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Friday, Sep 13, 2002

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WTO, farm exports and growth

N. A. Mujumdar

Broad-based agricultural, and not enclave growth, should be at the centre of rural development and welfare. Use of the alarmingly large foodgrain stocks that add up to more than 60 million tonnes is another strategy. Focussing on these areas would also strengthen India's agricultural export capabilities.

IN 1995, when the various agreements were signed under the WTO, there were great expectations. That in a liberalised trading environment for agriculture, tariff and non-tariff barriers would come down and fair trading opportunities would open up for all countries, including India.

Based on these assumptions of substantial reductions in tariff and non-tariff barriers, some studies predicted enormous gains to developing countries. These macro models assumed perfectly competitive markets for agricultural commodities. Unfortunately, even after seven years of signing the WTO agreement, an imperfectly competitive export market persists.

The developed, Western, countries have found several escape routes to circumvent the spirit of the WTO agreement and failed to bring about substantial reduction in domestic and export subsidies in their own countries. Thus, an imperfectly competitive export market structure for agricultural commodities persists.The emergent scene is humbling for the market evangelists who had predicted buoyancy in agricultural exports for developing countries, post-WTO, and had entertained fantasies about agricultural exports acting as an engine of growth for the economy as a whole. Of course, India should exploit such opportunities of export but this would imply development of small segments of the agricultural sector.

India has to focus on non-trade and non-price factors to accelerate agricultural growth, bring about rural development and welfare. Over the years, though the share of agriculture in total GDP has declined substantially, dependence on agriculture has hardly declined. Agriculture will continue to remain the main livelihood for the bulk of the population. Hence' broad-based agricultural, and not enclave growth, should be at the centre of rural development and welfare. Use of the alarmingly large foodgrain stocks that add up to more than 60 million tonnes is another strategy. Of course, focussing on these areas would also strengthen India's agricultural export capabilities.

There is a broad consensus that at present, globalisation is highly inequitable and biased against developing countries. For instance, global agricultural subsidies are estimated to add up to some $360 billion annually, or nearly a billion dollars a day. Of this total, 80 per cent is accounted for by OECD countries. Unless domestic and export subsidies are reduced in the developed countries, a fair and just international trade regime in agricultural commodities remains a text-book concept.

As the Director-General of the World Food Policy Research Institute and the 2001 World Food Prize laureate, Dr Per Pinstrup-Andersen puts it, "Unless developed countries are willing to open their markets to temperate-zone agricultural exports from developing countries and end tariff escalation against processed and higher value products, the benefits that developing countries and the poor people who live in them will derive from globalisation will be limited".

The mention of the emphasis on "non-price factors" is deliberate. In Indian agriculture, supply response to prices is rather poor. Assuming that there is a rise in the export prices of a commodity it does not automatically ensure larger production of that commodity. Along with price rise, farm technology, extension, credit, and marketing — all these have to lend support to production efforts.

The success of the approach lies in linking utilisation of foodgrains to productive activities. The micro watershed development programme can be undertaken on a massive scale throughout the country. The bulk of the costs of such programmes would be accounted for by wages which can be paid in kind — foodgrains. The technology involved is simple and village panchayats can implement these schemes.

By using surplus foodgrains, it will be possible to create additional employment and incomes to the rural poor. The insurance against drought is another gain to the economy. Providing food security involves a two-fold objective — enlarging availability of foodgrains and providing access to food. Programmes, such as the micro watershed development, provide the modus operandi to achieve the twin objectives.

One is not expressing `export pessimism' in the neo-classical sense. Given the unwillingness, and not the inability, of developed countries to dismantle their massive domestic support and export subsidies to agriculture in their countries, it would be unrealistic to expect a major breakthrough in India's agricultural exports.

The thrust of the export effort would have to be highly selective. For instance, India has become a major rice exporter. Indian rice is likely to remain competitive, especially in Asian markets, given the lower freight costs, compared to the US.

In the 1990s, India increased its exports of both fresh and processed fruits and vegetables, but further expansion in this area would require improvement in infrastructure, storage, transport, processing, and the ability to meet sanitary and technical requirements in developed country markets. Fish exports, where there is also a potential competitive advantage, are also conditioned by similar limitations.

It is clear that the key to accelerating agricultural growth and promoting rural welfare lies in more public investment in rural infrastructure, irrigation, road, farm technology, extension, and so on. The thrust on agricultural exports would have to be highly selective and the impact of agricultural export growth on overall growth in GDP and rural welfare could at best, be marginal.

(The author is a former principal advisor to the RBI.)

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