Agricultural policy
Agricultural trade policy

Agricultural policy
Since independence India has pursued a policy of food self-sufficiency, particularly in food grains, through strong government support of agriculture. Both the central government and state governments set agricultural policy.

The basic goal of agricultural policy is to increase crop production by expanding irrigation, improving crop yields through adoption of high-yielding varieties, and increasing cropping intensity with multiple cropping. Though 72 million hectares, 39 percent cropped area, is irrigated, India's agriculture is mainly dependent on monsoon rains. India's crop yields are relatively low by world standards. To increase yields, the public sector provides agricultural inputs, such as fertilizers, power, and irrigation water at subsidized prices. The government makes significant public investments in agricultural research, extension, and infrastructure development. India has an extensive network of government agricultural institutes that conduct research, development, and dissemination of high-yielding varieties of seeds.

The central government formulates national agricultural policies of price support, procurement, subsidies, investments, credits, and trade. The central government fixes minimum support prices for major commodities and updates the prices each year. The state governments have jurisdiction over grassroots functions of agricultural production, such as providing irrigation, power, and fertilizers within the state.

The government procures mainly food grains at support prices and maintains public stocks for disbursement among low-income consumers at subsidized prices through a national network, the Public Distribution System (PDS). The subsidy equals the differences between the PDS price and the procurement cost. India spends a sizable part of its budget on food subsidies.

Production and price policies have generated steady growth in agriculture since the green revolution of the 1960's. India has made substantial gains in food grain production that increased from 51 million tons in 1950 to a record 209 million tons in 2000. These production levels have helped turn India from a net importing into a net exporting country.

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

Attaché Reports prepared by USDA's Foreign Agricultural Service.

Agricultural trade policy
The government has maintained strong control over agricultural trade. For many years, India's domestic market was insulated from world trade by restrictive trade policies. High tariffs and non-tariff barriers limited market access. Only state trading companies were allowed to conduct agricultural trade at the behest of the government.

In the early 1980's, India cautiously began to liberalize trade, but it was only since 1991 that the process of liberalization accelerated. Prior to 1991, India pursued a system of complicated and highly regulated trade regimes. High tariffs, severe quantitative restrictions, complex licensing schemes, state trading, and bureaucratic red tape were the mainstays of the system that insulated India from the world market.

In July 1991 India introduced radical policy reforms in various economic sectors, including trade. The trade reform aimed at:

• eliminating restrictive licensing arrangements of most imports,
• reducing quantitative restrictions on imports and exports,
• reducing basic tariffs substantially,
• removing export subsidies, and
• radically changing of the transactions regime.

In a major policy shift, import licensing for all products, except those on the banned, restricted, and state monopoly lists, was abolished so that any item not on the lists could be freely imported. The lists, which included mainly agricultural products, consumer goods, and textiles, were revised annually and shortened.

Maximum tariff rates were brought down in steps from 300 to about 40 percent and countervailing duties were reduced. The average trade-weighted tariffs were reduced from 87 percent in 1991 to 27 percent in 1997. Trade liberalization was aided by deregulation of the financial sector. This included managed floating of the rupee, raising limits of equity ownership by foreign businesses, and easing procedures for foreign direct investments.

Trade restrictions on agricultural products were left mostly untouched in the 1991 reform, but subsequent trade policy changes gradually lifted restrictions on agricultural products.

• State trading activities, once the bastion of full governmental control over agricultural trade, have been curtailed in almost all products except food grains.
• Market access has been extended to agricultural products by relaxing licensing arrangements, reducing tariffs, freeing more items from quantitative restrictions, and allowing the private sector to import food items.
• The private sector may import oilseeds and edible oils, and private millers may import wheat and corn on certain conditions.

In the Uruguay Round Agreement on Agriculture (URAA), India had bound agricultural tariffs at ceiling rates ranging from 0 to 100 percent for primary products, 150 percent for processed products, and 300 percent for edible oils. Applied tariff rates, however, are lower than the bound rates.

Since 1997, India accelerated the process of lifting quantitative import restrictions. Many agricultural products have been moved from the restricted import list to the open general license list in recent years. Between 1997 and 1999, India lifted quantitative restrictions from 620 consumer food products. In late December 1999, U.S. and Indian negotiators reached agreement on India's removal of all remaining quantitative restrictions (QRs) on consumer goods and agricultural product imports by 2001. About 377 agricultural products are covered, with all QRs to be eliminated in two phases by April 1, 2001, which were accomplished. The QR removal agreement is the result of a long-running effort by the United States and other trading partners to encourage India to further open its potentially huge import market for consumer goods, including food and agricultural products.

Concurrently with the QR agreement, the United States and India concluded discussions on India's request to renegotiate a limited number of tariff bindings. As compensation for an increase in the bound rate for certain zero or lower duty commodities, India provided significant tariff concessions on several horticultural products, including almonds, prunes, and some citrus products.

India is emphasizing export promotion policies by adopting various mechanisms of inducements.

• import duties have been lowered for items needed by the processing industry subject to export of processed products.
• firms are permitted to set up private bonded warehouses in domestic tariff areas to import, stock, and even sell restricted list items to holders of advance licenses.
• export restrictions on certain products have been lifted.

During the last decade, India has drastically reformed its restrictive trade policies and made efforts to open its domestic market to global trade. Yet market access is still restricted by many existing trade barriers. India's agricultural tariff rates are still considered quite high and quantitative restrictions on agricultural and consumer products have not been fully removed. Further trade liberalization is expected in the near future.

References
Pursell, Gary, "Some Aspects of the Liberalization of South Asian Agricultural Policies: How Can the WTO Help?" in Benoit, Blarel, Gary Pursell, and Alberto Valdes (eds.), Implications of the Uruguay Agreement for South Asia: The Case of Agriculture. World Bank. Washington D.C., 1999.

Agricultural Attaché Reports, USDA, Foreign Agricultural Servivce.

Economic Survey, Government of India, Ministry of Finance.

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