Saturday 31 December 2011

IMPACT OF GLOBAL FINANCIAL CRISIS ON INDIA

IMPACT OF GLOBAL FINANCIAL CRISIS ON INDIA
(This paper was presented in the National Seminar on Global Financial Crisis and its Impact on Indian Economy on 12th & 13th Nov.2010 at Kakatiya Govrnment College, Hanamkonda - Warangal District - India) 
                                                                                                                    -Dr. S. Vijay Kumar
                     Globalization is the new buzzword that has come to dominate the world since the nineties of the last century. Globalization and liberalization, undoubtedly, brought benefits of advancement. But globalization and liberalization, especially in the financial sector, were also responsible for increasing instability. India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch.
Genesis of the Global Financial Crisis:
                   The global financial crisis emerged around August 2007. The basic cause of the crisis was largely an unregulated environment, mortgage lending to sub prime borrowers. Since the borrowers did not have adequate repaying capacity and also because sub prime borrowing had to pay two-to-three percentage points higher rate of interest and they have a history of default, the situation became worse. But once the housing market collapsed, the lender institutions saw their balance sheets go into red. With the collapse of Lehman Brothers and other Wall Street icons, there was growing recession which affected the US, the European Union (EU) and Japan. This was the result of large scale defaults in the US housing market as the banks went on providing risky loans without adequate security and the repaying capacity of the borrower. The principal source of transmission of the crisis has been the real sector, generally referred to as the 'Main Street’. This crisis engulfed the United States in the form of creeping recession and this worsened the situation. As a consequence, US demand for imports from other countries indicated a decline.

                  Like other emerging market economies, India also suffered a more severe impact than anticipated earlier. The impact has been more pronounced after the Lehman Crisis. The RBI  has pointed out that the impact arises from three channels: the trade channel, the financial channel and the confidence channel. The trade channel operated mainly through decline in exports in the wake of recessionary trends abroad. The financial channel is measured as ratio of total external transactions (gross current account + gross capital flows) to GDP. This ratio more than doubled, from 46.8 percent in 1997-98 to 117.4 percent in 2007-08. High level of financial integration impacts on the economy in three related ways, viz. reduction in Indian companies' access to overseas finance, lowering of domestic liquidity and causing stock prices to fall. The impact of global crisis through confidence channel would imply shattering of general confidence or "animal spirits". As a consequence, both consumers and investors are forced to reduce their spending. Job losses accentuate the impact on consumer spending. Moreover, there is risk- aversion among banks. In other words, the banks are either averse to lending altogether, particularly to risky ventures such as real estate, and would like to hoard capital or will lend only at a steep price. The presence of all these effects was felt in the Indian economy in recent past.
             The economic slowdown of the Indian economy was due to the impact of the financial crisis on its different sectors such as external sector, banking system, GDP growth and employment. The overall balance of payments situation, however, remained resilient despite signs of strains in the capital account that manifested in the net reversal of FII flows of US $ 15.8 billion during fiscal 2008-09 and on current account through decline in exports. In 2008-09, the merchandise exports recorded a growth of 3.4 percent leveling US $ 168.7 billion. While export growth was robust till August 2008, it became low in September and turned negative from October 2008 to March 2009. The rupee depreciated by 21.2 percent against US dollar during fiscal 2008-09. The US dollar, however, appreciated by 17 percent against the broad index between March 2008 and March 2009, suggesting that only 5 percentage points of the rupee depreciation was due to India-specific factors
              The impact of global financial crisis on India's banking system was considerably less than its impact on the banking systems in the US and Europe. Firstly, the causes of the crisis in India were quite different from those elsewhere. In advanced economies, the banking system suffered huge losses that led to a collapse in the flow of credit and in confidence and dragged down the real economy. In India, it was the real economy which was affected through various channels and the banks felt only the secondary effects arising from slowing down of the economy and were not directly exposed to the crisis. Secondly, Indian banking system is sound and resilient and is well placed to meet any adverse conditions. This has been made possible because of a whole set of favorable factors created over a decade and a half of reforms and five years of buoyant economic conditions. However, as the crisis intensified it affected the banking system through dynamic linkages. The demand for bank credit increased sharply during April--October 2008 as companies found that external sources of credit/liquidity were drying up as a sequel to the repatriation of portfolio investments by FIIs in the wake of the global financial crisis. There was also a sharp increase in credit to oil marketing companies. However, the credit growth declined abruptly towards the later part of 2008-09 due to the 'risk aversion' of banks to extend credit at the backdrop of a general economic downturn. This led to the slowdown of the economy in general and the industrial growth in particular. Working capital requirements of inventories by the non-financial companies. The demand for credit by oil marketing companies also declined. Moreover, low credit expansion by private and foreign banks muted the overall flow of bank credit. Consequently, the growth of bank credit fell from 22.3 percent in 2007-08 to 17.3 percent in 2008-09.
              Despite the developments in money and credit markets, the macroeconomic impact of the global financial turmoil, particularly on GDP growth has not been that severe. This is due to the overall strength of domestic demand and the predominantly domestic nature of investment financing. Following the US and global financial meltdown, the growth rate of GDP witnessed a sharp decline from 7.8 percent in first half (H1) of 2008-09 to 5.8 percent in the second half (H2) of 2008-09. The global market analysts believed that following the global recession, the growth in emerging markets and the developing countries would be driven by the global excess liquidity/monetization, the associated capital flows from developed countries and the demand for commodities. As a consequence, with the bursting of the bubble the initial impact would be a growth collapse, followed by a return in the medium term to growth rates that prevailed before 2004-05, because of the painful process of de-leveraging and collapse of capital flows. Therefore, these analysts concluded that India's GDP growth would collapse to around 4 percent during the subsequent four to six quarters and thereafter it may revert to around 5 to 5.5 percent over the medium term. However, with a GDP growth of 5.8 percent during the second half (H2) of 2008-09, India belied the superficial generalization of the global financial analysts.  
The first half (H1) of 2008-09 saw Indian economy registering a growth rate of 7.8 percent (In fact, the economy slipped from 9 percent growth achieved in 2007-08) despite a good deal of uncertainty in the international commodity and financial markets. Among the domestic growth stimulating factors, gross fixed capital formation retained some of its momentum from preceding years with a growth of around 11 percent. However, both private and government consumption expenditure declined significantly. The growth in private final consumption in H1 of 2008-09 was 3.3 percent which was less than half of the corresponding period in 2007-08. Similarly, government final consumption expenditure (GFCE) grew at less than 1 percent, or just one-third of the growth in H1 of 2007-08. In the second half (H2) of 2008-09, the GDP growth declined to 5.8 percent. There was a further decline in growth to 2.5 percent and a significant moderation in growth rate of GFCF to around 6 percent over the corresponding period of 2007-08. However, with the roll-out of the fiscal stimulus, basically in the form of implementation of the Sixth Pay Commission recommendations in Q3, as well as the second round of fiscal expansion announced in Q4, the growth in GFCE jumped to nearly 36 percent, partly making up for the shortfall in other components of the domestic aggregate demand. The overall GDP growth for the fiscal 2008-09 at 6.7 percent exceeded all estimates and forecasts, from 5.5 percent to 6.5 percent, made by international agencies and analysts.
                   As far as the impact of the global financial crisis on employment situation is concerned, the major social costs are those associated with the enforcement of job cuts, lay-offs and significant upheavals in both organized and unorganized sectors of labour market. The International Labour Organization's 
Global Employment Report for January 2009 (ILO, 2009) presents a rather grim picture. It estimated an increase in world unemployment ranging from 18 million to 51 million over the years end-2007 to end-2009. The corresponding figures for south Asia range from 4 million to 17 million. Although, no separate figures are available for India, on the basis of relative distribution of the workforce in south Asia, one could estimate job losses in India to be between 1.3 million and 6 million over this period. The Indian government's official survey of the unemployment impact of the global financial crisis was conducted by the Labour Bureau, with a focus on eight sectors, viz. mining, metals and metal products, textiles and garments, automobiles, gems and jewellery, construction, transport, and information technology/business process outsourcing. The survey estimated a total job loss of 50,000 over the quarter September-December 2008. Extrapolating this trend in conjunction with the official growth projections in PMEAC (2009), the estimated job losses roughly work out to be about 1.5 million over the entire recessionary phase i.e. September 2008 to December 2009. However, these estimates are likely to prove gross underestimates as they neglect several important factors, the most important of which is global protectionism (Nachane, 2009).

Government Measures and the Global Financial Crisis:In order to tackle the negative fallout of the global financial crisis on Indian economy in terms of economic slowdown, the government responded by taking a number of measures. These measures can be broadly classified as follows:
* Monetary Measures
* Fiscal Measures
* Trade-related Measures
* Institutional measures
* Other Measures

Monetary Measures: These measures aimed at reducing the cost of borrowing and improving market liquidity and cash flows so as to facilitate the flow of funds from the financial system to meet the needs of the productive sectors. The RBI took a number of monetary easing and liquidity enhancing measures including reduction in cash reserve ratio ), statutory liquidity ratio and key policy rates such as repo and reverse-repo. Between August 2008 and March 2009, RBI's successive policy announcements reduced reverse-repo and repo rates from 6 percent to 3.5 percent and 9 percent to 5 percent respectively. CRR was reduced from 9 percent to 5 percent and SLR was reduced from its statutorily maximum limit of 25 percent to 24 percent. This was supplemented by a wide variety of measures to support liquidity, including to distressed segments of the financial system such as non-banking financial companies (NBFCs) and mutual funds. All these measures, by injecting more money, helped in augmenting liquidity in the system to the extent of Rs. 3, 88.000 crore (RBI, 2009).
Fiscal Measures: These measures related to substantial fiscal expansion in the form of tax relief to boost demand and increase in expenditure on public projects such as public works and social safety nets to create employment and public assets. The net impact of these measures was an increase in fiscal deficit from 2.7 percent in 2007-08 to 6.2 percent of GDP in 2008-09. Thus, an overall fiscal stimulus of nearly 3.5 percent was created notwithstanding the fact that some expenditure was on account of the implementation of the Sixth Pay Commission award and the agriculture debt relief scheme (small farmers' debt waiver of Rs. 50,000 crore) announced in the Union Budget 2008-09. For implementing the fiscal stimulus, the government increased its spending on the plan, both for Central sector as well as on Central assistance to State and Union Territories, by nearly 1 percent of the GDP. There was an increase of nearly 2.5 percent of GDP on non-plan expenditure that included increased spending on fertilizers and food subsidies, agriculture debt waiver, defense, salaries and pensions and additional allocations for the National Rural Employment Guarantee Act.
    The government also stepped up its efforts to increase infrastructure investments in telecommunications, power generation, ports, airports, roads and railways. The three stimulus packages introduced by the government to help the industry tide over the impact of global financial crisis, led to a sacrifice of Rs. 1.86 lakh
Trade-related Measures: The government also undertook specific measures to address the impact of global slowdown on India's exports. These included:
* Extension of export credit for labour-intensive exports.
* Improving the pre- and post-shipment credit availability.
* Additional allocations for refund of terminal excise duty/CST and export incentive schemes.
* Removal of export duty and export ban on certain items.
Although the above measures could not substitute for the dramatic slump in foreign demand, yet they were helpful in facilitating the adjustment of companies and workers to the new reality and to survive the temporary setbacks.


Institutional Measures: The broad objective of these measures was recapitalization of banks as well as consolidation of financial sector institutions. The government contributed to recapitalization of Regional Rural Banks (RRBs). In order to restructure and consolidate these banks, 196 RRBs were merged into 85 RRBs. The government also recapitalized public sector banks (PSBs) over two years to maintain credit to risk-assets ratio (of 12 percent. As a result of these efforts, the non-performing assets (NPAs) of PSBs declined from 7.8 percent on March 31, 2004 to 2.3 percent on March 31, 2008.

Other Measures: Besides the above short-term measures, the government also responded by resorting to some medium-term measures relating to domestic financial sector reforms and other reforms and reforms of international financial architecture. The domestic financial sector reforms and other reforms aimed at:
* Increasing access to finance
* Improving domestic resource mobilization
* Improving efficiency of the banking sector
* Avoiding financial repression
* Strengthening property and contractual rights, judiciary and rule of law.

The government initiatives here included:
* Extension of interest subvention on pre- and post-shipment credit for specific sectors.
* Improving regulatory oversight of capital markets
* Putting in place a  plan for public sector enterprises (PSEs)

As far as reforms of international financial architecture are concerned, the objectives were:
* Deepening of financial markets and reforms
* Moving towards a more inclusive system of global financial governance
* Satisfactory conclusion of Doha WTO
* Improving aid effectiveness and development cooperation architecture reform of Bretton     Woods Institutions.
                        To give a concrete shape to the above objectives, the government continued to engage actively at various international fora like the G-20 group of countries (of which India is an active member) and at the multilateral institutional mechanisms on the range of issues that emanated from the global financial crisis. At the meeting on April 2, 2009 in London, the leaders of G-20 countries, including India, collectively committed themselves to take decisive, coordinated and comprehensive action to revive growth, restore stability of the financial system, restart the impaired credit markets and rebuild confidence in financial markets and institutions. At the meeting, India strongly emphasized the need to continue with coordinated contra-cyclical policies within the overall framework of fiscal sustainability and restoration of the banking system in the industrialized countries to full functionality; to avoid protectionist sentiments in the trade of both goods and services emerging in the industrialized economies in the backdrop of global financial crisis; and to take concrete steps to ensure adequate credit flows, including trade finance, to developing countries for which it is imperative to raise resources of the international financial institutions (IMF, World Bank, ADB and to bring forward the quota review in the IMF. India also stressed upon the need for longer term reform of the global financial architecture including increasing the representation of developing and emerging market economies; reform of the global financial system through stronger regulations and improved supervision, especially of systematically important financial institutions, through developing an effective early warning system which can spot a build up of risks threatening global financial stability.

Revival of Indian Economy on High Growth Path: The prospects of revival of Indian economy are somewhat different from most other economies. Firstly, Indian economy has slowed down and has not shrunk unlike most OECD and many emerging market economies. A large domestic market, resilient banking system and a policy of gradual liberalization of capital account have been the key factors. A number of forecasts and projections have been made on the prospects of the Indian economy in 2009-10. These range from a low of 4.8 percent to a high of 6.5 to 7.5 percent . The RBI's April 2009 projections stand as 6 percent and that of PM's Economic Advisory Council (PMEAC) at 7-7.5 percent. Among the international agencies, the March 2009 ADB forecast for 2009-10 is 6.5 percent, IMF is 5.6 percent and World Bank's forecast for the calendar year 2009 is 4 percent. Recently, in September 2009, the Planning Commission of India predicted a GDP growth rate of more than 6.3 percent for the second half (H2) of the current fiscal due to stronger economic expansion. The Commission had earlier predicted a growth rate of 6.3 percent for the same period. The growth rate achieved during first half (H1) of the current fiscal was, however, 6.1 percent. 

               However, the pace at which the Indian Economy returns to the high growth path in the short run depends on the revival of the global economy, particularly the US economy, as the government capacity to push some critical policy reforms in the coming months. According to Economic Survey, 2008-09, if the US Economy bottoms out by September 2009, they could be a good possibility for the Indian Economy repeating its 2008-09 performance i.e. around 7.0+/-0.77 percent in the fiscal 2009-10, assuming a normal monsoon. However, in the event of a more prolonged external economic downturn, with revival of the global economy/US Economy being delayed until early 2010, the growth rate may moderate to the lower end of the range. 
                      The prospects of recovery of Indian economy look brighter, if we look at the growth of various sectors of the economy. The Planning Commission has predicted that the economy has already stabilized and is on its way to recovery. The government has relaxed targets for 2008-09 to provide the much needed demand boost to counter the situation created by the global economic downturn. In this way, the government has succeeded in arresting the decline in the growth of GDP to around 7 percent. The Mid-year Review of the Indian Economy, 2009-10 by the government has analyzed the macro-economic situation of the economy. The data of the first and second quarters of the current fiscal do confirm signs of a turnaround for the economy. 
* The GDP growth for second quarter (Q2) was placed at 7.9 percent as against 6.1 percent growth in the first quarter (Q1). Thus, the real GDP growth in the first half (H1) of 2009-10 is placed at 7.0 percent, which is close to the level of 7.8 percent achieved in 2008-09 (H1).


* In Q2 of current fiscal, agriculture and allied sector recorded a growth of 0.9 percent as against 2.7 percent in Q2 of 2008-09. The country's agricultural output depends substantially on the monsoon, as about 60 percent of the net sown area is rainfed. The fiscal year 2009-10 experienced the most deficient south-west monsoon (June-September) since 1972. The delayed and deficient monsoon (estimated to be as high as 48 percent) coupled with erratic distribution over most part of the economy (& floods) had an adverse impact on the production of kharif crops during 2009-10. However, the full impact of the deficient monsoon rainfall is likely to be reflected in Q3 and Q4 of 2009- 10. 

* The growth in Index of Industrial Production dwindled to a negligible level of 0.6 percent during H2 of 2008-09. After remaining subdued for the first two months of the current fiscal, IIP recorded four months (June-September 2009) of healthy growth close to 9 percent, strongly indicating an industrial recovery. Among the four major components of industry, growth in manufacturing and mining and quarrying exceeded 9 percent in Q2, showing a rebound in the quarter. In December 2009 Industrial output registered its best growth in 15 years with IIP jumping 16.8 percent over December 2008 rekindling the debate on withdrawal of fiscal stimulus. The economists are of the view that the stimulus packages, which included tax cuts and raising public expenditure, have pushed the fiscal deficit to 6.8 percent of the GDP from 6.2 percent a year ago. Hence for fiscal consolidation they recommend phasing out of stimulus packages.
* services continue to be the main driver of real GDP growth with a growth rate of 9.3 percent in Q2 of 2009-10. Barring the group "financing, insurance and real estate", there was acceleration in growth in other groups relative to Q1.
* Exports were hit badly by the slump in demand in the key world markets in the wake of global financial crisis. Exports' growth, which had slowed down during Q2 of 2008-09 and had even turned negative from October 2008 to March 2009, grew over 18 percent in November 2009.
* The Indian equity market, which started picking up from May-June 2009,recorded an increase, as the BSE Sensex rose by 73.6 percent during the current fiscal up to November 11. Total investments by mutual funds during April -October 2009 amounted to Rs. 126,347 crore as against Rs. 88,787 crore during 2008-09. Moreover, there are indications that FIIs, which had recorded net outflows in 2008-09, may have returned to the Indian market in the past few months.
* The forex reserves increased from US $ 252 billion at end-March 2009 to US $ 284 billion at the end-October 2009.

Conclusion:
           The global financial crisis affected Indian economy due to its deeper financial integration with the global economy and led to its slowdown. To counter the negative effects of the crisis, the government took a number of steps. These steps have proved fruitful as the Indian economy is fast recovering from the adverse impact of the global financial crisis and is regaining its growth momentum. The GDP growth rate jumped to 7.9 percent in Q2 compared to 6.1 percent in Q1 of the current fiscal as brought out by Mid- year Review of the Indian Economy, 2009-10. The Review clearly shows a sign of turnaround for the economy as sectors such as industry, service and export, have shown remarkable recovery in the second quarter (Q2) of 2009-10 and the economy is poised to grow at the rate 7-7.5 percent in the current fiscal and is set to return to the high growth trajectory. The Economic Survey, 2009-10 has also projected GDP to expand by up to 8.75 percent in the Financial Year 2010-11. The survey also notes that there has been a revival in investment and private consumption demand and the rates of savings and investment have reached sufficiently high levels, making Indian economy a part of world's fastest growing economies.
              With industrial growth zooming to 16.8 percent in December 2009, giving hope to the government that overall economic growth may be faster and rekindling a debate on withdrawal of fiscal stimulus packages in the Union Budget 2010-11. In fact, the corporate world was concerned about government rolling back stimulus measures in a bid to contain galloping inflation. Various industry associations like Assocham, FICCI had warned that such moves before full economic recovery could hobble economic growth. Therefore, they advocated that the stimulus packages should continue for at least another fiscal and the government should adopt a calibrated approach. Keeping these sentiments in mind, the Economic Survey, 2009-10 has suggested that $ 37 billion stimuli given since December 2008 to help the economy tide over the global economic slowdown, be withdrawn gradually. The process of rolling back of fiscal stimulus measures has in fact started with Union Budget 2010-11. The credit market appears to be working normally.
                 As a sequel to the government measures to recapitalise banks, there is enough liquidity in the economy as Indian banks are adequately capitalized. The Indian stock market has also shown signs of recovery. As regards inflation, the Economic Survey, 2009-10 has admitted a high double-digit food inflation and has warned that overall inflation may go up further in the next few months. Thus, inflation will have to be closely monitored through demand and supply management policies. The agricultural sector remains a cause for concern as it is the economy's mainstay and provides employment to a sizeable population. The survey, therefore, lays emphasis on the need to undertake serious policy initiatives to achieve government's target of sustained 4 percent growth in this sector.
               
Thus, with the global economy recovering from the current  slowdown and the Indian economy showing signs of recovery, and given the growth dynamics of the economy in recent years, Indian economy should be back on the high trend growth trajectory. If critical policy and institutional bottlenecks are removed and pending economic reforms are taken up earnestly by the government, there is no reason why Indian economy should not soon leapfrog to higher GDP growth of 8.5 to 9 percent as achieved during 2007-08 in the pre-recession period.

References:
1. Economic Survey, 2008-09 and 2009-10, Government of India, Oxford University Press, New Delhi.
2. International Monetary Fund (2007): World Economic Outlook, April.
3. ILO (2009): "Global Employment Trends", January.
4. Nachane, Dilip M (2009): "The Fate of India Unincorporated", Economic and Political Weekly, March 28, Vol. XLIV, No. 13.
5. Mid-Year Review of the Indian Economy, 2009-2010, Government of India: Summary by Surge Research Support, December 2009.
6. PMEAC (Economic Advisory Council to the Prime Minister) (2009): Review of the Economy 2008-09, January.
7. Rakshit, Mihir, (2009): "India amidst the Global Crisis", Economic and Political Weekly, March 28, Vol. XLIV, No. 13.
8. Ram Mohan, T.T. (2009): "The Impact of the Crisis on the Indian Economy", Economic and Political Weekly, March 28, Vol. XLIV, No. 13.
9. The Economist (2008): "The Decoupling Debate", March 6.
10. The Economic Times, February 13, 2010.
11. UNCTAD (2008): "Assessing the impact of current financial and economic crisis on Global FDI flows".

Friday 30 December 2011

Indian Agriculture in the Context of Globalization

Indian Agriculture in the Context of Globalization
(This article was published in the book - WTO, GLOBALIZATION and Indian Agriculture) 

 
       
                             
                                                                                                                   - Dr. S. Vijay Kumar

INTRODUCTION:

The new economic policy of India (1991) includes three elements –Globalization, Liberalization and Privatization. Globalization integrates Indian economy with global economy through the reduction in import duties and export restrictions, promotion of foreign investments and permission for free flow of foreign technology and skills (Buggi et al., 2001). In India, economic growth improved significantly in last two and half decades particularly in the post-reform period. India is considered as one of the fastest growing economies in the world. However, the problems of globalization have not been seriously addressed by the government policies and strategies, especially with regard to agriculture sector. The experience of the economic reforms in the last 16 years indicate while there have been improvements in economic growth ,foreign exchange, IT revolution, export growth etc, the income distribution has been unequal and only some sections of the population benefited more from higher growth and prosperity. We have problems of poverty, unemployment, inequalities in access to health, education and poor performance in agriculture sector.

One of the excluded sectors during reform period was agriculture which showed low growth and experienced more farmers’ suicides due to fake and terminal seeds, low prices and inadequate agricultural policies. The post- reform growth was led by services. Commodity sector growth (agriculture and industry) has not been higher in the post reform period as compared to that of 1980s. Particular worry is agriculture sector which showed lower than 2% per annum in the last decade. There is disconnection between employment growth and GDP growth. In other words, employment is not generated in industry services where growth is high. On the other hand, GDP growth is low in agriculture where majority are employed.                                                          

Today, even after 60 years of independence agriculture sector bears 60% of population with low earnings, while industry and services together bears 40% with high incomes. Thus, there has been lopsided approach to development in India in the last two decades. Governments are more interested in pleasing the corporate sector (e.g., SEZ   policy) rather than helping agriculture sector which bears 60% of the burden, while the European Union is considering the release of additional land for agriculture-set aside under 1992 regulation to control excess capacity. Globalization policies in the 1980s and particularly 1990s and beyond have created many challenges for agriculture in developing countries. Some of the consequences and impacts of globalization are: exposure of domestic agriculture to international competition, growth of non-agricultural sector and its impact on demand for agricultural products, urban middle class life style changes including diets, rising food imports in developing countries, competitiveness of diversification of domestic production systems, vertical integration of the food supply chain.


 Because of demographic pressure, there has been significant increase in small and marginal farm holdings. These farmers have to face the challenges of globalization. Risk and uncertainty has also spread to marginal lands. The diversification of agriculture also raised concerns on food security.

INDIAN AGRICULTURE IN POST- REFORM PERIOD AND CONCERNS:

One of the paradoxes of Indian economy is that the decline in the share of agricultural workers in total workers has been slower as compared to the decline in the share of agriculture in GDP. The share of agriculture and allied activities in GDP declined from 57.7% in 1950-51 to 25% in 1999-00 and to 20% in 2004-05. The share of agriculture in total workers, however, declined slowly from 75.9% in 1961 to 59.9% 1999-00 and to56.7% in 2004-05. Between 1961 and 2004-05, there was a 34% decline in the share of agriculture in GDP, while the decline in share of agriculture in employment was 19% only. As a result, the labor productivity in agriculture has increased only marginally while that of non-agricultural workers increased rapidly. The growth in GDP in agriculture was around 2.2 to 2.5% per annum during 1950-51 to1980-81. It recorded the highest growth rate of more than 3% in the 1980s. In the post-reform period, the growth rate declined to 2.76% per annum. Growth in agriculture GDP which was 4.7% per annum during Eighth Plan (1992-97) declined to 1.8% per annum during Tenth Plan (2002-07).Thus, there has been significant deterioration in the growth of agriculture since mid – 1990s.

COST OF CULTIVATION:

A study by Sen and Bhatia (2004) based on cost of cultivation data indicates in the growth of farm business income (FBI) over time. This study shows that the all India rate of growth of real (deflated by Consumer Price Index for Agricultural Laborers) FBI per hectare declined sharply from 3.21% per annum during the 1980s to only 1.02% per annum during 1990s. However, farmer is interested in farm income rather than price-cost or FBI per hectare. Estimates of FBI per cultivator using growth of cultivators and cropped area revealed that the growth rate was 1.78% per annum in the 1980s but decelerated to 0.03% per annum in the 1990s- indicating almost stagnant FBI per cultivator in the later period.

FARMERS’ SUICIDES:
In India, according to National Crime Records Bureau (NCRB) on farmer’s suicides in 1997, 14000 farmers committed suicides. From 2002 onwards every year not less than 17000 farmers committed suicides. In 2006, over 17000 farmers’ suicides confirms this trend In our country per every half-an-hour one farmer is committing suicide. From 1997-2005 in four big states- Andhra Pradesh, Maharastra, Karnataka and MadyaPradesh 89362 farmers committed suicides(A.P-16770,M.S-28911,K.S-20093,M.P-23588). The official estimates show that the number of suicides is more than 9000 in these four states .The unofficial estimates would be much higher than this. The reseaons are growing indebtedness, increasing risk, sharper decline in absolute productivity, price uncertainty due to trade liberalization and rise in cost due to domestic liberalization, decline in credit, and non-farm work intensified the crisis. Long term factors like decline in farm size, ground water depletion, deterioration in soil quality etc. have also been responsible for the agrarian crisis and farmers’ suicides.                  

The emerging trend towards urbanization in a more spatially dispersed pattern in the Indian context is not good. This involved reduction of labour force in agriculture and contributes less to national income and a corresponding increase in the non-farm employment in rural and urban areas (Subramaniya, 2003). The five basic problems of global concern are rapid growth of population, abuse of natural resources, reduction of agriculture production, increased industrial production and heavy pollution.

Globalization resulted in the neglect of agriculture that adversely affected the vulnerable classes of rural society in their employment conditions, income and consumption pattern, their education and health status. The small and marginal farmers are affected as there is a reduction in the fertilizer and chemical subsidies and in the budget for poverty alleviation programs as well as shift of area under food production to export oriented commercial crops (Buggi et al., 2001). The disintegration of rural economy brought about by globalization lead to the disintegration of village communities, their society, culture and religious aspects.

The Human Development Index shows wide gap between the developed and developing countries. India stood 128 in the HDI value list of Human Development Report, 2007, this is same as in 2000 i.e., no change in our position According to Swaminathan (2000) "more people are watching T.V, and talking on phone and communicating on line, but it is also true that the world today faces huge backlogs of deprivation and inequality that leave huge disparities within countries and regions". India's growth rate was 5.8 per cent between 1980 and 1990 while it was 6.9 per cent between 1990 and 1999. But there has been an increase in poverty also. Increase in growth rate has no much significance when it can't help the poor people of India (Verma, 2001).

INDIAN VILLAGES:

74 percent of India's population lives in villages. Their livelihood mainly depends on agriculture and related activities. The village economy had been independent throughout the ages and even the industrial development has not reduced its importance. It played a crucial role in the economic development of India by providing food and raw materials, employment to 2/3 of work force, capital for development and surplus for national development (Buggi et al., 2001). The Indian agrarian structure is dominated by 90 per cent of small and marginal farmers. The extent of landholding is associated with caste and social status. The small and marginal farmers and agricultural laborers constitute the vast majority of rural society.

RURAL POOR:
In the villages, farmers are not much aware of global economic system. Most of the food crops are converted into cash crops. Sugar cane farmers are getting advance loan from banks and MNCs. They used to supply hybrid seedlings, fertilizers and highly advanced equipments. This equipment utility reduced the human labour force. Hence the rural people are shifting from place to place for want of labour for their livelihood. Natural manure is replaced by synthetic fertilizers. As there is a shift from food crops to export crops, the prices of food items went on high, and the poor people couldn't buy from their meager income. Similar trend continued for clothing, housing, transportation, health etc. So people were forced to consume less of even basic necessities.

Bhargava and Dave (2003) argue that in a democratic set up it is important that fruits of development are equitably distributed between regions and among the various echelons of the society. Industrial and agricultural transformations occurred during the nineteenth century helped the rich than the poor people (Rathakrishnan, 2003). The industrial development not only widens the gap between the rich and poor but also it promotes urbanization and flow of rural poor to urban areas and diversion of potential cultivable land to urban activities. As a result the food production is slowed down and availability of food per capita also undergoes decline. Earth friendly economic development must be our aim.
 Deaton (2003) opines that more than one fourth of the World's poor live in India. India's economic liberalization in the early 1990s resulted in high rates of growth, whether it reduced the numbers of poor or benefit only increasingly wealthy urban elite is a question. Because of growing inequality, consumption by the poor couldn't rise as fast as average consumption and poverty reduction was only about two-thirds of what it would have been had the distribution and consumption remained unchanged (Deaton, 2003). The gap between rural and urban areas widened because of the vast differences in the levels of literacy, availability of living facilities such as water, drainage, housing, power, lighting, food and transport etc.

TRIBAL:

There is an urgent need for improving the social and economic conditions of the tribal community and to solve their problems. India has failed to have a national policy of tribal development, to provide them with basic facilities like clean drinking water, education, employment and access to health facilities. Due to widespread corruption and negligence, there was ineffective implementation of programs for development of tribal communities. The tribal became ousters due to the construction of large dams. They lost their habitats and livelihood. Tribal women had to walk several kilometers for safe drinking water. Thousands of them die every year due to starvation and epidemics. As the tribal are uneducated and ignorant, land protection was not possible for them. When foreigners are allowed to exploit their traditional knowledge about medicinal plants their livelihoods are in danger.

MULTINATIONAL CORPORATIONS:

            Due to globalization food items are being exported to India in the form of increased consumption of meat, western fast food, sodas and cool drinks, which may result in public health crisis as speculated by certain researchers. The rich biodiversity of India has yielded many healthy foods prepared from locally available organisms. But the marketing by MNCs with large advertisement campaigns lead the people to resort to their products (Mascarenhas, 2003).   

SUGGESTIONS:

(1) Revival of agriculture:

(a) To achieve 4% growth and equity in agriculture, the supply and demand side constraints have to be removed. The support systems have to be tuned to improve productivity and incomes of farmers with emphasis on small and marginal farmers and dry land areas.
    
               (b) Agriculture policies have to keep in mind increasing risk and uncertainty due to liberalization, gender sensitive as the share of women is increasing and on cost of production.

               (c) Infrastructure including irrigation, natural resource management, research and extension, inputs including credit, diversification by maintaining food security,  marketing, regional planning have to be focused for higher agriculture growth.


(2) Subsidies:

India should stress on the implementation of Uruguay round agreements to reduce subsidies and other distortions caused by policies pursued by developed counties.        

(3) Demand Side Issues:

(a) Adequate insurance is needed for those carrying out diversification with in agriculture or from agriculture to non- agriculture.

 (b) Social security should be provided for the unorganized workers also.
    
(4) Rural Non-Farm Sector:

The ultimate solution for reduction on land is to improve rural non-farm sector and planned urbanization. Chinese experience shows that Globalization with better initial conditions has increased employment and incomes for workers which in turn was due to rural diversification.     
           
(5) Structural Change:
Structural change in economy should follow agriculture-industry sequence. But, in GDP shares India leap-frogged from agriculture to services without concentrating on manufacturing. This happened in many other South East Asian countries. But, their share of employment in manufacturing sector is more when compared to India. For e.g. the share of employment in manufacturing in Malaysia is 50%, in Korea 62%, in China 31%, in India it is only 11%. There, is need to develop industry in order to improve employment. Jumping to services is not the solution.
     
(6) Special Economic Zones (SEZs):

The Government of India is allotting agricultural lands as SEZs to industrialists. The examples of Nandigram in West Bengal and Rajasthan (“Arre arre chor aaya re…SEZ layare!”. So goes rallying cry) may be cited, where farmers resisted against governments. This should not happen in future.

(7) Political Economy of Agriculture:

There is a feeling that governments (Central and State) promise a lot for agriculture without much allocations and implementation. Hence, the governments should come up to the expectations of farmers.

 (8) NGOs role:

NGO's have a moral obligation to call upon our political leaders, businessmen, labour leaders to make economic decisions, so that first priority is given to the basic needs of the vast majority of the people for food, employment, housing, education and health care. Through organization, collecting the small farmers, conducting formal and non formal education for the adults to create analytical mind to be aware of the existing economic system, how it affects their life directly or indirectly must be explained. NGO's should come forward to organize a net work system - at District, State, Regional and National level. They respond at a macro level.

(9) Strategies:

In the era of globalization, the rural societies can adopt certain strategies for safeguarding their existence, livelihood and culture. The strategies include:
  • Mobilization of the small farmers for regional campaigns.
  • Building good coalition with different likeminded organizations (NGOs) and trade unions.
  • Establishing a mechanism, to challenge the MNCs
  • Having deliberations with bankers and industrialists in order to consult them with NGOs.
  • Setting goals with specified objectives so that they reach the grass root level of the rural societies.
  • Planning at grass root level with full people participating in different levels.
  • Collecting more information on economic policy and disseminate it to every individual for collective responsibility.
  • Keeping gender balance.
  • Forming net work among leaders in various levels with solidarity and commitment.
  • Creating common understanding and purpose among the people in all the sectors of the society.
(10) Encouragement to Rural People:

Rural people must be encouraged to stay back in their rural areas and to start their enterprises to get the same degree of satisfaction, an urbanite gets while leading his day to day life. The dichotomy between urban and rural societies must diminish leading to total elimination. Modern industries could be split into various components which require simple industrial skills can be manufactured in rural areas by giving them training in addition to their own traditional skills. Planning for rural, urban growth should be such that dichotomy vanishes automatically.

CONCLUSION:
The next of stage of reforms in agriculture has to focus on developing institutions for better delivery systems. Agriculture can be ignored at our own peril. If we want inclusive growth, both Central and State Governments have to focus on agriculture sector. Let us hope that Government has the political will to implement the policies effectively and help the farmers without testing their patience.


REFERENCES
  
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Buggi C, Reddy S and Gowda G, Impact of Globalization on Agrarian class structure. Its implications of Indian villages. Third Concept, January 2001, P 17-19.
Deaton A. Is World Poverty falling? Southern Economist, January 2003, P. 21.
Mascarenhas M. Unpalatable truth. The Hindu, June 22, 2003 p.1.
Mohammed C and Nazar M, The Role of Multinational corporations, Southern Economist, February 1, 2003. P.24
Rathakrishan, Myth and Reality of Limits to growth, Southern Economics, February 1, 2003, P.10-2.
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Chand, R., S.S Raju and L.M. Pande (2007), “Growth Crisis in Agriculture: Severity and Options at National and State Levels”, Economic and Political Weekly, Vol, 42 No.26.   
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