Over the past sessions, we went through all those reforms which primarily shaped the edifice of agriculture sector in India and now, this session unravels the impact of the highly – praised economic reforms of nineteen ninety one.
What is the background for reforms?
The Indian economy, since its inception inclined towards the socialistic lines of the erstwhile Soviet Union, which was facilitated largely through the five year plans. In the period between 1960’s and 1980’s, India fought quite a number of defensive wars and famine wars, which disturbed its economy out of balance. Though the green revolution bettered food insecurity conditions, which likely helped the economic status, it was too little, too late. Frequent oil and fertilizer imports overburdened the economy. By the year nineteen ninety, economy went downhill crashing even the last hopes. Fiscal deficit reddened at a rate of eight point four percent of the GDP, while the inflation rate terrified at a blown rate of fourteen percent! Also, the foreign exchange hit a very low amount of two point two billion dollars, worsening balance of payments (BOP) issue. With the disintegration of her ally, the Soviet Union, India was haplessly helpless. The country was on the verge to become a defaulter, when it approached the International Monetary Fund (IMF). The IMF helped India to stabilize, only against a ‘conditionality clause’. Thus, India pledged to launch various reforms in the following years.
How do the reforms take place?
The Indian Government, under the Prime Ministership of P.V.Narasimha Rao and the Finance Ministership of Dr.Manmohan Singh, introduced a roll of reforms in the name of ‘New Economic Policy – 1991’ (NEP), popularly known as the ‘Economic Reforms of 1991’. The previously protectionist nation, opened up to global markets. Liberalisation, Privatisation, Globalisation (LPG) strategy became the working magna carta of Indian economy. The government removed restrictions in licensing, thereby encouraging industries. The custom duties were almost removed, enabling larger imports and enhanced exports. Public sectors got privatised. Global players were all let on the loose. Though the reforms were generally meant to change economic policies, agriculture being the largest employer of the country and moreover the prime primary sector, was impacted invariably by the reforms. The NEP took Indian agriculture to international markets.
Earlier, importing agricultural goods and agro – based products was restricted with high tariffs (except goods required for cultivation, i.e., inputs) to protect domestic markets, but the NEP eased both imports and exports.
Also, earlier, seeds were in the hold of public sector and were sold in regulated markets. By the privatisation of the sector, many private companies jumped into the sector, providing leading – edge services. It happened with fertilizers and pesticides industries too. Internal trade restrictions for agriculture goods between states were also snapped off. Overall, the structural adjustment programmes and economic reforms of the NEP 1991, indirectly reformed the agriculture sector.
The aftermath of reforms
The NEP transformed India from being a debt ridden nation to a de novo developing nation. Immediately after the implementation of the reforms, in the period 1992- 93, the fiscal deficit reduced by four point nine percent and the inflation sunk down to a six point five percent low! Indian cities became industrial hubs. That was all glee for the economy. But for agriculture and its dependant population – it was not that cup of tea! The NEP policy attracted many new investors into the agriculture sector and so the production increased along with exports. Since the farmers got exposed to global markets, the quality of cropping increased and also they fetched better prices. Also, many new technologies flew in from different countries.
On the flip side, NEP 1991 seeded MNCs’ influence over the agriculture sector, which sadly inhibits the meagre growth of rural economy. Moreover, farmers got lured to cultivate crops based on international demands, instead of fulfilling local demands. Most of the farming areas have lost their pattern of diverse cropping and stick to monotonous commercial crops. Even when such choreographed farming practises were put in place, self – sufficiency and price stability remain erratic always. The NEP 1991 pampered industrial sector to a great extent that it blanched agricultural growth. Till then, the government policies, predominantly the five year plans focussed agriculture very much that this sudden ‘leave out’ hurt the ailing sector way too hard. Government’s spending on agriculture reduced drastically and more of the input producing industries were privatised. Spending on agricultural research and extension also came down.
Seeds produced by individual firms remain costlier till date and presence of spurious seeds is also common. The subsidies on fertilizers and pesticides were trimmed down. The MNCs in farming, popularised mechanisation a lot more than in the times of green revolution. In the pre economic reforms period, government spent more on irrigation infrastructure and the reforms miserably did those away. This made irrigation expensive for poor farmers. The worst hit part was that of credits. Prior to the economic reforms, government provided both subsidies and loans to the farmers and they were able to avail credits at a lower interest rate. The priority sector was shifted from agriculture towards industries during the reform period, which made loan costlier in banks. Furthermore, banks rolled back many branches in the rural areas as they were focused on serving the industrial sector. These combined factors made farmers depend on local moneylenders who charged them unreasonable interest rates. This menace continues till date, pushing poor farmers to debts and suicides. There was a drastic decrease in the per capita government expenditure on rural areas, on the whole. At the outset, the NEP 1991 made cultivation costlier for the marginal and medium farmers who form the majority of farming community. Already the green revolution created huge disparities between regions, populations and urban – rural areas and these reforms simply aggravated this.
After all, it would not be right to say that the economic reforms of 1991 failed agriculture completely. It did help. Still, the NEP which granted a boom to the other sectors, managed to spare only a gloom for agriculture.
…Session adjourned until next month…