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Globalization and public agricultural research in India

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  Chapter 3Globalization and Public AgriculturalResearch in India P.V.Srinivasan and Shikha Jha*  Introduction The globalization process that entered a new and more accelerated phase after theUruguay Round and the far-reaching policy reforms that the Indian governmentimplemented in the course of joining the WTO, have opened up new opportunities forIndian producers, both industrial and agricultural, by giving them wider and fasteraccess to more advanced technologies and to larger markets both at home and abroad.These developments were not, however, a one-way street leading to better economicconditions from which all have benefited; indeed, in many parts of the countryagricultural producers, particularly subsistence farmers, were negatively affected bythe domestic price gyration and the greater competition that followed the reforms. TheIndian policymakers must now face the challenge of minimizing the negative falloutsand lift the affected rural households out of their dire conditions. The objective of thischapter is to analyze the impact of the globalization process and the attendant policyreforms on the agricultural sector and the rural population in India and to evaluate theoptions that the public sector and the Indian national agricultural research system(NARS)nowhaveinordertomeetthesechallengesandassistthesegmentsoftheruralpopulation that were negatively affected.Pressures to lower public spending that were an important part of the reformsforced the Indian government to sharply cut its domestic spending, including itemssuch as agricultural research and extension, irrigation, and rural development. Theshrinking financial resources of the public agricultural research institutes exposedthese institutes to pressure to increase their income from other sources throughselective commercialization of their activities, such as claiming IPR, provision of research, and other services to the private sector, charging commission for the use of materials they owned when these materials were used for commercial purposes, andseeking ways to collaborate with the private sector. Recent experience also suggeststhat the negative impact of the diminishing public budget was partly offset byconsiderable efficiency gains thanks to collaboration with domestic and multinationalprivate enterprises and access to more advanced technologies.A particularly important aspect of the reform program was the removal of manyrestrictions on agricultural trade and improvement in the terms of trade between theagricultural and nonagricultural sectors that was brought about by lowering theprotection on the domestic production of many industrial products. This gave strong 103* P.V. Srinivasan, Shikha Jha: Indira Gandhi Institute of Development Research, India  incentives to increase private investment in agriculture by local and internationalcompanies. Private agricultural companies, motivated by profit prospects, areattracted, however, to crops with significant commercial prospects, and they benefitmostly the resource-rich large farmers that can increase their investments and haveaccess to credit, whereas credit-constrained small and marginal farmers, who growmostly for their own consumption, are not likely to benefit much from thesedevelopments.Another consequence of the increased use of improved technology as an effect of the price reforms and the trade liberalization is likely to be a more extensive use of fertilizersandpesticides,whichcan,inturn,adverselyimpacttheenvironmentandthesustainability of agricultural growth. The intensive commercialization of agriculturalproduction and the over-exploitation of the soil may also exacerbate the unsustainableuse of natural resources and accelerate soil degradation. To prevent these negativeexternalities, maintain the balance between higher productivity and environmentalsustainability, and give incentives to a more efficient management of the country’snatural resources, the Indian Federal, State, and local governments will have tointroduce comprehensive regulations, take active measures, and make considerableinvestments in the environment and in the development of new, more efficient, andenvironmental friendly technologies.Domestic deregulation measures, such as the removal of many restrictions ondomesticandforeigntradeandonforeigninvestments,areexpectedtolead,inthelongrun,togreaterefficiencyinagriculturalproductionandmorerapidgrowth.Intheshortrun, however, these gains are not likely to be equally shared by all regions andsocioeconomic groups. The lessons from the Green Revolution indicate that thebenefits are likely to concentrate rather narrowly in certain geographic areas andproducers groups. The limited experience from the current reforms suggests that themarket deregulation, the incentives and pressures to boost privatization, the improvedtechnologies, and the extended market opportunities are likely to benefit initially themore resourceful farmers and the more developed regions that have betterinfrastructure and better access to the central markets. In the absence of targeted andwell-designed policies, subsistence farmers in remote areas with less access to themarketsandtonewtechnologiesmaybecomeincreasinglymarginalized.Policieswillhave to include public investments in rural infrastructure, targeted agriculturalresearch and extension services to address the specific needs of poor farmers, andsocialsafetynetstoassistthemindiretimeswhentheiroutputandfarmingsystemsaredevastated by droughts, floods, or political unrest.This chapter presents an examination of the impact of the various internal changesas an effect of globalization and the domestic policy reforms that affected agriculturalproducers. The focus is on the impact of deregulation measures and other policymeasures aimed at liberalizing trade in the seed industry in India and in the productionand imports of other inputs used in agricultural production. The section also examinesthe impact of these developments on agricultural R&D and on the public agriculturalresearch system and discusses the possible effects of the introduction of IPRlegislation. It evaluates the response of the agricultural research system in India tovarious policy changes and to the challenges posed by globalization, and it discusses 104 Chapter 3  alternative strategies and policy options for the future. It concludes with a summary of the main findings and offers some conclusions and recommendations. Recent Developments in Indian Agriculture During 1999–2000, the agricultural sector in India, excluding forestry and fishing,contributed a little over 25% of GDP, down from about 28% in 1993–94. In somerecent years, this was coupled with a negative growth of agricultural production. Thisdecline occurred even though 1999–2000 was the 12 th consecutive year with a normalmonsoon (which heavily determines the performance of the agricultural sector) anddespite increasingly favorable terms of trade for agriculture, growing privateinvestment in agriculture, and an increase in fertilizer consumption from 12.5 milliontons in 1990–91 to about 19 million tons in 1999–2000. The pre-reform period (before1991) was characterized by heavy protection for industry and taxation of agriculturevis-à-vis international prices. Since agricultural policy focused more on price policies,neglecting nonprice factors such as technology and infrastructure, agricultural growthwas affected (Dev and Ranade 1999). The poor performance of agriculture in recentyears can also be attributed to some extent to an uneven spread of production andtechnology across geographical regions. On the whole, India’s agriculturalproductivity lags behind that of many developing Asian countries such as China,Indonesia, Pakistan, and Sri Lanka. Productivity levels of rice and wheat—the majorbeneficiaries of the Green Revolution—have reached a plateau. The growth rate of theproduction of food grains halved from 3.5% per annum in the 1980s to 1.7% in the1990s, which is lower than the population rate of growth at 1.8%. This would meansubstantially rising import requirements despite domestic food grain outputs at recordlevels in 1999–2000.The1980sand1990s,however,witnessedaregionaldiversificationofagriculturalgrowth. New technology, initially confined to the northwestern parts of the country,spread to the southern and eastern states. There were also cropping pattern changes,and in large areas cultivation shifted from low yield, low value, coarse cereals to high-value crops such as oilseeds (Bhalla and Singh 1997). The spread of new technologywas facilitated by increased irrigation and price support provided by the government.Restrictions on trade, for example, helped maintain the domestic price of edible oils ata level that was much higher than the world price. The trade liberalization measuresundertaken in recent years and the GATT agreement might change the situationsubstantially, leading perhaps to further changes in cropping patterns and differentlyaffecting farmers in different regions and different income groups.The Indian economy adjusted to globalization through trade liberalization andderegulation measures such as liberalizing domestic trade, removing trading zones,and lifting price and quantity controls. As a signatory to GATT, India will soon bereplacing all quota restrictions with suitable tariffs and then phase them out over time.The GATT agreement on agriculture has three sections: export liberalization, importliberalization or market access, and reduction of domestic subsidies. The developingcountrieshavetoreducethenewboundtariffsbyatleast10%overaperiodof10yearsfrom 1995–2004. The GATT commitments in the area of agriculture also require that, Globalization and Public Agricultural Research in India  105  ifdomesticsupporttoagriculture(productandnonproductspecific)inmonetarytermsexceeds 10% of the value of the agricultural product, this support will have to bereduced by 13.3%. In the case of India, the support to farmers is mainly in the form of minimum support prices for their produce and subsidies on inputs like fertilizers,seeds, irrigation, electricity, and credit. Analysis by Gulati and Sharma (1994)revealed that domestic support levels are negative for most agricultural commodities.Therefore, the price reform in India is driven more by a need to reduce distortions ininput markets and less by the GATT agreements. The SPS measures and TRIPSagreement also have an important bearing on Indian agriculture. These policy changeshave a direct impact on the agricultural sector and on the rural population. The variousglobalization-related developments and their impact on Indian agriculture are brieflyoutlined in the following sections. Trade liberalization policies The economic reform program reduced barriers to external trade and hurdles todomestic and foreign private investments. Some of these measures were part of thestructural adjustment process that started soon after the crisis in 1991; others resultedfrom the agreements at the Uruguay Round that are administered by the WTO.Agricultural exports benefited from the removal of export restrictions as part of thetrade reforms initiated in 1991 and the move to a market determined exchange ratepolicy in 1993. The export policy led to the introduction of new products such asfloricultural and horticultural crops and marine products in India’s export basket.Other policy changes that favored exports included lower import duties on capitalgoods used in food processing industries and subsidies on airfreight for exports of perishables. Agricultural exports constituted 18% of total exports from India from1994–95 to 1999–2000. Accelerated growth in exports is envisaged through enhancedinvestments in infrastructure and the appropriate policy environment. Indianexporters,however,mustmeetthemorestringentqualitystandardsintheinternationalmarketintermsofhealthandsafetyofhuman,plant,andanimallifethatarestipulatedin the WTO agreements. Processing, packaging, transport, and port facilities must begeared to support export activities.The need to reduce quantitative restrictions on exports came mainly from thecommitments made to the WTO. In the case of food grains, however, the rapidlyincreasing amount of stocks with the government and the associated cost burden wasan added reason for the government to remove the restrictions on exports. Untilrecently, imports of food grains were channeled through state trading agencies such asthe Food Corporation of India (FCI) and the State Trading Corporation. Exports weresubject to quotas and were required to fetch a specified minimum export price. But theincreasing financial burden of holding large food stocks to stabilize domestic pricesprompted the government to look for alternative ways of disposing excess supplyduring glut and fulfilling excess demand during shortage. As part of its overall reformprogram, the Indian government opened some avenues for integrating the domesticmarket with the world market in order to boost agricultural exports. Except for somerestrictionsontheexportofwheatandwheatproducts,coarsegrains,sugar,andpulses 106 Chapter 3  in bulk, almost all other agricultural products are now freely exported. In recent years,the country has emerged as a leading exporter of both fresh and processed agriculturalproducts, including meat and meat preparations, spices, and cashew. Thesecommodities have made a considerable breakthrough in international markets (Paroda1996). Among food grains, Indian rice exports were traditionally mostly of the high-qualityaromatic  Basmati variety,andonlyaftertradeliberalizationsubstantialexportsofotherricevarietiesbecamepossible.Indianexportsofricepeakedat5.6milliontonsin 1995–96 and reached 4.9 million tons in 1998–99, amounting to a large share of thetotal world trade in rice, which is about 20 million tons.Integration into the global economy through the removal of trade barriers will leadto greater commercialization of agriculture and to a shift towards high value crops. Asa result of trade liberalization, it is expected that the area under crops such as rice,wheat, maize, sorghum, chickpea, and cotton will increase, whereas the area underoilseed crops such as groundnut, rapeseed-mustard, and sunflower will decline (seeGulati and Sharma 1997). Since world prices are normally more unstable thandomestic prices, and since with the integration of the Indian market into the worldmarket, domestic prices are directly linked to world prices, there can be greaterdomestic price volatility (Nayyar and Sen 1994). This, however, need not necessarilybe the case, since the wedge created between domestic and international prices by theexisting export/import margins plus the domestic trade and transport margins are highenough to insulate domestic prices from world price instability (Jha and Srinivasan2000). Policies related to seeds, machinery, and other inputs The deregulation of technology transfer and foreign investment had a direct impact ontheseedindustry.WhiletheGreenRevolutionhelpedimproveseedqualityforcereals,other crops such as oilseeds and vegetables remained heavily dependent on seedimports in the absence of a major breakthrough in seed technology. With theliberalization of 1991, 100% foreign equity is allowed in the seed industry and thereare fewer restrictions on seed imports. The Foreign Exchange Regulation Act of 1979had earlier restricted firms with foreign equity exceeding 40% from entering the seedindustry. The Industrial Policy Act of 1986 put seeds and biotechnology under coreindustries allowing the entry of large Indian firms and firms with majority foreignownership. The New Seed Industry Development Policy of 1988 made it easier toimport germplasm for research and allowed vegetable seed imports under OpenGeneral License with a 15% tariff. It also allowed imports of oilseeds and seeds of coarse grains for tests and commercial trials.As a result of the policy changes in the 1980s and 1990s, investment in privateplant breeding multiplied threefold (Ramaswami et al. 1999). The market for seeds inIndia is very limited, however. Notwithstanding the liberalization efforts, only 12% of all the seeds planted are provided by commercial seed companies. The main source of seed for most Indian farmers is still farmer-saved seed. In rice and wheat, only 10% of the seeds are supplied by the commercial system. The majority of the seeds distributedby the public sector State Seed Corporations (SSCs) are open pollinated, whereas the Globalization and Public Agricultural Research in India  107
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