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India’s Agriculture Sector – Contemporary Developments in Business and Management
Agricultural production in India is an important determinant of overall economic growth and a huge employer of the rural populace. Total food grain production, for instance, in 2004/2005 (April-March) amounted to 206.4 million tones, including 87.8 million tones of rice and 73.0 million tones of wheat (Country Report, 2005). However, yields per hectare remain low by international standards. Other major crops grown include oilseeds, cotton, pulses, sugar, tea, coffee, rubber, jute and potatoes. The recent slowdown in the sector is a cause for concern and calls for a change in the government’s agricultural policy. Some academic research suggests that in order for India to sustain GDP growth of around 7 percent or more, agriculture has to grow at, or in excess of, 4 percent (India Economic Survey, 2004; Sinha, 2005; Nilekani, 2006).
The following management report attempts to analyse the agriculture sector in India, assessing the affect of external and internal factors on the industry. SWOT analysis framework is employed to give a more in-depth strategic insight into the sector’s current development, emphasising its internal strengths, weaknesses, and external opportunities and threats. The application of PEST analysis involves the assessment of industry’s external environment of political, economic, social and technological conditions that have a direct impact on the performance of the industry and its future development. The significant part of the report is also devoted to the critical evaluation of ecological factors impacting the agricultural sector, examining industry’s responses and improvements for its sustainable growth.
2.0 Indian Agriculture Industry Overview
2.1 SWOT Analysis
- The Indian agriculture is large, competitive and well developed, offering products at low prices. The sector experiences a constant demand, as Indians have a strong preference for fresh rather than processed foods and for local spices and ingredients (The World Bank, 1997).
- Provides employment for a large Indian population, living in rural territories.
- Recent advances in technology and government initiatives support the development of the sector. In pursuance of the government policy to strengthen and promote IT led governance, the department of agriculture and cooperation has been taking various measures to promote the use and application of technology with the aim of making agriculture “online” for the use of farmers, exporters, and traders, etc.
- One of the major weaknesses present for the agricultural sector in India is in the lack of government support. Unlike in East Asian countries, the shift of the labour force from agriculture to non-agriculture in India is peculiarly slow, largely attributable to rigid labour laws in both the agricultural and industrial sectors. Gliessman (1989) also highlights the need for pressing on with reforms in agriculture, in particular, trade liberalisation and export promotion strategies. Becker and et al. (1992) also claim that though India spends on agriculture nearly twice as much as some East Asian economies, this level of spending on agriculture does not translate into a significantly higher sectoral performance.
- Inadequate road linkages also remain a major constrain for the development of well-functioning agricultural markets. A continuing fragmentation of land-holdings, poor maintenance of existing irrigation systems and declining soil fertility in some areas are other factors.
- Another weakness is based on seasonality and the fact that agricultural sector output heavily depends on the annual monsoon, as less than one-third of cropland is irrigated. The main foodgrain crops, for example, and some cash crops (oilseeds, cotton, jute and sugar) depend on the south-west monsoon (This brings 80% of India’s rain, usually within a three-month period from June to mid-September. The 2002 south-west monsoon was disastrous, causing the autumn grain harvest to fall by 18% year on year. In 2004 the sector stagnated in comparison to the previous year when the best monsoon rains in a decade generated growth of around 10% in the agricultural sector. Excessive rainfall in 2005 caused severe flooding in Maharashtra (The Economist Intelligence Unit Report, 2005a)).
- A growing population, rapid economic development, and political and social demands exceed the mandate and capabilities of any corporation in an emerging economy (Bhagwati, 1998), and India is no exception to this. A growing population has made industrial development one of the Indian government’s highest policy priorities; it is an important element of economic development as it assists in raising national income at a more rapid pace. It is also a precondition for continued agricultural development.
- Palmer-Jones and Sen (2003) state that the government continues to play a major role in assisting farmers through agricultural credits, subsidies, price support schemes and extension services. Although there are no food security concerns at present, better agricultural productivity will hold the key to stable growth in food production, given the limits of the resource base. There is an opportunity for the economic growth to benefit more people only if the country raises agricultural productivity, improves its system of general education to help the millions who must leave farming, and encourages labor intensive manufacturing industries.
- About one-fifth of the country, 69m ha, is covered by forests and woodland, and one-half of this area is reserved for the production of timber and other forestry products (Varshney, 1998). However, there are increasing concerns from environmentalists and local government over the rapid depletion of forest areas, ecological factors, and scarcity of natural resources.
- As income rises, India is becoming an increasingly important market for processed foods, especially in the cities and among young people. Aware of quality and international brands, consumers are less likely to support national products, and are more vulnerable to pay premium prices for foreign products of better quality. This represents a potential substitution to the local products, impacting the production levels of agriculture sector.
- Food support prices for wheat and rice have given farmers little incentive to diversify and have filled government storage facilities to overflowing, while keeping the market price of foodgrains artificially high. Current agricultural policy, which supports cereal production, is exceedingly expensive and will be unable to deal with the likely scenario of a shift in consumption from cereal food towards non-cereal food. A lack of market infrastructure also hampers the movement of crops, leading to sudden shortages. India has considerable potential as an exporter of rice, cotton, many types of fruit and even flowers, but this has so far not been tapped (Yeoh and Siang, 2006).
- The introduction of high-yield crop varieties and new fertilising and irrigation techniques over recent decades – the so-called Green Revolution – dramatically increased productivity in some regions. India has been self-sufficient in food since the mid-1970s, maintaining buffer stocks adequate to meet demand despite failed harvests and seasonal fluctuations (Ramakrishnan, 1993; The World Bank, 1997).
2.2 PEST Analysis
India is a parliamentary federal democracy with an indirectly elected president, Adbul Kalam. The economic liberalisation of 1991, initiated by then Indian Prime Minister P. V. Narasimha Rao and his finance minister Manmohan Singh in response to a macroeconomic crisis did away with the Licence Raj (investment, industrial and import licensing) and ended public sector monopoly in many sectors, thereby allowing automatic approval of foreign direct investment in many sectors, including agricultural. Since then, the overall direction of liberalisation has remained the same, irrespective of the ruling party at the centre, although no party has yet tried to take on powerful lobbies like the trade unions and farmers, or contentious issues like labour reforms and cutting down agricultural subsidies. The process of reducing or removing agricultural and food subsidies, which is still ongoing, was commenced. Tariff and non-tariff barriers to external trade were also reduced.
Realizing the importance of Indian agricultural production for economic development, the central Government of India has played an active role in all aspects of agricultural development. Planning is centralized, and planned priorities, policies, and resource allocations are decided at the central level. Food and price policy also are decided by the central government. Thus, although agriculture in India is constitutionally the responsibility of the states rather than the central government, the latter plays a key role in formulating policy and providing financial resources for agriculture. The main objectives of the Government’s price policy for agricultural produce, aims at ensuring remunerative prices to the growers for their produce with a view to encourage higher investment and production. Minimum support prices for major agricultural products are announced each year which are fixed after taking into account, the recommendations of the Commission for Agricultural Costs and Prices (CACP). For example, the Government of India has also approved proposals for joint ventures, foreign collaborations, industrial licenses and 100% export in or with the agricultural sector, envisaging an investment of over $ 18.2 Billion (Agbola, 2004).
One of the most critical obstacles of policies applications in agricultural sector is in ensuring food security – access of the population to sufficient food to meet nutritional requirements. Food security issues tend to cover not only issues related to availability and stability of food supplies but also issues of access to this supply. This last is related to the resources needed to procure the required quantity of food. However, these issues in India are considered to be sensitive and hence, where a large percentage of the population is dependent on agriculture need a certain degree of autonomy and flexibility in determining their domestic agricultural policies. The Economist Intelligence Unit Report (2005) also implies that the government does not fully understand its importance. These would have to be geared towards improving productivity, enhancing income levels, reducing vulnerability to market fluctuations ensuring stability of prices and so on.
India is a two-tier economy, with a cutting-edge and globally competitive knowledge-driven service sector that employs the brightest of the middle classes on the one hand, and a sprawling largely rain-fed agricultural sector that employs the majority of the vast and poorly educated labour force, on the other. The agricultural sector, with fishing and forestry, accounts for around 20% of GDP, services 53% and manufacturing 27%. Agriculture represents an important economic activity for a large population of the developing world India’s agricultural sector provides employment for about 60% of the country’s workforce and accounts for one-fifth of GDP (Meisinger, 2006). Both in terms of foreign investment and number of joint- ventures / foreign collaborations, the consumer food segment has the top priority. The other attractive features of the Indian agro industry that have the capacity to lure foreigners with promising benefits are the deep sea fishing, aqua culture, milk and milk products, meat and poultry segments.
The serious foreign-exchange crisis in 1990 led to a number of well-publicized economic reforms in the early 1990s dealing with trade, industrial licensing, and privatization. The reforms had an impact on the agricultural sector through the central government’s effort to withdraw the fertilizer subsidy and place greater emphasis on agricultural exports. The cut in the fertilizer subsidy was a result of the government’s commitment to reduce New Delhi’s fiscal deficit by removing grants and subsidies from the budget. The government action led to a reduction in the use of chemical fertilizers and protests by farmers and opposition from political parties. The government was forced to continue the subsidies but at a somewhat lower level (Yeoh and Siang, 2006).
Agricultural exports from India were 44 percent of total exports in FY 1960, decreasing to 27 percent in 2003 (India Economic Survey, 2004). This drop in agriculture’s share was somewhat misleading because agricultural products, such as cotton and jute, that were exported in raw form in the 1950s, have been exported as cotton yarn, fabrics, ready-made garments, coir yarn, and jute manufactures since the 1960s. The composition of agricultural and allied products for export from India changed mainly because of the continuing growth of demand in the domestic market. This demand cut into the surplus available for export despite a continuing desire, on the part of government, to shore up the constant foreign-exchange shortage (Edward, 2006).
Over the period 1994-2005, the drive for market liberalization and globalization has severely imposed on the rural household economies. The traditional mode of agricultural practice has been destroyed. The government allocations on the agriculture sector constantly register a decline (The Economist Intelligence Unit Report, 2005). The recent economic system giving a free hand to multinational corporations in agriculture sector has further caused a rapid shrinkage of the traditional practices and replacement of folk crop varieties with high yielding and hybrid varieties, which escalated the cost of agricultural production while stagnating productivity. The farm credit system in Indian agriculture, evolved over decades has been instrumental in enhancing production and marketing of farm produce and stimulating capital formation in agriculture. Credit for Indian agriculture has to expand at a faster rate than before because of the need to step-up agricultural growth to generate surplus for exports, and also because of change in the product mix towards animal husbandry, aquaculture, fish farming, horticulture and floriculture, medicinal plants, which will necessitate larger investments.
Since its independence in 1950s, foreign aid has made a significant contribution to the agricultural progress in rural India. Increasingly since independence, India has been sharing its agricultural technology with other developing countries. Numerous foreign scientists have received special and advanced training in India; hundreds of foreign students have attended Indian state agricultural universities. In the late 1980s and early 1990s, India provided short and long-term training courses to hundreds of foreign specialists each year under a variety of programs, including the Technical Cooperation Scheme of the Colombo Plan for Cooperative Economic and Social Development in Asia and the Pacific and the Technical Cooperation Scheme of the Commonwealth of Nations Assistance Program.
India is one of the oldest civilizations with a kaleidoscopic variety and rich cultural heritage. During the period of 55 years independence, it has achieved multifaceted socio-economic progress and is now the tenth industrialized country in the world and the sixth nation to have gone into outer space to conquer nature for the benefit of the people. However, those people employed in agricultural sector, are those less educated, living in rural areas. More than 60% of the India’s population is dependent on the agriculture (Palmer-Jones and Sen, 2003). The last ten years of development in the agriculture sector in India, show that the lower government investment in agriculture and market driven system has adversely affected the livelihood of rural India. Nilekani (2006) suggest that in India a majority of the farmers come under the category of small and medium farmers and are solely dependent on the local market rather than international market. The prices of their product are determined by local variables rather than international markets, so the trade liberalization may lead to an adverse impact on the Indian agriculture sector and women may suffer.
Large numbers of women are engaged in agriculture, primarily in the production and processing of food. With male-selective migration from rural areas on the increase, women are often left behind to take care of both family and the farm on their own. According to the 2001 census, 27.5 percent of cultivators in the rural areas are female, while in the case of agricultural labour, as much as 46.9 percent are women. Of the rural workforce, an overwhelmingly large proportion, i.e., 80% are employed in the agriculture sector. About 36.5% (40.6 million) work as cultivators on their own/family landholding, while about 43.4 percent (48.4 million) are engaged as hired agricultural labour (Palmer-Jones and Sen, 2003). It is, therefore, obvious that women play no small role in food production. In other words the mode of female participation in agricultural production varies with the land owning status to farm household. Women’s roles range from managers to landless labour. Also, as globalization shifts agriculture to capital and chemical intensive system, women bear disproportionate costs of both displacement and health hazards.
The last few decades have witnessed a visible transition in the industrial landscape of India. Technology has helped society to cut across the traditional boundaries for getting converted into an emerging information society. The Government’s long-term vision on “Information and Communication Technology (ICT) in the Agriculture Sector” aims to bring farmers, researchers, scientists and administrators together by establishing a system known as “Agriculture Online” for the exchange of ideas and information. A land information system has already started using geographic information systems (GIS) and remote sensing to help the farmers to plan their activities and facilitate decision-making and planning at the local level (India, 2004). Farmers can find out the chemical composition of their land through lab testing to know how fertile their land is and what should they grow to make maximum profits.
Achievements of Indian agriculture supported by technology like development of High Yielding Varieties (HYV) of seeds, new hybrids of different crops, research in the area of vaccine production, varietal development through somoclonal variations, developing better quality products and transgenic in crops such as brinjal, tomato, cauliflower and cabbage have strengthened the field. In 21st century agriculture, application of modern biotechnologies like DNA finger printing, tissue culture, terminator gene technology and genetic cloning will hold the key in raising the productivity (Ghosh, 2003). Also considering the irrigation needs in Indian agriculture, emphasis has to be given to promote the proven cost-reducing micro-irrigation technology of drips irrigation which helps conserve water reduces fertilizer inputs and ensures higher productivity.
With all the benefits that technology can provide, there is an important issue of providing sufficient and appropriate education for the labour to increase their skill sin technology application that could be beneficially used for agro sector.
3.0 Ecological Factors Analysis
Agriculture, forestry and fisheries are traditional activities in the rural environment of India. Forest conversion has been accelerated by activities associated with rapid industrialization, such as mining and energy generation through large hydroelectric projects. Nevertheless, much conversion is still due to the extraction of timber for industrial uses and to meet the needs of the rural poor in terms of food, fodder and firewood. In India, lakes and rivers are an integral part of human settlement and the water is being used for drinking, aquaculture, fishing and agriculture purposes. These freshwaters are under considerable threat owing to the fast pace of modern technology, industrialized and increased population densities. Industrial, agricultural, aquacultural, transportation and other human activities like burning of fossil fuels and disposal of solid and domestic waste deteriorates the air and water quality of the lakes.
The concept of economic development has been changing over a period of time. In the early 1980s a new concept of development had emerged as a reaction to the negative experiences of development, which is known as “sustainable development”. The concept “sustainable development” may be interpreted to mean a certain pace of development which can be sustained even in the long run. Since development is a process, sustainable development is also a process in which the economic and social welfare of the people can be maximised with minimum damage to ecology and the environment (Brookfield and Padoch, 1994). As in the case with India, the concern for the environment and its protection was totally absent in the official policies from the very beginning of the planning programmes (Ramakrishnan, 1992; Swift and et al., 1994). The environmental policies of the Government were initiated with the setting up of the National Committee on Environmental Planning and Co-ordination in 1972 and the creation of the Environment Department in 1980. Gliessman (1989) states that since the 1980s, a number of legislative measures were adopted for the preservation of the environment but they largely remain ineffective. However, in recent years, much concern has been expressed about the alarming rate of deforestation which has occurred. Although 22.86 percent of the total geographical area in India has been declared as forest area, Brookfield and Padoch (1994) claim that the actual forest covers to be as low as 19.46 percent, of which, the good forest cover is only around 10 percent of the total land area (Agbola, 2004). In fact, much of the good forest area is located in the north-eastern region of India, where 65.19 percent of the total geographical area is covered under forests, representing around 25.97 percent of India’s forest area based on satellite imagery (Agbola, 2004).
Soon after the Stockholm Conference on Human Environment in 1972, India developed its own environmental control system, laws and policies. The first of India’s modern environmental laws were the Water (Prevention and Control of Pollution) Act of 1974, which established the Central and State Water Pollution Control Boards, The Air (Prevention and Control of Pollution) Act of 1981 and the Environment Protection Act of 1986 (Agbola, 2004; Country Report, 2005). The latter is an umbrella legislation designed to provide a framework for the central government. However, in such an undeveloped country such as India, the contribution of pollution and ecological regulations is weak, partly due to ineffective measures adopted or the lower relative value placed on the ambient quality of life. The mandate of the Central Pollution Control Board (CPCB) is to set environmental standards for all plants India-wide, lay down ambient standards and co-ordinate the activities of the State Pollution Control Boards (SPCBs). Unfortunately, the implementation of environmental laws and their enforcement is decentralised and is the responsibility of the SPCBs (Agbola, 2004), and hence not subject to scrutiny by the CPCB. This is an ad hoc method of addressing key environmental issues. In addition, the pollution control laws have achieved little success. Slow responses by the courts to enforcement actions sought by SPCBs, poor funding of the boards themselves, and charges of corruption have been regular and widespread.
As it was mentioned earlier in the report, agriculture in India is an important economic activity for a large population. Indian “green revolution” is largely confined to a small section of the rural society and has had positive repercussions in terms of general self-sufficiency in food production (Palmer-Jones and Sen, 2003). But this has had its negative impacts too. First, this energy intensive activity is still confined to a small sector of the predominantly agricultural society. Vast sections of the rural communities are left out, leading to wide disparities in access to resources and income generation arising out of effective use of natural resources using affordable appropriate technology. More and more farmers have been marginalized in spite of overall self-sufficiency in food production. This is apart from the difficulties faced at India’ national level to have access to non-renewable resources like petro-based chemical fertilizers and pesticides to sustain the “green revolution” itself in the face of increasing population pressure and to cope with the larger problems of environmental degradation caused by excessive and uncontrolled use of water and chemical subsidies.
Nevertheless, on the local level there are few examples of effective responses from the individual farmers with a regard to biodiversity and ecosystem functions. According to Brookfield and Padoch (1994), through the mixed cropping involving a large number of species and traditional weed management strategies, the shifting agricultural farmer of North-East India ensures effective checks on nutrient loss during the cropping phase. The emphasis is on cereals, which are largely placed towards the base of the slope as they are less nutrient-use efficient, while the more nutrient use-efficient tuber crops are placed towards the top of the slope where soil fertility levels are low. Under shorter ten or five year cycles, the cropping pattern shifts with emphasis on tuber crops (Ramakrishnan, 1995). This indeed is an elegant example of adaptation towards optimization of resource use and risk coverage, through manipulation of biodiversity, by the humans within the ecosystem.
Within a given landscape, the tribal farmer of India also has a variety of land use systems contributing towards biodiversity at all levels ranging from the sub-specific, through the species, population and the ecosystem (Ramakrishnan, 1992; Palmer-Jones and Sen, 2003). Thus, as Swift and et al. (1994) state, apart from the diversity in cropping patterns within the shifting agriculture systems that he maintains, he may have fallow systems, sedentary systems on hill slopes, wet rice cultivation on valley lands involving a variety of rice cultivars and a whole variety of tightly packed home gardens resembling a forest, where the farmer grows perennial trees and shrubs of economic value along with herbs and vines. These mosaics of ecosystem types of the landscape perform a variety of functions towards the integrity of the system as a whole, while having a variety of service functions for the humans (Venkateswaran 1992). Indeed, these indigenous farming practices indicate the effort of individual farmers for conserving resources.
For improving the system of land use and resource management in India’s agricultural sector, the following strategies can be suggested:
- With wide variations in cropping and yield patterns practised by over 100 tribes under diverse ecological situations, where transfer of technology from one tribe/area to another alone could improve the valley land and home garden ecosystems (Palmer-Jones and Sen, 2003). Thus, for example, emphasis on potatos at higher elevations compared to rice at lower elevations has led to a manifold increase in economic yield despite low fertility of the more acid soils at higher elevations.
- Redesign and strengthen the agroforestry system incorporating ecological insights on tree architecture (e.g. the canopy form of tree should be compatible with crop species at ground level so as to permit sufficient light penetration and provide fast recycling of nutrients through fast leaf turnover rates).
- Condense the time-strong of forest succession and accelerate restoration of degraded lands based on an understanding of tree growth strategies and architecture, by adjusting the species mix in time and space (Brookfield and Padoch, 1994).
- Improve animal husbandry through improved breeds of swine and poultry.
- Redevelop village ecosystems through the introduction of appropriate technology to relieve drudgery and improve energy efficiency (cooking stoves, agricultural implements, biogas generation, small hydroelectric projects, etc.). Promote crafts such as smithying and products based on leather, bamboo and other woods (The Economist Intelligence Unit Report, 2005b).
- Strengthen conservation measures based on the traditional knowledge and value system with which the tribal communities could identify, e.g. the revival of the sacred grove concept based on cultural tradition which enabled each village to have a protected forest once on a time, although few are now left.
- Economic (monetary output/input analysis, capital savings or asset accumulation and dependency ratio), social (quality of life with more easily measurable indicators such as health and hygiene, nutrition, food security, morbidity symptoms; the difficult to quantify measures such as societal empowerment and the less tangible ones in the area of social and cultural values).
From the above research it is evident that agricultural sector represents one of the most significant sectors of the economy of India. Therefore, its prospective growth has to be one of the primary objectives of the government development plans. The current state of the agricultural sector is a cause for concern and calls for a change in the government’s agricultural policy, indicating not only a greater restructuring of the public spending and more government funds, but also an integrated tolerant approach to farming, ecological concerns and future growth prospects. However, it still represents a big challenge for the industry; (though the industry has seen some policies and regulations) there is still a gap between the intent of these environmental policies and the actual development.
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