Agriculture sector
Macroeconomy and reforms
Economy in 2000

India, a country with over a billion people, is the world's largest democracy and the second-most-populous nation after China. Its economy is Asia's third largest, after Japan and China. But with per capita annual gross domestic product of $380, India is also among the lowest income countries in the world.

If India's current population growth rate of 1.7 percent per year is maintained, it will over- take China as the most populous country on earth around 2050. Nearly three-fourths of the population lives in rural areas and derives its livelihood from agriculture. An estimated 250 million, or a quarter of the population, fall in the middle- and upper-income group.

Key statistics
Map

Agriculture sector
India has a big and diverse agriculture sector. It provides food and fiber to the country's large population and employs over 70 percent of the population. It contributes close to 30 percent of the gross domestic product and 20 percent of the foreign export earnings.

Factors strengthening India's agriculture sector have been

• extensive land and water resources;
• significant public investments in agricultural research, development, extension, infrastructure; and
• government supports in input subsidies and output prices.
  

As a result:

• India has become one of the world's leading producers of many crops, including rice, wheat, coarse grains, pulses, and cotton;
• it has the largest bovine herd in the world and is the biggest producer of milk;
• it ranks high among the top producers of fruits and vegetables;
• it is one of the largest producers of tea, spices, cashew nuts, mangoes, and bananas; and
• its production of exportable horticultural products has risen sharply in recent years.
  

India has been trying for many years to achieve self-sufficiency in food crops and reduce dependence on imports. Agriculture has generally maintained an upward growth, despite some sluggishness in the past. Overall agricultural production has increased at an annual average rate of 2.7 percent, keeping pace with population growth. Food grain production increases have brought India close to self-sufficiency. In 1999 food production increased to a record 209 million tons. Currently India has 60 million tons of foodgrains in government stocks.

In recent years India has emphasized increasing its exports. With government encouragement, export prospects have improved for many products, including wheat, rice, oil meals, cotton, coffee, fruits, vegetables, marine products, and other non-traditional food items. Imports of edible oils, pulses, dried fruits, and nuts have continued despite increased domestic production. But India is a net exporter of agricultural products.

Macroeconomy and reforms
Since its birth 50 years ago, India has followed a mixed economic system with a socialistic bent and extensive central planning. Basic economic activities are market driven, but dominated by the public sector and government control. Despite the strong government role in national economic management, India's economy has not grown as planned. Chronic large budget deficits, high inflation, and low levels of foreign exchange reserves hobbled the economy.

India undertook drastic reform of its policies in 1991 with economic liberalization and privatization mechanisms. Policies were focussed on curbing government controls, regulations, and red tape in all sectors of the economy and increasing transparency at all levels of the government. Aggressive market-oriented policies and structural changes were initially directed at the industrial, financial, and trade sectors and later applied to other sectors, including agriculture.

The reform measures impacted the economy favorably. During 1992-97, annual gross domestic product (GDP) growth averaged 6.2 percent. Highest GDP growth 7.5 percent was attained in 1997. Inflation fell from double-digit to single-digit rates, and fiscal deficits fell to 5.5 percent of GDP in 1997.

Trade liberalization measures introduced drastic reductions in government interventions, trade restrictions, tariff rates, and public-sector dominance. As trade regimes were liberalized, India's exports and imports grew, expanding the two-way trade to a record $84 billion in 2000 from $38 billion in 1991. Foreign exchange reserves climbed to $41 billion in 2000, sufficient to cover 10 months of imports, a marked improvement over $1 billion or 2 weeks of imports in 1991.

Contributing to the turnaround of the India's foreign exchange reserves was the inflow of foreign direct investment that grew steadily in the last 5 years from an essentially zero base. Financial reforms improved the confidence among international investors, including non-resident Indians. The rupee currency was brought under a managed float system and made fully convertible in the current account. Though the rupee depreciated by about 20 percent since 1991, exchange rate volatility was far less than that in the Southeast Asian countries.

Economy in 2000
Economic progress slowed down in 2000. GDP growth rate fell to around 6 percent from 6.4 percent in 1999 and 6.6 percent in 1998. Growth rate of agricultural sector declined to 0.2 percent, from 0.7 percent a year ago. Agricultural output had a negative growth of 5.0 percent, further deceleration than the negative growth of 0.7 percent in 1999. Fiscal deficits increased to 5.5 percent, while inflation decreased to 5.2 percent.

With exports increasing to $44.4 billion in 2000 from $36.7 billion a year ago, while imports remaining steady at $ 49.7 billion, India's overall trade deficits decreased to $5.3 billion in 2000 from $ 13 billion in 1999. As a net exporter of agricultural products India maintained a surplus in agricultural trade which widened to $3.2 billion, from $1.7 billion in 1999. Foreign exchange reserves rose to $41 billion from $33 billion a year ago.

The slowdown of economic growth has highlighted the need for accelerating the pace of deeper reforms in the Indian economy. The government pledged to accelerate the reform process and change policies as per multilateral commitments. Fulfillment of these pledges is expected to benefit the Indian economy in coming years.

References
Economic Survey, Government of India, Ministry of Finance.

Agricultural Attaché Reports, USDA, Foreign Agricultural Service.

South Asian Climate and Crop Information.

Top of page

for more information, contact: Tom Vollrath or Suresh Persaud
web administration: webadmin@ers.usda.gov
page updated: August 27, 2003