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The INDIA ECONOMY REVIEW · rate of 10 per cent while the bottom 80 per cent are experiencing 1-2...

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  • "When the GDP is currently growing at the rate of 8

    per cent,doubling of farmer's income in seven years

    requires a 10 per cent annual growth of income. This

    in other words, means a re-distributionn of income in

    favour of the weaker section .......... But no one has

    picked up on this point. There is a kind of conspiracy

    of silence of this important issue. It is not just growth

    but the spread of growth that is also important. At

    present, the upper class that constitutes 20 per cent

    of our society is experiencing economic growth at the

    rate of 10 per cent while the bottom 80 per cent are

    experiencing 1-2 per cent growth. This upper class

    should grow at 4-5 per cent while the lower 80 per cent

    should have a growth rate of 10 per cent."

    - Dr. M. K. Chaudhuri, in an interview with The Times of India, 24th Feb, 2004.

  • “And he gave it for his opinion that whoever could

    make two ears of corn or two blades of grass to

    grow upon a spot of ground where only one grew

    before, would deserve better of mankind, and do

    more essential service to his country than the whole

    race of politicians put together.”

    - Jonathan Swift





    "Let us together dream of a country where poor are not

    just merely reduced to statistics but where there are

    no poor. Let there be a day when small childrem are

    taken to a poverty museum like science museum where

    they last millennium. Let this dream take the form of a

    revolution and as long as our dreams keep outweighing

    our memories, India would remain a young and

    dynamic nation on its path to global equality. And

    for this let the wait not be for eternity. Let us together

    achieve this in the next 25 years."

    - Prof. Arindam Chaudhuri, 'The Great Indian Dream', Page No.225

  • The India Economy Review 20044 5The India Economy Review 2004

    TT here cannot be any vision that can be chartered for a nation l ike ours discount-ing the agriculture sector For, whatever growth rate and development we envisage as a nation, it cannot be achieved and susta ined by marginalizing 55% of our population (agricultural labourers and cultivators). Constant focus towards generation of purchasing power for this commu-nity is a strategic policy imperative. A hard nosed and an unfinching commitment towards this goal wil l definitely fuel the growth engine on a self sus -ta ining basis. Growth with human face ! ! ! . In this

    context and in a nutshel l, The IIPM Think Tank a sser ts only and the only fol lowing guidel ine

    “If Agriculture Survives, India Survives”The strategic importance of the Agricultural sector comes barely evident i f one were to give a cursory glance to the table mentioned below. According to Mr. G. Ramachandran, a wel l known f inancia l analyst, i f services are the magic fountain of high incomes, agriculture is the deep pit of low incomes. This par ticular pitfa l l should not be viewed in iso -lation for it misguides the policy maker and the

    economist. The lowest base level incomes and the lowest growth rate of the agriculture sector has to devastating ef fects. Firstly it spel ls misfor tune for industria l and service sectors, which cur-rently and pre -dominantly earn a large par t of their incomes from the domestic market. This entire arithmetic leaves us with a simple and evident proposition. India’s per capita and income and per- capita income growth rate wil l continue to remain small i f a large par t of the popu-lation continues to be employed in agriculture, the way it stands now. Secondly, it is the back-wardness and low product iv-ity of agriculture that accounts for the widespread pover ty in India. The highest incidence of pover ty i s among sma l l - sca le farmers and casual labourers. To top it a l l , we have the strategic concern of 'Food Security' at stake. Consider this : Some esti -mates in The OECD Agricultural Outlook 2004 -2013 indicate that ( ‘OECD notes India’s progress in farm sector’; The Hindu; July 27th 2004), in the absence of sig-nificant technological changes in the agricultura l sector, growing income and population would lead to an import demand of 115 mil l ion to 142 mil l ion tones of food gra ins.

    A f ter a spa n of re l a t ive stagnation during the last two decades, agriculture witnessed an improved growth of 3.2 per -

    cent in the 1980s ; but the growth performance was some what sub-dued in the 1990s, and especia l ly in the last six years, with rea l GDP originating from agricul-ture growing at a modest 2.9 percent. Agriculture witnessed a very modest 2.1 percent average annual growth during the Ninth Five Year Plan, while tota l GDP grew at an average of 5.4 per-cent per annum. I f India were to achieve an 8% growth in GDP, agriculture must clock a growth rate of 4% . And this is not possi -ble until the current agricultural practices are reviewed.

    Against this backdrop, The I I PM T h i n k Ta n k h a s c on -structed a matrix of problems that a re plag u ing the Ind ian agricultura l sector.


    In 1980, investments in agr i -culture were twice the va lue of subsidies. In 2000, d irect and ind irec t subsid ies were tr iple the va lue of a l l investments in agriculture, which throws l ight upon the dismal state of a f fa irs. As matters stand, fer ti l izer com-panies receive the bulk of the Rs 15,000 crores fer ti l izer sub -sidy. (Financial Express editorial t it led ‘Input Subsidies’; June 4th 2004). Another main reason for the dismal per formance of our farm sector has been the per-sisting adverse terms of trade aga inst farmers. Dr. Y.K A lagh

    “India needs to move from

    the government driven

    increase in production to

    the market driven increase

    in consumption.”

    CII’s National Council of Agriculture and ITC Chairman YC Deveshwar in Times of India; May 17th 2004.

    Studies by the Ministry of Agriculture show that farm incomes have fallen in the past five years. Rice farmers in West Bengal, for instance, earned 28 percent less in 2002-2003 than they did in 1996-1997. Incomes of sugar cane farmers fell, 32 percent in Ut tar Pradesh and 40 percent in Maharastra. Farm incomes of Nor th Indian farmers eroded by 10 percent, on an average. (Source: ‘Mirage of goodies for farm sector’; Mr. Devinder Sharma; Business

    Line; July 20th 2004.)

    Name of % of Households % of contr ibution Per Capita Per–Capita Growth the Sector dependent upon in the f inal GDP Income (Rs.** ) rate dur ing 1994 to the sector 2001 in % terms

    (Source: “The Progression to Prosper i t y”, The Hindu Business L ine, Januar y 28th, 2004, Mr. G. Ramachandran)

    Agr iculture 55 25 Rs. 5,129.00 2.10

    Industr y 18 27 Rs.17,588.00 2.51

    Ser vice 26 48 Rs.21,463.00 2.88

    ** The f igures are applicable in cons tant 1994 monetar y uni t s.

    “Agriculture is not a commodity machine

    but the backbone of the l ivel ihood

    security system in India, where 70

    percent of the population is in the

    villages. So agriculture is not just a

    question of economics and trade but

    of dignity and survival.”

    Dr. M.S. Swaminathan, Chairman, MSSRF

    Annotat ion On Agr iculture

    “Agriculture is not a commodity machine

    but the backbone of the l ivel ihood

    security system in India, where 70

    percent of the population is in the

    villages. So agriculture is not just a

    question of economics and trade but

    of dignity and survival.”

  • The India Economy Review 20046 7The India Economy Review 2004

    has observed that profitability has fallen by 14.2% during the nineties. This could have a varied impact on different categories of farmers, particu-larly, marginal farmers. (Please refer the box)

    Capital formation in agriculture, as a percent of gross capita l formation in the country, which was 15.5% in 1980 -81, fel l to just 7.1% , in 1999 -2000. It is this sharp decl ine in capita l formation in the farm sector that has led to its stagnation. Likewise, there are other critica l problems which mars the agriculture sector today.

    As was edif ied in a enl ightening ar ticle, authored by Mr. Sharad Joshi, ( ‘Budget: No good harvest, rea l ly’; Business Line, July 21st 2004), the state has not only fa i led in its duty of provi-sioning the requisite services and public goods to its farmers, it has caused more harm than good, through its pol icies. In fact, according to Mr. Joshi,(Founder, Shetkari Sanghatana and Rajya Sabha member) i f one were to draw up a ba lance sheet of what the farmers owe to the government and vice versa, the farmers wil l emerge net credi-

    revea ls that in areas where pesticide use is ram-pant, chi ldren had retarded menta l development that includes analytica l abi l ities, motor abi l ities, memory and concentration. The locations chosen reported a high use of dangerous pesticides such as organophosphorous, organochloride, carba-mate and synthetic pyrethroids, in addition to “new generation” pesticides such as spinosad and nicotinoid pesticides, a l l for cotton.

    A classic case of high water usage has been well researched and documented by Mr. V. Uma Shankar, Managing Director of Dakshin Haryana Bijli Vitran Nigam. According to him, in Haryana, the electricity tariff for agriculture consumers was subsidized to the extent of Rs 1,060 crore in 2002-03, of which Rs 829 crore were provided as d irect subsidy from the State budget. To put things in right perspective, the subsidy provided was 2.5 percent of the net state domestic product (NSDP). The situation in other states in the country is no dif ferent. The farmer, in areas where canal water was not available, could exercise an option of pow-ering his tube wel l by either d iesel or electricity.

    The ground water resources have been fast depleting result-ing in tube wel ls being bored deeper and deeper to extract the same quantity of water, thereby requiring higher motor capaci-ties and increased agriculture consumption. In Haryana, out of 116 blocks, 52 blocks have been declared as dark areas where the ground water resources have been exploited to over 80 per -cent of their potentia l. More interesting is the fact that of the remaining 64 blocks, 40 blocks are dependent on canal water for irrigation requirements.

    in the Fourth Plan to less than 6.77 percent in the Tenth Plan. Another d istressing feature of irrigation spending is that the bulk of the Plan a l location is made to major and medium irri-gation projects rather than minor irrigation projects, which are considered more cost ef fective. (Ministry of Water Resources says that irrigation potential for one hectare through large and medium irrigation projects was Rs 98,495 against just Rs 10,051 for small irr igation projects.)

    Another dimension to this

    According to an exper t commit tee, the loss in income caused to the farmers on account of gov-ernmental policies alone could total Rs 300,000 crore over the last 20 years. Compared with this colossal sum, the amounts owed by farmers by way of loans and electricity bills are insignificant. (Source: Extracted from an article written by Mr. Sharad Joshi titled ‘Budget: No good harvest, really’; Business Line, July 21st


    According to International Water Management Ins t i tute es t i-mates, in many areas of the countr y, water tables are falling at rates of 2 to 3metres per year due to the growing number of ir r igation wells---around one million per year. ( Source: Ex trac ted from an ar t icle t i t led “L ive Wire”; Mr. V. Uma Shankar,

    The Economic Times )

    More than 38 million hectares of our land, which though cult ivable, has been lef t uncult ivated, classif ied as “cult i-vable wasteland”, or “old and current fallows”. This area of 38 million hectares is more than the total cult ivated area of four countr ies viz. Pakis tan, Nepal, Bangladesh and Japan, which provide succor to more than 400 million people living in those countr ies.( Source: Mr. Bhanu Pratap Singh; “Can India prosper, while i t s agr icul ture

    s tagnates? ”; The Hindu “Open Page”; May 24th 2004)

    Even if half of the total

    rainfall received over our

    country is preserved and

    delivered to fields, our

    entire arable land can pro-

    duce two crops a year.

    - Mr. Bhanu Pratap Singh; “Can India prosper, while its agriculture stagnates?”; The Hindu “Open Page”; May 24th 2004.

    tors ; par ticularly, i f one takes into account the incomes lost on account of state policies, both in agriculture and commodity markets, and the amounts held by farmers as shares and deposits in various cooperative societies.

    Indian agriculture, specifically commercial farm-ing, has three major concerns : decl ining land qual ity; excessive use of chemicals which results in high water usage ; and, the use of pesticides and the manner in which workers handle pesticide. For example, pesticide use in India is the highest for the cotton crop (over 50 percent), which occu-pies only f ive percent of the cultivated area. A first-of-its -kind study by Greenpeace India cal led “Arrested Development” studied the impact of pes-ticides on 899 chi ldren from six d if ferent cotton farming locations in India during April-December 2003. The report (“Transgenic muddle”, written by Ms. Meena Menon ; Hindu; May 31st 2004)

    However, with the removal of subsidies on diesel as a consequence of d ismantl ing APM, diesel has become an unviable option, forcing the farm-ers to resor t to electricity consumption. A great danger lurks around the corner for the farmer, as the cropping pattern fostered by the State Policy has led to extensive cultivation of water-guzzling paddy in North-India, leading to over-exploitation of ground water over the years. Another d imen-sion to this problem is that the cultivation pattern has shif ted in favour of water intensive crops l ike r ice, sugarcane, etc. This is happening even in water scarce areas. The per- capita avai labi l ity of usable water in India has already dwindled to mere one -f i f th of what it used to be at the time of inde -pendence and projections indicate that one -third of the country’s population will have to live under absolute water scarcity in another 20 years. So, there is a high possibi l ity of conf l icts occurring with greater frequency, over water.

    M r. Moh a n G u r u s w a my and Mr.Abhishek Kaul of Centre for Policy Alternatives,(Farm s e c tor — I I I : “ Wa l k i n g away from the problem”; The Hindu Business Line) points out that there is a decl ining trend as is ref lected in Plan outlays made for irrigation, under the heads of major irrigation, minor irri -gation, medium irrigation and irrigation institutional f inance, over the years. The share of irri-gation in the tota l Plan outlays has halved from 15.31 percent

    problem is the distortion, for the money claimed to be spent on irrigation is actually for power generat ion. Consider ing that farm sector consumes only 28.8% of the nation’s generated power, to say it for irrigation is quite an exaggeration. Most of the amount being spent in the Plans on irrigation has been on long delayed ongoing projects. Delays in completion of 162 major, 240 minor and 74 other irrigation projects have resulted in spillover costs of Rs. 79,321 crore.

    Can India Prosper, While i t ' s Agr iculture Stagnates?

    Annotat ion On Agr iculture

    Budget: No Good Har vest, Really

  • The India Economy Review 20048 9The India Economy Review 2004

    Over dependence upon monsoonsAs pointed out i n Bu s ine s s Line ed itor ia l ( “Farm to the fore”; Ju ly 12 , 2004), cu lt iva -t ion on 85 mi l l ion hectares - -- - - -representing 60 percent of the countr y’s net cu lt ivated area of 142 mi l l ion hectares -- - - - - - i s ra infed and therefore, subjec t to vagar ies of the mon-soon. With less than one mi l -l ion hectares of additiona l land coming under i rr igat ion every year, there i s a big cha l lenge in ensur ing adequate water ava i l -abi l ity to vast ar id , semi-ar id and drought prone trac ts . This apa r t , a ccord ing to the Ex-Union Minis ter of State for Agricu lture, Mr. Sompa l, (The Economic Times , 29 th June 2004), the ex is t ing irr igat ion systems and other a l l ied sys -tems (monsoon forecasting sys -tems and etc), cour tesy poor maintenance, have degenerated (Plea se refer the box below).

    Faulty Procurement Pract icesThe Minimum Support Price was original ly meant to be a safety mechanism to insulate farmers from vagaries of the market. Over the years, how-ever, thanks to compulsions of populist pol itics, it has become another instrument in the hands of politicians to manipulate the vote banks. This had its own nega t ive con s equence s . The food subsidy bi l l i s ba l loon-ing and a major par t of it is upon storage costs. Accord-ing to Mr. Suman Sinha, the former cha irman, Pepsi Co., India, MSP on wheat and rice are leading to diversion of land in Punjab, Haryana, Western UP, Andhra Pradesh resulting in greater surplus being created, leading to more investment in storage, carrying and holding cost. Also, it is making the crop diversi f ication, a near impos-sibility. To make matters worse, the procurement is being done

    only from some select states.

    (For more information on this par -t icu lar subject , please refer, The Ind ia Economy Review 2003 -2004 ; Pg-78 ) .

    Size of the holdings :Over the years, the proportion of marginal holdings, that is less than one hectare, has been increasing sharply. They have gone up from 50.60 percent in 1970 -71 to 59.40 percent in

    1990 -91. Another worr i some feature is that 34.26 percent of holdings were smaller than 0.20 hectares. Overa l l, the average size of holdings has gone down from 2.30 hectares in 1970 -71 to 1.55 hectares in 1990 -91 and the average size of margina l holdings has fa l len from 0.41 hectares to 0.39 hectares.

    Agricultura l Research:An another d imension to this is

    A c c o r d i n g t o U n io n M in i s t e r for Science and Technology, Mr. Kapil Siba l, if the Indian Meteoro-log ica l Depar t -ment ( IMD ) has t o a c c u r a t e l y forecast the mon-soon, it requires a t l e a s t 1, 850 we a t he r ob s e r-v a t o r i e s . C u r -r e n t l y , i t h a s only 182 weather obser vator ies. I t also required as many as 5,0 0 0 s a t e l l i t e - b a s e d au t o m a t i c r a i n

    gauges, 50 upper air observatories, 5 0 e q u i p m e n t f o r p r e p a r i n g a prof i le o f the wind pat terns, 20 cyclone detection r a d a r s an d 35 s to r m de te c t ion radars. But, cur-rent ly i t did not even have even a s i n g l e au t o -matic rain guage or w ind pro f i l e r and storm detec-t ion radars have become obsolete.

    G i v e n t h i s s tate of af fairs, it

    is no surprise that IMD always comes out with faulty fore-cas t s ever y year. According to Mr. S ibal , up grada-tion of the equip-ment costs Rs. 500 crores, which can m ake I M D ab l e to provide distr ic t w ise forecas t for time spans of five to seven days with very minimal mar-gins of error. (Source: ‘Lack of equip-

    m e n t t o b l am e f o r

    i naccu ra t e monsoon

    forecas t ’; The Hindu;

    August 7th 2004.)

    The larger macro-economic impac t o f t h e y e a r l y increments in the suppor t pr ices of the wheat and r ice w a s s t u d i e d b y Prof. K irit Parikh o f t h e I n d i r a G andh i I n s t i t u t e of Deve lopment Research ( IGIDR ) a n d p u b l i s h e d in t he Economic a n d P o l i t i c a l Weekly (March 03 ) . I t u n d e r s co r e s t h e f a c t t h a t e ve r y add i t i ona l rupee al located t o p r o c u r e m e n t w i l l come at the expense of some other expenditure and t yp ical ly the axe wi l l fal l on the investment . So not only will r ising MSP fuel and the problem of addi-t ional food s tocks, b u t a l s o t a k e away f rom r u ra l a t t e n t i o n a r e a s , s u c h a s i n v e s t -ment in ir r igation

    a n d r o a d s . T h e b road conclus ion of the s tudy is that a 10% increase in t h e p ro cu r e m e n t pr ice of the food wi l l lead to mar-ginal decline in the GDP ( by 0 .33 % ) in t he f i r s t year. This would happen because of a non agr i GDP, despite of smal l increase in agr i –GDP. The fall in this would happen because o f h i gh e r p ro -curement p r i ce s mean higher food p r i c e s w h i c h would reduce the demand for both food and non food items in the econ-omy .This outweigh the posit ive impact of higher MSP on agr icultural GDP

    The paper also b r i n g s o u t t h e welfare impact of a cascading hike in food pr ices. I t argues that there

    would be wel fare l o s s fo r 8 0 % o f the rural popula-t ion and the entire urban population. The top 20% of the r u r a l popu l a t i on escape the welfare impac t thanks to t h e p r e s e n ce o f la rge marke tab le s t o c k s , s o l d a t h igher MSP. Bu t, for the res t, espe-c i a l l y t h e u r b an an d r u r a l p o o r, the welfare impact i s s h a r p a n d p r o l o n g e d . T h e immediate impact co m e s f r o m t h e r ise in pr ices, and the future loss of we l fare i s a t t r ib -utable to the few g r o w t h p o i n t s be ing shaved of f the GDP. ( Source: “Food grain

    procurement cos ts may

    hi t GDP grow th”; “Rural

    M u r a l ”; M o h a m m a d

    A d i l ; E T I n t e l l i g ence

    G roup, app e a r e d i n

    The Economic Times.)

    Foodgrain Procurement Costs May Hit GDP Growth

    Annotat ion On Agr iculture

    "India is richly endowed

    by Nature for agriculture

    production. Our arable

    land to the total land area

    is 51 percent against the

    world average of only 11

    percent.( India has the

    largest area of the irri-

    gated land in the world). "

    Mr. Bhanu Pratap Singh in an article tit led “Can India prosper, while its agriculture stagnates?”; The Hindu “Open Page”; May 24th 2004.

    If the farmer's hand

    slacken, even the

    ascetic's state will fail.

    - Thirukkural:104:6

    Lack of Equipment To Blame For Inaccurate Monsoon Forecast

  • The India Economy Review 200410 11The India Economy Review 2004

    the fact that the entire public s e c tor a g r ic u lt u ra l re s ea rch and education network is not only sl ipping into the hands of bureaucrats but its professional-ism is a lso under threat.

    T he C ent r a l Bud ge t Pol i c y should provide for more funds for Central Agriculture Research Inst itut ions (CARI ) and the State Agriculture Universities, ensuring that the current trend of almost the entire expenditure in research institutions being used to pay sa laries is changed.

    I f , i ndeed , our a g r ic u lt u ra l research meant to cater to the rea l ly needy farmer, how far ha s the cou ntr y succeeded ? Consider this situation. (Please refer the box)

    A s poi nt e d out by M r. Surinder Sud ( ‘Research under threat’; Business Standard; 25th August 2004), there has been an assault on the professional-i sm and transparency in the recruitment and selection prac-tices of senior posts. This par -ticular issue has demoral ized the scientists and caused wide spread resentment. The process

    of appointments at the senior level has been put on hold. At least a dozen major research institutions lack regular d irec-tors.

    The Parl iamentary Stand-ing Committee on Agriculture has many times reiterated that the tota l a l location for agri -cultura l research and develop-ment should be ra i sed to at least 1 percent of the agricul-tura l gross domestic product (AGDP) from less than 0.3 per -cent ( la s t 10 years’ average) at present. Advanced countries spend between 2 .45 and 4. 2 percent of the AGDP on farm research. Even Sri Lanka and Latin American countries spend between 0.8 and 0.98 percent of their AGDP for this purpose. ( ‘Grant sought to upgrade farm research inst itutes’; Business Standard; 8th September 2004)

    Inef f icient supply cha in:According to Mr. Y. C. Nanda, ( “Can Indian agriculture reap a r ich harvest? ” The Economic Times ; June 29 th 20 04 ) the losses in supply chain are huge ; sometimes 30 to 40% is lost by the time produce reaches the

    reta i l level. Inef f icient players reta in margins without significant value addition eating into the share of the producer from what the consumer pays. Share of the rice grower in the f ina l price paid by the consumer was 44% and 47% in 1996 -97 and 97-98 respectively.

    Product ivity :The yield of r ice and wheat , taken together grew at an annual rate of just 1.42 percent in the 1990s compared to 3.15 percent in the pre -v iou s d e c a d e . P u l s e s f a red wor s e , a s the i r yield growth rate plum-meted to 0.27 percent in the 1990s which was one -sixth of the level it attained in the 1980s (1.61 percent). The decl ine in the annual growth rates of both food and non-food crops resulted in a decl ine in the yield growth rates of a l l crops taken toge ther, wh ich ca me down from 2.56 percent in the 1980s to 1.02 percent in the 1990s. A point worth mentioning here is that is low productivity in agriculture af fects not only the agriculture sector but also upon the industria l sector. A case in point is the Indian textile indus-try becoming uncompetit ive. Avai labi l ity of qual ity cotton in India is poor. Productivity of cotton in India is the f i f th poorest in the world. Compare India’s productivity of 280 kg/hectare with 580 and 1500 kg/hhectare for Pakistan and China respectively.

    Agricultura l Credit :The agricultura l credit del iv-

    Countr y Average yield ( Per hectare/kg)

    The Nether lands 7,701

    Belgium 7,679

    Ireland 7,241

    Egypt 7,238

    France 7,088

    United Kingdom 6,838

    Germany 6,749

    Korea 6,500

    New Zealand 6,303

    Swit zer land 6,204

    Japan 6,147

    Denmark 6,032

    India 2,321

    (Source: Wor ld Development Indicators 2003

    The Product ivity of cerea ls per hectare

    Kerala prides itself a s t h e l a n d o f pepper and its cul-tivation goes back to 30 0 0 B .C . in Malabar. Yet, our ave rage y i e ld o f 294 kg per ha pales in compar ison to t ha t o f Tha i l and and Vietnam ( late comers to pepper cultivation in post-Second World War years), which have

    y i e ld s o f 3, 594 and 1,100 kg per ha respectively. To top i t a l l, Kerala has the world’s firs t p e p p e r r e s e a r ch s t a t i o n i n Pa n -niyur, Kannur dis-t r i c t , e s t ab l i s hed in 1952-53 under the Kerala Agricul-tural Universi t y, a fu l l - f l edged IC AR I n s t i t u t e wo r k i ng on sp ice s , where

    t h e m a i n f o c u s is pepper, and a Spices Board cater-ing to many prob-lems. There is also a R s 10 0 cro re s “Pepper Mission”( S o u r c e : D i r e c t l y

    ex tracted from an ar t i-

    cle t i t led ‘When farm

    technology fal ls shor t

    of expectations’ by Mr.

    K.P. Prabhakaran Nair

    in Business L ine; July

    6th 2004.)

    ery and infrastructure are in state of absolute d isrepair. Dr. M.S. Swaminathan, who was a member of team that made the Green Revolution in India, opines that the low productivity at the moment is more because of socio -economic causes than technologica l. In other words, it has many dimensions to it. At one stage the credit del iv-ery system had col lapsed in rura l India due to loan melas and the Harshad Mehta scam. More money was taken out of vi l lages than put in. Accord-ing to the last rura l household survey, only one -sixth of the rura l households borrow from financia l institutions, and 52 to 62 percent of farmers’ outstand-ing debt was owed to money

    When Farm Technology Falls Shor t of Expectations !! !

    Annotat ion On Agr iculture

    “A transformation of the

    national economy would

    only occur when people

    move form agriculture to

    other sectors. This is only

    possible when huge invest-

    ments are made to increase

    agricultural production and

    productivity, which will, in

    turn, create jobs in the con-

    struction and engineering

    sectors. In the process, the

    per capita production in the

    farm sector will rise making

    it a commercially-viable

    business. This is simple

    logic, but it continues to

    elude the planners, admin-

    istrators and, of course, last

    but not least, the leaders

    who determine the allocation

    of resources.”

    - Mr. Mohan Guruswamy and Abhishek

    Kaul; (“Another food crisis ahead”; The Hindu Business Line.)

    "Capital formation in

    agriculture has been fast

    declining , and value-

    addition is generally a

    one hundredth for an

    agricultutral worker

    compared with those in

    industralized countries."

    Mr. Maharaj Muthoo, in 'Seeding India' in Hindustan Times, 8th Septemeber 2004.

  • The India Economy Review 200412 13The India Economy Review 2004

    lenders. Commercial banks met only 4 percent of the cred it needs of the non-farm sector and micro -f inance provided a mere 3 percent. Interest rates from informal sources (money lenders) ranged from 36 per -cent to 120 percent and even cooperat ive banks and rura l cred it cooperatives were not performing well due to prob -lems of management and exces -s ive government control. As mentioned by Ms. Jayshree Sen-gupta in The Hindustan Times ar ticle, t it led “Sowing Seeds of Prosperity”, interest rate caps within a range of 2 percent below the prime lending rates by the government for small loans have a lso acted as a deter -rent. The World Bank Report on India mentions that commercial banks prefer not to lend at these low rates. Without credit farm-ers cannot buy inputs for high productivity. (Please refer the box)

    Private sector participation and Contract FarmingThe Union government a ims to

    double agricultura l production and incomes by 2010. The target can be visual ized only through greater public and private sector investment in a l l the arenas of agriculture l ike water manage -ment, storage, transportation, information technology, post-harvest mechanization and etc.

    Lack of private participation and investments have prevented rapid expansion faci l it ies. As pointed out by Planning Com-mission, (“Agro Exports Must Obtain World Standards : Plan Panel”; The Financia l Express ; May 23rd 2004) by 2010, about 25 million hectares of wasteland should be treated and recla imed for agriculture and all ied activi-t ies. Only private sector could provide the required f inancia l resources and under take devel-opment activities.

    According to the industry experts, the real concern in cor-porate farming is with regard to the enforceabi l ity of contracts. Even i f d i re c t proc u rement from farmers is made possible,

    both par ties to a contract must stick to it. Cur-rently, there is no cer ta inty the farmer would sel l his produce to the corporate buyer should mandi prices be higher than contracted ones. The reverse a lso is possible, that of the corporate buying from the mandi instead of from the contracted farmer, should prices that side be lower.

    Food Corporation of IndiaThe FCI’s high operating cost, way above that of private trade, has a lways led to bal looning of food subsidy burden (recent estimates put this f igure at Rs. 27,000 crores). According to Mr. K.R. Prabhakaran Nair, Senior Fel low of the Alexander von Humboldt Foundation, the FCI spends close to 25% of the food subsidy bi l l just for storage a lone. The FCI’s role needs to be clearly def ined, especia l ly on procurement and pricing aspects. Now that the policy has been amended to a l low private sector into the gra in procurement, the organization should concentrate on hither to grossly neglected areas - - - - the eastern and centra l regions—for procurement to el imi-nate inter-regional distor tions. Mr.Bhanu Pratap Singh, former governor of Karnataka, says that more than 80% of government purchases are made in Punjab, Haryana and Andhra Pradesh, whose combined production is no more than 27% of the country’s output. Producers of 73% of food grains in the country hardly get any benefit from govern-ment purchases at MSPs.

    Agricultura l growth rates are slowing, with catastrophic consequences i f appropriate actions are not taken. The IIPM Think Tank proposes some corrective solutions which are workable, susta inable and repl icable.


    Agricultura l Credit and FinanceIt is imperative to focus upon creating an enabling environment conducive for investment in agri-infra s truc ture. In congruence with the idea mooted by Mr. Amrit Patel, Senior Consultant, Agricu lture Finance Corporat ion, The IIPM Think Tank feels that, the def inition of rura l centre now needs to be looked in terms of popula-tion. Stipulation of credit deposit ratio for rura l centres must be redef ined in terms of provision of credit and f inancia l investments by banks as a whole and not necessari ly credit-deposit ratio of rura l centres.

    In order to prevent the distress sa le by the farmers, a network of rura l warehouses, near the existing branches of rura l banks, must be estab -l ished and made operational throughout the year. Here, farmers can deposit their produce and get bank loans on its security, or sel l the same to the government at the MSP. The innovative idea mooted by Mr. P. Chenga l Reddy, Co-chairman of Indian Farmers and Industry All iance is a lso wor th considering. According to Mr. Reddy, ( “View from the f ields”; The Times of India ; July 5th 2004) Venture Capita l in agricultura l credit provision and del ivery processes should be tr ied out.

    According to an associate professor at I IM Lucknow, (“Enhancing the va lue chain in agri-culture”; Business Line) insurance players l ike LIC and others have a bigger role to play in the rura l f inance by developing suitable mechanisms and thereby increasing their exposure to agricul-tural loans. LIC has penetrated rural markets and mobil ized savings in rura l areas through innova-tive schemes. It is t ime LIC looked at f inancing farm credit either directly or indirectly. Strategic a l l iances with commercia l banks and uti l izing their physica l infrastructure may be one viable option. The professor a lso advocates some regu-latory changes. More sophisticated market micro-structure is required for agriculture. Agricultural capita l markets should be widened and deepened with more opportunities to ra ise equity capita l.

    T h e n u m b e r o f branches at rural c e n t e r s d e c l i n e d f rom 35, 329 as o n 31s t M a r c h 1994 to 32, 481 as on 32, 481 as on 31s t March 2002 indicat ing closure of 2,848 branches and opening of 7, 253 new branches i n s e m i - u r b a n , urban and met ro c e n t e r s . O u t -s tand ing agr i cu l -tural credit as on

    end- March 20 02 accounted for only 9.8 percent in the to ta l ou t s tanding c r ed i t o f s ched -u l ed commerc i a l banks as agains t the s t ipulated level of 18 percent net bank credit. Agr i-cultural lending is now e ve n l owe r by 22.43 percent t han ou t s tand ing credit of personal loans por t folio. I f loans outs tanding

    “ food manufactur-ing and process-ing segment ( r ice, sugar, edible oil, t e a , f r u i t s a n d v e g e t a b l e s p r o -cess ing )” is con-sidered as a par t of farm sector, the sha re wo r k s ou t to 12.9 percent of the total outs tand-ing credit. ( Source: Januar y 5th,

    2004, Financial Express,

    “Rural Credit Needs A

    Leg-up”; Amrit Patel.)

    An independent regulatory agency is to be con-stituted to supervise agricultural credit. All insti-tutions, co -operative banks, commercia l banks, and Nabard should be brought under this agency. The RBI should concentrate more on regulation of money, debt and foreign market; agricultura l f inance should be under separate regulator. The existing Forward Markets Commission (FMC),

    Annotat ion On Agr iculture

    Rural Credit Needs A Leg-up

    The total requirement of

    credit to agriculture sector

    for achieving the target for

    doubling food productiv-

    ity by the year 2010 has

    been estimated at Rs. 3,

    750, 074 crore. The total

    requirement of agricultural

    credit for the 10th Plan

    period alone has been pro-

    jected at about Rs. 7, 36,

    570 crore by the Working

    Group constituted by the

    Planning Commission.

    (Source: “Govt faces flak on tardy farm reform steps”; 21st February

    2004; The Economic Times)

    Agr i cu l t u re c red i t i s e s t ima ted to have increase by 15% from Rs.69,560 crores in 2002-03, to Rs.80,000 crores in 2003-04.

    In budget for 2004-05, the government of India has f ixed a target of doubling the f low in agr iculture credit in nex t 3 years.

    ( Source : Mr. K .V. Raghavulu,' The Credi t Hierachy '

    Times Agr icul tural journal July-Aug 2004)

  • The India Economy Review 200414 15The India Economy Review 2004

    which oversees the commodity exchanges, should a lso be brought under farm credit regulating agency. This would faci l itate the development of primary and secondary market structures for farm credit.

    As pointed out by Ms R a nja na Kuma r, Nabard Cha irperson,( “Nabard needs greater operational freedom”; 12th July 2004 Financia l Express) in the risk management system for the agriculture sector, the “price risk” issue (the other being “ income risk”) has been lef t unaddressed. A holistic scheme for post harvest management, including storage, marketing and va lue addition through processing could partly mitigate the risk. (Please refer the box).

    Corporate FarmingContract farming can lead to disintermediation, shorter supply chain, and better access to markets and assured supplies to manufacturer and a lso end consumer. This concept can work wonders and holds sound potentia l with respect to items l ike oi lseeds.

    As was rightly pointed out in a Business Stan-dard ar ticle, what is needed is a mechanism for registration of contracts and del ineation of pen-

    a lties in case of any violation of mutual ly agreed terms. In fact, a model contract that safeguards both farmers and companies is urgently needed. Also required is the legislation of land leasing to help small and marginal farmers, who of ten hire additional land from absentee owners as wel l as tenants and share-croppers, to participate in these ventures. The contract farming activity is a lso characterized by lack of risk insurance for farmers in case of crop fa i lure due to induction of inferior technology and other inputs by the par ticipat-ing company. (Business Standard Editoria l t it led “Corporate farming”). This problem needs to be attended immediately.

    Export Competit ivenessProbing the agricultura l market and policy situ-ation and outlook in India (for the f irst t ime in a specia l focus section), the OECD Agricultura l Outlook 2004 -2013 mentions that despite being a major producer and consumer, inward-looking trade policies have meant that India has played a relatively minor role in world agricultura l trade for many products.

    As opiniated by Prof. Bhanoji Rao, Professor Emeritus of GITAM Institute of Foreign Trade, Visakapatnam, (“Agenda For the Agriculture

    Commission”; The Financia l Express ; July 6th 2004) the US and European reta i l chains have assisted the Chinese export thrust in manufac-tures over the past two decades. Without necessar-i ly hurting the farmer interests in those countries, super markets there could help widen the choices for consumers by the combination of d irect investment in processing and contract farming in India. The Professor feels that a good way to l ink supply and demand is via contract farming and the Agri-Export Processing Zones (AEPZs) could be an excel lent vehicle in the development of l inkages between foreign buyers and domestic farmers. Simultaneously, the government govern-ment should focus upon transportation and stor-age sectors

    Vietnam, Thailand and Australia have modern por ts equipped specia l ly to handle food gra ins. According to Mr. Pentapat i Pullarao, chief of Forum on Socia l and Human Rights, an agri-culture por t should be set up, on those l ines to boost export of r ice and other commodities. As was corroborated in Economic Times ( ‘Economist moots agriculture por t to boost exports’; 28th July 2004), the loss of qual ity in exports is of ten the result of antiquated ways of storage in the country’s por ts. In addition to this the fol lowing steps outl ined by Mr. S. Gopa lakrishnan, former chairman and MD of Vijaya Bank ( ‘Challenges and opportunities’; The Hindu; June 28th 2004) are worth considering to boost exports.

    Taking the cue from recent developments, banks may consider the fol lowing:

    • Financing of trucks with refrigeration faci l i -t ies for transportation of farm products, par ticu-larly, from farms to por ts.

    • Financing of cold storage faci l it ies at por ts so that perishable items can be exported in good condition to destinations.

    • Helping marketing teams in identifying agri-cultura l products in great demand abroad.

    • I f need be, they may consider f inancing importers abroad after evaluating their worth and assessing their credit requirements. (Please refer the box)

    The IIPM Think Ta nk s trong ly endorses rhe idea mooted by Prof. Va sa nt Ga ndhi, ( June 30th 2004, Financia l Express) Chairman, Centre for Management in Agr icu lture , I IM-Ahmed-abad . Ind ia’s s tand , approach and negot iat ions on WTO are of great impor tance for Ind ian fa rmers . The world market place for fa rm prod-uc ts can be h igh ly unfa i r and ha s substant ia l imper fec t ions . Lack of caut ion and v ig i lance on th i s count can resu lt in substant ia l d i s tres s and loss of oppor tunity to the Ind ian fa rmers . At the same t ime, lucrat ive oppor tunit ies would be denied to them. A proac t ive s tance i s hence -for th, a prerequis ite to protec t the interes t s of the Indian farmer community. The policy makers can not forget this simple fact: The conventiona l crops (wheat , paddy etc) wi l l not withstand the cheap and highly subsid ized impor ts from devel -oped countr ies . ( "Many oppor tunit ies to boost farm incomes”;Mr. N. Maha l ingam; The Hindu)

    An empir ical s tudy by Prof. Meuwissen and Prof.Hardaker of the Universit y of Holland and New England on r isks identif ied by farmers and r isk management s trategies preferred by them broadly classif ies the r isks under business and f inance categor y. The main business r isks in farming relate to pr ice, production, personal, ins t i tut ional, and technology. The f inancial r isks relate to the change in interes t rates, the changes in the exchange rate, and the abili t y to repay. Adequate identif ication of r isks helps in mapping farmer specif ic r isk profile, which marks the beginning of r isk management. The s tudy identif ied 12 r isk management s trategies. These r isk management s trategies can be classif ied into two categor ies.Strategies in which r isks are shared with/transferred to others: These include • Buying pr ice insurance, • Buying personal insurance, • Buying pr ice contracts for inputs/outputs, • Buying marketing contracts• Use of f inancial der ivatives.

    Strategies for on-farm r isk management include • Production at the lowest possible cost, • Of f-farm employment, • Trade-of f between economies of scale and specializat ion in crop production and • Self-insurance. ( Source: ‘Solut ion in search of problems’; Mr. B.S Mur thy; Business L ine; July 28th 2004)

    The policy imperative in front of the government is to provide some kind of of f icial suppor t or subsidies to make them acceptable to farmers in the longer run. Such a suppor t is imperative also for social, environmental and health considerations and is enti t led for inclusion in the “green box subsidies” permit ted by the WTO. Also, the IPM is limited by the other constraints like limited and uncer tain supply of bio pest icides, their high cost, shor ter shelf l i fe and relat ively more complicated nature of that technology requir ing special training. In order to counter act upon these bot t lenecks, the following measures are needed.

    • More investments and par t icipation from Pr ivate sec tor through tax holidays & f iscal sops• Massive Ex tension Programmes aimed at increasing the awareness levels.• Promotion of IPM technologies on contiguous larger area blocks• Enlis tment of Communit y Par t icipation through Socio-poli t ical init iat ives( Source: Ex tracted from an ar ticle tit led “”Alternatives to pesticides”; Surnider Sud’s “Farm View”; Business Standard)

    Alternatives to pest icides

    Annotat ion On Agr iculture

    Solution In Search of Problems

  • The India Economy Review 200416 17The India Economy Review 2004

    I nte g r a te d Pe s t Ma na g ement (IPM)India loses approximately Rs 50,000 crore worth of crops because of pests, according to Mr. P. Chen-gal Reddy, Co-chairman of Indian Farmers and Industry Alliance, The Integrated Pest Management (IPM) is a new plant protection concept that relies largely on bio-logical, cultural, physical and other means of pest and disease control. The basic premise of IPM is that no single method can be success-ful over a long period. Therefore, a mixture of biological, physi-cal and chemical methods must be integrated to sustain a pest management system. The ultimate goal of the IPM is sustainable agricultural systems with minimal or no pesticide use. This policy, which talks about using pesticides as a last resort and in bare mini-mum necessities, is an integral part of the agricultural develop-ment since 1985. As a result, pes-ticide consumption is estimated

    to have dropped by 35 percent in the 1990s. But this strategy has its own limitations. A study was con-ducted by agriculture economist Mr. Pratap S Birthal of the Delhi based National Centre for Agri-cultural Economics and Policy Research (NCAP), that have been brought out in a policy paper titled “Economic potential of biological substitutes for agrochemicals”. The NCAP study has found that the use of IPM technology can help reduce pesticide use by 66 percent in cotton, 45 percent in cabbage and almost 100 percent in paddy. The crop yield through IPM too could be higher by some 4 percent in cotton, 3 percent in paddy and 5 percent in cabbage. It is therefore, obvious that any increase in the cost of bio pesti-cides or fall in prices of output could easily upset the economics of IPM use.

    Organic FarmingAnother a lternat ive ( in fac t ,

    T he I I PM T h i n k Ta n k fe e l s that it the most cost ef fective and appropriate one, keeping the Indian conditions and context, in perspective) is going “Organic”. In fact , g loba l reta i l sa les of organic products has been rising and is expected to jump a lmost 30 percent to $25 bi l l ion from $19 bi l l ion in 2001 and 16$ bi l -l ion in 2000. The growth has been triggered by the outbreak of mad cow disease, foot and mouth disease in sheep and pigs, dioxin-poisoned chicken and eggs cre -ated scares which resulted in a lmost instantaneous booms in consumption of organic prod-ucts. The US organic market, the largest in the world, is esti -mated to grow at an annual rate of 15 to 20% . But Indian agri -culture has a d if ferent story to t e l l . M r. K a lya n Cha k r ava r-thy, manager and strategic advi-sor, food and reta i l business , brings home the point that there were only 1,426 organic farms in February 2002, with an area of 2 ,275 hectares under cultiva-tion, which amounts to a minus -cule por tion of tota l cultivable land. Tota l organic production in India is around 14,000 tonnes, with rice, tea, fruits , vegetables, wheat and cot ton accounting for more than 80 percent of the tota l production. More than 85% of th i s orga n ic produc -tion is exported, which industry sources put at 11,925 tonne, a f igure which is l ikely to double by 2007. Organic food, spices and herbs have a large interna-tional market, where India can increase its share. However, the cer ti f ication arrangements, in par ticular, would be required to be strengthened.

    Product ivityThe National Commission for I n t e g r a t e d Wat e r R e s ou r c e s

    has estimated that, to meet the requirements of foodgrains alone the net sown area of around 142.2 mil l ion hectares wil l have to increa se by 2050 and the cropping intensity by 145% . It is unlikely that the increase in net cultivated areas would be possible at a l l. A case in point i s Kera la , which star ted pro -ducing cash crops and Punjab and Haryana, where production reached a plateau. According to Mr. R.K Pachauri ( ‘Floods and Droughts’; Times of India ; July 28th 2004), growth of food grain production can be achieved only through rapid increases in pro -ductivity.

    Mr. Bhanu Pratap Singh opines that (The Hindu, May 24th 2004, “Can India prosper, while its agriculture stagnates ?) achieving higher productivity in agriculture is the surest way to reduce incidence of poverty. The two states, Punjab and Haryana, whose yields per hectare are the highest in India, are a lso the two states with the minimum incidence of pover ty. Maharas -tra, which is sa id to be the most industria l ized state in India, has much higher incidence of pov-er ty than Punjab and Haryana.

    Quality Control :M r . S u r e s h B a b u , S e n i o r Re s e a rch Fe l low a nd S en ior Training Advisor, International Food Pol ic y Re s ea rch I n s t i -tute, Washington, points that, many countries have realized the potentia l of “Self Regulation” in a l l the strategic activities in the farming like Quality control, Conformance to international safety standards and in el imi-nating the other bad and unsus -ta inable agricultura l practices. Examples are aplenty. Bologna, I t a ly, i s f a mou s for v i nega r

    Annotat ion On Agr iculture

    The MR Morarka G D C R u r a l Research Foun-d a t i o n f l o a t e d b y M u m b a i -based indus t r i -a l i s t and Rajya S abha membe r Kamal Morarka has s tar ted of f b y i d e n t i f y i n g problems of 123 villages relat ing to health, educa-t ion and agr icul-ture and helped many small and medium farmers in the region to b e c o m e a g r i -cu l t u r a l e n t r e -

    p r e n e u r s . T h e f o u n d a t i o n h a s s u p p o r t e d o v e r 300 such agr i-pre-neurs to es tablish business centres at an average invest-ment of Rs 5 lakh. A n d t h e y h a v e earned an average of Rs. 2.5 lakh net income in the ver y f i r s t y e a r. T h e i r m e t h o d i n vo l v e s the use of ear th-wo r ms to gene r-ate vermicompos t which protec ts the soi l. The founda-tion, headed by Mr. Mukesh Gupta, an

    MBA from Ahmed-a b a d , h a s t i e d up w i t h a com-pany called Abha P r e c i s i o n Fa r m -ing to market the o rganic p roduc t s in USA. To lever-age t h e t ou r i sm po ten t i a l , i t ha s s tar ted the Shek-h a w a t i f e s t i v a l i n co l l ab o r a t i o n with direc torate of tour ism. (Source: Extracted from

    “Growing Organically”;

    The Economic Times,

    Ms. Ishani Duttagupta)

    "There is a need for

    attaining economies of

    scale and the goals of

    enhanced income and

    productivity per person,

    per hectare of land, per

    KW of energy and per

    litre of water."

    Mr. Maharaj Muthoo, in 'Seeding India' in Hindustan Times, 8th Septemeber 2004.

    For the first time in the

    history of the world every

    human being is now

    subjected to contact with

    dangerous chemicals from

    the moment of conception

    until death

    - Rachel Carson

    “Growing Organically”

  • The India Economy Review 200418 19The India Economy Review 2004

    despite most of Europe produc-ing it. The secret is simple - - -grape owners in Bologna have set up their own associations to ensure better produce and manufacturing practice. Or take the examples of Wine Growers Association in France and asso -ciations of aquaculture produce in Bangladesh. Accord ing to Mr. Babu, the product or the country may be dif ferent, but the centra l theme is a lways the same- - -the pivotal role played by farmers’ association. The farm-ers have been proactive and able to mobilize themselves to put in a monitoring system to improve the quality of the produce. Only a “ fa rmers’ a s sociat ion” can

    ensure that the supply chain is ef fectively implemented to meet the deadlines and improve qual ity. For example, consider this simple task: ensuring that once transported to por t, the produce does not remain in the por t for more than one day, even under control led tempera-ture condit ions. ( ”Farmer in the driver’s seat; R. Prasad; The Hindu; January, 22nd, 2004). The government needs to launch a well-planned trade and quality l iteracy movement.

    Crop Diversif icat ionMr. Suman Sinha, the former chairman, PepsiCo, India opines that the problem of “over con-

    centar tion” upon paddy and wheat can be tackled by making the MSP on other crops more attrac-tive. Countries l ike Israel and Netherlands are concentrating on high value horticultural and f lo -r icultura l crops which have high demand in inter -national markets. I srael with a l l its constra ints on land and water resources produces around 350 roses per square meter of land and markets them in Holland. Each rose (cut f lower) earns one US dollar in the export market. From one hectare of land they are able to earn $ 3.5 mil l ion. Mr. N. Mahalingam mentions in an ar ticle in The Hindu, ti led, “Many opportunities to boost farm incomes”, that, cultivation of vani l la can be taken up as an intercrop in coconut and arecanut areas. Another potentia l opportunity is the cultivation of medicinal plants. According to Mr. S. A runa-jatesan and Mr. O. Henry Francis, ( ‘Promises versus implementation’; The Hindu; June 28th 2004), India’s export of medicinal plants last year was Rs.600 crores where as China was exporting to the tune of Rs. 16 ,000 crores. Though India has the advantage of biodiversity and climate with soil suitabi l ity it has a long way to go in the produc-tion and export of medicinal plants which fetch a higher return for farmers. According to them, banks have a big role to play

    The per hectare d irect subsidy for growing the crops instead of indirect subsidy on fer ti l izer, electricity, irr igation may need to be provided to diver t land from rice and wheat. Assurance of ready markets and remunerative prices are the other prerequisites to wean growers away from rice and wheat.

    A n a r t ic le by M r.P.K . Josh i , M r. A shok Gulat i and others in the Economic and Politica l Weekly (also quoted in Hindustan Times, “Cultur-ing Agriculture”; June 21st 2004) has pointed out to the steady shif t towards diversif ication in favor of high-va lue commodities l ike fruits , vegetables, l ivestock and f ish in ra in-fed areas because gov-ernment policy remains biased towards cerea ls in irrigated areas. The paper a lso mentions that the regions that were diversifying in favor of non-cere-als had a better growth performance. According to Mr. Manoj Doshi, ( “Culturing Agriculture”; Hin-dustan Times, June 21st 2004) to turn this trend into a revolution requires government input in the form of creating better markets, providing roads, electricity and other infrastructure for encourag-ing diversi f ication.

    Between 1955 -56 and 2003 - 04, tota l output of pulses has r isen marginal ly from 11.4 mt. to 15.23 mt., even as the country’s combined food gra ins production has shot up from a mere 66.85 mt to 212.05 mt. As pointed out earl ier, the imports of pulses are r ising (other being edible oi l) . As pointed out by Mr. Harish Damodaran ( ‘Pulses output hit as cultivation shif ts to marginal areas’; Business Line ; August 18th 2004), the rea l reason for stagnation in pulses production l ies not in the lack of research, but in the fact that their cultiva-tion has over the years been pushed to marginal areas. There was a time when pulses were grown widely in Punjab, Haryana and UP. But, with the development of irrigation faci l it ies , these areas have shif ted to wheat. Pulses cultivation, as of now is now confined largely to ra infed areas prone to

    I n the s ta te of Tami lnadu, continued cultivation of paddy over the last so many years has added a lot of dif ficul-t i e s . I ne f f i c ien t wa te r use, c rop fa i lu re, r ura l pover t y and e tc . s t ra tegic a l te rna-tive crops available to a state like Tamilnadu, includes sweet sorghum and jatropa, opines, Mr. Madhavan of Financial E xp re s s . Not on l y do th i s strategy of cultivating dif fer-ent crops conser ves water, but also meet the demand

    for the bio-diesel, the fuel of the future (par ticularly, Indian Railways)

    The bene f i t s o f cu l t i va t ing sweet sorghum and jatropa are manifold. They consume less water (according to exper ts, it is as low as 40 percent of what is consumed by sugarcane). By promoting such crops, Tamiln-adu would e set ting the crop-ping pat tern in line with the ground realit y. Second, they grow in a wide range of soil,

    such as saline, alkaline, etc., and these are season crops. Thus apar t from the existing cult ivable land, large trac ts of wasteland can be brought under cultivation. Third, and most impor tant, the advent of bio-fuel has paved the way for an assured market for these crops.(Source: “Remove Policy Dis tor t ion

    To Make Alternat ive Crops At trac-

    tive”; Mr. N. Madhavan; The Finan-

    cial Express; July 5th 2004)

    Annotat ion On Agr iculture

    E n t r e p r e n e u r s enter ing the agri-cu l t u r e bu s i n e s s n o w a r e s l o w l y i n t r o duc i n g n ew cash crops which p r o m i s e h i g h e r returns with fewer r isks consider the case of Raghuveer Pershad. He inher-i ted some money and was we igh -ing some business op t ions when he came ac ro s s an ad abou t a new crop called Safed M u s l i ( c h l o r o -phy tun bo r i v i l i a -num) and the high re turns expec ted. ( Safed Musli is a herb used in over 1 0 0 a y u r v e d i c and unani prepa-rations, also con-s i d e r e d a s a n aphrod i s iac . ) He r e a d up o n i t ,

    at tended a seminar in New delhi and consulted the seed s u p p l i e r s , c r o p buyers and others. Then, he purchased land in Medak dis-trict and sowed the crop in 10 acres for the f irs t t ime. His input cos ts---- inc luding seeds, i r r i ga t ion equ ip -men t, bo re we l l expenses minus the land value worked ou t to R s . 2.80 lakh per acre. The seeds alone cos t Rs. 2 lakh per acre. Though the price of Safed Musli tubers have crashed from Rs 400 per kg to Rs 200/ 250 per kg by the time he har-vested his crop, he still made a profit of Rs 2 lakh per acre.

    A n i l G u p t a , another entrant to the farming busi-ness, has sown the Safed Musl i in 6 acres for the firs t time this year. He e x p e c t s t o h a r-ves t 2,000 kg of the tuber per acre, which could fetch h im over R s 2.5 lakh af ter deduct-ing all input costs. H is ra t ionale for get ting into farm-ing: “Why not, if I get good returns. There is no sales t a x , no cus toms duty, and no labour problem. It is very hassle free.”

    (Source: Extracted from

    an ar ticle t it led ‘Cash

    crop is money in AP’;

    Hindus tan Times; July

    18th 2004)

    “……I believe India can

    become an agricultural

    superpower. We have thou-

    sand varieties of mangoes.

    We have failed to realize

    that this can be converted

    into an advantage. If kiwi

    can become a global fruit,

    why can’t we market Indian

    fruits? It is just that we need

    to change our mindset.”

    (Source: Mr. P Chengal Reddy, Co-chairman of Indian Farmers and Industry

    Alliance, Times of India; July 5th 2004; “View from the Fields”)

    Cash Crop Is Money In Andhra Pradesh Remove Policy Dis tor t ion To Make Alternative Crops At trac tive

  • The India Economy Review 200420 21The India Economy Review 2004

    moisture stress. The IIPM Think Tank endorses the view point of Mr. Damodaran, where in pulses cultivation should be extended to irrigated areas, par ticularly in Haryana and Punjab. Scientif ic studies have proven that pulses can f ix atmo-spheric nitrogen ( l ike other legumes). In Punjab and Haryana, continuous recourse to paddy-wheat rotation has led to severe ‘nutrient mining’ and environmental degradation. This problem can be addressed i f one were to resor t to cultivation of pulses.

    State’s Expenditure on Agriculture is DismalAccording to Ms Shobha A huja, ( “State’s Spend-ing On Agr icu lture Disma l ”; The Financia l Express ; July 5th 2004) economist with PHDCCI, New Delhi, investment in agriculture is showing signs of stagnation even in the vanguard agrarian states in the post reform period. Consider this : in Rajasthan, the proportion of revenue of expendi-ture on agriculture has consistently been below

    the national benchmark. In recent years, accord-ing to Ms. Ahuja, Punjab, UP and to some extent, Haryana have a lso suf fered from neglect in agri -culture spending. All the northern states, except, Haryana and J&K, have seen a sharp decl ine in canal and tank irrigation since 1990’s, resulting in a lower Tota l Factor Productivity and fa l l in agricultural yield. The Southern states witnessed the maximum deceleration in the proportion of fund allocation to agriculture and allied activities, from 7% in 1996 to a lmost 5% in 2003.

    IrrigationAs pointed out in Economic Times, June 9th 2004, by Mr. S Mahendra Dev, Director, Centre for Economic and Socia l Studies, Hyderabad and Mr. Ashok Gulat i, IFPRI, Washington, irriga-tion investments and institutional reforms for water management wil l have to be accorded high priority. According to them, Water-user associa-tions have not shown the desired results. These

    associations need to be reoriented and have wel l-def ined rights and responsibi l it ies. On the same lines, watershed development programmes need to be launched and nurtured through the routes of ‘socia l mobil ization’ and ‘capacity bui ld ing’.

    The national task force on micro -irrigation headed by Mr. Chandrababu Naidu pointed out that there is a huge potentia l in the country to expand the coverage of sprinkler and drip irriga-tion. It can be taken up to the level of 69 mil l ion hectares from the existing 0.5 mil l ion hectares under drip and 0.7 mil l ion hectares under sprin-kler irrigation. Though drip irrigation was prac-tices in the country since 1980, it was confined only to 12 states besides a negligible portion in the Eastern and Northeastern states. This possibi l ity needs to be explored. (Please refer the box).

    Food Corporat ion of India :The FCI needs to primari ly concentrate on main-ta ining the minimum food gra in buffer, so as to ensure food security. The size of the buffer, too, needs to be sca led down- - -as suggested by severa l exper t committees. As was pointed out in a Busi-ness Standard editoria l titled “Financing the food bi l l ”, running the public d istr ibution system is a lready a state subject. As such, the state should logica l ly arrange to procure the stock they need, in case they need to continue the PDS. As pointed in the other Business Standard ar ticle t it led “Rooted in logic”, the FCI should be a l lowed to tap the capita l markets to ra ise funds at cheaper rates and force the banks to reduce the unreason-ably high interest it charges on food credit. There is l it t le logic in a l lowing the banks to f leece the FCI and in turn, the exchequer by charging the

    interest rates that are higher than market deter -mined rate.

    Agricultura l ResearchAs has been reported by Mr. Ashok B Sharma in Financia l Express, July 12th 2004, the country’s apex agri research body, Indian Counci l of Agri-cultural Research ( ICAR) has long being demand-ing that the a l location in the Five Year Plan period be ra ised at least to the level of 1 percent of agriculture GDP amounting to Rs 11,300 crore. A sum of only Rs 1,480 crore was a l located in the last two years of the current Plan period. This means that i f the government intends to increase the a l location to the level of 1 percent of the farm GDP in the 10th Plan period, it has to a l locate Rs 9,820 crore for agricultura l research in the remaining three years, inclusive of the Rs 1,000 crore a l located in the current year (2004 -2005). (Please refer the box)

    It has been pointed out earl ier that ( in this issue and previous annual issue) agricultura l research in India has to be expanded to new dis -ciplines such as biotechnology, vaccines and diag-nostics. The same is not being happening. India has to learn a lot in this respect from China.

    Sca le economies to small farmersA very ef fective and radica l solution was for -mulated by Prof. M. S . Swa minatha n, ( “Pov-er ty Eradication is dependent on farm sector”; Financia l Express ; June 9th 2004). He opines that government should provide the advantage of scale economies to small farmer so that they could surmount the handicap of cost-r isk-return trap of farming. A small farm is idea l for susta inable

    • Resource allocation to agr iculture and allied activi t ies as propor t ion of total expenditure s tagnant at 5 to 6 percent dur ing 1990s

    • Fall in share of agr icultural inves tment as a percentage of GDP from 1.6% in 1993-1994 to 1.3% in 2001-2002

    • State’s cumulative expenditure on agr iculture 4—6% since mid-1990s (8% in 1990-1991)• Centre’s contr ibution to farm sector up from 44% in 1990-91 to 63% in 2002-2004• State’s contr ibution to farm sector down from 56% in 1990-1991 to 37% in 2003-2004(Source: Ex trac ted from an ar t icle wr i t ten by Ms. Shobha Ahuja, t i t led “State’s Spending On Agr icul ture Dismal”;

    The Financial Express; July 5th 2004)

    • Set ting up of National Council on Precision Farming (NCPF), an apex body to develop micro-irrigation, provide technical guidance, channelize resources and establish market linkages

    • Set ting up a network of 17 Precision Farming Development Centres (PFDC) for the development of regional and dif ferentiated technologies on micro-irrigation, besides impar ting training to farmers and s taf f of various s tate agri-depar tments.

    • Central government, State government and the beneficiary must share the investments in the ratio of 40:10:50.

    • Financial assis tance of 50 percent of the cost of ins tallation of micro-irrigation to all categories of farmers

    • Sales tax, trade tax, purchase tax and local taxes like octroi, entr y tax, etc, levied on the micro-irrigation sys tems should be waived.

    • Abolit ion of impor t duties on plastic raw materials and 16 percent excise duty on micro-irrigation sys tem including its components.

    (Source: Financial Express ar t ic le t i t led “Micro irr igation: Naidu’s Task force sugges ts slew of reforms”; February

    9th2003; Mr. KV V V Charya.)

    Specif ic Recommendations of National Taskforce on Micro- Irrigation:

    Cultur ing Agr icultural R&D

    Annotat ion On Agr iculture

    A s tudy team from the Uni-versit y of California at Davis indicates that China’s invest-ment and accomplishments in the Bio-Technology f ield exceed India’s by a fac tor of 10. China accounts for more than half of the developing world’s expenditure in plant biotechnology and looks set to keep the lead. India and Ch ina began r e s ea r ch i n

    biotech in agr iculture at the same t ime in the mid-1980s. But Beijing has surged ahead o f I nd ia . B y 20 0 0, Ch ina had genetically modif ied 141 agr icultural plants, approved 45 for f ield tr ials and 31 for commercialization. The com-parable f igures for India: 16, 10 and four. The Davis s tudy es t imates Bei j ing’s research spending was $ 112 million in

    1999. India’s was $ 22 mil-lion. I t says China has 2000 pe r sonne l do ing re search. An Erns t & Young s tudy says India has about 800. ( Source: NEP paper submission by

    Spr ing-Summer 2003-2005 Batch

    at IIPM New Delhi )( P l ease a l so re fe r t he box t i t l ed

    “ L e s s o n s f r o m Ch i n a ” i n Pa g e

    N umb e r—10 2, I n d i an Eco n o m i c

    Review, 2003-2004)

    State's Spending on Agr iculture Dismal

  • The India Economy Review 200422 23The India Economy Review 2004

    intensification, diversification and value addition in relation to major farming systems. According to him, however, a small farm suffers from many handicaps caused by the cost-risk-return structure of farming. The attention areas are production and post-harvest technology phases of farm-ing. The roaring success of the d iary industry is attr ibuted to this strategy. The only easy way out is to help small sca le farmers to overcome their handicaps.

    Agri-market ing reformsMr. Amit Mitra, FICCI Secretary General, points that (Times of India; May 17th 2004; “It’s time to l i f t agr icu lture , say exper ts” ), it i s easy to buy rice from Thailand to anywhere in the country than mov i n g whe a t or rice from Punjab to Coch in. The I IPM Think Ta nk obser -vations upon Indian a g r i c u l t u re s e c tor h igh l ights the fac t that there are barely 7,000 regulated mar-kets in the country- - -just one market for every 460 sq.kms. Against this backdrop, The IIPM Think Tank advocates for a complete overhaul of agri-marketing processes.


    Seafood Sector :

    Data available with The Seafood Exporters Asso-ciation of India (SEAI) mentions that India was the second largest producer of fish with 6.1 mil-lion tonnes of harvest from wild and aquaculture sources. Also, this sector can create 0.5 million direct and indirect jobs. In spite of this, this sector is characterized by severe bottlenecks. Some of them are described here:

    At present, three central ministries manage various segments of the sea food industry. The Commerce Ministry controls and regulates seafood export issues and the ministry of food processing provides assistance to sea food units. The agricul-

    ture ministry regulates the fisheries sector through its two departments: the animal husbandry, dairy-ing and fisheries department looks after fishing harbors and fishing activities and the department of agriculture research and education controls the fisheries institutions. Such a situation would lead to substantial complexities and according time over-runs in decision making processes. As opposed to India, China, Indonesia, Thailand and Vietnam have separate ministries to cater to the needs of the seafood sector. The Marine Products Export Development Authority Act should be amended to empower MPEDA to author a national marine policy aimed at reforms in the statutory frame work. Another reform long over due is the passage of the

    in the country. Of this, only 20 percent of the insta l led capac-ity, that is a meager 700 tonne, is produced as processed prod-ucts. Due to lack of infrastruc-tural faci l ities, l ike cold storage and refrigerated transportation, 30 to 40 percent of the fruit and vegetable produced there goes rotten. Nagaland ’s Industries and Commerce Minster, Mr. I. Imkong states that , the reasons for behind the untapped poten-t ia l inc lude lack of techno -managerial expertise, marketing channels for farm and processed products and adverse invest-ment cl imate in the past. The conditions are so shoddy that a number of states in this region were yet to take the advantage of assistance available under the Rs 650 crores Mini-Mission-IV.

    W hat's need to be done ?McKinsey & Co’s Food & Agri-culture Integrated Development Action (FAIDA) plan reasons that the pace of growth within the food indus tr y i s depen -dent on Government initiatives. B e s id e s , S t a t e gover n ment s should also offer a single-window clearance for investments in the food sector and work with the industry on increasing aware -ne s s about proce s sed food s . The repor t projects that the food market has the potentia l to touch Rs 5,00,000 crore by 2005, and va lue added foods touch Rs. 2 ,50,000 crore. Ti l l

    now, India has been an exporter of primary commodities. Value-Addition is one of the great-est chal lenges in agriculture. Consider this fact: India fares a poor 7% as compared to Chi-na’s 23% , Phil ippines’ 45% and 188% in the UK. Guatemala, a smal l country, earns more from pepper export than we do because of va lue addition. Mr. S . A ru najate sa n and Mr. O. Henry Francis points out that ( ‘Promises v implementation’; The Hindu; June 28th 2004), processing of atta and milk has tremendous potentia l in India and wil l increase the va lue four times. Also, as mentioned in the Hindu, ( ‘Cha l lenges and opportunities’; June 28th 2004) India produces 16 percent of the world ’s milk supply. However, only 20 percent of the milk is processed

    FDI in food retailing will encourage investment in food processing/cold chain activities and will also encourage other foreign investors to set up food processing facilities in India both for domestic and export market. For example, the food process-ing industry in the north-eastern region can not only export the products to rest of India, but also to Asean countries using the Indo-Myanmar border route as well as Bangladesh. At this juncture, it is pertinent to pinpoint the course of action undertaken by the West-

    Benga l govern-m e n t , a s k i n g the sma l l - sca le players to leave v a l u e - a d d e d food processing exclu s ively for M u l t i n a t i o n a l companies with d e e p p o c k e t s . Here, the small

    According to Mr. N.Ma ha l inga m, farmers get a raw deal as there is no ser ious con-cern over the ef for ts to process the produce and provide an at trac tive package that will enhance consumer preference. Consider this: one kilogram of maize which will fetch jus t Rs.10 at the farm gate can be processed and given an appropr iate packaging to generate a value addit ion of Rs.200 per kilogram.

    • Single point marketing levy----at the point of f irs t transaction with the producer

    • Exemption of fees for expor ts and processing• Allowance to the sale of agro-produce outside the s tate of or igin• Time bound mechanism for dispute resolution and indemnit y to farm-

    er ’s land ( in specif ic circumstances)• Permission for expor ters, processors and other users of agr i-produce

    to direc t ly source from the farmers. (Source: Business Standard editorial titled “Private Markets for Agri-Produce”; 5th October,2003)

    Highlights of Model Act draf ted by the Minis tr y of Agr iculture

    “The main constraints

    are lack of proper infra-

    structure and institutions

    that can effectively link

    ‘farms, firms and forks’

    (producer to consumer)

    and cut down the costs

    in the exchange process.”

    Mr. Ashok Gulati, International Food Policy Research Institute, Washington, “Can Indian agri-culture reap a rich harvest?' The Economic Times; June 29th2004.

    Annotat ion OnAgr iculture

    Aquaculture Bill, which provides the framework for sustainable development of this activity. In addition to that, steps must be aimed at integrating the entire supply chain and boost exports.

    Food Processing Sector:

    Mr. Vivek Mehra, Executive Director, PriceWa-terhouseCoopers, opines that India has fa i led miserably in having a signif icant food process -ing industry. The organized sector constitutes only 35% of the tota l size. The Second Green Revolution wil l only happen i f there is va lue add to India’s surplus agricultura l production. The north-eastern region has conducive agro-cl imatic conditions for a variety of agro -horticultura l crops, including pineapple, orange, jackfruit, papaya, mango, banana, ginger, chi l l i and lemon. In fact, these states can produce lot of such fruits and other products. But, according to Manipur’s commerce and industries minister in the year 2003, Mr. T.H. Debendra Singh , the region has just 73 fruit and vegetable processing units. This is a mere 1.5 percent of the tota l number of such units

  • The India Economy Review 200424

    scale sector firms are encouraged to concentrate upon semi-processed products, and form forward-linkages with MNC’s. MNC’s in turn, would set up automatic plants for manufacture of wide varieties of finished products to cater to the needs of domes-tic as well as export markets. The IIPM Think Tank perceives that a farmer can emerge successful when there is a processing industry. Consider the exam-ples that are noticeable in crops like spices, rubber, tobacco or sugar. The marketing infrastructure and other allied support should also be placed in the right order. Mechanized berths, cold storage facili-ties, auction centers and other facilities should be set up by APEDA on a war footing basis, given the ambitious targets set in the Foreign Trade Policy.

    According to Mr. MP Pusalkar, Godrej Food Industries Food Division, Executive Director and President, the sales tax continues to be as high as 15 to 18 percent for categories like fruit juices and soya drinks. The current excise duty at 16 percent on breakfast cereals should be ideally eight percent, while sales tax rate should be rationalized by around 3 to 4 percent from the prevailing rates of 9 to 14 percent. According to Aseptic Food Processing and Packaging Industry Association, (AFFPA), the aseptic packaging is the magic wand that could work wonders for boosting growth in the industry. Import duty on aseptic processing and filling equipment is over 50% as compared with only 15% in China

    of 100 million tonne over the next few years with a phenomenal growth rate of 3% and the fact that 85% of the produce is unorganized sector. The most important and overlooked reason in this process is that the high taxes and duties were detriment not just for domestic sales and export competitiveness, but also to hygiene and cost effectiveness.

    In addition to the above mentioned aspects, The IIPM Think Tank recommends that food processing sector restructuring should be focused, broadly upon these aspects:

    • Adjusting the layout of agricultural production• Improving the quality of farm products• Increasing the added value of farm products;

    and pushing forward employment restructuring in rural areas. (Refer the box)

    Conclusion Faster growth in GDP does not necessarily trans-late into the well being of the masses. Mr. Bhanu Pratap Singh, former governor, Karnataka, reveals that, during the last five years only 7.6% of the growth in real GDP has accrued to the farm sector. Average annual growth in agricultural GDP during the last five years has been 1.67%, which is less than the growth rate of population of India’s agricultur-alists. Also as pointed out in Business Line editorial (“Farm to the fore”; July 12th 2004), erratic farm

    Annotat ion On Agr iculture

    Around Rs 50,000 crore of agr icultural production is wasted annually. This translates into 35 percent of the actual f iscal defici t for 2002-2003. Currently, the countr y processes only 2 per-cent of i t s vegetables and fruits as agains t 15 to 40 percent in other countr ies. Proper infra-s truc ture s torage alone can enable the countr y to process 10 percent of i t s fruits and vegetables by 2025. This will generate over 3.7 crore direc t and indirec t jobs by 2025.

    ( Source: The Financial Express edi tor ial, “Want Not, Waste Not”, (Augus t 4th 2004) )

    and 10% in Pakistan. Also, the 16% excise duty on aseptic packaging material increases manifold the final cost of the packaged liquid food. According to AFFPA officials, (as mentioned in the Economic Times, 25th July, 2003), currently, exports of asep-tically packaged products is negligible since few manufacturers are able to export their products. Reduction of duties will mean they can now look at this option particularly, in the milk deficient markets of Asia. Some serious figure crunching on the food processing business here shows that while packaging is a billion sector worldwide, in India, the size of the market is an approximate Rs 220 crores. Put that next to India’s projected milk production

    income growth in the last 5 to 6 years has further widened the urban-rural divide. The farm sector needs more sovereignty coupled with more openings to reach out to the national and international mar-kets. This sector also needs affinity and free market that enable it to display its massive eagerness for drastic productivity breakthroughs. There is a great need for trade literacy, quality literacy and farmers need information empowerment. Couple this with expanding the area under irrigation, encouraging crop diversification, bringing user charges for inputs, building rural infrastructure and delivering commer-cial information, we can see agriculture spearheading the nation’s progress in the coming years.


    "The great cry that rises from all our

    manufacturing cities, loder than the furnace

    blast, is all very deed for this - that we

    manufacture everything there except men."

    - John Ruskin

    Source : www.firstlight.com


  • The India Economy Review 200426 27The India Economy Review 2004

    “Developing countries, again and again,

    are tr ipped by microeconomic fai l -

    ures….countries can engineer spurts

    of growth through macroeconomic and

    financial reforms that bring floods of

    capital and cause the illusion of prog-

    ress as construction cranes dot the

    skyline….unless firms are fundamen-

    tally improving their operations and

    strategies and competition is moving

    to a higher level, however, growth will

    be snuffed out as jobs fail to mate-

    rialize, wages stagnate, and returns

    to investment prove disappointing….

    “Developing countries, again and again,

    are tr ipped by microeconomic fai l -

    ures….countries can engineer spurts

    of growth through macroeconomic and

    financial reforms that bring floods of

    capital and cause the illusion of prog-

    ress as construction cranes dot the

    skyline….unless firms are fundamen-

    tally improving their operations and

    strategies and competition is moving

    to a higher level, however, growth will

    be snuffed out as jobs fail to mate-

    rialize, wages stagnate, and returns

    to investment prove disappointing….

    Annotat ion On Industr y

    TT he t rad it iona l inter pre tat ion of the growth in services having come at the cost of manufacturing is some what over-played. While it is undoubtedly true in a statistica l sense, this pattern loses much of its sting when seen as a par t of dynamic process. As mentioned by Mr. Narender Pani in an ar ticle in The Economic Times, some of the increased com-petition after l iberalization has translated into the bui ld ing of larger and more ef fective service net-works. At the same time, there has been a growth in outsourcing. As a result severa l activities that would previously have been done by manufactur-ers themselves are now carried out by independent service units. In other word, much of the growth in services over the last two decades has been not at the cost of manufacturing but rather as a support to it. Consider this : Nearly half the increase in the share of services in GDP between 1991 and2001 can be attributed to trade, transport, storage and communication.

    An analysis done by Mr. G Ramachandran, a

    f inancial analyst and frequent contributor to Busi-ness Line columns and ar ticles, state that, i f one were to regard the qual ity of the national business environment as a proxy for the microeconomic environment, then the empirical evidence provided by Prof. Michael Porter i s informative and most encouraging. India’s qual ity of national business environment had a global rank of 42 in 1998. The rank improved by nine places - - - - the biggest jump in the world- - - to 33 in 2001. By contrast, China improved its microeconomic rank from 44 to 41. India is ahead of China by eight places. China’s reforms pre -dated ours by f i f teen years ; but main-land China had no strong private industria l enter -prises like India. Many industrial groups have built India’s industria l foundations - - - - - -pioneering in steel, power, cement, pharmaceuticals, chemicals, aluminium, automobiles and IT. Creation of indus-trial assets apart, they harnessed new technologies and built strong organizations and marketing net-works that spanned the country. Mr. Kiron Kas-bekar, a s mentions in an Economic Times ar ticle that the Tata Group’s senior managers bel ieve

    India heads the list of low-income coun-

    tries with microeconomic capability that

    could be unlocked by microeconomic

    and political reform.”

    India heads the list of low-income coun-

    tries with microeconomic capability that

    could be unlocked by microeconomic

    and political reform.”

    Prof. Michael Por ter, of HBS, in "Enhancing the Microeconomic Foundat ions of Prosper ity: The Current Compet it iveness Index", September 2001.

  • The India Economy Review 200428 29The India Economy Review 2004

    they created “ institutional ized enterprise.” There are many sup-por ting evidences to prove the emerging industria l strength of India. In 2003, four Indian com-panies in the auto-parts industry, Brakes India Ltd., Mahindra and Mahindra, Rane Brake Linings, and Sona Koyo Steering Systems won the pre s t ig iou s Deming prize in Tota l Quality Manage -ment. The Japanese Institute of Plant Management has rewarded 18 manufacturing plants belong-ing to 10 Indian companies for excel l ing in Tota l Productive Maintenance. ONGC, Reliance, Hindustan Lever, IOC, Wipro, SBI, Infosys, ITC, Ranbaxy and HDFC figure in a recent Busi-ness Week survey of the top 20 0 emerg ing market compa-nies. One out of three laminated tubes conta ining toothpaste or cosmetics squeezed anywhere in the world is produced by Essel Propack located in Thane, Maha-rashtra. BPL exports over 100 mil l ion a lkal ine batteries every year. Eleven of the top twelve technology brands buy optica l storage d iscs from Moser Baer, headquar tered in New Delhi. Tecumseh, the world ’s largest producer of refr igerator com-

    pressors, decided to outsource a l l of its components in India rather than China. Bajaj Auto is the best known brand in three wheeler automobiles in South-east Asia. Finding auto compo-nents made in India 35 to 40 percent more cost- competitive than those made in the Euro-pean Union, Piaggio Ita ly CEO, Mr. Rocco Sabel l i has decided to source more than 50 percent of the components from India. Ind ia Inc has a l so concluded a number of dea ls to acquire running concerns in advanced western countries during the last one year as the pace of over -seas acquisitions by India’s Old Economy companies