06 Aug New Economic Reform and Agriculture in Post-Liberalization Era

New Economic Reform and Agriculture in Post-Liberalization Era

Since 1991, India has witnessed a significant shift in its economic architecture through the implementation of the New Economic Policy. This policy emphasized liberalization, privatization, and globalization (LPG model). While the industrial and service sectors have responded vigorously, agriculture, employing over half of India’s workforce, faced a mixed trajectory.

This article explores the intricate relationship between post-liberalization economic reforms and agriculture. It covers structural, policy, and institutional aspects, along with data-backed trends and government initiatives. This is a high-priority topic for aspirants of UPSC CSE (Economics Optional – Paper 2).

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1. Agricultural Scenario in the Pre-Reform Period

Before liberalization, agriculture was predominantly state-controlled. The sector faced stagnation in the 1980s, with growth rates around 2-3% and increasing inefficiencies in production, marketing, and pricing systems.

• Low productivity and over-dependence on monsoon.
• Excessive government intervention in price control and subsidies.
• Limited access to modern technology, mechanization, or global markets.
• Fragmented land holdings and poor rural infrastructure.

The crisis of the balance of payments in 1990-91 served as a trigger to overhaul India’s economic model, including agricultural policy indirectly through trade and macroeconomic reforms.

2. New Economic Reforms: 1991 and Agriculture

Although agriculture was not the central focus of the 1991 reforms, the sector was significantly impacted by the broader economic transformation. The key elements of the New Economic Policy were:

• Liberalization: Reducing state control over economic activities and promoting market forces.
• Privatization: Disinvestment in public sector enterprises, including those in agri-inputs and rural credit.
• Globalization: Integration with the global market through reduced tariffs, WTO commitments, and opening up of agricultural exports and imports.

These reforms shifted the focus from state-centric to market-oriented agriculture. While some reforms offered opportunities, others exposed vulnerabilities in the absence of adequate safety nets.

3. Impact of Reforms on Indian Agriculture

3.1 Positive Outcomes

• Increased Agricultural Trade: Post-WTO membership (1995), India liberalized trade in agricultural products, boosting exports of rice, spices, cotton, etc.
• Diversification: Shift from food grains to high-value crops like fruits, vegetables, dairy, poultry, and fisheries.
• Improved Private Investment in Agro-processing: Emergence of agri-business and contract farming in some states.
• Increased Efficiency in Input Markets: Phasing out of subsidies and decontrol of fertilizer prices encouraged private sector participation.

3.2 Negative Consequences

• Slower Agricultural GDP Growth: Average growth post-1991 remained around 2.8% – lower than required to meet rural employment and income needs.
• Volatile Prices: Deregulation led to fluctuations in prices of agricultural commodities, impacting farmers’ incomes.
• Unequal Access: Small and marginal farmers lacked access to global markets and were disproportionately affected.
• Public Investment Decline: Capital expenditure in rural infrastructure, irrigation, and extension services declined relatively.
• WTO Vulnerabilities: Removal of quantitative restrictions under WTO exposed Indian agriculture to international price fluctuations.

4. Post-Reform Policy Initiatives in Agriculture

Recognizing the mixed outcomes of reforms, the government introduced several policy measures post-2000 to support agriculture.

• National Agricultural Policy, 2000: Aimed to achieve 4% growth in agriculture, emphasized sustainable practices, and private sector participation.
• National Food Security Mission (2007): Launched to boost production of rice, wheat, and pulses.
• PM-KISAN (2019): Direct income support to farmers through cash transfers.
• e-NAM (2016): National Agriculture Market to integrate mandis and improve market access.
• Agriculture Export Policy (2018): Targeting a USD 60 billion export goal and doubling farmer incomes.
• Fasal Bima Yojana (2016): A crop insurance scheme aimed at mitigating production risk.

5. Major Challenges in Post-Liberalization Agriculture

• Stagnant Incomes: Farmers’ income has not kept pace with growth in other sectors. The promise to double incomes by 2022 remains largely unfulfilled.
• Small and Marginal Holdings: Over 85% of farmers operate on less than 2 hectares of land, limiting economies of scale.
• Inefficient Market Linkages: Farmers remain dependent on middlemen, facing poor price realization and delayed payments.
• Climate Change: Rain-fed agriculture is vulnerable to erratic rainfall, droughts, and floods.
• Rural Indebtedness: High cost of inputs, low income, and limited institutional credit lead to farmer distress and suicides.
• Digital & Technological Divide: Small farmers have limited access to agri-tech, mobile apps, weather forecasts, and e-markets.

6. Structural Changes in Agriculture (1991–Present)

• Share in GDP: Declined from ~30% in 1991 to ~15% in 2024 (approx.).
• Share in Employment: Still over 45%, indicating disguised unemployment.
• Growth Drivers: Horticulture, livestock, dairy, and fisheries outperform traditional cereal production.
• Policy Shift: From price support (MSP) to income support and investment-based assistance.

7. Infographic and Mind Map

8. UPSC Previous Year Questions

8.1 Mains (Economics Optional Paper 2)

• Examine the impact of post-1991 economic reforms on Indian agriculture. (2020)
• What were the major outcomes of globalization and WTO accession on India’s agricultural exports and imports? (2019)
• Discuss the nature of agricultural growth during the liberalization era. Identify constraints. (2021)

8.2 General Studies Paper 3

• What are the reasons behind stagnating farmer incomes in India despite high agricultural productivity?
• Evaluate the role of e-NAM in transforming India’s agricultural marketing system.

9. Probable Questions for UPSC

9.1 Mains

• Discuss the relationship between new economic reforms and structural transformation in Indian agriculture.
• Assess the effectiveness of agricultural policy initiatives in the post-liberalization period.
• What are the WTO-related challenges to Indian farmers in the 21st century?

9.2 Prelims

• Which of the following is not a post-reform agricultural initiative? [a] PM-KISAN [b] e-NAM [c] IRDP [d] National Food Security Mission
• Which crop group saw significant diversification after 1991 reforms? [a] Pulses [b] Millets [c] Horticulture [d] Sugarcane

10. Conclusion

The post-liberalization era brought both opportunities and challenges for Indian agriculture. While trade liberalization, diversification, and modern marketing mechanisms were introduced, persistent issues like low income, land fragmentation, and climate risks continue to haunt the sector. Effective implementation of inclusive and technology-driven policies remains the key to revitalizing the sector.

For UPSC aspirants, especially those with Economics optional, it is important to understand the nuanced impact of macroeconomic reforms on micro-level agricultural realities and assess their implications for India’s future food and economic security.

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UPSC Economics Optional, Post-Liberalization Agriculture, New Economic Reforms 1991, Agricultural Policy India, Economic Reforms and Farming, WTO and Indian Agriculture, Agricultural Growth India, Market Reforms Agriculture, Farmer Income, Agricultural Export Policy India, PM-KISAN UPSC