustainable
over time due to budget constraints. The
rising burden of subsidies is affecting.
invesntent in agriculture.Reducedinvestment
in the agriculturalsector has been an area of
concernduringthe 80s. It is believed thatthis
is largely due to the higher budgetary
allocations for meeting the expenditure on
subsidies.
21 Ourfeelingis thatone morecommoditywhich
received positive support during this period
could be groundnut. Since, the prices of
groun,dnutin the internationalmarketfor this
periodare not available, we have been forced
to use 1989 prices due to paucity of
information. Due to this reason the AMS
turns out to be negative.
22 Farn harvest prices are the weighted farm
harvest prices. The weights being shares in
total productionof a crop in those states for
which farm harvest prices are available.
23 The year 1987-88 was a droughtyear, there-
fore, farmharvestprices of various crops had
abnormally gone up. Probably due to this
raon thereis sucha largedifferenceinthese Anderson,K and Y Hayami(1986): The Political
esti-matesat supportpricesandfarmharvest Economy osfAg,riculturalProtection: East
prices.
A.sia in Internaitionail
Economic and Political Weekly July 16, 1994
24 1991-92 was again a bad year for coarse
cereals. The productionof coarse cereals was
quite low and because of this reason their
prices were very high compared to normal
years.
25 Theseestimatesarebasedon ProducerSubsidy
Equivalents as estimated by USDA for the
period 1981-82 to 1987-88: We do not have
access to their AMS for the period 1986-87
to 1988-89, but it is expected the levels of
AMS are also quite high.
26 Preliminaryestimates by USDA reveal that
reductions in export subsidies by developed
countries will open up world wheat market
for developing countries by 15 to 20 million
tonnes.
27 Some studies based on partial and general
equilibriummodelling exercises indicate that
international prices of agricultural
commodities will rise and so will their trade
volumes. Also the variabilityin world prices
w;illreduce.A sample of these models include
(i) TyersandAndersonModel, (ii) SWOPSIM
(Static World Policy Simulation Model), US
Department of Agriculture, (iii) IIASA
(InternationalInstitute of Applied Systems
Analysis)Modeland(iv) OECD(Organisation
of EconomicCo-operationandDevelopment)
Model. In a more recent work Brandao and
Martin (1993) estimated that international
prices increase, but by not very much, from
baseline levels (1985-87), e g, wheat +1 per
cent to + b6 per cent; rice -5 per cent to +2
per cent; coarse grains +2 per tent to +4 per
cent; sugar +6 per cent to + 12 per cent,
oilseeds and pulses +I to +5 per cent and
cotton + I to +4 per cent. These models vary
in theircommodity coverage and incorporate
differentsets of policies and because of these
reasonsthe resultsof these models also differ,
depending upon the assumptions and
information they use. But, the results are in
line with theoretical expectations of trade
liberalisation measures.
28 Cotton is a good example of this type of
export policy [see Gulati and Sharma,1994].
29 Some apprehensions have been expressed
about the likely impact of such measures on
food security of the country [Nayyarand Sen
1994]. These apprehensionsdo not appearto
be valid in the present day context, because
country has attained self sufficiency in
foodgrains production. An inter-ministerial
working group set up by the Ministry of
Agriculture has found that the currentlevel
of foodgrains production exceeds the
normativerequirementsof the populationby
about 10 per cent [GOI 1994]. The group is
of the opinion that 180 million tonnes of
foodgrainsare adequateto feed the estimated
population of one billion in 2000 AD. The
reportfurtheraddsthatundemutritionis simply
a matterof poors' inadequateaccess to food.
30 Among oilseeds soyabean perhaps can still
survive the impact of changed scenario,
because it is more a proteinor an oilcake crop
thananoil crop.Since thedemandforoilcakes
is expected to increase, both on the
internationalas weU as the domestic market,
it is quite likely thatarea devoted to this crop
will not decrease.
31 For cormmodityspecific strategies that India
should undertake,see NCAER, 1994.
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