Uday Salunkhe - Union Budget

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WTO: CHALLENGES AND OPPORTUNITIES FOR INDIAN AGRICULTURE SECTOR
Prof. Dr. Uday Salunkhe & Prof. Dr. P.S.Rao

ABSTRACT

Agriculture is the world’s most important and oldest occupation having history of about 11000 years. It is
believed to have started in India about 4500 years ago and today about 1/3 of mother Earths surface (about
11 bn acres) is used for this, providing employment to about 50% of workforce of mankind and in India
about 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 agricultural
activities, 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 wheat
production, largest cattle and live-stock holder country of the world thanks to its green revolution programme
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.

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 and
consequently, a large domestic market for manufactured goods. This sector also accounts for 13 per cent of
India's exports.

The break-through in the twin sectors of the economy, that is, agriculture and industry can only provide the
engine for a sustainable growth momentum. This is, unfortunately not happening so far. To attain an
average 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 critically
assess the Agriculture Trade in general. Export and Import of Agriculture products in particular by focusing
on 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 is
believed to have started in India about 4500 years ago and today about 1/3 of mother Earths surface (about
11 bn acres) is used for this, providing employment to about 50% of workforce of mankind and in India
about 62% of work force is employed in agricultural sector.

Agriculture made establishment, growth and improvement of human civilization possible by ensuring a
steady supply of food, clothing and shelter for mankind, which gave up nomadic life, and opportunity for
development 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 a
sole 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 suitable
conditions by mother earth and nature providing all 9 types of soils and 9 types of climate conditions which
the entire world has. Therefore with proper planning, proper efforts and proper resources India can not only
feed 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 agricultural
activities, provides employment for about 62% of working population of country and contributes about 341%

Welingkar Research Journal September 2006

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of National GDP. India ranks second largest rice producer, largest milk producer, major country in wheat
production, largest cattle and live-stock holder country of the world thanks to its green revolution programme

Growth in Agriculture

The average annual growth rate of value added in agriculture, including allied sectors, declined form 4.7 per
cent during the Eighth Plan (1992-1997) to 2.1 per cent during the Ninth Plan (1997-2002). As against the
targeted average annual growth rate of 4 per cent during the Tenth plan, growth rate in 2002-03, the first
year of the Tenth Plan (2002-07), was negative (-0.7 per cent). This, of course, reflects the impact of the
severe 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 significant
decline 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 Position

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 and
consequently, a large domestic market for manufactured goods. This sector also accounts for 13 per cent of
India's 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 critical
infrastructural facilities like cold storage, refrigerated transportation, packaging, quality control etc. This
sector 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 the
engine for a sustainable growth momentum. This is, unfortunately not happening so far. To attain an
average 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 growth
in production and productivity have drastically declined due to deceleration in public sector investment in
irrigation, water management, R & D, extension services and infrastructure.

A part from enhancing real capital formation in the sector through raising public investment and providing
easy and cost effective credit to farmers, an effective socially guided and regulated market mechanism is


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required to be evolved. As farmers are facing uncertainty and risk about the prices of their produce, there is
an emergent need to develop a sound agricultural marketing information system that may help farmers in
planning their cropping pattern according to the demands of various agricultural products in domestic and
global markets. Enhancing profitability of agriculture is not only essential for the development of the sector
itself, 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 1.31

Crop portfolio

While food grains continue to head the list of crops produced in the country, crops that have large
commercial potential such as fruits and vegetables, fibers and condiments & spices etc. have gained
significant share in the crop portfolio.

The regional spread

Distribution of major crops across the states provides a useful guide to the dynamics of Indian agriculture
and the potential of the rural sector. Food crops: West Bengal, Uttar Pradesh, Andhra Pradesh and Punjab
are the major producers of rice. Uttar Pradesh and Punjab together constitute around 50 per cent of wheat
output. Rajasthan, Gujarat, Maharashtra and Karnataka are the biggest producers of millet. Cash crops:


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Madhya Pradesh, Gujarat, Rajasthan, Maharashtra, Andhra Pradesh, Karnataka and Uttar Pradesh are the
leading producers of oil seeds. Uttar Pradesh is the largest producer of

The region spread could sugarcane and West Bengal produces more than three quarters of jute. Tamil
Nadu has the largest number of tea gardens, followed by Assam. The largest contributor to milk production
is Gujarat, while floriculture and horticulture are dispersed widely across the states. On the whole, Uttar
Pradesh is the largest contributor to the agricultural GDP followed by West Bengal, Andhra Pradesh,
Maharashtra, Karnataka and Punjab.

Indian Agriculture and WTO

As the signatory of the WTO India has to abide by the stipulations on agricultural trade. This obviously
requires 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 schedule

Keeping in view these constraints that Indian farming is faced with, the government should take maximal
advantage of the support measures provided in the WTO Agreement as well as, if required, negotiate for
perpetuation of support regime to agriculture. The categories that are not to be accounted of in AMS under
the existing provisions of support measure, and so are not subject to reduction under WTO are


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GREEN BOX MEASURES: this comprises government assistance for researchers, pest and disease
control, training , extension and advisory services. They also include public stock building for food security
purpose 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 investment
subsidies in agriculture and agriculture inputs services.

BLUE BOX MEASURES: This permit as due payment under production limiting programmes and has
relevance for USA and other developed nations.

So if India has to become internationally competitive in agribusiness, the Government must not lose time in
devising an elaborative policy programme for support to the country’s agriculture under the special
measures of Green Box and S & D to ensure rise in production, enhancement of quality and decrease in
cost per unit of production. The country would have to carry out these in a time-bound manner for
overcoming its farming constraints and strengthen its pluses to secure a stronger position in the global
agricultural trade.

Market Access

The WTO requires that all non-tariff barriers (NTBs) which are explicitly specified in the WTO rules be
removed within a define time frame. It is also clearly stated in Agreement On Agriculture (AOA), which
came into force on January 1, 1995, that member country has to enhance market access for exports and
imports and reduce trade distorting subsidies. Overall 54% of the goods exported form India are affected by
NTBs and include sector like Textiles, Agro products and latter. Enhancement of market for imports is a
welcoming factor as long as some kind of security is provided for the domestic products till such time they
pick up to compete with multinationals.

Reduction of Tariff levels and Subsidies

Developed 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. This
commitment 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 exercise
adverse impact on Indian agricultural outputs due to the fact that the production costs in India are very high
and hence reduction of tariffs would result in losses to the farmers. But unfortunately it is revealed by
NCAER studies that it is only India which has not it’s agriculture where as the countries like Japan, United
Nationals and Europe have not subsidized their agricultural products. This is an absolute violation of WTO
agreement resulting in unjustified benefit to such developed countries. It is a vivid indication that India has
been exploited to the extent possible by the developed countries in the name of WTO. It is therefore strongly
felt that unabated pressure on India to reduce agricultural subsidy must be resisted or India and member
countries have to exercise some kind of pressure on WTO to resort to stringent action against such violating
countries and ensure that any other member country will not repeat such mistakes or allied under any
circumstances. This aspect is also reiterated by many a chief minister in “Chief Ministers” conference on
WTO agreements and agriculture and food management “held on May 21, 2001 at New Delhi this is only
to protect the interest of all member nationals.

Opportunities and Threats Analysis of WTO on Agriculture and Agro based Industry

The 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 farmers


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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 consumer

Where India can score ?

India is not where it should have been in the world market of fruits and vegetables despite being one of the
top producers. The country needs to put greater emphasis on cultivation of most sought-after varieties in
international markets besides taking steps it needs to stringent health and anti-contamination standards of
importing 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. It
can ensure itself a secure berth in the foreign market for its bulk drugs and technical grade pesticides and
formulations 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 selectively
defensive where its major interests are at stake and assume proactive and innovative role to be in the
league of the advanced nations profiting for long form the modern trade and business principles and
practices

What 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 Agriculture


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The government has abolished licensing for almost all food and agro-processing industries, except for some
items like beer, potable alcohol and wines, cane sugar, hydrogenated animal fats, oils etc. and items
reserved 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 faste

Trade and taxes: Most agricultural products can be freely imported and exported, except for a limited list of
items falling under the negative list and free import of capital goods, including used ones in the food
processing sector. Excise and import duty rates have been reduced substantially on a number of inputs for
food processing and processed food items. In fact, many processed food items are totally exempt from
excise duty now. Customs duties have also been substantially reduced on plant and equipment as well as
on raw materials and intermediates, especially for exports.

Export promotion

The Exim Policy (2002-07) emphasises on the importance of agriculture exports and included some policy
measures 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 exhibitions

Agri-Export Zones (AEZ)

In the EXIM Polciy 2001-02, the Government announced the proposal to set up Agri-Export Zones for the
purpose 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 the
geographical region in which such products are grown and adoption of an end to end approach of
integration 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 have
comparative advantage in local production Agricultural and Processed Food Products Development
Authority (APEDA) is the nodal agency of the Central Government to promote setting up of Agri-Export
Zones.

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, Tamil
Nadu, 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 2004-09

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 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 introduced


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• 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 AEZs

Research and Development

Agricultural research and development is an area that deserves special attention. The Indian Council of
Agricultural Research (ICAR) is a beneficiary of the scheme under which every commercial rupee earned by
the institution is incrementally matched by another rupee from the budget. Besides this, ICAR receives
funds from the Technology Development Board for all commercially viable projects. The budget 2004-05
also 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. A
task force headed by Dr M S Swaminathan has recommended the creation of a National Fund for Strategic
Agricultural Research. An initial provision of US$ 11.5 million for operationalising this fund has been
announced in budget 2005-06.

Agri-business for small farmers

The Small Farmers Agri-business Consortium (SFAC) was set up in 1994. SFAC will provide venture capital
to projects and will be run, preferably by a banker, on purely business lines. The M S Swaminathan
Research Foundation has identified 13 districts where there is a huge potential for agri-businesses and an
appetite for investment of nearly US$ 36 million. The Ministry of Agriculture has initiated steps to improve
the governance of SFAC, including the appointment of a banker as the chief executive. The budget also
provides for the necessary additional capital that SFAC may require promoting agri-businesses
aggressively. In addition, agri-businesses are given tax exemption for their further development.

Export and Import of Agriculture Products
Agriculture Exports
India, in recent years, has been a net exporter of agriculture goods. The exports of agricultural products
from 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 half
of the year 2004-05, the exports of agricultural products were US$ 3511 million which were slightly less than
double of the imports of the agricultural products during the same period.


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Import 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 for
almost two-thirds of total farm imports, is the single-largest item of farm imports. Import of pulses is also
significant and accounts for around 20 per cent of total agri-imports.

Agriculture Trade
2002-03 2003-04
A) 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 2004-05

Despite 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 11.78
per cent in 2003-04 and further to 9.7 per cent during the six months of 2004-05. The decline in the share of
the agri-exports total exports, notwithstanding the growth in its volume in the range of 12-14 per cent, was
because of a much faster growth kin the volume of merchandise exports, which ranged between 21 and 32
per cent during the same period. Marine products, with a share of 17.6 per cent in 2003-04 and 15.6 per
cent in agri-exports during the first half of 2004-05, continued to dominate the agri-exports remained much
below the level of 2002-03 at 21.3 per cent. The export of oil meals gained substantially, both in volume and
share, during 2002-03. The growth was also sustained during the first half of 2004-05, because of the
increasing demand for Indian oil meals in world market.


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There was a fall both in the volume of rice exports and its share in agri-exports in 2003-04 and the first half
of 2004-05, in view of the decision of the government to ban fresh export of food grains from the FCI since
August 2003, in the light of the declining stock of food grains. The exports of wheat also declined both in
volume and share in the first half of 2004-05 as compared to the corresponding period of 2003-04.

Agriculture Imports

The import of agriculture products, which increased by 27 per cent in 2003-04, showed signs of softening in
2004-05, with the agriimports declining by 8 per cent during the first half of 2004-05 from US$ 1949 million
in 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 increase
of nearly 40 per cent in 2003-04, following low production of oil seeds in 2002-03 at 15.1 million tonnes. This
was mainly responsible for the large increase in the volume of agri-imports in 2003-04. With the record
production of oilseeds in 2003-04 at 25.1 million tonnes, the import of edible oils declined during the first half
of 2004-05 by 15.2 per cent form US$ 1,457 million during the corresponding period of 2003-04, which
mainly contributed to the decline in the agri-imports during the first half of 2004-05,. Despite the increase in
the volume of agri-imports in 2003-04 by 27 per cent over 2002-03, the share of agri-imports in 2003-04 by
27 per cent over 2002-03, the share of agri-import in the total merchandise imports remained unchanged at
4.6 per cent. The share of agri-imports to total merchandise imports declined to 3.7 per cent in the first half
of 2004-05 from 5.6 per cent in the corresponding period of 2003-04

Emerging Trends

Increased levels of literacy, rapid urbanisation and rising per capita income have led to rapid growth and
changes in demand patterns. An average Indian spends about 50 per cent of his household expenditure on
food items. With a population of over one billion and a 350 million strong urban middle class and their
changing food habits, the market for agricultural products and processed food is expected to grow
significantly. The relatively low-cost but skilled workforce can be effectively utilised to set up large, low-cost
production bases for domestic and export markets. The national policy aims at increasing the level of food
processing from the present 2 per cent to 10 per cent by 2010 and 25 per cent by 2025. Foreign direct
investment is not directly allowed in agriculture but there exist ample opportunities in related sectors.

Food processing & packaging - harnessing the potential

Food processing and packaging represents, perhaps, the biggest potential that the country's agriculture
holds for the future with linkages with a spectrum of sub-sectors like horticulture, plantation, animal
husbandry and fisheries. While India has an abundant supply of foodgrains, the food processing industry is
still nascent. Only 2 per cent of fruits and vegetables and 15 per cent of milk produced are processed. But
despite these apparently low volumes, the processed food industry is the fifth largest segment of the
economy, representing 6.3 per cent of GDP. It accounts for 13 per cent of exports and 6 per cent of total
industrial 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 of
this domain.

Historically, India's crop portfolio has been dominated by foodgrains and a handful of cash crops. Over the
past one decade, there has been conscious, coordinated effort to diversify the agriculture base to develop
domestic markets as well as increase export potential. The strategy has been to exploit the country's diverse
climate 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 boom

Horticulture 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 past
decade has seen its contribution to agriculture GDP touching about 24.5 per cent from a paltry 8 per cent of
the total cultivated area. Besides providing nutritional and livelihood security and helping poverty alleviation


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and employment generation, this sub-sector sustains a large number of agro-industries, which generate
huge additional non-farming employment opportunities.

Surge in vegetable production

Production of vegetables increased massively from 58.5 million tonnes during 1991-92 to 90 million tonnes
during 2003-04 and is currently second only to China. India leads the world chart in the production of
cauliflower, second in production of onions and third in production of cabbage. At 22.2 million tonnes, potato
is the leading vegetable (in terms of tonnage) followed by brinjal and tomato at 7.7 million tonnes and 7.3
million tonnes respectively. With regard to vegetable production, West Bengal leads among the
states with 18 million tonnes, followed by UP at 13 million tones and Bihar at 10.2 million tonnes. Yield has
increased with adoption of hybrid seeds and also with increased cultivation of disease and pest resistant
varieties. A seed production programme with advanced techniques has also helped enhance output and
productivity.

The National Horticulture Board is working on integrated development of vegetables, including root and
tuber 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 for
storage.

The fruits story

With production of fruits at 47.5 million tonnes during 2003-04, India accounted for about 10 per cent of the
world production and was the second largest producer of fruits in the world. Bananas have the highest share
at 35.6 per cent followed by mangoes at 22.6 per
cent. The other major fruits grown are papayas, apples, guavas and citrus fruits.

The flowering of floriculture

The domestic floriculture industry has been witnessing an unprecedented growth during the past years and
has also been getting increased acceptability in world markets, currently estimated at US$ 50 billion. The
floriculture industry has been growing at an annual rate of 17 per cent, which has also seen a number of
corporate houses entering the fray during the past three to five years. Higher standards of living and the
growing desire to live in an environment-friendly atmosphere have led to a boom in the domestic market as
well.


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The export of cut flowers has been identified as a thrust area at the national level. The estimated area under
flower 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 219
per cent in a single year to 2,565 million during 2001-02 from around 803 million during the preceding year.


13

Floriculture 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 opportunity

The domestic farm sector has been successfully experimenting with the application of biotechnology since
the mid-60s when the use of high-yielding seed varieties began to completely revolutionize yields. With the
increased diversity in cropping pattern and new crop varieties, the importance of biotechnology inputs has
only multiplied. Broadly, biotechnology refers to the techniques that allow scientists to modify DNA of crops
to enhance their tolerance to pests and diseases, increase yields and improve quality and nutritional value.

GM Cotton

For 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 Genetic
Engineering Approval Committee (GEAC) carry the bacillus thuringienies (Bt) gene that protects the cotton
plant against bollworm, a serious cotton pest rampant in the country.

Although India is the world's largest cultivator of cotton, its output is less than that of the US and China. By
cultivating Bt cotton, India expects to raise its cotton productivity and competitiveness.

The rise of IT in the agricultural sector

The application of information technology (IT) in agriculture is usually associated with markets in developed
countries and capital intensive methods of production. However, its relevance to the rural economy in a
country like India cannot be overlooked. IT can effectively be used to disseminate technology, streamline
the supply chain for food processing and other agro-industries and lead to better price realisation by
farmers. There are many efforts underway which demonstrate the concrete benefits of IT for the rural
population and the sector as a whole.


14

e-Choupals - the ITC experiment

An example of the successful application of IT is the e-Choupal experiment kicked off by ITC. ITC has
designed and set up Internet kiosks called e-Choupals to support its agricultural product supply chain. The
e-Choupals are totally owned and set up by ITC with the operators not having any investment or risk of their
own. 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 internet
access to global market information to guide production and supply decisions. There are a few dozens of
these e-Choupals at present. In the case of wheat and soyabean, since there are many small farmers, over
2,000 e-Choupals have been set up in several states. Soya e-Choupals, for instance, are used as registry
points for procurement. Actual procurement is done at the factory and warehouse hubs but the initial logging
in 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 derivative
products. In addition, they get access to operational information, developed by ITC experts, pertaining to
cropping, seeds, fertilisers etc. The initial benefits of the ITC effort include a substantial reduction in
transaction costs from 8 per cent to just 2 per cent. These gains are shared roughly equally between ITC
and individual farmers. The longer-term goal is to use e-Choupals as sales points for soyabean oil, tractors
and eventually a range of ITC produced consumer goods.

The use of IT is just a part of ITC's supply chain overhaul, but quick delivery of complex information
pertaining to market conditions makes IT so essential.

Conclusion

It is pertinent to note that it is only because of WTO that India can expect to be heard and thereby protect its
interests in International trade. However, for gaining any advantage under the WTO it is not only important
for India to have the Geographical Appellation Bill now Act but also the completion of the subsequent
formalities

In conclusion one can say that the governmental action is very important to protect the India interests under
the WTO regime.


15

Reference:

Prasad C 1994, Agricultural Research Management – An introduction, National Academy of Agricultural
Research 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 of
Development Economics, Vo. I
Pradeep Sharma and Ashok Gulati (1995), “WTO and Indian Agriculture” EPW, 10 March,1995

Ashok Gulati and Tim Kelly, “Trade liberalization and Indian Agriculture Oxford University press, New Delhi

Rakesh Singh (197), “Reviving Agriculture: From subsidies to investment” Paradigm, January 1997.

Raghuram Parthasarathy, (2001), ‘Global competition: Strategies for Indian Businesses’, The
hindu,5.4.2001

GOI, (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 to
Sanitary and Phytosanitary Regulation”, Journal of Agriculture Economics, 50(2),May,234-246

Hoekman 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.org

Prof. Dr. P.S. Rao is Dean – Quality Systems and New Business Initiatives at Welingkar Institute of
Management, Development and Research.
Email: ps.rao@welingkar.org

Author’s Profile

Prof. Dr. Uday Salunke Director - Welingkar Institute of Management is a mechanical

engineer 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 and

other companies before joining Welingkar in 1995 as faculty for Production Management.

Subsequently his inherent passion, commitment and dedication toward the institute led to his


16

appointment as Director in 2000. Dr. Salunkhe has been invited as visiting fellow at the Harvard

Business School, USA and European University, Germany. He has also delivered seminars at the

Asian Institute of Management, Manila and has been awarded "The Young Achievers Award-

2003" in the field of Academics by the Indo American Society recently.


Uday Salunkhe - Union Budget

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