Uday salunkhe challenges and opportunties for agri sector in india


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This article talks about the Challenges and opportunities for agriculture sector in India. It has been co- authored by Dr. Uday Salunkhe, Director of the prestigious Welingkar Institute of Management and Research

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Uday salunkhe challenges and opportunties for agri sector in india

  1. 1. 1 WTO: CHALLENGES AND OPPORTUNITIES FOR INDIAN AGRICULTURE SECTOR Prof. Dr. Uday Salunkhe & Prof. Dr. P.S.RaoABSTRACTAgriculture is the world’s most important and oldest occupation having history of about 11000 years. It isbelieved to have started in India about 4500 years ago and today about 1/3 of mother Earths surface (about11 bn acres) is used for this, providing employment to about 50% of workforce of mankind and in Indiaabout 62% of work force is employed in agricultural sector.Agricultural sector is a backbone of India’s economy as it covers nearly 50% of available land of agriculturalactivities, provides employment for about 62% of working population of country and contributes about 341%of National GDP. India ranks second largest rice producer, largest milk producer, major country in wheatproduction, largest cattle and live-stock holder country of the world thanks to its green revolution programmeAgriculture now in the purview of WTO, accounts for nearly 75% of the Indian rural population. The UruguayRound Agreement (URA) calls for a fair and market oriented agricultural system. Following URA, protectionis given by patents or by an effective Sui Generis System. The agricultural sector and service sector gotopened up in the year-2000.Agriculture contributes 25 per cent to the GDP of the country and is a key sector of the Indian economy,providing food security to the population, major employment opportunities to the rural population andconsequently, a large domestic market for manufactured goods. This sector also accounts for 13 per cent ofIndias exports.The break-through in the twin sectors of the economy, that is, agriculture and industry can only provide theengine for a sustainable growth momentum. This is, unfortunately not happening so far. To attain anaverage of 7-8 per cent annual growth, the industry will have to contribute at least 15-16 per cent growth,agriculture 4-5 per cent and services around 8-10 per cent growth.In this paper an attempt has been made to analyze the role of Government in agriculture and criticallyassess the Agriculture Trade in general. Export and Import of Agriculture products in particular by focusingon Horticulture boom, the flowers of floriculture and the rise of IT in the Agriculture sector.Introduction:Agriculture is the world’s most important and oldest occupation having history of about 11000 years. It isbelieved to have started in India about 4500 years ago and today about 1/3 of mother Earths surface (about11 bn acres) is used for this, providing employment to about 50% of workforce of mankind and in Indiaabout 62% of work force is employed in agricultural sector.Agriculture made establishment, growth and improvement of human civilization possible by ensuring asteady supply of food, clothing and shelter for mankind, which gave up nomadic life, and opportunity fordevelopment of crafts, arts, engineering, trade and other activities.Agriculture is a base source of raw materials for a wide range of industrial activities in one hand and also asole customer for another wide range of industrial activities on other hand.Agricultural Sector in India:India is a fortunate country ranking 5th in world in terms of total farm area. It is blessed with most suitableconditions by mother earth and nature providing all 9 types of soils and 9 types of climate conditions whichthe entire world has. Therefore with proper planning, proper efforts and proper resources India can not onlyfeed to its ever-growing population but also will be able to export its Agri-products to other countries.Agricultural sector is a backbone of India’s economy as it covers nearly 50% of available land of agriculturalactivities, provides employment for about 62% of working population of country and contributes about 341%Welingkar Research Journal September 2006
  2. 2. 2of National GDP. India ranks second largest rice producer, largest milk producer, major country in wheatproduction, largest cattle and live-stock holder country of the world thanks to its green revolution programmeGrowth in AgricultureThe average annual growth rate of value added in agriculture, including allied sectors, declined form 4.7 percent during the Eighth Plan (1992-1997) to 2.1 per cent during the Ninth Plan (1997-2002). As against thetargeted average annual growth rate of 4 per cent during the Tenth plan, growth rate in 2002-03, the firstyear of the Tenth Plan (2002-07), was negative (-0.7 per cent). This, of course, reflects the impact of thesevere droughts of 2002. Favoruable monsoon facilitated an impressive growth rate of 9.6 percent in 2003-04. however, deficient rainfall from the south-west monsoon is estimated to have caused a significantdecline in kharif food grains production in the year 2004-05. Agriculture now in the purview of WTO, accounts for nearly 75% of the Indian rural population. The Uruguay Round Agreement (URA) calls for a fair and market oriented agricultural system. Following URA, protection is given by patents or by an effective Sui Generis System. The agricultural sector and service sector got opened up in the year-2000.Present PositionAgriculture contributes 25 per cent to the GDP of the country and is a key sector of the Indian economy,providing food security to the population, major employment opportunities to the rural population andconsequently, a large domestic market for manufactured goods. This sector also accounts for 13 per cent ofIndias exports.Initially agricultural activity was confined to production of food grains and a few cash crops like cotton,sugarcane and jute. In recent years there has been a remarkable change in the agricultural scene,increasing diversity in a range of products and greater sophistication with the creation of criticalinfrastructural facilities like cold storage, refrigerated transportation, packaging, quality control etc. Thissector is now poised for a leap with the introduction of new technology like IT and biotechnology. Agriculture remains a key sector of the Indian economy accounting for 25 per cent share in the gross domestic product (GDP) and about 13 per cent of total export earnings India is the second largest producer of rice and wheat in the world; first in pulses and fourth in coarse grains. India is also one of the largest producers of cotton, sugar, sugarcane, peanuts, jute, tea and an assortment of spices In terms of the real value added, the Indian agriculture sector ranks third, after China and the United States The share of agriculture in the total value added to the economy, at around 25 per cent, is still quite high. This implies that agriculture is likely to remain a priority both for policy makers as well as businesses in the foreseeable future and any move to ramp up this calls for a multi-pronged strategy In recent years, there has been a considerable emphasis on crop diversification towards horticulture (fruits, vegetables, ornamental crops, medicinal and aromatic plants, spices), plantation crops (coconut, cashew nuts and cocoa)and allied activities Creation of critical infrastructure for cold storage, refrigerated transportation, rapid transit, grading, processing, packaging and quality control measures open major opportunities for investment.The break-through in the twin sectors of the economy, that is, agriculture and industry can only provide theengine for a sustainable growth momentum. This is, unfortunately not happening so far. To attain anaverage of 7-8 per cent annual growth, the industry will have to contribute at least 15-16 per cent growth,agriculture 4-5 per cent and services around 8-10 per cent growth.Post –Reform Indian Agriculture has been the most neglected sector in terms of policy support and growthin production and productivity have drastically declined due to deceleration in public sector investment inirrigation, water management, R & D, extension services and infrastructure.A part from enhancing real capital formation in the sector through raising public investment and providingeasy and cost effective credit to farmers, an effective socially guided and regulated market mechanism isWelingkar Research Journal September 2006
  3. 3. 3required to be evolved. As farmers are facing uncertainty and risk about the prices of their produce, there isan emergent need to develop a sound agricultural marketing information system that may help farmers inplanning their cropping pattern according to the demands of various agricultural products in domestic andglobal markets. Enhancing profitability of agriculture is not only essential for the development of the sectoritself, but also for the growth of secondary and tertiary sector. Gross Capital Formation in Agriculture (at 1993-94 prices) Investment in Year Total Public Private Per cent share Agriculture as Per cent of GDP Public Private 1990-91 14,836 4,395 10,441 29.6 70.4 1.9 1999-2000 17,304 4,222 13,082 24.4 75.6 1.4 2000-01 16,906 3,927 12,979 23.2 76.8 1.3 2001-02 17,219 4,969 12,250 28.9 71.2 1.24 2002-03 18,240 4,359 13,881 23.9 76.1 1.27 2003-04 20,510 5,249 15,261 25.6 74.4 1.31Crop portfolioWhile food grains continue to head the list of crops produced in the country, crops that have largecommercial potential such as fruits and vegetables, fibers and condiments & spices etc. have gainedsignificant share in the crop portfolio.The regional spreadDistribution of major crops across the states provides a useful guide to the dynamics of Indian agricultureand the potential of the rural sector. Food crops: West Bengal, Uttar Pradesh, Andhra Pradesh and Punjabare the major producers of rice. Uttar Pradesh and Punjab together constitute around 50 per cent of wheatoutput. Rajasthan, Gujarat, Maharashtra and Karnataka are the biggest producers of millet. Cash crops:Welingkar Research Journal September 2006
  4. 4. 4Madhya Pradesh, Gujarat, Rajasthan, Maharashtra, Andhra Pradesh, Karnataka and Uttar Pradesh are theleading producers of oil seeds. Uttar Pradesh is the largest producer ofThe region spread could sugarcane and West Bengal produces more than three quarters of jute. TamilNadu has the largest number of tea gardens, followed by Assam. The largest contributor to milk productionis Gujarat, while floriculture and horticulture are dispersed widely across the states. On the whole, UttarPradesh is the largest contributor to the agricultural GDP followed by West Bengal, Andhra Pradesh,Maharashtra, Karnataka and Punjab.Indian Agriculture and WTOAs the signatory of the WTO India has to abide by the stipulations on agricultural trade. This obviouslyrequires the country to take following steps:• To quantify Aggregate Measure of Support (AMS) to agriculture India would have to go for tariffication of all non-tariff measures .• Progressive lowering of AMS of both kinds, which are product specific, subsidies and input subsidies• Offer market access by lowering the existing level of tariff protection• Slash export subsidies on commodity albeit gradually by notifying the WTO through scheduleKeeping in view these constraints that Indian farming is faced with, the government should take maximaladvantage of the support measures provided in the WTO Agreement as well as, if required, negotiate forperpetuation of support regime to agriculture. The categories that are not to be accounted of in AMS underthe existing provisions of support measure, and so are not subject to reduction under WTO areWelingkar Research Journal September 2006
  5. 5. 5GREEN BOX MEASURES: this comprises government assistance for researchers, pest and diseasecontrol, training , extension and advisory services. They also include public stock building for food securitypurpose and domestic food assistance direct payments to producers for income insurance etc.S AND D BOX MEASURES: This allows for special and differential treatment as regard investmentsubsidies in agriculture and agriculture inputs services.BLUE BOX MEASURES: This permit as due payment under production limiting programmes and hasrelevance for USA and other developed nations.So if India has to become internationally competitive in agribusiness, the Government must not lose time indevising an elaborative policy programme for support to the country’s agriculture under the specialmeasures of Green Box and S & D to ensure rise in production, enhancement of quality and decrease incost per unit of production. The country would have to carry out these in a time-bound manner forovercoming its farming constraints and strengthen its pluses to secure a stronger position in the globalagricultural trade.Market AccessThe WTO requires that all non-tariff barriers (NTBs) which are explicitly specified in the WTO rules beremoved within a define time frame. It is also clearly stated in Agreement On Agriculture (AOA), whichcame into force on January 1, 1995, that member country has to enhance market access for exports andimports and reduce trade distorting subsidies. Overall 54% of the goods exported form India are affected byNTBs and include sector like Textiles, Agro products and latter. Enhancement of market for imports is awelcoming factor as long as some kind of security is provided for the domestic products till such time theypick up to compete with multinationals.Reduction of Tariff levels and SubsidiesDeveloped countries are required to reduce tariff by about 40% in five years after inception of WTO.Developing countries including India have to bend Tariff and reduce them within an agreed time frame.India has committed to bend tariff and reduce average tariff levels form 54% to 32% by 2001. Thiscommitment at WTO covers about 63% of total product lines. These are in the area of industrial goods,fertilizers, a variety of non-forms metals, and petroleum products,. Reduction of Tariff levels would exerciseadverse impact on Indian agricultural outputs due to the fact that the production costs in India are very highand hence reduction of tariffs would result in losses to the farmers. But unfortunately it is revealed byNCAER studies that it is only India which has not it’s agriculture where as the countries like Japan, UnitedNationals and Europe have not subsidized their agricultural products. This is an absolute violation of WTOagreement resulting in unjustified benefit to such developed countries. It is a vivid indication that India hasbeen exploited to the extent possible by the developed countries in the name of WTO. It is therefore stronglyfelt that unabated pressure on India to reduce agricultural subsidy must be resisted or India and membercountries have to exercise some kind of pressure on WTO to resort to stringent action against such violatingcountries and ensure that any other member country will not repeat such mistakes or allied under anycircumstances. This aspect is also reiterated by many a chief minister in “Chief Ministers” conference onWTO agreements and agriculture and food management “held on May 21, 2001 at New Delhi this is onlyto protect the interest of all member nationals.Opportunities and Threats Analysis of WTO on Agriculture and Agro based IndustryThe window of opportunity reveals the following: Reduction in export subsidies on farm products in developed countries will make Indian agricultural exports more competitive The export will increase to $1.5 billion by 2005. Fruits, oil seeds, cotton, milk products will be benefited due to subsidy reductions. There will be higher price realizations, which will help improving the standards of living of farmersWelingkar Research Journal September 2006
  6. 6. 6 The countries will be forced to produce only what they are best at. This will mean increased efficiency and higher productivity throughout India. Environmental programmes are exempt form cuts in subsidies so that the environment protection programmes continue unabated India does not have to cut their subsidies or lower tariffs as much as developed countries and it has been given enough time to complete its obligations.Distortions in the market place would reduce, which would benefit the end consumerWhere India can score ?India is not where it should have been in the world market of fruits and vegetables despite being one of thetop producers. The country needs to put greater emphasis on cultivation of most sought-after varieties ininternational markets besides taking steps it needs to stringent health and anti-contamination standards ofimporting countries. Unless India takes these measures, it will continue to produce more only to earn less.India’s available brainpower can exploit its strengths for generation and development of new molecules. Itcan ensure itself a secure berth in the foreign market for its bulk drugs and technical grade pesticides andformulations which are registered for patents that have yet to be filed by the company or are no longer valid,but have good market prospects abroad.In the light of the obvious advantages of the WTO regime, prudence demands that India goes selectivelydefensive where its major interests are at stake and assume proactive and innovative role to be in theleague of the advanced nations profiting for long form the modern trade and business principles andpracticesWhat should that strategy be? India can definitely bargain from a position of strength. It should argue – Reduction commitment on the domestic support ought not only be on the total AMS but also on each product specific support separately as well as oil product specific support. Western economies both US and European countries have been reducing support to those products where they enjoy competitive advantage, at the same time increasing domestic support to those commodities where they do not enjoy competitive advantage. With respect to direct payment as clear distinction has to be made between green box and the blue box measures. Green box measures should be exempted form reduction commitments. The blue box measures should on the other hand be included in the calculation of AMS and subject to reduction commitments. European union in order to protect its Agriculture is fast adapting income support to farmers in place of price support under the garb of multifunctionality of agriculture and putting that in blue box. This support is not fully decoupled from production and India, must raise voice against such a move. As regards to market access and tariffication, India should demand for abolition of tariff quotas and quantitative restrictions on imports and its replacement by tariffs. Reduction of tariff should be enforced along each tariff line and not merely on average tariff level or for product groups. India should also insist on increasing the bound tariff on commodities like rice, dammed milk powder, sorghum etc. From present level of zero per cent to minimum of 50 per cent. Abolition of specific rates of duties and their replacement by tariffs on ad-valorem basis should also be insisted upon to avoid any unfair trade practices. On the export competition front India should ask for complete wiping out of export subsidies. Indian agricultural exports are hardly subsidized except for exemption of income tax on export earnings. This should form the core of our negotiation strategy. Indian farmer’s stands to gain substantially in the absence of any export subsidies.Role of Government in AgricultureWelingkar Research Journal September 2006
  7. 7. 7The government has abolished licensing for almost all food and agro-processing industries, except for someitems like beer, potable alcohol and wines, cane sugar, hydrogenated animal fats, oils etc. and itemsreserved for the exclusive manufacture in the SSI sector Automatic investment approval, including foreign technology agreements within specified norms, up to 100 per cent foreign equity or 100 per cent for NRIs and overseas corporate bodies is allowed for most of the food processing sector Free use of foreign brand names 100 per cent FDI in the fertilizers and pesticides sector 4 fasteTrade and taxes: Most agricultural products can be freely imported and exported, except for a limited list ofitems falling under the negative list and free import of capital goods, including used ones in the foodprocessing sector. Excise and import duty rates have been reduced substantially on a number of inputs forfood processing and processed food items. In fact, many processed food items are totally exempt fromexcise duty now. Customs duties have also been substantially reduced on plant and equipment as well ason raw materials and intermediates, especially for exports.Export promotionThe Exim Policy (2002-07) emphasises on the importance of agriculture exports and included some policymeasures to boost farm exports such as: Free export of almost all agricultural products Removal of procedural restrictions like requirement for registration, packaging etc. Setting-up of agri-export zones to enhance international market access and improve infrastructure facilities and to ensure better flow of credit. Assistance for reducing marketing costs such as transportation, handling and processing for exports of selected farm commodities, financial assistance for improved packaging, strengthening of quality control mechanism and modernisation of processing units, arranging promotional campaigns such as buyer seller meets and participation at important international fairs and exhibitionsAgri-Export Zones (AEZ)In the EXIM Polciy 2001-02, the Government announced the proposal to set up Agri-Export Zones for thepurpose of developing and sourcing raw materials and their processing/packaging leading to final exports.The concept essentially embodies a cluster approach of identifying the potential products and thegeographical region in which such products are grown and adoption of an end to end approach ofintegration of the entire process, right from the stage of production to consumption.Under the Scheme, the State Governments would identify products with export potential which havecomparative advantage in local production Agricultural and Processed Food Products DevelopmentAuthority (APEDA) is the nodal agency of the Central Government to promote setting up of Agri-ExportZones.Till December 2003, the Central Government has sanctioned and notified 46 Agri-Export Zones (AEZs)which are being set up in 19 States-West Bengal, Uttaranchal, Karnataka, Punjab, Uttar Pradesh, TamilNadu, Maharashtra, Andhra Pradesh, Tripura, J & K, Madhya Pradesh, Bhar, Gujarat, Sikkim, HP, Orissa,Garlic, Mangoes (Kesar, Chausa, Dusshari, alphonso etc.), Grapes, flowers, Apples, Vegetables, Walnuts,Gherkins, Wheat, Ginger and Turmeric, Basmati Rice and Seed Spices.Agri-export and EXIM Policy 2004-09The foreign Trade policy 2004-09, emphasized the importance of agricultural exports and announced thefollowing policy measures to boost agri-exports:• A new scheme called the Vishesh Krishi Upaj yojana (Special Agricultural Produce Scheme) for promoting the export of fruits, vegetables, flowers, minor forest produce, and their value added products has been introducedWelingkar Research Journal September 2006
  8. 8. 8• Funds shall be earmarked under ASIDE (Assistance to State for Infrastructure Development of Export ) for development of Agri-Export Zones (AEZ)• Capital goods imported under EPCG shall be permitted to be installed anywhere in the AEZ. The Foreign Trade Policy 2004-09 emphasized the importance of agricultural exports and announced the following policy measures to boost agri-exports: A new scheme has been introduced called the Vishesh Krishi Upaj Yojana (Special Agricultural Produce Scheme) for promoting the export of fruits, vegetables, flowers, minor forest produce and their value added products by incentivising exporters of such products Funds shall be earmarked under ASIDE (Assistance to States for Infrastructure Development of Export) for development of Agri Export Zones (AEZs) Capital goods imported under Export Promotion Capital Goods (EPCG) scheme shall be permitted to be installed anywhere in the AEZsResearch and DevelopmentAgricultural research and development is an area that deserves special attention. The Indian Council ofAgricultural Research (ICAR) is a beneficiary of the scheme under which every commercial rupee earned bythe institution is incrementally matched by another rupee from the budget. Besides this, ICAR receivesfunds from the Technology Development Board for all commercially viable projects. The budget 2004-05also aimed at expanding farm-related R&D to new frontiers like biotechnology, vaccines and diagnostics.There will a special focus on farming in dry lands and unirrigated areas.Agricultural research has a vital role to play in the strategy for reviving and encouraging diversification. Atask force headed by Dr M S Swaminathan has recommended the creation of a National Fund for StrategicAgricultural Research. An initial provision of US$ 11.5 million for operationalising this fund has beenannounced in budget 2005-06.Agri-business for small farmersThe Small Farmers Agri-business Consortium (SFAC) was set up in 1994. SFAC will provide venture capitalto projects and will be run, preferably by a banker, on purely business lines. The M S SwaminathanResearch Foundation has identified 13 districts where there is a huge potential for agri-businesses and anappetite for investment of nearly US$ 36 million. The Ministry of Agriculture has initiated steps to improvethe governance of SFAC, including the appointment of a banker as the chief executive. The budget alsoprovides for the necessary additional capital that SFAC may require promoting agri-businessesaggressively. In addition, agri-businesses are given tax exemption for their further development.Export and Import of Agriculture ProductsAgriculture ExportsIndia, in recent years, has been a net exporter of agriculture goods. The exports of agricultural productsfrom India, which stood at US$ 67.4 million and US$ 7533 million in 2002-03 and 2003-04 respectively,were more than two times the import of agricultural products in the corresponding years. During the first halfof the year 2004-05, the exports of agricultural products were US$ 3511 million which were slightly less thandouble of the imports of the agricultural products during the same period.Welingkar Research Journal September 2006
  9. 9. 9Import of agricultural commodities rose to US$ 2.8 billion during 2002-03 from US$ 2.3 billion during 2001-02. The share of farm imports in total merchandise imports is around 4.5 per cent. Edible oil, accounting foralmost two-thirds of total farm imports, is the single-largest item of farm imports. Import of pulses is alsosignificant and accounts for around 20 per cent of total agri-imports. Agriculture Trade 2002-03 2003-04A) Agriculture Export 6734 million dollar 7533 million dollar Total Export 52719.4 million dollar 63843 million dollar Agri-export as % of total export 12.8% 11.8%B) Agriculture Import 2803.4 million dollar 3568.3 million dollar Total Import 61412.1 million dollar 78149.1 million dollar Agri-import as % of total import 4.6% 4.6% Source : Economic Survey 2004-05Despite an increase of 11.87 per cent during 2003-04 and 14.43 per cent during the first six months of 2004-05, the share of agri-exports in total merchandise exports came down form 12.8 per cent in2002-03 to 11.78per cent in 2003-04 and further to 9.7 per cent during the six months of 2004-05. The decline in the share ofthe agri-exports total exports, notwithstanding the growth in its volume in the range of 12-14 per cent, wasbecause of a much faster growth kin the volume of merchandise exports, which ranged between 21 and 32per cent during the same period. Marine products, with a share of 17.6 per cent in 2003-04 and 15.6 percent in agri-exports during the first half of 2004-05, continued to dominate the agri-exports remained muchbelow the level of 2002-03 at 21.3 per cent. The export of oil meals gained substantially, both in volume andshare, during 2002-03. The growth was also sustained during the first half of 2004-05, because of theincreasing demand for Indian oil meals in world market.Welingkar Research Journal September 2006
  10. 10. 10There was a fall both in the volume of rice exports and its share in agri-exports in 2003-04 and the first halfof 2004-05, in view of the decision of the government to ban fresh export of food grains from the FCI sinceAugust 2003, in the light of the declining stock of food grains. The exports of wheat also declined both involume and share in the first half of 2004-05 as compared to the corresponding period of 2003-04.Agriculture ImportsThe import of agriculture products, which increased by 27 per cent in 2003-04, showed signs of softening in2004-05, with the agriimports declining by 8 per cent during the first half of 2004-05 from US$ 1949 millionin the corresponding period of 2003-04. The import of edible oils, which is the most dominant item of agri-imports, accounting for almost two-third of the total agri-imports in recent years, registered a sharp increaseof nearly 40 per cent in 2003-04, following low production of oil seeds in 2002-03 at 15.1 million tonnes. Thiswas mainly responsible for the large increase in the volume of agri-imports in 2003-04. With the recordproduction of oilseeds in 2003-04 at 25.1 million tonnes, the import of edible oils declined during the first halfof 2004-05 by 15.2 per cent form US$ 1,457 million during the corresponding period of 2003-04, whichmainly contributed to the decline in the agri-imports during the first half of 2004-05,. Despite the increase inthe volume of agri-imports in 2003-04 by 27 per cent over 2002-03, the share of agri-imports in 2003-04 by27 per cent over 2002-03, the share of agri-import in the total merchandise imports remained unchanged at4.6 per cent. The share of agri-imports to total merchandise imports declined to 3.7 per cent in the first halfof 2004-05 from 5.6 per cent in the corresponding period of 2003-04Emerging TrendsIncreased levels of literacy, rapid urbanisation and rising per capita income have led to rapid growth andchanges in demand patterns. An average Indian spends about 50 per cent of his household expenditure onfood items. With a population of over one billion and a 350 million strong urban middle class and theirchanging food habits, the market for agricultural products and processed food is expected to growsignificantly. The relatively low-cost but skilled workforce can be effectively utilised to set up large, low-costproduction bases for domestic and export markets. The national policy aims at increasing the level of foodprocessing from the present 2 per cent to 10 per cent by 2010 and 25 per cent by 2025. Foreign directinvestment is not directly allowed in agriculture but there exist ample opportunities in related sectors.Food processing & packaging - harnessing the potentialFood processing and packaging represents, perhaps, the biggest potential that the countrys agricultureholds for the future with linkages with a spectrum of sub-sectors like horticulture, plantation, animalhusbandry and fisheries. While India has an abundant supply of foodgrains, the food processing industry isstill nascent. Only 2 per cent of fruits and vegetables and 15 per cent of milk produced are processed. Butdespite these apparently low volumes, the processed food industry is the fifth largest segment of theeconomy, representing 6.3 per cent of GDP. It accounts for 13 per cent of exports and 6 per cent of totalindustrial investment. The size of this sector is pegged at US$ 70 billion, including US$ 22 billion of value-added products. Clearly, an increase in size in line with the potential is likely to place India right at the top ofthis domain.Historically, Indias crop portfolio has been dominated by foodgrains and a handful of cash crops. Over thepast one decade, there has been conscious, coordinated effort to diversify the agriculture base to developdomestic markets as well as increase export potential. The strategy has been to exploit the countrys diverseclimate and soil conditions that enable cultivation of an array of horticultural crops such as fruits, vegetables,floricultural plants, plantation crops, spices, medicinal and aromatic plants.The horticulture boomHorticulture is a generic term for a diverse range of products spanning fruits, vegetables, spices, coconut,medicinal and aromatic plants, mushrooms, cashew, cocoa etc. The boom in this sector over the pastdecade has seen its contribution to agriculture GDP touching about 24.5 per cent from a paltry 8 per cent ofthe total cultivated area. Besides providing nutritional and livelihood security and helping poverty alleviationWelingkar Research Journal September 2006
  11. 11. 11and employment generation, this sub-sector sustains a large number of agro-industries, which generatehuge additional non-farming employment opportunities.Surge in vegetable productionProduction of vegetables increased massively from 58.5 million tonnes during 1991-92 to 90 million tonnesduring 2003-04 and is currently second only to China. India leads the world chart in the production ofcauliflower, second in production of onions and third in production of cabbage. At 22.2 million tonnes, potatois the leading vegetable (in terms of tonnage) followed by brinjal and tomato at 7.7 million tonnes and 7.3million tonnes respectively. With regard to vegetable production, West Bengal leads among thestates with 18 million tonnes, followed by UP at 13 million tones and Bihar at 10.2 million tonnes. Yield hasincreased with adoption of hybrid seeds and also with increased cultivation of disease and pest resistantvarieties. A seed production programme with advanced techniques has also helped enhance output andproductivity.The National Horticulture Board is working on integrated development of vegetables, including root andtuber crops. The programme includes educating farmers on the latest technology, training them about post-harvest management through on-farm demonstrations and popularising zero-energy cool chambers forstorage.The fruits storyWith production of fruits at 47.5 million tonnes during 2003-04, India accounted for about 10 per cent of theworld production and was the second largest producer of fruits in the world. Bananas have the highest shareat 35.6 per cent followed by mangoes at 22.6 percent. The other major fruits grown are papayas, apples, guavas and citrus fruits.The flowering of floricultureThe domestic floriculture industry has been witnessing an unprecedented growth during the past years andhas also been getting increased acceptability in world markets, currently estimated at US$ 50 billion. Thefloriculture industry has been growing at an annual rate of 17 per cent, which has also seen a number ofcorporate houses entering the fray during the past three to five years. Higher standards of living and thegrowing desire to live in an environment-friendly atmosphere have led to a boom in the domestic market aswell.Welingkar Research Journal September 2006
  12. 12. 12The export of cut flowers has been identified as a thrust area at the national level. The estimated area underflower cultivation is 106,000 hectares and the major flower producing states are Karnataka, Tamil Nadu,Bengal, Andhra Pradesh and Maharashtra. Traditional flowers such as marigold, jasmine, chrysanthemum,china aster, crossandra and tuberose (usually marketed loose in the domestic market), occupy nearly two-thirds of the area, the balance being under contemporary flowers such as rose, gladiolus, carnation,tuberose and orchids (used in bouquets and decorations). Production of cut flowers saw an increase of 219per cent in a single year to 2,565 million during 2001-02 from around 803 million during the preceding year.Welingkar Research Journal September 2006
  13. 13. 13Floriculture exports increased from US$ 14 million during 1996-97 to above US$ 20 million by 2002-03.USA, Japan, Netherlands, German Fed. Republic and UK are major buyers of cut flowers from India.The biotech opportunityThe domestic farm sector has been successfully experimenting with the application of biotechnology sincethe mid-60s when the use of high-yielding seed varieties began to completely revolutionize yields. With theincreased diversity in cropping pattern and new crop varieties, the importance of biotechnology inputs hasonly multiplied. Broadly, biotechnology refers to the techniques that allow scientists to modify DNA of cropsto enhance their tolerance to pests and diseases, increase yields and improve quality and nutritional value.GM CottonFor the first time, the Union government approved commercial cultivation of genetically modified (GM)cotton, jointly developed by US multinational Monsanto and its Indian partner Maharashtra Hybrid Company(Mahyco), for three years from April 2002 to March 2005. The three cotton hybrids cleared by the GeneticEngineering Approval Committee (GEAC) carry the bacillus thuringienies (Bt) gene that protects the cottonplant against bollworm, a serious cotton pest rampant in the country.Although India is the worlds largest cultivator of cotton, its output is less than that of the US and China. Bycultivating Bt cotton, India expects to raise its cotton productivity and competitiveness.The rise of IT in the agricultural sectorThe application of information technology (IT) in agriculture is usually associated with markets in developedcountries and capital intensive methods of production. However, its relevance to the rural economy in acountry like India cannot be overlooked. IT can effectively be used to disseminate technology, streamlinethe supply chain for food processing and other agro-industries and lead to better price realisation byfarmers. There are many efforts underway which demonstrate the concrete benefits of IT for the ruralpopulation and the sector as a whole.Welingkar Research Journal September 2006
  14. 14. 14e-Choupals - the ITC experimentAn example of the successful application of IT is the e-Choupal experiment kicked off by ITC. ITC hasdesigned and set up Internet kiosks called e-Choupals to support its agricultural product supply chain. Thee-Choupals are totally owned and set up by ITC with the operators not having any investment or risk of theirown. There are four kinds of e-Choupals tailored very specifically for four different products: shrimps, coffee,wheat and soyabeans. The first two involve large commercial farmers and the focus is on creating internetaccess to global market information to guide production and supply decisions. There are a few dozens ofthese e-Choupals at present. In the case of wheat and soyabean, since there are many small farmers, over2,000 e-Choupals have been set up in several states. Soya e-Choupals, for instance, are used as registrypoints for procurement. Actual procurement is done at the factory and warehouse hubs but the initial loggingin is done through the e-Choupal, which provides price information and thus price certainty. In fact, the e-Choupal price acts as a floor price for procurement, while the factory or warehouse price can be higher.e-Choupals can provide access to both local and global market prices on soyabeans and derivativeproducts. In addition, they get access to operational information, developed by ITC experts, pertaining tocropping, seeds, fertilisers etc. The initial benefits of the ITC effort include a substantial reduction intransaction costs from 8 per cent to just 2 per cent. These gains are shared roughly equally between ITCand individual farmers. The longer-term goal is to use e-Choupals as sales points for soyabean oil, tractorsand eventually a range of ITC produced consumer goods.The use of IT is just a part of ITCs supply chain overhaul, but quick delivery of complex informationpertaining to market conditions makes IT so essential.ConclusionIt is pertinent to note that it is only because of WTO that India can expect to be heard and thereby protect itsinterests in International trade. However, for gaining any advantage under the WTO it is not only importantfor India to have the Geographical Appellation Bill now Act but also the completion of the subsequentformalitiesIn conclusion one can say that the governmental action is very important to protect the India interests underthe WTO regime.Welingkar Research Journal September 2006
  15. 15. 15Reference:Prasad C 1994, Agricultural Research Management – An introduction, National Academy of AgriculturalResearch Management, Hyderabad.Suman sahal, “GATT and presenting Micro organisms” Economist and Political Weekly, April 9,1994.S. S Gill and J S Bran “Global market and competitiveness of Indian agriculture” EPW, august 10,1996.Yotopouloa and Lau (1974), “On Modeling and the Agricultural Sector in Developing Counties,” Journal ofDevelopment Economics, Vo. IPradeep Sharma and Ashok Gulati (1995), “WTO and Indian Agriculture” EPW, 10 March,1995Ashok Gulati and Tim Kelly, “Trade liberalization and Indian Agriculture Oxford University press, New DelhiRakesh Singh (197), “Reviving Agriculture: From subsidies to investment” Paradigm, January 1997.Raghuram Parthasarathy, (2001), ‘Global competition: Strategies for Indian Businesses’, Thehindu,5.4.2001GOI, (2001), ‘Export import policy report 2001-02’ Ministry of Commerce, the Hindu,2.4.2001.Hooker N H and Julie Caswell (1999), “ A framework for Evaluating Non-Tariff Barriers to Trade Related toSanitary and Phytosanitary Regulation”, Journal of Agriculture Economics, 50(2),May,234-246Hoekman Bernard and Kym Anderson (1999), Developing Country Agriculutre and the New Trade Agenda,The world Bank Policy Research Paper No. 2125, Development Research Group, the World Bank,Washington DC.Swinbank, Alan (1999), “the Role of the WTO and the International Agencies in SPS Standards Setting”,Agribusiness, 15(3), 323-333.Prof. Dr. Uday Salunkhe is Director at Welingkar Institute of Management, Development and Research.Email: director@welingkar.orgProf. Dr. P.S. Rao is Dean – Quality Systems and New Business Initiatives at Welingkar Institute ofManagement, Development and Research.Email: ps.rao@welingkar.orgAuthor’s ProfileProf. Dr. Uday Salunke Director - Welingkar Institute of Management is a mechanicalengineer with a management degree in Operations, and a Doctorate in Turnaround Strategies.He has 12 years of experience in the corporate world including Mahindra & Mahindra, ISPL andother companies before joining Welingkar in 1995 as faculty for Production Management.Subsequently his inherent passion, commitment and dedication toward the institute led to hisWelingkar Research Journal September 2006
  16. 16. 16appointment as Director in 2000. Dr. Salunkhe has been invited as visiting fellow at the HarvardBusiness School, USA and European University, Germany. He has also delivered seminars at theAsian Institute of Management, Manila and has been awarded "The Young Achievers Award-2003" in the field of Academics by the Indo American Society recently.Welingkar Research Journal September 2006