The Indian Economy Overview

The World Bank and India

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The Bank and Agriculture Sector

Agriculture is the Bank's largest portfolio in any country. 130 agricultural projects have received $10.2 billion Bank financing so far in India. The current portfolio of about 30 projects under implementation in India includes diary, rubber, sericulture, fish and shrimp cultivation.

The Bank funding to Indian agriculture began in the 1950s but was limited till the 1966 foreign exchange crisis. Then the Bank started supporting agricultural projects viz., fertilizer industry, ground-water exploitation through pumpsets, introduction of high yielding variety seeds, and setting up of banking institutions to finance capitalist agriculture. From 1977 onwards the Bank introduced training and visit management systems for extension purposes to improve the adoption of new technologies imported from western countries. WB supported agricultural extension services in 17 states of India.

Agriculture is the Bank's largest portfolio in any country. 130 agricultural projects have received $10.2 billion Bank financing in India.

Sapping Indian Agriculture

There is a woeful lack of serious discussion and debate among the policy-makers on the adverse impact of liberalization and globalisation policies on agriculture . The policies imposed by the World Bank-IMF have a component directly affecting the agrarian economy. These policies have the following components :

The World Bank views on agriculture can be found in two recent documents. The World Development Report (WDR) 1986, deals with the general issue of Trade and Pricing in World agriculture. The second volume of the World Bank's 1991 Country Economic Memorandum for India, sub-titled 'Agriculture-Challenges and Opportunities', is the latest bank document specifically dealing with Indian agriculture.

The document of WDR avers that government interventions at all stages of production, consumption and marketing of agricultural products and inputs have resulted in greater inefficiencies, lower output and incomes. This report is silent on government's role in providing agricultural infrastructure, reforms in tenancy or ownership structures. It ignores the glaring fact that during the colonial period prices were in fact 'right' but agricultural performance was abysmal. The WDR concludes by claiming that getting prices right, cutting subsidies and liberalizing world agricultural trade would make everyone happy and recommends its own adjustment loans and Sectoral Adjustment Lendings (SECALs).

So far, India has not taken any agricultural SECAL, and progress on the priorities identified by the Bank has also been slow. Nevertheless, food and fertilizer subsidies have been the target of the government. The committee on reforming the financial system (known as the Narasimham Committee) has recommended major reductions in the quantum of credit directed towards the agricultural sector by the public sector banks. Mercifully enough, Government of India unlike the World Bank, is not touting these measures as 'agricultural reform' but exercises at reducing the fiscal deficit and improving the profitability of the financial sector.

The Bank's Prescriptions

The Bank's 1991 Country Memo-randum's recommendations are as follows :

The agricultural SECALs consists of these short term priorities, along with reduced coverage of PDS and the rural banking network.

Capital spending by the Union government is being slashed especially agriculture related investments. The effective decline in financial transfers to the States will affect their ability to increase or maintain investments in agriculture, a state subject. If any further disincentive to agricultural investment is required, this would be provided by the implementation of the recommendation of the Narsimham Committee that loan to priority sectors (including agriculture) to cut to only 10% of total bank-lending from 40% at present. This move is totally ill- conceived. Instead of reducing the subsidy element in the raised interest rates, it seeks to cut the volume of agricultural lending and reduce the reach and coverage of the banking system in rural areas. All this will lead to further decline in investments in agriculture as in the last decade.

Devaluation and partial convertibility of the rupee have made the international prices of food much higher in rupee terms—almost 50% since June 91.

The performance of the agricultural sector is important for the overall success of government's economic strategy, since continues to be the largest employer. The boom sectors of the 80s—chemicals, consumer durables and high-tech services—have very little linkages to agriculture. Agricultural raw materials play a less significant role than industrial inputs. But the importance of agriculture cannot be wished away. The Government has yet to announce a national agricultural policy.

Paying the Price

The recent policy changes have affected the agricultural prices. The devaluation and partial convertibility of the rupee (wherein food grain exports and imports are at market rates) have made the international prices of food much higher in rupee terms (by almost 50% since June 1991), fueling expectations of rising domestic food prices. Domestic food prices increased by almost 50% between 1991-93.

As almost all studies of poverty in India have shown a combination of rising food prices and decelerating growth is a sure prescription for increased poverty. And recent studies (e.g., by the International Institute for Applied Systems and Analysis) have shows that globalisation of agricultural trade will improve incomes of rich farmers and may increase exports. This not by increasing production but prices and reduced consumption. The major consequence will be increased poverty since those most affected adversely will be the poorest groups in the country—landless agricultural laborers, marginal farmers and urban unorganized workers—whose main item of consumption is food. The real victims, whether of neglecting agricultural investment or, of globalisation of agricultural trade under GATT, will be those who are already living on the very fringes of survival in India.


For further details contact:PIRG (Public Interest Research Group) 142, Maitri Apt, Plot No 28, Indraprastha Extn. Delhi 110092. India. Ph: 2432054 Fax: 2224233 email: kaval@pirg.unv.ernet.in


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