Chapter-4 Trends in Agricultural Exports of India and Karnataka under WTO Regime

Transcription

1 Chapter-4 Trends in Agricultural Exports of India and Karnataka under WTO Regime

2 CHAPTER 4 TRENDS IN AGRICULTURAL EXPORTS IN INDIA AND KARNATAKA UNDER WTO REGIME 4.1 Introduction: The decade of 1990 s witnessed major significant changes in the Indian economy 1. India followed the New Economic Policy (NEP), which has wider implications for agriculture. Liberalization, Privatization and Globalization are the three pillars on which the edifice of the new economic policy has been erected in India since In fact the term reform has become a magic word in recent years. It has attracted the attention of the people both at home and abroad. It simply means the integration of Indian economy in accordance with contestable market approach with the world economy. Hence Trade liberalization has significant effects on the trade pattern in India. The reforms of 1991, especially the trade policy reforms for the first time aimed at correcting the anti-agriculture bias in trade policies. India, which is one of the biggest agriculture based economies, stay closed until the early 1990s 2. India s membership and obligation to WTO in 1995 was an apparent indication of India s intention to obtain benefit of globalization and face the challenge to speed up its economic growth. What Indian agriculture need is a level playing field with domestic industry, in an open economy environment. This would be a precondition, not necessarily sufficient one, for a new paradigm of growth where agriculture triggers growth impulses in other sectors through its backward and forward linkages. Agriculture is the most important powerful tool of Indian economy. It accounts for the prime portion of employment and gross domestic product, a source of raw material for manufacturing and a chief source of foreign exchange. Agriculture sector can significantly contribute to the balance of overseas payments by enhancing countries export earnings or by expanding the production of agricultural import 1 -Shoyabahmed D.Kalal, Competitiveness of Indian Agricultural Exports:Pattern and Policy, SE, Oct, Sudhir Sharma, Contribution of Indian Agriculture in India s Trade in Post Reform Period, SE, Feb,

3 substitutes. This is termed as foreign exchange contribution of agriculture. Agricultural exports have been the backbone of India s export effort and it is expected that its contribution would increase in the future to propel India s export growth. Like India, other members of the WTO are also liberalizing their agricultural policies, which imply that significant changes in the global trade environment are taking place 1. This, in turn, will create new challenges as well as new opportunities in India s agricultural trade. It will expose Indian agriculture to global competition. On the timing and pace of liberalization of agricultural trade, the argument is that India has a tough relative benefits in agriculture. Over most of the developed world the WTO persuaded trade liberalization has made agricultural exports more striking and remunerative. This advantage is said to be sturdy in the case of high value crops like fruits, floricultural products and vegetables, rice and cotton. Opening up of trade in these crops has revealed that there is substantial potential to endorse export of these crops. 4.2 Indian Context: SECTION 1: Agriculture sector plays a crucial role in the development of Indian economy. Exports are necessary for any country for its economic development. Agricultural exports have been the backbone of India s export effort and it is expected that its contribution would increase in the future to propel India s export growth. Agricultural exports are sustainable and their potential to grow is very high. Agricultural exports are playing a significant role in employment generation, and it is a main source as a foreign exchange earner. The low import intensity of exports further enhances the significance of agricultural exports. Agriculture, as a key sector in Indian economy, is facing various challenges of globalization. It is based on contestability, and to face competition, it has to prepare itself in an appropriate manner. Knowledge, investment incentives, information and internationalization of the farm attributes are essentially being developed for agricultural sector. Indian agriculture has transformed from food shortage to self- 1 -Sunil Phougat, Performance and Prospects of India s Agricultural Export, SE, Aug,

4 reliance and surplus. Owning to technological breakthrough as well as policy and programmatic initiatives of the government and response of our farming community to become active agent of development designs. In the recent years, agricultural exports have received special attention from the Government since it is believed to be the area which has the greatest potential for raising farm incomes and earning foreign exchange. The impetus for accelerated growth in agriculture exports is envisaged through enhanced infrastructure support and by building up suitable policy environment 1. In recent years, most of the export promotion measures carried out prior to 1991 has been abolished. A number of other policy changes have been introduced to make agricultural exports more viable. Market determined exchange rate policy has removed the constraint of overvalued exchange rate and increased the competitiveness of Indian agricultural exports. Lowering of import duties on capital goods particularly for greenhouse equipment, plant and machinery necessary for food processing industry as well as easier availability of credit for exports have also helped in this respect. India s agricultural exports responded positively to trade liberalization that begun in However, the rising export trend couldn t be sustained in the post WTO period, whereas imports rose steadily. Even though the share of agricultural exports in total merchandise exports of India has declined, due to faster growth of non-agricultural exports, agricultural sector remains as net contributor of foreign exchange by generating large surplus of export over agricultural imports. The export of agricultural commodities earns not only foreign exchange but also provides the much needed competitiveness in production, productivity and quality when compared to its potential of competitive countries in the global market 2. It helps to realize economies of scale which helps the domestic consumers also. Sustained export of agricultural sector encourages modernization of production, post harvest processing and marketing system. Now, under the changing world economic 1 -Sudhir Sharma and Babita, Contribution of Indian Agriculture in India s Trade in Post Reform Period, SE,Feb Murugavelu, A Study on the Export Performance of Indian Agriculture in the Context of Globalization- An Econometric Analysis, Serial Publications,

5 scenario as well as global trade agreement and development of institutions like WTO, the emerging world trading system may claim to change the terms of trade in favour of agriculture and traded goods from India. 4.3 Volume of Foreign Trade in India since : The volume of trade of a country tells about the exact size of its transactions with different countries of the world in the form of exports and imports. Country s export or imports include various types of goods and services. Thus the aggregate size of transactions can be found out only by means of the value of the transactions. Briefly, the volume of trade implies that the total value of exports and imports in a particular year. Trends in the value over years will help in finding out whether the volume of trade has increased or decreased. The value of India s exports and imports has increased considerably during the study period. Total exports have increased by many folds over a period of time although; total imports were greater than total exports. As a result of this, India is facing substantial trade deficit during the study period. The increase in the trade deficit over the years has been a matter of concern to India. The below table depicts the trends in the foreign trade of India during the study period. Table 4.1: Growth and Trends in India's Exports since 1995 (US $ Million) Year Exports Imports Trade Deficit First Phase (after inception of WTO)

6 CGR Second Phase (after inception of WTO) * CGR Source: Economic Survey The above table reveals that, during the first phase ( to ), India s export increased from $ million in , to $ million in and further to $ million in In , it increased to million. The overall compound growth rate of exports was percent under the first phase. Till the end of , the exports were more or less stagnant, because the export rate was very low. There has been decisive uptrend in exports which started in and onwards. On the other hand, India s imports have also increased tremendously during the first phase. In imports were $ million which was increased to $ million in , then it increased to million in Thereafter, there has been decisive increase from million in to million in During the first phase, the compound growth rate of imports stood at percent, which is greater than the compound growth rate of exports. There was a mismatch between India s exports and imports, as a result of this, trade deficit also considerably increased from million in to million in

7 The above table also shows during the second phase ( ), India s foreign trade i,e exports and imports have rapidly increased by many fold. India s export rose from million in to million in , and then increased to million in Finally, it increased from million in to million in The compound growth rate during the second phase was increased by percent which is greater than the first phase. On the other side, India s imports were also increased greater than exports. It increased from million in to million in Further, imports rose from million in to million in Finally, it stood at million in The compound growth rate of imports was percent during the second phase. India has faced substantial trade deficits during the second phase. The increase in the trade deficit over the years has been a matter of concern to India. In trade deficits was million which was increased to million in Therefore, it shows a negative shade on the foreign exchange earnings. The main reason for this enormous gap between exports and imports was due to deteriorating terms of trade. Figure 4.1: India s Foreign Trade from 1996 to 2004 (US $ Million) First Phase Export Import Trade Deficit Figure 4.1 shows India s foreign trade has rapidly increased during the first phase ( ). India s export increased from million in to million in Finally, it increased from million in to 99

8 million in On the other hand, India s imports were also increased greater than exports. It increased from million in to million in Further, imports rose from million in to million in Finally, it stood at million in India has faced substantial trade deficits during the first phase. In trade deficits was million which was increased to million in Finally, India s trade deficit stood at million in It shows a negative shade on the foreign exchange earnings. Figure 4.2: India s Foreign Trade from to (US $ Million)-Second Phase Export Import Trade Deficit Figure 4.2 shows during the second phase ( ), India s foreign trade has rapidly increased by several folds. India s export rose from million in to million in , and then increased to million in Finally, it increased from million in to million in On the other side, India s imports were also increased greater than exports. It increased from million in to million in Further, imports rose from million in to million in Finally, it stood at million in In trade deficits was million which was increased to million in Finally, India s trade deficit stood at million in

9 4.4 Composition of India s Exports: The composition of trade of a country denotes the level of economic development of the country and whether any change has taken place in the country s export efforts. More precisely, the composition of trade denotes the nature of goods and services that are exported and imported. The composition of foreign trade of a country helps us to understand to what extent the economy is progressing and what kind of structural changes are taking place. The more the country exports finished goods, machinery, and capital equipment, the greater the economic development. If on the other hand, it exports primary commodities like jute, tea, raw cotton, sugar, etc., but imports capital equipment and machinery, finished goods, etc, the country continues to be an underdeveloped one. By composition of foreign trade is meant the items in the export and import list. Since, less developed country will be producing only agricultural products, its exports will be mainly agriculture related products. Only with economic development, the export goods would get diversified and the country would be able to export industrial goods. The composition of trade will tell the extent of concentration of some commodities. Speed is another indicator of development. The faster the country changes its pattern of trade, the greater is said to be the development. At the time of Independence, the three most important commodities in India s exports were jute, tea, and cotton contributing more than 50 percent of total exports earnings. Of late, engineering goods have come to occupy a major place in India s exports. Now gems and jewellery have come to occupy an important position in India s exports. Exports of ready-made garments also occupy a significant position. From nineties onwards crude petroleum oil has also emerged as the principal item of export in India s export basket. The main exports of India are traditional agricultural raw materials and consumer goods. The principal items of exports are coffee, tea, black pepper, cashew kernel, oil cakes, raw tobacco, wool, mica, iron ore, manganese, and vegetable oils. Among the manufactured items, India exports leather and manufactures, chemicals and related products, engineering goods, textiles and textile products, gems and 101

10 jewellery, and handicrafts. Now a day petroleum products are the important export items in India. Hence, India is one among the larger suppliers of agricultural exports to the world demand. An outstanding feature of India s exports is that, there is considerable increase in the export of agricultural exports and manufactured items. These include traditional as well as non-traditional products like Oil Meals, Marine Products, Sugar and Molasses, readymade garments, chemicals, machinery and engineering goods and also leather products. This shows that India s export trade has undergone a significant change under WTO regime, and there is a lot of diversification also in export items. The number of items exported now stands at five thousand, as against about only fifty items at the time of independence. 4.5 Classification of India s Export: The composition of India s exports can be classified into four categories i,e Primary products in which Agriculture and allied products and Ores and Minerals are included Manufactured goods include Leather and Manufactures, Chemicals and related products, Engineering goods, Textile Products, Gems and Jewellery and Handicrafts Petroleum Products Other commodities. During the study period, the exports of primary products rapidly increased from Million in to million in , and rose to million in Thereafter, it increased from million to million from to Finally, primary products stood at million by Agriculture and allied products are the prime sources of primary products, contributing percent of the total primary products by On the other hand, Ores and Minerals constitute percent of the total primary products in

11 In recent years, manufactured goods exports have increased very substantially from Rs million in to million in , and then increased to million in Finally, it increased from million in to US $ Million in At present, engineering goods exports have come to occupy first place in India s export earnings. It contributes US $ Million in to US $ Million by Exports of Chemicals and allied products have also considerably increased from US $ Million in to US $ Million in Gems and Jewellery have also occupied a prominent place in exports to the Manufactured goods, which constitutes US $ Million in to US $ Million by Engineering exports were alone contributing percent to the total India s exports in The petroleum product occupies an important place in the India s foreign earnings. Petroleum products have come to occupy second place in India s total exports. It has increased from million in to in , and then rose to million in Thereafter, it has been increased from million in to million in Finally it stood at million in Petroleum product exports contributing percent to the total India s exports in , which led to second place in the India s total export earnings in terms of the individual commodities contribution. More precisely, the share of the agricultural products has been decisively declining from 24 percent in to percent in On the other hand, the manufactured goods have also slightly declined from percent in to percent in Finally, Petroleum Products have gone up from 1.43 percent in to percent in This trend indicates that the India is moving from traditional sector to non-traditional sector. See annexure No.A

12 Figure 4.3: Composition of India s Export in (Percentage Share) 3% 20% 15% 62% Primary Product Manufactured Goods Petroleum Products Other Commodities The above graph shows the composition of India s export during It is clear from the above graph that the manufactured goods export were the prime source for the India s foreign earnings. Manufactured exports were contributing 62 percent of the India s total exports during The second top place in the total exports list is the petroleum products accounting 20 percent, and followed by other commodities contributing 15 percent of the total exports. Finally, the primary product exports contributing comparatively less towards India s exports say about 15 percent only. It is also noticed that the country s export basket, at present is heavily dependent upon manufactured goods exports rather than the traditional product export. 4.6 Trends in Direction of Exports from India: Before sovereignty, the direction of India s overseas trade was determined by the colonial relations between India and Britain. Britain decided from which countries India might import its necessities and to which countries it could export its goods and services. This pattern could continue up to After Independence, India had investigated the potential of developing trade relation among other countries of the world. The direction of trade indicates that the countries to which commodities are exported and the countries from which commodities are imported. This also states the 104

13 structure of the economy and the level of its development. With economic development, the country has to find new markets and outlets for its diversified products, which will be demanded throughout the world. Hence developed countries would be trading with larger parts of the globe, while less developed countries would be trading with traditional agricultural items and that too with some limited number of countries of the world who require them. In recent years direction of exports shows a significant increase and changes in India s exports to destinations like OECD, OPEC and developing countries i,e Asia, Africa, and Latin America. The striking feature of the change in the direction of India s export after onwards is that OECD countries are our best partners and more than 55 percent of India s exports are taking place with these regions. By and large, the share of this region decisively declined during the study period. Hence, the group of the developing countries accounts for a major portion of India s exports in recent years. The direction of India s trade is classified into five categories i,e 1. OECD countries 2. OPEC countries 3. Eastern Europe 4. Developing countries 5. All other countries. The group of developing countries accounts for a major portion of India s exports in the recent years. While the share of this group in was percent, in it was 41.4 percent. Almost percent of these exports were accounted for by the Asian Countries. The OECD group accounts for a second major portion of India s exports. The share of this group was percent in , percent in Almost percent of these exports were accounted for by the European Union. The OPEC groups accounted for 9.64 percent of the total exports in and its share rose to percent in There was a rapid decline in exports to the countries of Eastern Europe. For instance, Eastern Europe accounted for 3.28 percent of export earnings in , which fell down to 1.18 percent in See annexure no.a.3 105

14 Figure 4.4: Direction of India s Export in (% Share) 3% 42% 19% 35% OECD Countries OPEC Eastern Europe Developing countries Others / Unspecified 1% The above diagram shows the direction of India s exports in It is clear from the above diagram that developing countries (group) accounts for a major portion of India s exports; contributing 41.4 percent in The share of OECD countries is about percent of the total India s exports, followed by OPEC, other countries and EU accounting percent, 3.29 percent and 1.18 percent respectively. Hence the most remarkable change in the direction of India s exports during , has been the increasing share in the developing countries, OECD countries and OPEC. It is also expected that developing countries share would grow over the next few years. 4.7 Trends in Agricultural Exports in India under WTO Regime: Agricultural exports are an integral part of India s sustainable agricultural development strategy as also overall economic development strategy and trade policies and strategies. Trade policy reforms of 1991, has provided proper environment for Indian agriculture to enter the global market. Several policy measures have been initiated for making agricultural exports more viable which include abolition of minimum export price for all varieties of rice, introduction of market determined rate of interest, reduction of items under restricted list, negative lists and items subjected to licensing, easy availability of credit for agricultural exports, 106

15 reduction in import duties on capital goods, especially for agricultural implements, plant and machinery required for food processing industries and so on. India s membership and commitment to World Trade Organization (WTO) in 1995 was a clear sign of India s intention to take advantage of globalization and face the tough challenge of accelerating its economic growth. What Indian agriculture needs is a level playing field with domestic industry, in an open economy environment. This would be a precondition, not necessarily sufficient one for a new paradigm of growth where agriculture triggers growth impulses in other sectors through its backward and forward linkage. The world trade regime under the WTO has also opened up new export possibilities and new opportunities for the farmers to earn higher values for their produce. The WTO, in fact the Agreement on Agriculture (AOA), provides an ample opportunities for the export of agriculture products and, in this respect, India is yet to take advantage of the emerging opportunities to enlarge its trade, particularly with the widening of the global market. 4.8 WTO and Indian Agriculture: The establishment of WTO is an important landmark in the history of international trade. The WTO agreement on agriculture is stipulated to bring agriculture effectively for the first time under the discipline of a multilateral trading system. After seven years of protracted negotiations called Uruguay round of trade negotiations, the most powerful world trade regulating agency named World Trade Organization came into existence on January 1, It covered many new areas such as agriculture, textiles, technology, IPRs and trade related investment services. One of the significant features of WTO agreement was that it contained a subject of special concern to developing countries i.e. agriculture. Agriculture is an area of great concern for all developing countries including India. Agriculture contributes substantially to national income and gives employment to a large number of people in these countries. Agriculture is the most debatable issue at all the ministerial conferences. 107

16 The agreement on agriculture (AOA) is the name given to the agreement reached at the end of the negotiations on trade in agriculture under the Uruguay round of negotiations of the erstwhile GATT, the forerunner to WTO. The general idea of the AOA is to open up trade in agricultural products as far as possible. The commitments under the AOA can be divided into three broad areas, commonly referred to as the three pillars of the agreements. These are market access, export competition and domestic support. All WTO members were required to make commitments in each of these areas, though the extent of the commitments varied. India s stand on the issue of agriculture in WTO is that it is ready for talks on tariff reduction (market access) only if the developed countries are prepared to relent on heavy domestic and export subsidies from the view point of providing domestic support and export subsidy 1. India is in a better position than other countries. India has no obligation as it is not providing too much export subsidies in agriculture, and Aggregate Measure of Support of Indian agriculture is well below the deminimis of 10 percent in terms of AOA stipulation. Indian exports enjoy the advantages of low wages in agriculture in comparison to most of the developed countries. The prices of most of agriculture commodities are lower than the world prices. Therefore, after the removal of trade barriers these countries will export larger amount of agriculture products and this will lead to the equalization of prices of agriculture products worldwide and the countries like India will gain their comparative advantages on these products. On the contrary there are a few items like oil-seeds, sugar in which the Indian prices are higher than the international prices. Due to liberalization, India will import a large amount of these commodities in the near future. Liberal import of agriculture commodities may create difficulties for supply-demand balance for essential commodities especially for food grains in India. WTO has provided both the challenges and opportunities to developing countries. The world market would gradually be distortion free and those countries pursuing international competitiveness will be able to take advantage of free and fair 1 _P.C. Tiwari, B. Chowdhary and M.K.Tiwari, WTO and Indian Agriculture: Issues and Impact,

17 trade. Although there are some threats like food in security, instability in prices, yet India should try to cash the opportunities which WTO has provided. Indian agriculture sector has great potential to increase its market share in agriculture trade it has to adopt its own strategies. Table 4.2: Growth and Trends in Agricultural Exports in India (US $ Million) Year Total Exports Agriculture and % Share in Allied Products Total Exports First Phase ( after inception of WTO) CGR Second Phase ( after inception of WTO) CGGR Source: Economic Survey

18 The above table shows the trends of agricultural exports in India under the first phase ( to ). The agricultural and allied products exports were decreased from million in to million in , and then rose to million in Finally, it has increased from 6710 million in to million in In the first phase, the compound growth rate was about 2.5 percent, whereas the total exports compound growth rate was percent. On the other hand, percentage share of agricultural exports to total exports which was 20.5 percent in , and then declined to 13.4 percent in Finally, it declined to 10.1 percent by The table also reveals the trends of agricultural exports in India during the second phase ( to ). The agricultural exports have increased from million in to million in , and again registered a positive trend of million in Thereafter, it increased from million in to million by On the other hand, the percentage share towards total exports in India slightly declined from 9.9 percent in to 9.6 percent in Finally it increased to percent. The compound growth rate during the second phase was percent which is greater than the first phase at 2.51 percent. Figure 4.5: Growth of Agricultural Exports in India from to (US $ Million) First Phase Agricultural Export 110

19 The above diagram shows the trends of agricultural exports in India during the first phase ( to ). The overall trend line reveals that the agricultural exports have decreased consistently from to due to natural reasons, thereafter it has consistently increased in its magnitude. It is clear from the above graph that it is decreasing from million in to million in Thereafter, it registered a negative growth from 5608 million in to million in Finally, it has increased from 6710 million in to million in The trend line indicates the agricultural export has consistence positive trend in India from to Figure 4.6: Growth of Agricultural Export in India from to (US $ Million) Second Phase Agriculture Export The above diagram shows the trends of agricultural exports in India from to The overall trend line reveals that the agricultural exports increased by many folds. It is clear from the above graph that it is increasing from million in to million in Thereafter, registered a positive trend and increased from million in to million in Finally, it stood at million by The trend line indicates that the agricultural exports in India has a positive trend from to

20 4.9 Trends in the Export of Major Agricultural Commodities in India: The agricultural products have moved toward to engage an ultimate position in the international market over the years. Today, India is a most important supplier of some agricultural commodities such as tea, coffee, rice, Spies, cashew, oil meals, fresh fruits, fresh vegetables, meat and its preparations and marine products to the worldwide market. Nevertheless, the country faces violent competition from other major players in the international market. Even though, Indian agriculture deeply contributed to foreign earnings in its conventional form, most of the export income of agriculture came from the conservative items for instance tea, coffee, rice, marine products, meat and meat preparation, cashew and spices. The share of Agricultural and allied product in India s total exports of products which was 20.5 percent in , declined sharply to 18.1 percent in , and 13.4 percent in and then continuously declined to 11.7 percent in , fell down to 9.9 percent in , 10 percent in , 11.3 percent in , and further fell down to 9.9 percent in and again it increased to 12.2 percent in Finally it was restored at percent in India s major agricultural commodities have increased considerably during the study period. It is cleared that, Rice export is the prime source of agricultural exports in India. The share of rice export has slightly increased from percent in to percent in Thereafter, it increased from percent in to percent in On the other hand, marine product exports have also a major share in the total agricultural exports in India. The share of this item has constantly increased from percent in to percent in , thereafter, it declined from percent in to percent in The third important agricultural exports are meat and meat preparation products. Its share has increased from 2.90 percent in to 6.08 percent in , and thereafter it increased from 5.77 percent in to 10.5 percent in The other major agricultural export from India is raw cotton export. The share of this item has slightly decreased from 6.46 percent in to 6.42 percent in 112

21 and then decreased from percent in to 8.6 percent in These four agricultural exports constituted percent of the total agricultural exports in India. The share of these agricultural exports have significantly increased due to global demand for these commodities. See annexure no.a.2. Figure 4.7: Major Agricultural Exports in Total Export (% Share) Rice 27% 18% 3% Wheat Cotton Raw 10% 12% 7% 6% 9% Spices Oil Meals Fruits&Vegetables Miscellaneous Processed Iteam Marine Products 4% 4% Meat&Meat Preparation Other Agriculture&Allied Products The above diagram reveals the trends in the major agricultural exports in India is a major supplier of several agricultural commodities but rice is the prime source for India s agricultural exports. There is a huge demand for the India s rice export. It is contributing percent of the total agricultural exports in The second highest contribution is from marine product which constitutes percent of the total agricultural exports, and followed by raw cotton, oil meals and spices contributing 8.6 percent, 6.61 percent and 6.2 percent respectively. Other agricultural products account for percent in the total agricultural exports from India in

22 4.10 Exports of Select Agricultural Commodities to Principal Countries (Percentage Share): Russia accounts for a major portion of India s Tea export. The share of this country in was percent. Then Iran and UAE occupy subsequent places by percent and percent respectively. Italy is importing major portion of India s Coffee exports. Hence the share of this country in was 23 percent; Germany and Belgium are the next trade partners, they are importing India s Coffee by about percent, 6.54 percent respectively. Rice export is in the top list in the India s Export. Saudi Arabia is importing major portion of the India s Rice export, the share of this nation in was percent. Then, UAE and Kuwait occupied next two places contributing 4.04 percent, and 3.46 percent respectively. Belgium is importing major proportion of India s Tobacco export. Although the share of this country in was percent, UAE and Saudi Arabia are our next partners importing this commodity by 8.17 percent and 4.51 percent respectively. The major importing country of the India s spices export is USA, it accounts to percent of the total spices export by UK and UAE are the next partners constituting 4.23 percent, 3.96 percent respectively. USA accounts for a major portion of India s Cashew exports. While the share of this country in was percent, UAE and Netherland occupied subsequent places by percent, 8.27 percent respectively. See annexure no.a Share of Agricultural Export in India s GDP: The share of agricultural exports in India s GDP will indicate three major aspects i,e (a) The degree of openness (b) The nature of agricultural export strategies (c) Supply capacity of the agricultural sector as regards exports. During the study period, a marginal raise in the share of agricultural exports in total GDP is identified. 114

23 Table 4.3: Share of Agricultural Export in India s GDP Ag Ex Years Total Export Agri Export % Share GDP (%GDP) Source: Handbook of Statistics on Indian Economy, RBI. The above table shows the share of agricultural exports in India s GDP from to Among the three sectors, the growth of the agricultural sector has been the most volatile and also the least sector. The consequence of structural change, the share of agricultural exports in overall GDP has marginally increased. The share of agricultural exports in the overall GDP of India decreased from 0.33 percent in to 0.23 percent in , and then increased from 0.29 percent in to 0.46 percent in Finally, it stood at 0.43 percent in Thus, it is evident from the table that a marginal raise in the share of agricultural exports in India s total GDP. The slow rise in agricultural export call for the change in strategic approach of Indian agriculture in a big way to achieve higher levels of agricultural production. 115

24 SECTION 2: 4.12 Agricultural Exports in Karnataka under the WTO Regime: Agriculture is the backbone of Karnataka and is still the main source of the state economy. About 17.5 percent of total Gross State Domestic Product comes from agriculture and even today nearly about 60 percent of the total workforce directly and indirectly depends on agriculture for their livelihood. About 65 percent of the total population of the is still living in rural areas and completely rely upon agriculture sector for their source of revenue. On the other hand, agriculture provides inputs and raw materials for a good number of industries. Therefore, it is evident that in order to achieve more economic growth, the development of agriculture sector is the best solution. In Karnataka, agricultural products are cultivated in the total area of hectares and the production is lakh metric tons in the Karnataka has long history of international trade. In the recent past, Karnataka has been a major exporter of agricultural products in the world trade. Karnataka, is known for the exports of the traditional items such as silk, cashew, coffee, spices, handicrafts, manufacturing and service related products. In the recent years, Karnataka has been identified as the major partner of the export of minerals, chemicals, leather and garments, engineering and readymade products. In the post New Economic Policy, Karnataka has been identified as the technological capital of the country and these exports have attracted the attention of the world importers. Many agricultural exports are contributing immensely towards total exports of Karnataka and the prime source of the foreign exchange earnings from the state. Agricultural commodities have registered a positive trend in export since WTO. Karnataka has sufficient natural resources to produce all kinds of goods and services. Today, the state is identified as a strong contender to produce more agricultural exports in the country. Further, in the near future, it is anticipated that Karnataka would direct the India s major agricultural export commodities. Now a day, the state is producing large variety of goods and services to the global market at the most competitive rates. More importantly, it exports manufacture and technological related products like electronic, software, hardware, and information 116

25 technology and biotechnology exports. Hence, in the last two decades the state has emerged as a major player in the export of agricultural products such as silk, coffee, processed food products and Marine products. Karnataka especially is a major player phenomenally in the India s export of coffee, spices gherkins and silk product. Karnataka s export registered a positive trend over the years. In , the export value was only Rs crores and it has increased to Rs crores by and by the value increased to Rs crores. In export value of Karnataka increased to Rs crores. Karnataka s exports in , amounted to about Rs.1, 65,523 crores which constituted about 11.7 percent of the country s exports. At present it stood at crores in with a share of percent in the country s exports. These increased export values show that Karnataka is doing good progress in exporting varieties of commodities. This is an indication that, there is ample scope for the development and increase of total exports from the State. At present the agriculture and allied products accounts to crores (3.56 percent) of the total export in Karnataka. Coffee product has the highest share of percent of total agricultural exports, followed by Silk products 4.93 percent and agricultural and processed food products percent. The commodities whose share in Karnataka s exports are electronics and computer software (61.87 percent), petroleum and petroleum products (13.03 percent) and gem and jewellery (7.01 percent). These three commodities account for over percent of Karnataka s total exports. Other commodities with a share of over three per cent in the states exports are ready made garments (3.13 percent) engineering (6.68 percent) and basic chemicals (1.88 percent) Volume of Exports from Karnataka since : The volume of export of a state tells about the exact size of its transactions with different countries of the world. Today, Karnataka is exporting various types of goods and services. The aggregate size of transactions can be found only by means of the value of the transactions. In short, the volume of trade tells about the total value of exports and imports in a particular year. Trends in the value over years will help in 117

26 finding out whether the volume of trade has increased or decreased. The total exports from Karnataka have increased by many folds since due to the state government s promotional measures and positive role of institutions in enhancing the total exports. Table 4.4: Growth and Trends of Karnataka's Exports since 1998 (Rs. in crores): Years Total Exports AGR First Phase ( to ) CGR Second Phase ( to ) CGR Source: Visvesvaraya Trade Promotion Centre. 118

27 The above table reveals that the value of Karnataka s exports has increased considerably under the study period due to the various trade promotional policies and schemes introduced by the state Government. During the first phase ( to ) the total exports have increased from crores in to crores in Then it has increased from crores in to crores in crores in , and crores in , and then increased to crores in Finally Karnataka s total exports stood at crores by The compound growth rate of the total exports in Karnataka was during the first phase. The annual growth rate also constantly increased from 1998 to During the second phase, ( to ) Karnataka s total exports registered positive trends. The exports increased from crores in to crores in , and then rose to crores in Thereafter, it increased from crores in to crores in and then increased to crores in Finally, it increased from crores in to crores by It is cleared from the above table, the trend of total exports is not smooth and unique, and it has some fluctuation trends in its magnitude. The compound growth rate of the total exports in Karnataka was during the second phase which is lesser than the first phase. The main reason for the slow growth rate of CGR was the economic recession which badly affected the growth of Karnataka s total exports. Figure 4.8: Trends of Karnataka s Export from to (Rs in Crores) Total Export 119

28 The above graph shows the trends of agricultural exports in Karnataka from to The liberalization of the Indian economy resulted in major policy and exchange rate changes, which had a favourable impact on state s export, is seen in the above figure. The state government has established many dedicated agencies to propel total exports in the State. The figure reveals a sharp increase of state s export from to Total exports in Karnataka increased from crores in to crores in It is observed by the trend line which shows that the export increased consistently, and later on it increased rapidly. The main reason for this, is the state government has introduced supportive policies to augment the exports in the state Export as percentage to GSDP: Higher export performance is an important determinant of increasing degree of openness to export trade. Degree of openness is measured by the ratio of value of exports to GDP at national level and by the ratio of value of exports to Gross State Domestic Product (GSDP) at the state level. Karnataka s degree of openness to export trade has increased significantly since Liberalisation. Degree of openness to export trade was about percent in , then it was decreased to percent in , finally it stood at percent by This can be seen in figure 4.9. Karnataka s degree of openness to trade which stood at percent is remarkably higher than that of all India level, which is about 24 percent. Increasing degree of openness to trade is an indicator of economic globalization. From this point of view, it can be observed that the levels of Karnataka s economic globalization have been higher than that of the all India level. 120

29 Figure 4.9: Export as Percentage to GSDP in Karnataka Composition of Exports from Karnataka State: The composition of exports denotes the nature of goods that are exported to the rest of the world. The composition of foreign export of a country in general, states in particular, helps us to understand to what extent the economy is progressing and what kind of structural changes are taking place. The more the country exports finished goods, machinery, and capital equipment, the greater the economic development. If the country exports more of primary commodities and imports capital equipment and machinery, finished goods, etc., it continues to be an less developed country. Historically, Karnataka has been a major exporter of many agricultural commodities. In the last two decades, the state has emerged as a major player in the export of coffee, engineering goods, readymade Garments, leather goods, gems and jewellery, chemicals minerals, ores etc, Karnataka has carved out a niche for itself in the global market place as the knowledge and technology capital of the country. The state has made rapid and spectacular strides in the new economy. Information technology, biotechnology and research and development institutions have enhanced Karnataka s achievements at national and global levels. 121

30 Karnataka accounts for more than one third of electronics and computer software exports from the country. It is also a leader in exports of readymade garments, gems and jewellery, petrochemicals and engineering commodities from Southern Region. The state ranks 1 st in software, service exports and stands 4 th in merchandise exports in the national export basket. Karnataka enjoys a unique position in India in exports of electronics, software and IT. In , the exports of these products from the state accounted for as much as 38% of India s total exports Major Commodities of Export from Karnataka During the study period, the exports of electronics, software, and BT, readymade garments, Petroleum and petroleum products, Engineering products, Marine Products, Gems and Jewellery, Coffee, Spices, agro and processed food products have increased significantly during as compared to their exports in the recent past. The exports of silk products, gems and jewellery, plastic goods have revealed a marginal decline in as compared to But basic chemicals, pharmaceuticals and cosmetics have been slightly reduced in as compared to Since Karnataka is popularly known as IT hub of India, the state is exporting more Electronics, computer software, and BT; these sectors are the core source for Karnataka s total exports. It can be noticed that, electronics, computer software and BT exports remarkably increased from Rs crores in to crores in Then, exports rose from crores in to crores in Finally, it stood at crores in Petroleum products are the second top in the list, increasing from 1915 crores in to crores in Then, it increased from crores in to crores in Finally, it stood at crores in Gems and jewellery exports have significantly increased from to It is the third largest contributor in the state total export, which has shown a tremendously increased trend during the study period. It is increased from 281 crores in to 5725 crores in and then increased from 7799 crores in to crores in Finally, it stood at crores in

31 Engineering product exports is another major source of Karnataka s total exports. Its export increased from Rs.1048 crores in to Rs.3052 crores in Then, it increased from 5461 crores in to 8263 crores in Finally it stood at crores in Readymade garments exports increased rapidly from 2820 crores in to 4980 crores in Further, it increased from 6773 crores in to 8143 crores in Finally, it restored at 9821 crores by It is clear that, the five commodities i,e electronics, computer software and BT, petroleum products, gems and jewellery, engineering products and readymade garments) contributing about 92 percent towards the Karnataka s total exports by See annexure no.a.5. Figure 4.10: Major Commodities of Export from Karnataka in (% Share) 2% 1% 7% 13% 7% 5% 62% Electronics&Computer Software Readymade Garments Petroleum&Petroleum Product Engineering Products Coffee Products Basic Chemicals&Pharamaceutical 3% Gems and Jewellery Miscellaneous &Others It can be seen from the above chart the exports of electronics, computer software and BT constitute the largest share in the state s exports. Karnataka accounts for more than one third of electronics and computer software exports from the country. It is also a leader in exports of readymade garments, gems and jewellery, petrochemicals and engineering commodities from Southern Region. The state ranks 1 st in software, service exports and stands 4 th in merchandise exports in the national export basket. Its share was of the order of 62 percent in The other commodities which have substantial share in Karnataka s exports in are petroleum and petroleum products (13 percent), and gems and jewellery (7 percent). 123

32 These three commodities account for about 82 percent of Karnataka s total exports during Other commodities with significant share in state exports are engineering goods (7 percent), readymade garments (3 percent), basic chemicals, pharmaceuticals and cosmetics (2 percent) and coffee (2 percent) during Growth Performance of Agricultural Exports from Karnataka: Agricultural exports are an integral part of India s sustainable agricultural development strategy as also overall economic development strategy and trade policies. Trade policy reforms of 1991, has prepared proper environment for Indian agriculture to enter the global market. Several policy measures have been initiated for making agricultural exports viable which include abolition of minimum export price for all varieties of rice, introduction of market determined rate of interest, reduction of items under restricted list, negative lists and items subjected to licensing, easy availability of credit for agricultural exports, reduction in import duties on capital goods, especially for agricultural implements, plant and machinery required for food processing industries and so on. Growth performance of Karnataka s agricultural exports during the last two decades in the post WTO regime reveals some significant trends. Karnataka s agricultural exports have increased manifold in absolute terms. However, the contribution of agricultural exports in the total exports of the state has fluctuations during the study period from to , although there has been a significant change in the contribution of individual group of commodities in the total agricultural exports during the corresponding period. 124

33 Table 4.5: Growth of Agricultural Exports from Karnataka since (Rs in Crores): Year Total Exports Agri. Exports % share During First Phase CGR During Second Phase CGR Source: Karnataka State Agricultural Produce Processing and Export Corporation Limited The above table reveals that the Karnataka s total agricultural exports have increased considerably during the first phase. Karnataka s total agricultural exports increased from Rs crores in to crores in and further to crores in Thereafter, it has increased from crores in to crores in It then, further increased to crores in and then restored at crores by The overall compound 125

34 growth rate of agricultural exports was just about 9.09 percent under the first phase. It is clear from the above table that, there has been small upward trend in its magnitude of agricultural exports from to The state s export basket in the past was heavily dependent upon agricultural commodities, which in recent years has widened to include manufacturing goods also. The above table also states the growth and trends of agricultural exports in Karnataka during the second phase ( to ). Total agricultural exports in Karnataka have registered a positive trend during the second phase. Agricultural exports increased from crores in to crores in Thereafter, there has been decisive increase from crores in to crores in , after that it again rose to crores in Further it rose to crores in Finally it stood at crores in The overall compound growth rate was percent during the second phase which is greater than the compound growth rate of agricultural exports under the first phase. The share of Agricultural and allied products in Karnataka s total exports which was percent in , declined sharply to percent in , and to 4.33 percent in , then decreased to 3.35 percent in and then it stood at 3.11 percent share in in total exports. Finally, it was slightly increased by 3.56 percent in Thus, the percentage share declined due to slow growth rate of agricultural exports and facing international trade competitiveness of agricultural commodities as international price scenario changed dramatically after WTO agreement. More importantly, agricultural exports contribution towards total exports declined due to rapid growth rate of non agricultural exports. 126

35 Figure 4.11: Agricultural Export from Karnataka from to (Rs in Crores) Agri. Exports The above graph shows that the agricultural exports from Karnataka has tremendously increased from to The total agricultural exports increased from Rs 1910 crores in to crores in Thereafter it increased from 2839 crores in to 4371 crores in Then, it continued to increase from 4371 crores in to 5159 crores by Finally, it stood at crores by The trends indicate agricultural exports constantly increased from to and then rapidly increased in the coming years, due to the increase major agricultural exports i,e coffee, spices and gherkins Trends in the Export of Major Agricultural Commodities in Karnataka: Karnataka s agriculture has greatly contributed to total exports even in its traditional form. Karnataka s Agricultural products have been facing stiff competition from foreign countries. Due to globalization and liberalized regime, this competition is likely to increase further and new initiatives in agriculture development shall have to meet the emerging challenges. The performance of agriculture after integration with the world markets is linked to the success of exports. In its bid to increase overall exports, the government of India has decided to achieve this objective by giving a push to production and export of agricultural commodities. 127

36 The state government also follows the guidelines, directions which the central government implements, including promotional measures. In the past, most of the export earnings of agriculture came from the conventional items such as coffee, cashew, silk spices. Karnataka s agricultural commodities have come to occupy a supreme position in the global market over the years. Today, Karnataka is a major supplier of several agricultural commodities like tea, coffee, rice, spices, cashew, oil meals, fresh fruits, fresh vegetables, meat and its preparations and marine products in the international market. The major agricultural exports can be seen in the table given below. 128

37 Table 4.6: Trends in the Export of Major Agricultural Commodities in Karnataka (Rs in Crores): Commodities/ Year %share Coffee Products Silk Products Cashew & Cashew Kernels Agricultural & Processed Food Products 1, Spices Bangalore Rose Onion NA Gherkins NA NA Flowers Total Agricultural Exports Total Exports Sources: Karnataka State Agricultural Produce Processing and Export Corporation Limited and Visveswarayya Trade Promotion Centre 129

38 The above table indicates the trends in the export of major agricultural commodities in Karnataka from to It is shown from the above table that the coffee export is the prime source of agricultural exports in Karnataka. Coffee exports have decisively declined from 1043 crores in to crores in Later on it has increased from crores in to crores in Thereafter, it has increased from crores in to crores in Silk exports have also made a major contribution to the total agricultural exports in Karnataka. It can be seen from the above table that silk exports constantly increased during the study period. It has increased from crores in to crores in Thereafter, it has rapidly declined from crores in to 554 crores in due to decisively declined in the production of Silk product. The decline in silk production was due to the increased silk production and export by Andhra Pradesh and Tamil Nadu in recent years and the increased competition from China in the global market. Another important source of Karnataka s agricultural export is cashew. It is increased from 238 crores in to crores in , and then increased from crores in to crores in Finally, it stood at crores in Agricultural and processed food products are another source of Karnataka s agricultural exports. It is increased from crores in to crores in and further it is increased from crores in to crores in Spices exports are also an important agricultural exports from the state during the study period. It has increased from 60 crores in to crores in and then it increased from crores in to crores in Finally, it has increased to crores by Gherkin exports are treated as an emerging source for Karnataka s agricultural exports. It has increased from 120 crores in to crores in , and then it rose from crores in to 500 crores in Finally it stood at crores by It can also be observed from the above table that, the major agricultural exports from the state are coffee products, silk products, cashew products, agricultural and processed food products, spices products and gherkins during the study period. The mentioned six agricultural commodities constituted percent of the total agricultural exports from the state, and also these exports were immensely represented at the national level. 130

39 Commodities/ Year Table 4.7: Trends in the Export of Major Agricultural Commodities in Karnataka (Percentage Share): Coffee Products Silk Products Cashew & Cashew Kernels Agricultural& Processed Food Products Spices Bangalore Rose Onion Gherkins Flowers Total Agricultural Exports Total Exports Sources: Karnataka State Agricultural Produce Processing and Export Corporation Limited and Visveswarayya Trade Promotion Centre 131

40 Some major agriculture exports including Coffee Products, Silk Products, Cashew and Cashew Kernels, agriculture and processed food products, Spices and Gherkins are contributing nearly percent to the total agricultural export of Karnataka. The trends in the export of major agricultural commodities in Karnataka can be analyzed with the help of individual commodities performance. It can be easily observed with the help of the above table. Coffee Exports: During the study period, Coffee export has been the prime source of agricultural exports in Karnataka It stands at the first place in the Karnataka s total agricultural exports from to The share of coffee exports in Karnataka s total agricultural export was percent in , which subsequently declined to percent by and then decreased to percent in Thereafter the share has been increased slightly to percent in , percent in , percent in Then the share was restored to percent by and further declined to percent in There is a huge demand for Karnataka s coffee export at national as well as international market Figure 4.12: Coffee Export in Karnataka from to (% Share) Coffee Export

41 Silk Exports: Silk export from Karnataka has decisively declined during the study period. The share of silk export in Karnataka s total agricultural export showed a rise from percent to percent during the time period of to Thereafter, the share exports increased from 36 percent in to percent in , its percentage share in agricultural exports rose to percent in and then to percent in It decreased to 9.84 percent in and finally it decreased, stored at 4.93 percent in Silk exports were the second highest contributing source for agricultural exports from to , but later on it decisively declined in the share of agricultural exports from Karnataka due to increased silk production and export by Andhra Pradesh and Tamilnadu in recent years and increased competition from China in the global market. The other reasons are, more imports from abroad specially China, high production cost, low price, removal of import quota on silk product, natural calamities, low productivity, labour problem, imperfect knowledge on market, lack of credit facilities, failure to stabilize the price etc Figure 4.13: Silk Export from Karnataka (%Share) Silk Export

42 Cashew and Cashew Kernels: Cashew export is the second largest source in the agricultural exports from Karnataka over a period of time. The share of this item in the total agricultural exports fell down sharply from percent in to 6.96 percent in Then, it increased to 9.88 percent in , increased to percent in and declined to percent in After that, it further declined from percent in to percent in But the share of cashew including cashew nut shell liquid in total agricultural exports of Karnataka remained only at percent by Figure 4.14: Cashew Export from Karnataka (% Share) Cashew Export Agricultural and Processed Food Product Exports: Agricultural and processed food products occupy the top third place in the Karnataka s agricultural exports. The share of agriculture and processed food products in total agricultural exports was merely 8.65 percent in , increased to in Thereafter it reached to a higher level of percent in , then it declined to percent in , after that it again rose up to percent in , which in subsequent years showed an increasing trend i.e from 9.55 percent in to percent in Finally, it rose up to percent by , then again, declined to percent in

43 Figure 4.15: Agricultural and Processed Food Product Export (% Share) Agricultural& Processed Food Product Export Spices Export: Spice exports are the main source for the Karnataka s agricultural exports during the study period. The share of spices exports in total agricultural exports of Karnataka were 3.14 percent in , it fell down to 2.94 percent in Then again it rose from 3.70 percent in to 4.76 percent in Thereafter, its share slightly increased from 5.06 percent in to percent in The share has further increased continuously from 8.71 percent in to percent in Finally, spice exports stood at percent to the total agricultural exports in Karnataka. Figure 4.16: Spices Export from Karnataka (% Share) Spices Export

44 Bangalore Rose Onion: Bangalore rose onion has a minor share to the total agricultural exports from Karnataka. The share of Bangalore rose onion, constantly increased during the study period. The share of this item increased from 1.12 percent in to 2.06 percent in Further it slightly increased from 1.61 percent to 1.85 percent from to , again, showed a fall of 1.36 percent in to 1.48 percent in Thereafter it started increasing from 1.74 percent in to 1.86 percent in Finally it increased and reached to 2.25 percent in Figure 4.17: Bangalore Rose Onion Export from Karnataka (% Share) Bang,Rose Onion Export Gherkins Export: Gherkins exports have emerged as an important foreign exchange earner of Karnataka due to the huge demand for Chikkamangaluru and Kolar gherkin products. Today, Gherkins product is the main source of Karnataka s total agricultural exports. The share of Gherkin exports in the total agricultural exports increased from 4.15 percent in to 5.11 percent in Thereafter, it increased from 5.23 percent in to 5.99 percent in , then, it rose in the successive years i,e 6.49 percent in and 7.07 percent in Again, it increased from 7.30 percent to percent from to

45 Figure 4.18: Gherkin Export from Karnataka (% Share) Gherkin Export 2 0 Flowers: Flower exports also contributed to the total agricultural exports from Karnataka. Flowers exports in the Karnataka s agricultural exports have consistently increased during the study period. The share has decreased from 1.97 percent in to 1.70 percent in Then, it again declined from 1.63 percent to 1.40 percent from to Thereafter it increased and fell from 1.32 percent in to 1.17 percent in Finally, its share increased from 0.73 percent in to 2.12 percent in Figure 4.19: Flowers Export from Karnataka (% Share) Flowers Export

46 4.19 Share of Agricultural Export in GSDP in Karnataka: The share of agricultural exports in GSDP will indicate three major aspects i,e (a) The degree of openness (b) The nature of agricultural export strategies (c) Supply capacity of the agricultural sector as regards exports. Higher agricultural export performance is an important determinant of increasing degree of openness to agricultural export trade. Degree of openness is measured by the ratio of value of agricultural exports to Gross State Domestic Product (GSDP). Karnataka s degree of openness to agricultural export trade has increased significantly over a period of time. Table 4.8: Percentage Share of Agricultural Export in GSDP: Years Total Export GSDP Agri.Exports %Share Ag.Ex (%GSDP) Source: Economic Survey of Karnataka

47 The above table shows the share of agricultural exports in GSDP in Karnataka from to Among the sectors, the growth of the agricultural sector has been the most volatile one. Even then the agricultural exports have increased, more or less consistently. The share of agricultural exports in the overall GSDP of Karnataka decreased from 3.15 percent in to 2.21 percent in , and then decreased from 2.14 percent in to 1.89 percent in Finally, it stood at 3.28 percent in Thus, it is evident from the table that there has been a continuous fluctuating movement of percentage share of agricultural exports in GSDP of Karnataka which showed that it played an important role in the economic development of the state. Figure 4.20: Agricultural Export as Percentage to GSDP Ag.Ex(%GDP) The above figure shows the share of agricultural exports in GSDP in Karnataka from to The share of agricultural exports in the GSDP of Karnataka decreased from 3.15 percent in to 2.21 percent in , and then decreased from 2.14 percent in to 1.89 percent in and finally, it stood at 3.28 percent in The trend indicates that, there has been fluctuating movement of percentage share of agricultural export in GSDP. The slow rise in agricultural exports calls for the change in strategic approach of state agriculture in a big way to achieve higher levels of production in which state has comparative advantage and generate surplus for exports. 139