2.&&& The phenomenal growth of China and India
Of the many successes in recent times,
two stand out: China and India. The two countries are by their sheer size
economic giants and while they grow at the rates observed in recent years
(decades in
the case of China) it is obvious that their transformation will have profound
effects, not just internally but for the rest of the world. Such effects, already in
evidence, are a combination of new market opportunities arising from enhanced
purchasing power and greater competitiveness of these mega-economies as
producers of selected products. It is important to assess the likely impact in order to put in place
policies and strategies that anticipate the changes so as to best capitalize on
opportunities, while also attenuating whatever anomalies could arise in
subsectors that cannot meet the challenges.
Much has been written about China and India recently. The two countries have experienced very rapid growth which has resulted in notable achievements, particularly reduction in poverty. They also share common problems associated with rapid growth such as the widening rural-urban income gap and environmental degradation. Rising incomes create impetus for structural change in the agriculture and food sectors as demand and consum concomitantly the impact will extend to trade, commerce and investment.
Both China
and India have experienced impressive growth in agriculture, a Green Revolution,
followed by rapid industrial growth and a sharp decrease in relative poverty.
But the preconditions and the driving forces behind the growth were in both cases very different.
In this subsection we discuss separately for each country the policy and
institutional changes that have led to these transformations. Then we compare
and contrast China and India in terms of prospects for future growth, the
likely impact that this growth will have on their domestic economies and the impact on
other Asia-Pacific countries. We identify the challenges that both countries
face in sustaining agricultural and economic development and meeting Millennium
Development
Goals (MDGs). Finally, we highlight the lessons learned .
It is clear that the rising incomes in
these countries will continue to create pressure for structural reform of their
own agriculture/rural development and food sectors to cope with changing demand
size and evolving consumer tastes. Changing incomes will also offer expanded
two-way trade opportunities with countries in the region and the rest of the world. As
a United Nations study points out:
China and India have a combined
population of 2.3 billion people, about 37 percent of world's total. A 100 dollar increase in the
per capita income of these two countries would translate into about 230 billion dollars in
additional demand for commodities.
The continued growth of these two
populous countries will therefore significantly affect the balance and direction of
trade, trading opportunities and level playing field for smaller countries in
the region.
It calls for timely diagnosis of the growth pattern in these emerging economies
in order to put policies in place to optimize gains and minimize losses and
marginalization.
Both China and India have large agriculture
sectors. The Chinese experience shows the crucial role agricultural
development has played in the initial years of reform. In India, which is not
as industrialized
as China, agriculture continues to be a critical sector. While agriculture's
share in the GDP has been decreasing,
the sector still employs a substantial part of the workforce. Performance in this sector is
therefore of great significance for future policies and strategies to achieve
the MDGs, especially
Goal 1 of eradicating extreme poverty and hunger, with the specific targets of
halving between
1990 and 2015, the proportion of people living in extreme poverty and who
suffer from hunger, sustainable food security and overall socio-economic development.
As China and India still have many poor people (significant numbers in India)
further reduction in poverty in these two countries would dramatically impact the
overall numbers of poor in the region as well as change the global scenario in
this regard. Their recent rapid development therefore has implications for
their domestic policy issues, particularly rural poverty, inequitable wealth
distribution, natural resource management and sustainability.
There is potential to draw lessons from the
developmental experience of both China and India, i.e. how they have
responded to adjustments with respect to trade liberalization, globalization,
agriculture, rural development and poverty eradication despite their contrasting
approaches to development. In addition, both countries are emerging as dominant
players in the field of agricultural research and technology generation
in the region. This is of particular significance for the smaller countries of
the region
that are refocusing their research efforts in the face of relative decline in
support from regional and international research institutions/bodies, such as the
Consultative Group on International Agricultural Research (CGIAR).
Increase in economic growth began with
the sharp rise in GDP in agriculture in the early reform period ().
Rising incomes stimulated domestic consumption and high savings rates with savings appropriately
transferred into physical capital investments in the non-agricultural sector. From the mid-1980s
growth in the non-agricultural sector was stimulated by the growth of
township and
village enterprises (TVEs). Collectivization and the associated
self-sufficiency of the commune also seem to have been an important
precondition for the growth in the TVEs. This distinctly Chinese institutional
development, not replicable elsewhere, was a major factor in contributing to the sharp decline in
Aided by the growth of TVEs, the average
annual growth in the GDP has reached 10 percent annually since 1980. Non-agricultural
farm household income has come to exceed agricultural income in many parts of
China. Reforms during the 1990s provided for trade and market liberalization,
fiscal and financial expansion, devaluation of the exchange rate, expansion of
special economic zones to attract foreign direct investment (FDI) and reform of
state-owned enterprises. In 2004 China overtook the United States as the
world's largest recipient of FDI; for a long time it has been by far the leading
recipient of FDI among developing countries.
The China paper documents the rapid
growth in agriculture in the early reform period, 1978 to 1984. The reforms in Chinese
agriculture began in 1978. While the collectivization of agriculture is not generally regarded as
a sound strategy for agricultural and rural development, there were certain
policies under collectivization, e.g. education, health, development of rural
infrastructure and agricultural technology, which laid the foundation for subsequent rapid
growth in agriculture. Except during the famine years, the country achieved rates of
production growth that outpaced the rise in population. From 1961 to 1978 China's cereal
yields increased from 1.2 to 2.8. tonnes/ha.
Subsequently yields have risen from 2.8 to 5.4 tonnes/ha. Following the adoption of
the Household Responsibility System
(HRS), agriculture grew at the phenomenal rate of 7 percent. The major policy
factor explaining growth during this period,
the HRS, gave as incentives the rights of individual farmers to control land and income from their agriculture. The
egalitarian nature of these reforms, each household receiving a share of land equal
in quality, ensured that the benefits derived from growth in the rural economy were widely
Since 1984 the annual growth in
agricultural GDP has been approximately 3 to 4 percent but over a much larger
base. The primary engine of agricultural growth during this period has been
labour-intensive
technological change & in particular the use of modern varieties and inputs
chemical fertilizers and irrigation. The growth has been sustained by public
investment in rural infrastructure and in research and technology development.
Rapid agricultural growth has taken
place against the backdrop of significant structural changes in China's economy.
While agriculture accounted for more than 35 percent of the GDP in 1970, it
fell to 15 percent in 2004.
Rising incomes and urbanization have been among the driving forces for
significant changes in the level and pattern
of food consumption. The farming sector has diversified production to meet changing food demands. Meat consumption
(pork and poultry) shot up and with it the demand for feedgrains (maize and soybeans). Consumption of aquatic products
also showed very rapid growth.
As a result of market and trade
liberalization, what we witness in general is the gradual shift from land-intensive
commodities to high-value labour-intensive commodities such as horticultural
crops, livestock
and fisheries. Trade policy and exchange rate reforms have given a further
boost to agricultural
production for export. The ratio of total exports to the GDP increased from 6
percent in 1980 to 36 percent in 2004 and, while agriculture's share of exports
declined from 3 to 2.5 percent, the US dollar value of net agricultural exports
increased 100-fold over the two decades.
Based on China's official poverty
line, poverty has declined from over 33 percent to less than 3 percent of the total
rural population, and as indicated earlier most of this occurred in the early reform period. Based
on the dollar-a-day poverty line index, the incidence of poverty dropped from 33 to 16 percent from
1990 to 2002. The estimated decline in numbers in this period was from 377 to 203 million. Overall
economic growth (as measured by per capita GDP) has been a primary source of rural poverty
reduction in China. The TVEs have played an important role in contributing to rural poverty
reduction. However, the effect of economic growth on poverty reduction has
weakened since
the 1980s. Furthermore, agricultural growth, not just economic growth, matters
for poverty reduction. The widening urban-rural income gap affects poverty
reduction and suggests that in the future growth has to be more broadly based.
Trade liberalization is a source of regional income disparities. The
coastal areas benefited from growth in agricultural exports, whereas central
China, the largest producer of soybeans and edible oils, was hurt by trade
liberalization.
One measure of food security is the
change in per capita food availability. Between the early 1960s and early reform years
daily per capita food availability in China increased from 1 717 kcal to 2 328 kcal. By 2000
it exceeded 3 000 kcal per day, a level nearly comparable to most developed countries. Over time
the food security picture has changed. Initially most farm households produced food for their own
subsistence. With the passage of time, however, markets have developed and agriculture has
become a more commercial enterprise. Farmers face market price risks, but as
percent of the land area is irrigated, production risks are lower than in most
other countries. Diversification of farm household incomes, with at least one family
member in non-farm employment, helps to improve food security.
In contrast to China, the sweeping
economic reforms in the 1990s in India were not directed at agriculture and growth
in agriculture in India did not result in an immediate increase in growth in either the rural or
urban non-farm sector.
India's growth performance after independence
until the 1960s was moderate, edging up slowly in the 1970s and 1980s to
about 5.5 percent
per annum. After the 1991 reforms, however, growth has
been much faster: an annual average of 6.8 percent in 1992 to 1997 and 5.6
percent during 1997 to 2002. The average annual growth rate for the decade 1993
to 2004 was 6.2 percent. India's high growth performance has therefore commenced
later than China's, but appears to have reached sustained high levels over the past 15
Much of the growth in the economy since
the 1990s has centred on the services sector covering communication
services, hotels, restaurants, tourism, finance, insurance and real estate,
including information
technology where outsourcing work to India has become a global phenomenon.
the primary and secondary sectors has not fared as well: Regulations and
infrastructural bottlenecks restrict growth in these sectors. The dramatic success in
information technology stands in contrast to the rest of the economy and in
particular the agriculture sector. As with China, so also with India rural-urban and
regional income disparities have widened. The solution seems to lie in large measure in
removing the constraints to growth in the industrial and agriculture sectors, a process that is now
Prior to the mid-1960s India relied on
imports and food aid to meet domestic requirements. However, two years of severe
drought in 1965 and 1966 convinced the Indian leadership that they could not rely on foreign
imports for food security. Consequently, they adopted significant policy reforms
in particular on the production of cereal grains, and concomitantly, the goal
of foodgrain self-sufficiency that has shaped Indian agricultural policy ever since
(Gulati et al. 2005).
India's Green Revolution began with the
decision to import seeds of high-yielding varieties of wheat and large scale
adaptive research. The initial increase in production was centred on the irrigated areas of the
Punjab, Haryana and western Uttar Pradesh. Total foodgrain production soared and by the early
1970s India became self-sufficient. Gulati et al. (2005) attributes this
success to the price incentives provided to farmers, the dynamism of the national
research system and the availability of credit and inputs such as improved seeds,
canal irrigation and fertilizer. The success of this coordinated approach
demonstrated that even in a country as diverse as India, the government can play an important
role in setting the agriculture sector on a high growth path.
The Green Revolution technology spread to rice
and, using tubewells, to other parts of India. When gains from the new
technology reached their limits in the states of initial adoption, the
technology spread in the 1970s and 1980s to the states of eastern India & Bihar,
Orissa and West Bengal. But the benefits of the new technology extended
principally to the irrigated areas which account for about one-third of the
harvested crop area. In the 1980s the policy also shifted to &evolution of
a production pattern in line with the demand pattern& leading to a shift in
emphasis to other agricultural commodities like oilseed, fruit and vegetables.
Impressive strides were also made in other subsectors such as dairying,
fisheries and livestock, and meeting the diversified food needs of the growing
population.
In India as in China, the agricultural
economy is undergoing structural changes. Between 1970 and 2003 the GDP in
agriculture has fallen from 43 to 22 percent. The growth in agricultural GDP
was approximately 3.6 percent
during the early Green Revolution period (1970s) and in this period growth in
agriculture led to a decline in poverty. However, the greatest increase in
productivity occurred in the 1970s and 1980s and the greatest decrease in poverty in
the 1980s and 1990s. The growth rate in agricultural GDP rose gradually from 3 to 4
percent in the 1960s and 1970s, to 5-6 percent in the 1980s, to 6-7 percent
following the financial reforms in 1991, but declined sharply in the late 1990s, to
less than 2 percent.
What explains this decline? In part it is
because the benefits of the Green Revolution technologies had been largely
exploited, although this may be questioned as India's crop yields on average
are relatively low when compared with other countries, with stark regional
variations in productivity. With increasing budgetary pressures, the government has
faced a trade-off. As the India report points out, resources used for subsidies
increased while expenditure on public goods & rural infrastructure and
agricultural research & was largely neglected. There are signs that under the present government,
which came to power in 2004, this policy is being changed.
The lack of radical institutional
change in Indian agriculture may also be part of the explanation. China, in its
de-collectivization process, created millions of smallholder farmers. In India,
on the other
hand, land reforms were successful in some states, but not in others. While 80
percent of operated holdings in India are small, 2 ha or less (),
there is a large landless population. In China only 2 percent of holdings were
larger than 2 ha in 1997. As India is a federal state and most
agricultural issues are dealt with at the state level, uniform institutional
change is far more difficult to achieve than in China.
Beginning in the late 1960s there was
a significant decline in poverty. From the late 1970s to the late 1980s the
poverty ratio fell from 51 to 39 percent (based on India's official poverty
line), due largely to gains in agricultural production and productivity. One difficulty
that India faces is the unequal distribution of landholdings and the large
landless population mentioned earlier. As a result, further reductions in rural
poverty depend on the continuing shift of labour out of agriculture. There are also significant
regional variations within India, such as between states or between districts.
The drop in the proportion of the population below the dollar-a-day poverty
index from 42 percent in 1990 to 34 percent in 2002 seems to have been largely due
to the growth of the industrial and service sectors. Yet due to fairly rapid population
growth, absolute numbers in poverty increased from 351 to 357 million.
India achieved national food security
and there were several positive developments associated with the Green Revolution
period. Per capita availability of food increased as did per capita generation
of income.
Indian agriculture became much more insulated from the effects of drought.
There was greater
commercialization and diversification of cropping patterns from foodgrains to
higher value crops, even for small and marginal farmers. There were also improvements
in the livestock and fisheries sector. Consumption patterns also changed, even
for the bottom 30 percent of the population, with the shares of non-cereal food
(fruit and vegetables, dairy products) increasing. Nonetheless, food security and
hunger remain a problem particularly in rural areas and in less-advanced
In the country studies for China and
India, analysis was undertaken using the Global Trade Analysis Project (GTAP)
model and projections of future growth were made to the year 2020. Through this
the implications of rapid growth for production and consumption of agricultural
products and trading opportunities for other countries in the region and the
world have been assessed, based on certain assumptions.
The analysis conducted in the China
case study projects average annual growth in GDP of 8 percent in 2006 to 2010
gradually slowing to 6-7 percent in the following decade. Several factors favour
this strong
growth performance, including macroeconomic stability, high domestic savings,
increased spending
on research and development, continued high levels of FDI, improved market
environment and trade liberalization, and the commitment to greater equity &
granting higher purchasing power to lower income groups. Also noted are
obstacles that will tend to reduce growth particularly in the long run & a decline
in the domestic savings rate, an ageing population and pressures on the natural resource base
for sustained agricultural production.
While China's growth rate is projected
to decline somewhat in the near future, the India study suggests that GDP
growth could be rising from the current levels of 6-7 percent to 7-8 percent.
be noted that these growth projections apply to two economies of considerably
different size. Nevertheless, how does one explain the divergence? Part of the
explanation is related to the incremental capital output ratio (ICOR). In India it is
currently about 4 and expected to decline. In China while the ICOR was 4 in the
early 1980s it has steadily risen since then and in 2002 was 5.4 (Restall 2006). In short, despite
reforms in state-owned industries in China, India uses capital more
efficiently. Also favouring India is the demographic dividend, with the percentage of the
population
in the 15 to 59 age group increasing from 59 percent in 2001 to over 63 percent
in 2011 which
could add 1 percent to GDP growth. In China, by contrast, the ageing population
and sharp decline
in population growth due to the one child policy will eventually slow overall
economic growth.
The picture for agriculture is
somewhat mixed. The land area used in crop production is gradually shrinking due to
urbanization and in some instances environmental degradation. Thus for staple
crops, production growth depends on an increase in yields. China has already achieved high yields in staple crops, and further gains will depend on
technological breakthroughs. Indian crop yields are low by comparison with China and
other countries. This is attributed in part to the neglect of investments in
research and extension beyond the early Green Revolution years. In both China
the yields for the principal Green Revolution crops, rice and wheat, have
plateaued, due in part to falling groundwater tables and environmental degradation.
However, if priority can be given to investment in research and development and
infrastructure, there appears to be ample scope, particularly in India, for increasing
yields and agricultural productivity.
As a result of continued rapid economic growth
and increase in income per capita, demand for high income elasticity
products, like milk, livestock and horticultural products will continue to
grow. China
and India are committed to maintaining cereal grain self-sufficiency. The
projections for both economies indicate that food security can be maintained
at a national level without resorting to significant imports. The baseline
scenario presented in the China study, for example, indicates that in 2020
China will maintain or surpass self-sufficiency in rice, horticulture, pork and
poultry, fish and processed foods, and come close to self-sufficiency in wheat, fibre
and beef and mutton. In the case of India, despite low current growth rates of output
for many crops, the expectation is that self-sufficiency can be maintained in rice,
wheat, coarse grains, sugar, cattle and meat, fish and other foods. The country
should also come close to self-sufficiency in other crops (although the model
predicts significant decline in both production and consumption of these crops)
and milk. However, both countries will need
to adopt policies that ensure food security at a regional and household level where hunger
and poverty still persist.
China's agricultural production
structure is expected to shift more towards labour-intensive products such as
vegetables, fruit, fish and processed foods, while self-sufficiency in
land-intensive products such as oilseed, fibres and coarse grains is predicted to
fall further from current levels. The largest increases in Indian agricultural
production are predicted for oilseed, sugar, fibres, milk, fish, other
agricultural products and other foods, while negative or low growth rates are
expected in cattle and meat, rice, wheat, coarse grains and other crops.
Nevertheless, for some of the high growth products India will continue to
require significant imports, especially of oilseed, fibres and other
agricultural products.
The dollar-a-day-poverty index had
fallen to 16 percent in China in 2002 while it was 34 percent in India. Poverty
is projected to continue to decline in India. With a GDP growth rate of 8
percent or more the poverty rate should fall from 26 percent in
percent in 2010 and then to 8 percent in 2015. There appears to be an implicit
assumption in these figures that the reduction in poverty will come largely
from growth in employment in the non-farm sector. The analysis of the Chinese experience
suggests that the impact of rapid economic growth on poverty reduction tends to slacken eventually
if the rural sector does not grow hand in hand. As incomes have grown, the
impact and effectiveness of general economic growth on poverty reduction have
Trade liberalization, globalization, and
pressures to meet WTO and FTA agreements are generating a substantial growth
in trade. China will have the largest impact on Asia and the Pacific region because China's
economy is two-and-a-half times larger than that of India, it is growing faster
more integrated with the rest of the world. For example, China received some
US$60 billion of FDI last year while India received only US$5 billion. FDI and
multinational investments are a means of importing technology and entrepreneurial
and management skills. By 2020 China is projected to be the world's second
largest importer and exporter.
At the level of the overall economy, both
China and India will be major importers of energy and minerals principally from
Australia, the Russian Federation and the Middle East. China is projected to
drop from 92 percent self-sufficiency in energy in 2001 to 67 percent in 2020.
Recognizing this as a potential constraint to growth, China is taking steps
to improve efficiency in the use of energy. The high total factor productivity (TFP)
growth projection in the China country report indicates that reliance on energy
imports can be reduced by as much as 60 percent and minerals by 50 percent. Aided by FDI and
information technologies, China and India along with other developing countries
finding it increasingly easy to transfer technology from developed countries to
exercise their comparative advantage in manufacturing. However, both countries have
historically made low use of external resources, relative to their economic size,
and national initiatives will continue to play an important role in
determining their growth paths.
As noted previously, both China and
India are projected to be self-sufficient in cereal grains and do not provide a serious
threat to global food security. India is projected to continue its current role
as a major net exporter of rice. Both China and India will be major importers
of oilseed, plant-based fibre and forestry products. Soybean meal, for example,
will come from destinations as distant as Brazil. In China there is already a
trend in trade away from land-intensive crops such as food and feedgrains and sugar,
and towards export of labour-intensive, high value commodities & horticultural crops, livestock, and
aquaculture products.
provides a summary of the predictions of the two country reports
with regard to net exports and imports in 2020. The use of different scenarios
China report indicates that China presents considerable opportunities for other
agricultural exporters under the baseline and high GDP growth scenarios, but these
opportunities are significantly reduced under the high TFP growth scenario. The Indian data, on the other hand, under-represent opportunities for catching up in productivity via
technological change.
Net export share of world exports in 2020, China and India (percent)
GDP growth
High TFP growth
Food and feed crops
Processed food
Animal products
Coarse grain
Plant-based fibre
Textiles and apparel
Other crops
Manufactory
Cattle and meat
Other agric.
Other food
The China report examines changes in
the patterns of agriculture and food trade that are likely to emerge by 2020.
Interestingly, Chinese exports to India are predicted to increase by 1 179
percent over
their 2001 level, while Indian exports to China are predicted to grow by only
79 percent. The Indian study did not undertake a comparable analysis, but the figures
presented in the China report tend to reflect the relatively narrow range of India's net
agricultural exports at present & mainly rice, followed by wheat and sugar. The major
diversification in China's exports is predicted to take place in Southeast Asia
and &other& Asia, while exports to Japan, Republic of Korea, Hong
Kong Special
Administrative Region, China, and Taiwan Province of China are predicted to
remain fairly stable. Less important growth areas for China include the Russian
Federation, Australia and New Zealand, and Central and South America. On the import
side, however, major growth in agricultural trade should come from the more developed
Asian countries as well as most other parts of the world excepting Southeast
and other Asian countries. For the developing countries in Asia, China is emerging as a
significant competitor in agricultural products. In particular the current
trade surplus in agricultural products that the Southeast Asian region enjoys with
China is predicted to turn negative. Meanwhile many Asian countries will find it
difficult to compete with non-agricultural exports from India and China such as
textiles, given the comparatively low wages in these two economies.
The challenges facing China and India for sustaining rapid
economic growth and meeting the MDGs are
similar in nature. First there is the matter of continuing to reduce poverty
and hunger and maintain food
security. Two other serious issues concern the widening rural-urban income gap and the degradation of the environment. Also of
concern is the need to restructure agriculture and markets to meet more
diversified consumer and export market food demand, and the need to adopt policies that enable both countries to maintain
comparative advantage in commodity production. How these challenges are
addressed will determine to a large degree the success in meeting the MDGs, the ability to sustain growth and the role
that these economies will play in world markets.
Two important questions related to
achieving the MDGs of poverty and hunger reduction need to be answered. How
does the growth in agriculture and in the non-agricultural economy affect
poverty alleviation?
What can we learn from the experience of China and India?
Ravallion and Chen (2004) for China and
Ravallion and Datt (1996) for India conclude that there is a strong link between
poverty reduction and increased agricultural productivity. However, Besley
(2004) argues on the
basis of an enormously rich data set and very sophisticated econometrics that agriculture has
played a minimal role at best in India's reduction of poverty (Timmer 2005).
The China case study provides several interesting results on key factors that
have determined the changes in rural poverty in China. Overall economic growth has
been a key primary source of rural poverty reduction. But while economic growth is an
essential and necessary condition for nationwide poverty reduction, it is not a
sufficient condition. As incomes have grown the impact and effectiveness of general economic
growth on poverty reduction has weakened. Fan et al. (2002) for China
for India (2002) examine the poverty impact of various agricultural
investments and subsidies. Their work suggests that there are important multipliers
at work and that the impact of these multipliers changes over time. In addressing
the question of poverty impact of agriculture per se we need to look at the
links between the agricultural and non-agricultural economy including rural
non-farm employment.
Taking the aforesaid views into consideration,
we observe in China that the TVEs provided a strong link between agricultural
and non-agricultural economy which undoubtedly accounted for the sharp drop in poverty. Also
fostering poverty alleviation has been the egalitarian nature of the reforms under the HRS. By
contrast, the links between the agricultural and non-agricultural economy have
been less strong in India and have been hampered by a host of regulations which
have slowed the development of both agriculture and industry. Overall growth in the GDP
is increasing in India while growth in agricultural GDP has been declining which
does not speak well for reducing rural poverty.
Based on projections using the GTAP model
both country studies conclude that they can meet domestic cereal grain demands without
reliance on significant imports. Since the food shortages of the mid-1960s,
foodgrain self-sufficiency has been a dominant feature of Indian agricultural
policy. China
also sets a high priority on foodgrain self-sufficiency. However, maintaining
self-sufficiency in wheat production will almost certainly require improved
management of water resources in the Punjab and neighbouring states and in the
North China Plain.
Foodgrain self-sufficiency at the national
level does not ensure food security at the regional or household level. It is
a paradox that with more than 260 million people below the official poverty line in ,
India is one of the leading exporters of rice. Poverty incidence is expected to
to fall in India from 26.1 percent in , reaching 8 percent in 2015
well beyond the MDG. But achieving this goal would appear to depend on the success of the
reforms which target the growth in agriculture to rise from the sluggish 1.5
percent to 4 percent per annum.
From the experience of both China and
India, the policy implications seem clear. Attention must be given to raising
agricultural productivity and incomes in those areas that have thus far not
benefited from new technologies or trade liberalization. At the same time
emphasis should be on creating jobs in the non-farm sector, whether rural or
urban based. For China this will require continuing reform of state-owned
enterprises (SOEs) and encouragement of labour-intensive private industry.
India's continuing
reforms should foster growth in employment in both the manufacturing and
service sectors.
In addition to the rural-urban income gap,
especially that between agriculture and new, dynamic industries, there are
regional disparities such as between the coastal and the central and western provinces in China or
between the Punjab and Haryana and the states of Eastern India. Further within regions there
is the disparity between those that have become commercialized, for example through contract
farming and those that follow traditional practices. Disparity in India exists
between the
more commercialized farmers in the Punjab and Haryana as opposed to those in
Bihar and Orissa.
The issue here is not necessarily absolute poverty, but what Hayami
(2005) describes as relative poverty. The less favourable areas need better education
and health services and equal access to social services. Gulati et al. (2005)
argue to this end that China and India should accelerate growth, improve efficiency
and at the same time ensure that growth is both equitable and sustainable. To
improve efficiency, India should phase out subsidies and efforts should be
focused on developing infrastructure and new technologies. However, for many the
path out of poverty lies not in agriculture but in non-farm opportunities. Both countries
are experiencing rapid migration from rural to urban areas. But too little
attention is paid to facilitating migration of rural workers to urban jobs
where investments
in the rural economy have a low payoff.
Both China and India are committed to
addressing the income gap, but the approaches will be very different. China recently
approved a 15 percent increase in the money earmarked for agricultural development, and rural
services. Also China has initiated the &Five Balanced Development
Strategies: balanced development between rural and urban, between economic growth
and social progress, among regions, between human intervention and
environmental conservation, and between internal and external economies.&
The proposed strategies and reforms are bold but there are many barriers to achieving the lofty
goals of the programme.
The UPA Government came to power in India in
May 2004 and the National Common Minimum Programme forms the bedrock of economic policy
with the highest priority for agriculture and a holistic approach to agriculture and
rural development. But India faces a different set of policy and institutional
constraints. Rationalizing subsidies and extending reforms that liberalized
industry to
agriculture through the removal of regulations and restrictions to trade seem
to be crucial. India also must address the problem of a high variability in
income and livelihood among regions and states.
Rapid economic development challenges the
ability of China and India to manage resources, sustain agricultural growth
rates and meet food security and poverty reduction objectives. In both
countries, economic development has taken precedence over protection of the
environment.
The environmental issues can be summarized
under five main headings: air, water, soil, habitat destruction and
biodiversity losses. Of particular concern to sustainability of agricultural
growth and
to food security are problems relating to misuse of land and water resources.
Soil problems & erosion, fertility
losses, salinization and desertification are reducing the land area suitable for
cultivation. Overuse of fertilizer (China's use of nitrogen is three times the
world average)
is resulting in both environmental problems and problems related to food and
water safety. For example, the high levels of nitrates found in the drinking water in
many cities in north China pose a threat to the health of infants.
Of immediate concern to both China and
India is the growing scarcity and competition for water and declining water
quality. The overexploitation of groundwater has contributed to the slowing of growth in grain
production in two of Asia's breadbaskets, Northwest India and the North China Plain. This has
important implications in particular for the long-term growth in wheat
production in these regions.
The Indian National Common Minimum Programme,
a politico-economic agenda that guides new government policy decisions, lists among its
reform priorities stopping the misuse of water and the unsustainable use of
land. In China and India major schemes are underway both to conserve water and to reallocate
water between basins & for example from the Yangtze (north). These are long-range projects.
Meanwhile, institutional changes are being tested and implemented with mixed success to improve
the efficiency of water use and provide equitable allocation of water among competing uses and users. This
includes programmes and projects designed to transfer operation and management
responsibilities to local user groups & known as irrigation management
transfer. Managing
the common property resource, groundwater, to avoid overexploitation presents
the biggest challenge.
provides a conceptual
framework plotting the transformation of agriculture against the degree of
diversification. As incomes rise, food consumption moves at first toward less
diversification. Households give up consumption of inferior sources (maize and root crops)
for preferred cereal grains (rice and wheat). This is followed by
diversification into horticultural crops and livestock products (including
fisheries). This transformation set off by a rise in incomes began in China in
reform period () and occurred in India largely as a result of the 1991
reforms. The result of these non-agricultural reforms in India was to improve the
terms of trade for agriculture and bring forth private investments in horticultural and
livestock products (Gulati et al. 2005). Farms may become more specialized, but
agriculture as a whole becomes more diversified to meet changing consumer
demands and the potential for exports. Finally, as suggested above, farm household incomes are
likely to become more diversified. Countries, regions of countries, and farm
households may, of course, be at different stages in this transformation
process. The challenge is to provide as wide a scope as possible for
participation in the transformation process at the farm level.
Source: Adapted from Timmer 1997.
. Conceptualizing agriculture's transformation
Farms in Asia are small (2 ha or less) and in
many instances are getting smaller. There is currently a sharp debate among
academics as to whether small-scale agriculture can continue to play its historic role. In
short, how will agriculture be commercialized? Can small farms have productive cultivation let alone provide the minimum
output required to earn a livelihood? Does commercialization of agriculture imply larger farms?
Increasing commercial orientation,
vertical integration and coordination of the farming sector with large-scale food
processors, wholesalers and retailers who have private standards of food
quality and
safety could affect the viability of small farms. Evidence from China and India
and elsewhere in Asia suggest that small-scale farms will continue to have a role to
play. But restructuring of agriculture implies a change in the farm household unit
to accommodate changes in domestic and export marketing. While there are economies of
scale in distribution and marketing, there are few, if any, economies of scale in the
production process. In fact, as demonstrated in China with both family plots under collective
agriculture and with smallholdings under the household responsibility system, small-scale farming
can be more efficient than large-scale enterprises. At the same time the high degree of
fragmentation in farm holdings, particularly in China where the farm may be
divided into five or more scattered plots, presents an obstacle to efficient
management. Furthermore, there are advantages for farms to work together or to
form groups to share services such as extension or tractor provision or
for contracting with private sector marketing firms.
The farm size issue has important
policy ramifications. The skewed land tenure situation in India suggests that
large farms are likely to be more commercially oriented. In China and other
parts of Asia
there is often a restriction on farm size to maintain an egalitarian policy.
A traditional response to the widening
rural-urban income gap has been to subsidize agriculture. Countries have taxed
agriculture in the early stages of development and then subsidized agriculture.
transition from tax to subsidy tends to occur when agriculture declines to 15
percent of the GDP.
The experience of India shows that
continuing the current pattern of subsidies can be costly. They absorb funds that
could be more effectively used for measures to enhance agricultural
productivity & rural infrastructure and agricultural research. Furthermore, WTO and
FTA agreements are putting pressure on developing countries to reduce protection.
China has looked upon this as an opportunity to promote trade liberalization and
decrease the highly protected state-owned industries. Trade liberalization has
brought about a sharp shift in trade of goods in a manner consistent with comparative
advantage. The export of less labour-intensive bulk commodities such as grains
has declined
while the export of labour-intensive higher valued commodities such as
horticultural crops and animal products has risen. In India there has been
trade liberalization since the 1990s. Contingent on domestic reforms, the India study
argues that present high levels of bound tariff for agricultural commodities can be
further reduced, barring certain sectors identified as sensitive (notably
edible oils
and dairy products), as India is cost competitive in agricultural products.
The India country study refers to the
&spaghetti bowl& of trade agreements that India has with trading partners and
the same would hold true for China. Multilateral trade agreements are
preferable to discretionary regional agreements although progress in negotiating the
latter has been slow. This fact notwithstanding, it is clear that Asia is moving
toward a more liberalized trading environment. This stands in sharp contrast to the
developed countries who continue to protect their farm economies. Subsidies to farmers
in these countries are extremely large despite promises made in the Uruguay Round to reduce them
significantly.
For both China and India the prospects
for continued fast economic growth appear to be excellent. Both studies identify
possible constraints to growth and reforms needed to ensure that growth continues at a fast
pace. To this end, several lessons, both positive and negative, can be drawn
from the experience of the two countries.
Agricultural reforms.
The initial conditions
and institutional structure of agriculture determine to a large degree the
nature of reforms needed to increase agricultural production and productivity
early stages of economic development. Both governments have undertaken reforms
and adopted policies that have accelerated agricultural and economic growth. Chinese
agriculture benefited from a major reform awarding decision-making and control over
income to smallholders. India's reforms, although less drastic and not specifically
targeted at agriculture, provided the incentives and technologies that
farmers needed to increase productivity and incomes.
Provision of public
goods and services.
Public goods in the form of infrastructure,
education, research and technology are essential to initiate and sustain growth
in agricultural production and productivity. In China, growth in total factor
productivity came first principally from institutional change and then
subsequently from technology. The slowing of growth in Indian agriculture in recent years has been
attributed in large measure to neglect of public goods needed for agricultural and rural development
and to distortions resulting from the excessive use of farm subsidies and price support.
Poverty reduction.
Poverty reduction is
stimulated by growth in both the agriculture and non-agricultural sectors. This is
particularly illustrated by the success of China in the early reform period in developing
TVEs. Whether rural or urban based, growth in non-farm employment is a critical factor in
poverty alleviation. In both India and China, policy and institutional reforms
are currently
needed to promote non-farm employment.
Income disparities.
An inevitable
consequence of rapid economic growth is an increase in income inequality. This is
reflected in the growing disparity between rural and urban incomes and the growing regional
disparity. Even as the percentage of those in poverty is declining relative poverty
increasing and in some instances causing civil unrest. Both China and India are
attempting to address this problem initially by schemes such as reducing taxes and
approving money for &make-work& schemes, but as with poverty
reduction, the long-term solution lies in developing non-farm employment
opportunities.
Environmental
degradation.
Another consequence of rapid economic growth is
environmental degradation. Air, soil and water pollution are widespread. Environmental
issues tend to be overlooked in favour of policies that promote growth in the short
term. The objective should be sustainable growth. Eventually a point is reached where
overexploitation can inhibit further growth. For both China and India this
point seems to have been reached with regard to water resources and efforts are being made to
improve water-use efficiency.
Technology
development.
By developing country standards, the investments in
research and technology development in agriculture are low. However, both countries
have well-established research systems and the capacity for developing new
technologies exceeds that of smaller neighbouring countries. Although the spread of
technologies will be governed in part by the protection of intellectual
property rights, other Asian countries have in the past and should in the
future benefit
from technology developments in both China and India.
Commercialization of
agriculture.
In both China and India there are sections of agriculture
that are becoming
more commercialized to meet consumer demands for a wider variety of products of
good quality.
A central question is whether the process of commercialization will require a
change in farm size. There are clearly economies of scale to be gained in marketing and
distribution, but the argument in favour of small-scale agriculture rests on the fact
that there are no significant economies in agricultural production.
International trade.
International trade
is being significantly impacted by WTO and FTA policies. With more liberalized
markets China is becoming one of the world leaders in international trade. The
impact on agricultural trade will be felt not only in Asia but also in the
Pacific Rim countries. A similar pattern could emerge for India with reforms that
increase the competitiveness of industry and agriculture. Both countries will
be major importers of energy, minerals and forestry products.
Agriculture Census
Division, Ministry of Agriculture, Government of India.
Abstract of the First
National Agricultural Census of China, Food and Agriculture Statistics
Centre, Beijing, 1999;
(http: / / www.fao.org / es / ess / census /
wcares / china_2000.pdf).
United Nations Population Division, World population prospects: the
2002 revision.}