Agreement On Agriculture And Its Impact On India Economics Essay

Agreement On Agriculture And Its Impact On India Economics Essay


The possible public assistance additions and likely donees for the facilitation of agricultural universe trade formulated by the Agreement on Agriculture remains a affair of argument and concerns. Therefore the impact of the Agreement on Agriculture on production, monetary value construction and trade in agricultural sector needs proper self-contemplation and rating from Indian positions. The paper attempts to measure and analysed the impact of the agricultural reforms brought approximately by the Agreement on Agriculture on the Indian agricultural economic system and its place in universe trade.

What is Agreement on Agriculture ( AOA ) :

The Agreement on Agriculture was formed on April 1994 at Marrakesh, Morocco as a portion of the concluding Act of the Uruguay Round of many-sided trade dialogues which came into force on 1st Jan. 1995. This was a consequence of the long drawn negotiations on General understanding on Tariffs and Trade ( GATT ) aimed at opening up of International markets and besides to reform universe trade which was extremely distorted. A major ground for the formation of the Agreement on Agriculture was the demand to cut down inordinate excess production in agricultural sector in the planetary trade good markets during the 1980`s and early 1990`s. This was caused by the lifting degrees of support and protection in a figure of developed states as some of the largest agricultural exporters competed on the footing of their government`s ability to subsidised production and exports of agribusiness while restricting entree to their markets to maintain out foreign agricultural merchandises from their domestic markets. Therefore the nucleus aim of AOA was to set up a just and market oriented trading system which was to be implemented for a period of 6 old ages in developed states and 9 old ages in developing states. With this, agribusiness was brought under the new regulations of universe trading system for the first clip. There are 3 chief characteristics of the Agreement:

Market Access

Domestic support.

Export subsidy.

The market entree required that duties for agricultural merchandise fixed by single states be cut down to equivalent duty in order to let free trade and promote liberalization in universe trade. Under this, the AOA required the transition of all non duty barriers into duty barriers. This procedure was known as Tariffication. This was to be implemented for a period of 6 old ages for the developed states and 10 old ages for the development states, least developed states were exempted from set abouting such decreases.

Domestic support was targeted to cut down the subsidies given by authoritiess within their state for agricultural production and related activities. The entire domestic support should be below the degree of de minimis within a maximal period of 3 old ages for developed states and 5 old ages for developing states. This was to cut down monetary value deformation and unjust competition in agricultural universe trade.

Export subsidy aims to cut down subsidies of export related to agricultural merchandises and to censor the debut of new subsidies. This aimed to protect little and fringy husbandmans in place states particularly in developing states.

Another high spot of the Agreement was the proviso of particular and differential intervention for the protection of the involvement of the developing states. In add-on, there are commissariats of Particular Products and Sensitive Merchandises, which are to be exempted from rigorous subject of the above commissariats of tariffication procedure. Provision of Particular Products designates a certain figure of merchandises of the developing states that would be exempt from duty decrease demands and other subjects in order to protect and advance nutrient production, livelihood security and rural development worldwide. The thought was to protect the development states and least developed states from unjust competition in universe market and to make a universe trading system where each single state can come together and merchandise on equal terms without any favoritism and deformation by the more advantageous states of the universe.

However, the possible public assistance additions and likely donees for the facilitation of agricultural universe trade formulated by the Agreement remains a affair of argument and concerns. Therefore the impact of the AOA on production, monetary value construction and trade demands proper self-contemplation and rating from Indian positions. The construction of the Agreement on Agriculture as it exists today seems to be somewhat imbalanced, since it enables states subsidizing the agribusiness sector to a great extent to retain a significant part of their subsidies up to the terminal of the execution period while those states which were non utilizing these steps earlier are prohibited to utilize these steps in future beyond the de-minimis[ 1 ]bound. Therefore, ways to convey approximately more equity into the construction of the Agreement has to be sought.

Indian Agricultural Economic scenario:

Until the liberalization of 1991, India was mostly and deliberately isolated from the universe markets, to protect its economic system and to accomplish ego trust. India`s foreign trade was subjected to import duties, export revenue enhancements and quantitative limitations. So far it had followed an inward looking economic policy until the efforts to liberalize its economic system. The Green revolution which was introduced in 1990`s farther brought about reforms in agricultural sector and increase its production. This in a manner opened the gate for engagement in the universe economic system through the production of extra agricultural goods. Therefore, India`s economic system shifted from subsistence economic system to production for exports in the universe market. At present, Indian agribusiness contributes to 24 % of GDP, nevertheless agriculture exports histories for less than 1 % of universe trade in agricultural trade goods while a major portion of the world`s exports are supplied by developed states which histories for around 64 % .

Impact of AOA on India:

Indian agribusiness is characterised by an overpowering bulk of little and fringy husbandmans keeping less than two hectares of land, less than 35.7 % of the land, is under any assured irrigation system. Farmers, hence, necessitate support in footings of development of substructure every bit good as extension of improved engineerings and commissariats of needed inputs at sensible cost. There is no uncertainty that during the last 30 old ages, Indian agribusiness has grown at a sensible gait, but with dead and worsening cyberspace cropped country it is so traveling to be a hard undertaking to keep the growing in agricultural production. The deductions of the Agreement would therefore hold to be examined in the visible radiation of the nutrient demand and supply state of affairs. The size of the state, the degree of overall development, balance of payments place, realistic hereafter mentality for agricultural development, construction of land retentions etc. are the other relevant factors that would hold a bearing on India ‘s trade policy in agribusiness. Deductions of the Agreement on Agriculture for India should therefore be evaluated from the impact it will hold on the followers:

I ) Whether the Agreement has opened up markets and facilitated exports of merchandises ; and

two ) Whether India would be able to go on with its domestic policy aimed at bettering substructure and proviso of inputs at subsidized monetary values for accomplishing increased agricultural production[ 2 ].

With India being under balance of payments, it has non undertaken any committednesss under the Uruguay Round Agreement on Agriculture ( AOA ) which constrain it from following its developmental policy with respect to agribusiness or which entail any action instantly. The lone committedness India has undertaken is to adhere its duties on primary agricultural merchandises at 100 % ; processed nutrients at 150 % ; and comestible oils at 300 %[ 3 ]. However, it is needed to analyze the deductions of remotion of quantitative limitations on market entree, subsidy to husbandmans and duties on imports. One of the major impacts of the Agreement was that India has been keeping Quantitative limitations ( QRs ) on certain agricultural import merchandises. Under the proviso of the market entree, such QRs will hold to be eliminated latest by April 1st 2001. Immediate result was increased import of inexpensive and extremely subsidised agricultural merchandises which resulted in diminution of domestic agricultural monetary values in India since 1999-2000. This adversely affected little and fringy husbandmans who resorted to selling off their agricultural lands to corporate and MNC`s at a really nominal monetary values. This farther distorts domestic agribusiness and rural construction of the economic system that are largely dependent on agribusiness for endurance. For illustration in Andhra Pradesh husbandmans were so hit by a clang in international monetary values, low rates of duty applied on imports of trade goods like comestible oils, sugar, etc. and the remotion of quantitative limitations. Therefore a separate WTO cell was set up as these provinces felt that the cardinal authorities were non making plenty to protect the involvement of such provinces from the inauspicious impact of the Agreement. It aims to accommodate province authorities policies to altering events and to act upon future authorities negociating places. This clearly suggests that the AOA was more good for the developed states as it furthers opened up new market chances for them to work with their inexpensive agricultural merchandises.

However, It is besides argued that with the opening up of universe markets under the proviso of Market entree and the lifting of QRs on imports of certain agricultural merchandises, chances on exports have increased which lead to an addition in monetary value of domestic agricultural trade goods, this would intend that husbandmans would acquire benefits which in bend would promote investing in the resource scarce agricultural sector. Besides, with the lessening in production subsidies every bit good as export subsidies, the international monetary values of agricultural trade goods will lift and this will assist in doing India`s exports more competitory in universe market. Given the agro diverseness of India, it has the possible to increase agro exports in a large manner.

A.V Ganesan[ 4 ], suggested the thought of utilizing the monetary value inducement as a driving force to increase productiveness as husbandmans are introduced to universe markets there will be turning force per unit area from the husbandmans to derive higher monetary values for their green goods and to contract the spread between the domestic and external monetary values. Both the form of production and monetary value outlooks will progressively be influenced by the demands and tendencies in universe markets. Therefore, the monetary value inducement could be used to give a strong encouragement to investing in agribusiness every bit good as acceptance of modern engineerings and thereby to the elevation of agricultural production and productiveness. Furthermore, freedom to export agricultural merchandises without limitations will besides necessitate casting the long-nurtured suppression against their imports. Thus the Agreement on Agriculture is believed to supply a nexus between domestic reforms and international reforms by supplying restraints that channel domestic policy alteration in the right way.

India had a history of nutrient monetary value rising prices which makes it hard to export agribusiness processed merchandises. The nutrient monetary value rising prices was at the degree of 11 % during 1991-98, though the degree has come down to 4.5 % during 1998-2006[ 5 ]. Therefore, if addition in inexpensive imports further reduces the nutrient monetary value, it will non better the status of the husbandmans but alternatively their status will deteriorate unless significant additions are made through nutrient based fabrication export-enhancing schemes. However, with agribusiness subsidies and export publicities, developed states still continue to rule the universe agribusiness market. More than 67 per cent of universe nutrient exports during 2001-03 originated from the high-income states, while states such as India where more than 65 per cent people survive on agribusiness, contributed merely 1.1 per cent of nutrient exports. For illustration, In India, the dairy sector has been hit hard by subsidised exports from the EU. In 1999-2000 India imported over 130,000 metric tons of EU skim milk pulverization. This was the consequence of EUR 5 million export subsidies that were provided to EU manufacturers. EU subsidies to butter exports are besides exorbitantly high. Consequently, butter oil import into India has grown at an mean rate of 7.7 % yearly. This has had a dampening consequence on monetary values of ghee in the domestic market. Ironically, India is the biggest manufacturer of milk in the universe. What is more worrying for India is that there are now marks of worsening productiveness growing for many agricultural merchandises in India which will hold terrible deductions for the bulk of the population[ 6 ].

To guarantee the public assistance of our husbandmans from the affect of the lifting of Quantitative Restrictions, high import duties of trade goods has to be maintained. The Agreement does non in any manner constrained the ability to curtail the import of trade goods since India has already reserved the right to enforce high degrees of import responsibilities of 100 % , 150 % and 300 % on primary merchandises, processed merchandises and comestible oils severally. Besides due to India`s balance of payments ( BOP ) grounds certain merchandises are allowed to stay under the QR`s class. With appropriate tariffication procedure, the inauspicious impact of such QRs can be rectified. In earlier old ages, a figure of agricultural and horticultural merchandises placed on the free list of imports have been brought to the extremum rate to guarantee equal protection to Indian husbandmans.

India has a negative sum aggregative step[ 7 ]( below 10 % ) of domestic support which implies that there is no irresistible impulse to cut down duty. India is under no duty to cut down its domestic support. Besides, India does non supply any export subsidies which requires decrease committednesss under the export subsidy committedness. The Agreement on Agriculture lists several types of subsidies to which decrease committednesss apply. However, such subsidies are virtually non-existent in India as exporters of agricultural trade goods do non acquire direct subsidy. The Agreement allows limitless support to activities such as ( I ) research, pest diseases control, preparation, extension, and consultative services ; ( two ) public stock keeping for nutrient security intents ; ( three ) domestic nutrient assistance ; and ( four ) income insurance and nutrient demands, alleviation from natural catastrophes and payments under the environmental aid programmes. Furthermore, investing subsidies given for development of agricultural substructure or any sort of support given to low income and resource hapless husbandmans are exempt from any committednesss. Most of our major rural and agricultural development programmes are covered under these commissariats. Therefore, the Agreement does non restrain our policies of investings in these countries.

It is expected that decrease in domestic support and export subsidy by the developed states will take to a lessening in production in their states and will finally give range for enlargement of exports from the developing states which will make a balanced export and import state of affairs in the universe trading system. India, with its inexpensive labour, diverse agro-climatic conditions and big agricultural sector can decidedly derive through enlargement of international trade in agricultural merchandise. India`s agricultural exports have been turning since 1995and at present it is a net nutrient exporter representing greater portion for exports in agribusiness than manufactured exports. Therefore, India is likely to derive if the EU, the US, Japan and other major agribusiness subsidizers significantly cut down their farm subsidies. For illustration, United States spent US $ 4 billion as subsidy to back up its 25,000 cotton manufacturers ( US $ 160, 000 per manufacturer ) in 2003. It is besides argued that in states such as United States, subsidies are enjoyed by a selected few ; largely bring forthing maize, wheat, cotton, soya bean, and rice, while agriculturists of 400 other harvests barely get any such subsidy. It would profit India if other states decrease duties to its farm exports on merchandises such as cotton, basmati rice, fish or meat etc. However, the portion of Indian exports in agribusiness is skiding down every bit compared to fabricating. These labor-intensive exports are expected to turn much faster and possible countries include fabrics and nutrient processing interpreting into benefits across a big group of husbandmans and lending to bracing their incomes. India has demonstrated comparative advantage in about all the merchandises it exports, and even in those merchandises it imports. Therefore, India enjoys a big scope of merchandises where it could successfully heighten its capacity to export.

The rural-urban divide is increasing steadily in India but India can non fall back to other equilibrating steps such as subsidy like the developed states are making. This is due to big population of India as bulk of the population is dependent upon agribusiness for support. Therefore the solution for work outing the rural-urban divide lies in big scale employment coevals through industrialisation and enlargement of agribusiness processing and exports.

In the short term the Agreement on Agriculture may non impact India much because both its domestic support and export subsidy are negative I, e less than the minimum 10 % in merchandise specific domestic support. Furthermore, the precautions provided in the Agreement for the development states protect India from any major impact of liberalisation of the universe trade. However, in the long term, due to advantage of inexpensive labour that India enjoys, the cost of production are lower than any other states, hence in malice of its lower productiveness as compared to the developed states, the monetary values for agricultural merchandise in the instance of rice, tea, sunflower oil and cotton, will still stay lower than the universe monetary value. As a consequence, import to Indian markets will non be attractive as the domestic market monetary values in such merchandises remain lower than the international criterion. Hence, the impact of big graduated table imports due to liberalisation of the universe economic system will non be much.

Doha Ministerial conference and the dead end:

The Uruguay Round of AOA had a built in proviso for reappraisal and reclamation of its policy to see non merely increased trade but besides such aims as nutrient security, diversified rural development and the decrease of inequalities between developed states and developing states and the least developed states. In general, to measure in-depth the effects of the URAA on trade, on agricultural policy and on protection degrees. This was to be decided at the following unit of ammunition of many-sided talk to be held at the 4th WTO ministerial conference in Doha, Nov. 2001 which was targeted to be completed by Jan. 2005. India`s base at the conference included Non trade concerns which include nutrient security and environmental protection. India is peculiarly concern with nutrient security which includes non merely equal supply of nutrient but besides stableness in its supply. India was of the base that no profound alteration has been made in subsidy place of the developed states even after the understanding.

When the AoA was introduced in Uruguay there were so many outlooks nevertheless the consequences failed to make the outlooks of many states. In the Doha unit of ammunition, the concerns of the developing states and the developed states differed. The developing states wanted to concentrate merely on the execution ( or non executions ) and reappraisal of the Uruguay understanding. Developed states ‘ position, nevertheless, was for new issues ( eg: Singapore issues ) , viz, investing, competition, trade facilitation and transparence in authorities procurance, besides environment and internationally recognised core labour criterions.

The Doha unit of ammunition clearly shows that India`s involvement in the dialogue remain at discrepancy from the involvement of the least developed states as India has a much more favorable agricultural status than any of these states. Many of these states are net importers of nutrient and the subsidy in the exportation states makes them better off. Furthermore, under the Everything But Arms ( EBA ) enterprise of the European Union, the LDCs have quota – and duty-free entree to the EU market, a installation that was ne’er available to India. Besides, India depends extremely on its service sector industry ; hence, the state of affairs has become extremely tense for India, peculiarly in position of the fact that the developed states have managed to associate agribusiness subsidy with the market entree in services and industry. If the European Union needs to make more on agricultural duties, and the US demands to make more on cut downing agricultural subsidies, so India besides needed to make more on industrial duties. This is a slippery state of affairs for India.

The Doha Development Round of trade negotiations was targeted to be concluded by January 2005. However, the advancement thenceforth has barely been in the positive way. There was a dead end of Doha Ministerial conference and it was left for farther work and ensuing dialogues. The ground for the failure of the dialogues largely falls on the function of the United States, which departed from Cairns group and joined EU, the ulterior holding excessively ambitious dockets on including investing and competition. States like Australia, New Zealand and Canada ( of Cairns Group ) favour a wholly market oriented attack and oppose trade falsifying subsidies and protectionist governments of EU and Japan. While EU remained against fast path approached to liberalisation. Developing states like India, Pakistan, Sri Lanka, ASEAN etc highlight significance of function of agribusiness in their economic systems and seek to continue domestic policy flexibleness to guard nutrient security concerns.

Overall appraisal:

In India, more than half of the population is still dependent upon agribusiness for subsistence even after authoritiess continued effort to convey about addition in industrialisation and technological promotion. Therefore, agribusiness remain a nucleus importance for the nutriment of the population and besides represent a major portion in the state ‘s economic system. Agricultural ego trust forms a critical underpinning for the growing of the GDP of any agricultural development economic systems since good agricultural production provides buying power to a big bulk of a population, which in bend jets industrial growing. Autonomy in nutrient production has, hence, specific developmental position as opposed to a strictly commercial position. Hence, it is of import that the developing states like India need to be provided with the needed flexibleness within the AOA to prosecute their legitimate non-trade concerns of nutrient security. More specifically, developing states need to be allowed to supply domestic support in the agricultural sector to run into the challenges of nutrient security and to be able to keep the demand of rural employment.

Investing in Indian agribusiness has been worsening for rather some old ages. In the context of international trade, there is an added urgency to change by reversal this tendency and increase investing in research, integrated market development, storage and ware-housing installations, route development, creative activity of installations for efficient and quicker conveyance and development of scientific systems of standard scene and rating. Public outgo on research and engineering, substructure creative activity and rural development will raise India ‘s AMS. More significantly, up-to-date information on domestic and international monetary values and demand should be made available to husbandmans through assorted awareness programmes and preparation. India besides need to raise the quality of agricultural merchandises to internationally recognized criterions, one vitamin E, those of the Codex Alimentarius Commission ( for nutrient additives, veterinary drug and pesticide residues, contaminations, methods of analysis and sampling, and codifications and guidelines of hygienic pattern ) .

The AOA is criticised on being insensitive to human development or improving criterions of life, and being excessively repetitive on liberalisation. The theoretical account of agricultural trade liberalisation promoted by the AOA besides encourages industrialized and export-oriented agricultural production, favoring trans national trade good bargainers and processors over small-scale husbandmans therefore in malice of all the commissariats provided under the Agreement, it is farther attacked on non taking into consideration the jobs faced by the little and fringy husbandmans. The success of the understanding to a certain extent besides depends on how far the developed states are willing and committed to the cause of assisting the development states for development through a procedure of just and unrestricted trade in agribusiness. It is besides argued that the understanding did small to liberalised trade and to better market entree and cut down protection as protection in many states remain really high and allowable export subsidies still endanger the stableness of universe markets.


Global agricultural policies affect many economic systems in a similar manner. Developing states may be more vulnerable to deformations and alterations in planetary trading policies in the agricultural sector, but they besides determine the deductions of agricultural trade liberalization in some states. Vulnerability of states originating from planetary policies and trade liberalization agenda possibly built-in to their economic system such as ; Strong dependance on agribusiness for income, employment and foreign exchange net incomes, heavy dependance on nutrient imports and nutrient assistance and comparatively high grade of sector openness. These conditions may render a state ‘s economic systems vulnerable to tendencies and instability degrees of universe agricultural monetary values, long term alterations with regard to entree barriers to exports markets and planetary policies impacting the fight of imports in domestic markets. With liberalization of agricultural sector much precedence is been given for increasing international trade which is no replacement for bring oning a domestically oriented agricultural growing. Indeed most nutrient is produced for local ingestion in developing states and merely a little proportion is traded internationally, which means that a entirely trade-oriented attack has small relevancy for many developing states. Therefore agricultural reforms in International trading system like the AOA may non hold much impact on a state ‘s economic growing peculiarly the development states if the reforms are implemented without proper analysis of ain state ‘s economic strategic place. Since agribusiness constitute the major portion of many developing economic systems, the execution of such reforms and besides the engagement in universe trade without proper precautional steps may ensue in crisis which such developing states may non afford. Therefore, it is necessary to construct up a strong domestic market scenario which is in line with external monetary values, with appropriate policies to guarantee the protection of their economic systems from the unneeded and unjust competition in universe markets. However, if such reforms are disciplined in its execution and besides each state is serious plenty to do such committednesss for the public assistance of the universe trading system, it might take to a balanced and equal universe markets. This would in a manner solve the jobs of poorness, inequalities and lead to increased productiveness and better the criterion of life of the universe population.