Policy Reform and Farm Sector Adjustment in India

Policy reforms outside agriculture in the early 1990s accelerated growth in per capita incomes and food demand and also improved the terms of trade for the agriculture. Agricultural policies and institutions, traditionally focused on achieving food grain self sufficiency within a closed economy, have, however, been slow to adapt to a new environment of diversifying demand, more open markets, and a greater role for the private sector. Support price policy has remained delinked from domestic and international market realities, creating significant budgetary costs and market distortion. Inability to reform price policy and contain input subsidies has led to a decline in public investment in agriculture at a time when investment in new infrastructure and institutions is needed. Implementation of targeted safety net programs has proven difficult due to weak administrative capacity and local resource constraints. Reforms at the border, when implemented, have typically exposed inefficiencies in the domestic market that limit competitiveness. Consensus building for change in agricultural policy remains difficult in India. With the farm sector accounting for 25 percent of GDP and 60 percent of employment, there is a deep-rooted perception that the welfare of the poor is linked closely to the protection of agriculture. More research within economy-wide frameworks may be effective in evaluating impacts and provoking debate on fundamental reform. Also needed is research on the implications of market-oriented reforms for food price stability, and on impediments to private investment in agriculture.