Econo mic R efo rm s i n

Agri cu ltur e - Th e N ext

Phas e

V.S. Vyas
Professor Emeritus
Institute of Development Studies, Jaipur

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Nature & Pace of Economic Reforms
in India
Growth of Indian Economy during last decade at
6.5 percent per annum exceeded all
expectations.
The growth was achieved in the face of
• serious domestic problems
• adverse international situations

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Nature & Pace of Economic Reforms
in India

The growth was accompanied with

• manageable rate of inflation
• burgeoning foreign exchange reserves
• adequate foodgrains stocks
• some reduction in poverty

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Nature & Pace of Economic Reforms
in India
Basic tenets of economic reforms, i.e., liberalization
and globalisation were accepted in India as well.
However, nature of economic reforms in India was
characterised by
• sequential approach to reforms
• slow and cautious manner in which reforms were
implemented
It spared the country from initial shocks faced by
number of developing countries. 4
Stagnation in Agricultural Growth
 Deceleration in the growth rate of agricultural
production
 Stagnation in yields of important crops; with
larger intake of modern inputs
 Disappointing performance of commercial
crops
 Large fluctuations in the output prices
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Economic Reforms in Indian
Agriculture - The First Phase
 Slow and cautious approach to reforms
 Main benefits due to reforms in non-agricultural
sectors
 Only major reform being abolition of ‘zones’ and
emergence of the country a single market for
agricultural commodities
 Privatization also got a fillip.
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Factors Contributing to Agricultural
growth in Previous Decades
Performance of Agriculture in the last decade was
in sharp contrast to performance in two previous
decades.
The factors contributing to earlier growth included
• larger investment in agriculture
• size neutral technology
• reforms in supporting systems

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Economic Reforms in Indian
Agriculture - The First Phase
 Integrated system of Minimum Support Prices,
Procurement and Public Distribution of food
grains
 These policies made salutary impact on
producers incomes
 Kept real prices of foodgrains low
 Contributed to growth of agriculture in so-called
backward regions.
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Economic Reforms in Indian
Agriculture - The First Phase

The earlier policies were implemented when

the major goal was food self-sufficiency.

Economy was an inward looking economy.

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Economic Reforms in Indian
Agriculture - The First Phase

There were and continue to exist certain weak

spots in Indian agriculture. These are
• degradation of land and water resources
• low value production
• declining productivity of ‘modern’ input, and
• inefficient support systems.
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Agricultural Reforms - The Next
Phase
The Cha ng ed Circu ms ta nc es
The next phase of reforms has to take into account
following circumstances
 Indian Agriculture is progressively acquiring a small
farm character
 The country is wedded to domestic market reforms
 It is committed to an open global economy
 It is a democratic multi-party competitive polity.
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Agricultural Reforms - The Next
Phase
Measures which need immediate attention are
 review of the policy on input subsidies
 review of the policy on agricultural prices
 reforms in the support systems
 completing the unfinished agenda on domestic
market reforms.
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Input Subsidies
The rationale for input subsidies can be provided if
 input is a new and risky input warranting sharing of
risks by the state
 it contributes to increase in productivity which is
shared both by the producers and consumers
 subsidizing income is the only way to transfer
income to the poor producers
 in case of heavily traded products, the trading
partners are resorting to overt or covert
subsidization and there is no other way for redress
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Input Subsidies
In case of India, none of these conditions
obtain now

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Input Subsidies
There is a need to “retreat without disarray”
 put a cap on subsidies
 earmark the savings obtained for investment in
rural infrastructure
 improve efficiency of input production and
supplies
 involve users in the distribution of inputs
 bring states on the common platform of
reforms.
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Agriculture Price Policy
 Present policy is disfunctional and has created
serious distortions.

 The major weakness arises due to the fact that

we are using administrated prices as vehicle
for income transfer.

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Agriculture Price Policy
Reforms in Agriculture Price Policy will include
 Long-term strategy to strengthen crop
insurance and forward trade.
 In the interim, the scope and coverage of MSP
be limited.
 A price band may be announced to trigger
open market operations.

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Agriculture Price Policy
 Procurement operation should be organised
strictly as business operation
 Responsibility for PDS should be passed on to
states, and subsequently to lower units of
Panchayati Raj.
 Better coordination between price policy and
trade policy should be ensured.
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Economic Reforms

Emphasise reforms in the support institutions i.e.,

institutions to provide research, extension, credit
and marketing services.

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Reforms in Support Systems
Case of Rural Fina nc ial Inst it ut io ns

To strengthen Rural Financial Institutions address

some of the critical problems
 improve absorptive capacity of the borrowers
with
emphasis on investment in infrastructure
 strengthen channels of investment credit.
 use various options available to reduce
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transaction cost.
Reforms in Support System (RFI)

 Mitigate risk at borrowers’ level with crop

insurance and forward trade .
 Mitigate risk for RFI through an Agricultural
Risk Fund contributed by the Centre, states
and banking institutions.

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Economic Reforms - The Next Phase

Have proper sequencing and practical

approach to reforms -
HASTEN SLOWLY.

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Economic Reforms in Agriculture
The Next Phase

Thank You

June 4, 2005

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