Productivity Growth in Indian Agriculture: the Role of Globalization and Economic Reform

India, which is one of the largest agricultural-based economies, remained closed until the early 1990s. By 1991, there was growing awareness that the inward-looking import substitution and overvalued exchange rate policy coupled with various domestic policies pursued during the past four decades, limited entrepreneurial decision making in many areas and resulted in a high cost domestic industrial structure that was out of line with world prices. Hence the new economic policy of 1991 stressed both external sector reforms in the exchange rate, trade and foreign investment policies, and internal reforms in areas such as industrial policy, price and distribution controls, and fiscal restructuring in the financial and public sectors. In addition, 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 challenge of accelerating its economic growth. One measure of economic growth is given by productivity growth as it forms the basis for improvements in real incomes and welfare. The concept of productivity growth gained importance for sustaining output growth over the long run as input growth alone is insufficient to generate output growth because of diminishing returns to input use. This paper, which examines India’s productivity growth in the agricultural sector in the context of globalization, has three main aims. First, it examines these possible links in the agricultural sector in general. Second, it discusses the problems and prospects for agricultural productivity growth of various Indian states. Third, the paper highlights the challenges of globalization and draws policy implications for the success of Indian agriculture.