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JOURNAL OF
REGIONAL DEVELOPMENT AND PLANNING
Volume 1 Issue 1 March 2012
CONTENTS
Pages
Editorial Note i
Articles
Spatial Organization of Production In India: Contesting
Themes and Conflicting Evidence Satyaki Roy 1
Regional Disparities in the Post Reform Period Ajit Kumar Singh 17
Agricultural Growth Deceleration in India: A Review of
Explanations
Kiran Kumar
Kakarlapudi 25
Application of Travel Cost Method to Assess the Pricing
Policy of Public Parks: The Case of Kaziranga National
Park
Abinash Bharali and
Ritwik Mazumder 44
Book Reviews
Development, Displacement and Disparity: India in the
last quarter of the twentieth century; Ed: Nirmala
Banerjee and Sugata Marjit
Tanushree De 53
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
i
Editorial Note
A hatchling requires introduction to the world. Journal of Regional Development and Planning
is being launched as a peer reviewed journal to provide interdisciplinary and applied perspective
on regional development situation, potential, planning, and outcome of ongoing programs.
Regional imbalance is a matter of serious concern throughout the globe, especially in
geographically large countries of the third world. In a large economy, regions with different
resource bases and endowments would have dissimilar growth paths over time. However, even
small differences in the growth rates, when cumulated over long periods, will create large
differences in standards of living of the people across regions. Such inequality tends to generate
economic, social, and political tension among regions, which may snowball into movements
calling for secession of provinces/regions and ultimate breaking-up of formerly stable and
powerful nation states. To prevent this, the nation state often takes redistributive policies that are
not economically justified leading to misallocation of resources and negative effects on
subsequent growth and development of the economy.
Theoretical generalizations about growth and regional disparities were provided in the pioneering
works of Gunnar Myrdal, Albert Hirschman, and William Alonso, through the concepts of
Backwash effects, Spread effects, Polarization effects, and Trickle-down effects. The seminal work
of Williamson covering a broad spectrum of countries at different levels of development strongly
suggested that regional disparities behave in an inverted U-shaped fashion, first increasing and
then declining. This reflected the neoclassical postulate that when an economy takes off, initially
regions with better resources would grow faster than others, widening regional imbalance, but
later, as law of diminishing returns sets in, growth rates converges, bridging the regional divide.
Empirical evidence on this is however debatable, especially when investment decisions are mainly
in private domain. Regions with better infrastructure would attract more investment, economic
activities will concentrate in core regions due to agglomeration economics, and regional
inequality will rise. This was the main reason why centralised and regional economic planning
was advocated to restrain regional disparity in federal countries like India. While regional
imbalances were kept in check throughout most of the second half of the last century, new global
economic order with focus on non-interventionist state since the last two decades has resulted in
increased regional disparity in most part of the globe, including China, Russia, Mexico, South
Africa, and India. Increased spatial inequality has raised several questions about both theory and
experience of convergence/divergence among regions, how secessionist tendencies may be
thwarted, and how to bring about balanced development of the nation state. Regional Analysis is
therefore very much at the cynosure of development studies at present, strengthening the argument
that development of the pieces is the only way to develop the whole.
Journal of Regional Development and Planning will publish original work that explores
conceptual and empirical papers from all branches of social sciences with a focus on, but not
limited to, regional development. It will provide a platform for exchange of ideas among a broad
spectrum of policy makers, administrators and academics on issues related to regional studies and
regional planning, especially in the context of India and other developing economies. It is hoped
that the Journal will go beyond this introduction and create its own niche in the world.
RM
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
1
SPATIAL ORGANIZATION OF PRODUCTION IN INDIA: CONTESTING
THEMES AND CONFLICTING EVIDENCE
Satyaki Roy1
The emergence of space as a determinant in the functional relations linked to production and
growth is a recent development in theories of industrial organization. This paper primarily
reviews the contesting themes in explaining changes in relative importance of space. In reference
to industrial clusters in India, the paper argues that it is the heterogeneity of the industrial
organizations that captures ‘space’ as an analytical category and broad generalizations often do
not address the spatial dimensions. Neither also is it true, at least for developing countries such as
India, that small enterprise clusters always reflect the post-Fordist dimension of change in the
production organization. In the context of global production chain, this paper further argues that
participation in such value chains might lead to contradictory outcomes in production
organization giving rise to increased rift between the ‘global’ and the ‘local’.
THE CONTEXT
The emergence of space as a determinant in the functional relations linked to production and
growth is a recent development in theories of industrial organization. Space was generally
considered to be synthetic and uniform, as symmetrical containers in which inputs are rationally
allocated. In neoclassical theory, transaction costs are assumed to be zero while in other theories
although there has been implicit recognition of the geography of production but was considered to
be perturbations in theorization. Region emerged as a distinct parameter of growth only when
endogenous determinants of growth were recognised in theoretical discourse. It is primarily the
identification of the spatial dimension of knowledge which plays a key role in the dynamics of
growth of a region. Moreover, globalisation has made marginal cost of transmission of
information and physical capital across geographical space close to zero but that, at the same time,
increased the relative cost of tacit knowledge. The components of knowledge that could not be
easily codified are difficult to transact across long distances, they are mostly localized and have
made space a serious point of investigation.
Change in the relative importance of space is also reflected in the emerging patterns of
international division of labour. In early phases of industrialization we find industries concentrated
in locations that are endowed with all the factors required for that specific industry. Since 1940s
we come across a division of labour where the entire production process of a specific industry is
laid down across the globe depending on the distribution of endowments in regions. In other
words regions are no longer producers of the entire product but they perform specific tasks in the
entire production process. This draws our attention to global value chains or to a more holistic
concept of global production networks. The unit of investigation spreads beyond specific
industries and also specific regions. This signifies a marked change in the sphere of industrial
1 Assistant Professor, Institute for Studies in Industrial Development, New Delhi. E‐mail:
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 2
research in the sense, value chains include all activities, both within and beyond the specific
industry, related to the final act of profit making. The production and distribution of profits is
viewed as an ensemble of several factors in place of linear relations between inputs and output and
might include activities related to agriculture or services mediated through a complex web of
relational structures (Coe et. al., 2008). However, splitting up of production and the spatial
organization of the chain of activities has given opportunities to less developed countries in
contributing to the global production process. This reduces the entry barrier for developing
economies because a highly skill intensive final product might have a low-skilled component and
a region endowed with low-skilled labour would get the opportunity in contributing to the
production of a high-valued product (IDR, 2009). Nevertheless, participation is not all and the
distribution of value-added as well as the realized profit draws us to the issues of power relations
involved in the governance of such value chains.
The other dimension of space emanates from discourses related to ‘new competition’ that
primarily identifies the post-Fordist shift because of complex obligations of new trade and
demanding markets. The speed of change in the demand has become faster and focuses
customized goods instead of standardized products. The supply of such products is further
facilitated by information and communication technology, developments in fields of bio-
engineering and material sciences. Competition has also undergone a change in the sense among
other means, exacting timeliness, punctuality in delivery, minimum inventory and other non-price
qualitative parameters are increasingly becoming important determinants. In the world of
customized goods, it is assumed that more discretion and greater autonomy is required to replace
the command structure of the Fordist model. This changing pattern of demand and required
change in the production structure signifies what is meant to be the ‘Second Industrial Divide’ in
the literature (Piore and Sabel, 1984; Gertler, 1988; Belussi and Pilotti 2002; Beacattini, 1992).
Instead of hierarchy, coordinated production of smaller firms or synergy between large and small
firms on the basis of cooperative competition emerges as the new paradigm of industrial
organization (Zenger and Hesterly, 1997; Schmitz, 1999). The geographical and social
embeddedness of such clusters of firms once again brings to the fore the spatial dimension of
production.
This paper primarily aims to contextualize the empirical evidence drawn from several industrial
clusters in India in reference to the changing perspectives in spatial organization of production.
The principal hypothesis of this paper is that, it is the heterogeneity of the clusters that captures
‘space’ as an analytical category and broad generalizations often do not address the spatial
dimensions. Neither also is it true, at least for developing countries such as India, that small
enterprise clusters always reflect the post-Fordist dimension of change in the production
organization. In the context of global production chain, this paper further argues that participation
in such value chains might lead to contradictory outcomes in production organization giving rise
to rift between the ‘global’ and the ‘local’. In the following section we discuss the theory of space
as a determinant in economic choice; Section 2 draws attention to the spatial organizations of
production, clusters and value-chains in the context of new international division of labour;
Section 3 brings to the fore the contesting themes that emerge from empirical evidence derived
from various clusters located in India; and Section 4 identifies some broad contours of regional
dimension of industrial policy.
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
3
REGION AS A DETERMINANT IN PRODUCTION
The neoclassical production function begins with the assumption of constant returns to scale and
perfect and costless information. Constant returns to scale imply that production is highly divisible
and optimal size of the firm is given by the technology of production and determined at the
minimum point of the long-run average cost curve. The assumption of full and costless
information precludes any advantage of proximity. Furthermore, there is no externality and if it
exists at all it only impedes investment to take place at the optimum level because individual
producers could not capture all the benefits of investment in price. As a result, externalities caused
by knowledge spillovers in a region that pops up dynamic comparative advantage could not be
captured in neoclassical production functions. Although it is admitted that regional differences
exist, nevertheless, neoclassical theory suggests that spatial disparities would vanish over time by
movements of factors of production that finally leads to equalization of factor productivities across
regions. The implicit assumption of free movement of factors across regions presumes that labour
and capital could be allocated to similar containers of space that might have varying endowments
but the space itself does not play any role in the final outcome.
The regional context becomes relevant once we recognize that firms choose their location of
activities in the same way they choose other factors of production. If we assume that total cost is
the sum of production costs plus transportation costs and the latter being dependent on the average
distance between the site of production and that of sale then so long as transportation costs assume
some positive value, space remains to be one of the important choice variables. However, in such
arguments space is linear and fails to capture the multidimensional dynamic aspects of space. The
new growth theory identified endogenous determinants of growth and that laid the foundation of
regional development theories (Abdel-Rahman, 1988; Gianmarco et. al., 2001; Fujita et. al., 1999;
Pred, 1977; Myrdal, 1957). It conceptualizes stylized space in place of uniform space, introduces
increasing returns to factor productivities, non-linear transportation costs and views technological
progress as an endogenous response to economic actors. Technological development and the
diffusion of knowledge and innovation is the central concept in regional growth. Despite the fact
that region as an analytical category had long been conceived in concepts of ‘growth pole’ and
inter-regional relations in the form of backward and forward linkages, the dominant analytical
approach flows from modeling of imperfect competition and increasing returns to scale within the
framework of monopolistic competition. In Dixit-Stiglitz (1977) model it is assumed that utility is
a function of variety and the spatial version of this model runs as follows. If internal economies of
scale are strong and transportation costs are low then it circulates in the following manner; large
size of the local demand creates higher profits that result in higher nominal wages for workers, and
on the other side greater variety of goods increases worker’s real income and greater backward
linkages. Krugman (1991) introduced a model involving economies of scale and labour mobility
to capture the geography of production. The model reinterprets the Marshallian notion of
externalities originating from localized pool of labour and specialized demand for non-traded
inputs. A related body of literature originating from new growth theory argues that when
individuals or firms accumulate new capital, both physical and human, they actually contribute to
the productivity of capital held by others. As Romer (1990) demonstrated if the spillover effects
are strong enough, the private marginal product of physical or human capital can remain
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 4
permanently above the discount rate, even if individual investments would face diminishing
returns in the absence of external boost to productivity.
The regional dimension of growth was also captured in various strands of localization theory.
Externalities characterized by knowledge spillovers between firms in a spatially concentrated
industry are generally known as Marshall-Arrow-Romer (MAR) types of externalities. In a
dynamic context it is argued in this theory that local monopoly is better for growth than local
competition because local monopoly restricts the flow of ideas to others and allows innovation-
internalisation. The other approach derived from urbanization economics, however, says that
external economies are generated by large-scale agglomerations and passed to entrepreneurs. It is
the dense network of economic and non-economic knowledge generating institutions located in the
cities that create such externalities. In contrast to MAR-type, diversity might emerge as the key
source of agglomeration economies as knowledge transfers take place through interactions with
other industries (McCann and Oort, 2009). Hence, there are contesting arguments in favour of
agglomerations emanating from both similar and diverse kind of activities. The underlying
argument of new growth theory was that because of imperfect markets and externalities there
would be increasing returns to output and hence prevent rise in the capital-output ratio by use of
knowledge capital. In line with the new growth theory, Lucas (1988) identified human capital as a
possible explanation for endogenous growth. However, so far there has not been very great
application of human capital theory in understanding regional growth precisely because an
economy belongs to the nation rather than a region. Only when the rate of in and out migration is
low or the net inflow is low or the heterogeneity of migration propensities is low will the flow
variables be low in relation to stock variables and in that case regional growth can be modeled in
terms of stock of human capital similar to national growth models (McCann and Faggian, 2009).
Although new growth theory recognizes the spatial dimension of knowledge but it ignores two
crucial facts: first, knowledge in general cannot be equated to economic knowledge and
knowledge does not spill over automatically as crucial knowledge filter exists (Acs et. al., 2006).
Second, plant or firm no longer remains the appropriate unit of analysis although new growth
models aim to capture increasing returns to scale in reference to firms. Assuming an automatic
translation of knowledge investment to economic knowledge results in a gap in understanding
entrepreneurship and that is primarily because of the missing bridge between explaining the
objective creation of opportunities and the subjective appropriation of such opportunities. The
knowledge spillover theory offers a clue to this riddle: Knowledge capital may be necessary but
not a sufficient condition—neither to ensure that such investments would automatically lead to
commercialization of knowledge, nor did it necessarily generate the cognitive capabilities to
contextualize the available stock of knowledge. On the other side, relative increase in the price of
tacit knowledge explains the relevance of region. The knowledge production function is found to
be robust at the regional level where output of innovation is a function of the innovative inputs in
that location. This calls for a dynamic understanding of space in place of modeling at the firm
level.
Conceiving space as an active factor of production generating static and dynamic advantage to the
firm is a different notion altogether. It not only debunks uniform abstract space in the sense of
physical container of development, but also transcends linearity and calls for diversified relational
space that endogenizes growth and development. As a result, instead of efficient allocation of
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
5
resources, outcomes depend on territorial organization of production and territories are defined as
dynamic space, the theatre of cumulative synergies between firms and local level public and
private institutions. Regional economics in that case brings back supply-side economics to the fore
in order to analyse the differential performance of regions. The growth of demand at the national
level is important but it is assumed to affect all regions equally. Success stories refer to regions
that could acquire the larger share of the given pie. Hence given the same macroeconomic
policies, capabilities of regions differ and that needs to be explained by supply-side factors that
fuel endogenous growth. However, the supply-side factors are different from the notions used in
neoclassical economics. It talks more about collective inputs and interdependence; relies more on
qualitative variables that are cumulatively generated through cooperative competition and are
mutually constitutive. The perspective is a developed cognitive approach that supersedes the
traditional functional relations between input and output and conceives the process of production
as a complex interaction between economic and non-economic forces.
SPATIAL ORGANIZATION OF PRODUCTION
The relevance of space once conceived draws our attention to the spatial organization of
production. In the context of globalisation, the change in the spatial distribution of production can
be viewed in terms of three related themes: a) changes in technology that drives change in the
organization of production; b) the re-organization of the international division of labour; c)
reconstruction of space as a ‘spatial fix’ to the problem of capitalist accumulation.
Hirschhorn (1984) argued that the nature of work that arise in given historical periods are often
conditioned by the dominant paradigm of technology on which they rely. The nature of
bureaucratic organizations that prevailed during the Fordist regime could at least partly be
explained by the rigid, fixed motion constraints of machine design that prevailed. With the
eventual development of programmable machines, the bureaucratic structure gradually gives way
to flexible production organizations. The technological determination of production organization
was further captured in post-Fordist theories, which basically argue that new process technologies
compel the adoption of organizational forms that rely less on authority and more on dialogue and
‘consensual legitimacy’. Brusco (1982) proposes flexible specialization theory primarily as a
historical account of institutions. It views economic structures neither being determined by the
needs of economic efficiency, nor by the notion of underlying ‘mode of production’. It views them
as a complex outcome determined by social, political and ideological influences. This perspective
gives a ‘constructionist’ analysis of the Fordist regime (Piore and Sabel, 1984; Gertler, 1988). It
was argued that the demise of craft production and the triumph of Fordism was because of some
concrete factors specific to United States and could hardly be appreciated in terms of efficiency.
Technological regimes, however, require complimentary regulatory environment that helps in
maintaining balance between production and consumption outside the firm. In the Fordist regime
such regulations were constructed in several ways. It was believed that the process of capital
accumulation is the prime driver of growth and this can be achieved through promotion of big
companies as national champions. Entry barriers were high and large structures were meant to
produce mass consumption goods. Institutional regulations related to welfare state as well as
Keynesian policies and industrial relations system helped maintaining the demand for mass
consumption goods. As a result of the decline of the welfare state, the regulatory regime that
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 6
evolved was no longer conducive to the Fordist structure. Moreover in a globalised regime with
open economies Keynesian demand management became ineffective while developments in
technology were increasingly making space for differentiated demands. On the other side,
developments in information technology helped in reducing entry barriers in producing niche
goods and with the use of multipurpose machines one could reduce the capital-output ratio to a
large extent. Larger scales no longer remained an imperative to reduce average costs; rather
smaller scales with flexible machines could meet the double requirement of producing
differentiated products and also at lower costs. The response was both ways: the large industrial
structures were disaggregated to create subsidiaries and satellites while smaller enterprises
increasingly agglomerated to reap the benefits of collective indivisible inputs. As a result, the
spatial organization of production undergoes a change with agglomerations, clusters, and
industrial estates increasingly becoming important markers of industrial development.
The second related theme underscores the fact how international division of labour changed over
time giving rise to changing spatial dimensions. Industrial development was concentrated in its
early phase in regions with high concentration of raw materials, especially coal. In a later phase
concentration was more around regions producing materials and means of production, primarily
processing industries. The third phase signifies concentration in urban space, in cities surrounded
by non-industrial areas but driven by the market for durable consumer goods provided by such
cities. However, in all these phases we did not find that activities belonging to the same industry
are splinted up and distributed across space. Only since 1940s we find that the whole production
being split into segments depending on the requirement of skill and technology and deployed onto
regions where such inputs are easily available (Hudson, 1988). This was made possible by
increasing integration of nations and markets. The reservoir of disposable labour in developing
economies was made accessible to all and productivities of such labour were made comparable to
developed countries by taking recourse to longer hours of work and other precarious forms of
labour process. Furthermore, division and subdivision of the production process were made in
such minute details along with increased use of technology and routinisation that the need for
skilled labour gradually declined. This process of splitting the production process gave rise to
global value chains where tasks and parts are performed in different locations and combined by
the use of transport and communication technology.
The value chain describes the full range of activities that are required to bring a product from its
conception, through the different phases of production, to its end use and beyond. This includes
activities such as design, production, marketing, distribution and support to the final consumer.
This approach is based on transaction costs analysis and looks through the various activities and
the strategic role of relationships between firms and actors spread across the globe (Kaplinsky and
Morris, 2000). This was further developed to define the notion of ‘governance’ of value chains
incorporating the notions of authority and power relationships in determining the allocation and
flow of financial, material, and human resources within a chain (Gereffi, 1994). The global
production network provides a framework to go beyond the underlying linearity in value chain
concepts. It is argued that production networks are inherently dynamic and in a process of flux—
evolving both organizationally and geographically. Hudson (2004) argued that production process
always involves multiplicity of linkages, and the spatial-temporality of such networks is highly
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
7
variable and contingent. Appreciating the dynamics of change requires a heuristic framework that
is time and space sensitive, and global production network concept constitutes such a framework.
The destruction of old sites and the emergence of new space as Harvey (1986, 2002) argued is a
result of capital’s insatiable drive to resolve the inner crisis. The relevance of space was primarily
explained by the notion of ‘socially necessary turnover time’, that is, the average time taken to
turn over a given quantity of capital at the average rate of profit under normal conditions of
production and circulation. Hence to the individual capitalists there is always a relentless move to
turn over their capital faster than the social average to earn excess profits. As a result, there is
always a need to reduce the friction of distance. The drive to a ‘spatial fix’ to capitalist crisis is
reflected by an incessant intent to create new spaces and devalue others. The crisis of over-
accumulation prevalent in capitalism is reflected by a situation where surplus capital and surplus
labour power exist side by side with no way to bring the two together. Hence, labour or capital
that could not be absorbed would be devalued and the way to avoid such devaluation is to find
alternative sites for investment or use. The problem with the ‘spatial fix’ is that this geographical
expansion is driven by fixity and mobility of capital at the same time. Mobility of capital requires
physical spaces to be created in the form of capacities such as infrastructure, institutions and so on
such that mobile capital could be usefully deployed. But this creation of new space eventually
generates its own surpluses that need to be deployed elsewhere to roll on. As a result, the same
dynamics of displacing the crisis goes on, driving in an ever increasing geographical space and by
that way defining the spatial distribution of production.
All the above perspectives on spatial organization of production draw attention to one common
fact at the minimum: space is neither uniform nor passive to the global process of production and
it is deliberately created rather being an outcome of rational allocation through efficiency norms.
In the following section in reference to specific contexts of industrial clusters in India we would
like to go beyond the above-mentioned minimum and see how the concrete differs from the broad
trends and also how different outcomes evolve out of various dimensions of interplay of
capabilities, markets and institutions that constitute the space.
LOOKING BEYOND UNIFORMITY: CONFLICTING EVIDENCE
The interventions made in this section in the discourse on regional industrial development are
drawn from a couple of field surveys covering a wide variety of clusters ranging from highly
technology intensive automobile manufacturing cluster, skill-intensive cluster producing surgical
instruments, traditional clusters related to foundries and those producing footwear and garments.
Industrial clusters in this analysis provide an entry point to look into the complex process of
interaction between production organization and space; how regional clusters capture the ‘local’
and the way specifics deviate from received theories. Some of these clusters have a large export
share such as footwear cluster in Agra (Uttar Pradesh) or garments producing clusters located in
Tirupur (Tamil Nadu) and National Capital Region while foundries in Howrah (West Bengal) and
surgical instruments producing cluster in Baruipur (West Bengal) are mostly targeted to the
domestic market although having some share in exports. The automobile cluster in Pune
(Maharashtra) has a large concentration of domestic players who have tied up with FDI and major
global players in the automotive sector. This gives us a spectrum of high-end to low-end clusters
in India although the paper neither aims to construct some taxonomy of clusters nor a detailed
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 8
analysis of individual clusters. Rather in some eclectic manner we focus on some distractions from
the received theory that are contextual to each of these clusters and might help us to understand
the reconstruction of the division of labour in a more concrete way.
Heterogeneity in size distribution of firms
One can start from a preliminary observation that clusters are heterogeneous both across and
within a specific cluster. The heterogeneity spans from issues related to size distribution of firms,
variety in the composition of output, production organization and division of labour; the labour
process, market and non-market institutions related to the cluster that includes non-economic
dimensions as cultural and political milieu and so on. Let us begin from the widely agreed
determinants of size distribution of firms within industrial clusters as well as that of scale of
operation that defines the spatial organization of production. The techno-allocation paradigm
informs us how the optimal size of the firm is determined at the minimum point of the firm’s long
run average cost curve. However, if the long run average cost curve has flat stretches then the
minimum point and hence the optimal size of the firm becomes indeterminate. Furthermore,
according to this argument if there are global decreasing returns to scale then appropriate size
would be infinitesimal while if there are global increasing returns to scale then optimal scale
would be infinite. So, how and when diseconomies of scale due to organization and technology set
in remains largely unexplained in theory. One can say that the appropriate size of the firm will be
determined at the intersection between rising economies of scale flowing from increasing returns
and diseconomies of organization arising from increasing size. But this involves a dynamic
analysis that cannot be limited to technological factors alone.
However, the technological determinants help us to explain the difference in size distribution of
firms across clusters if not the distribution within. More the average production becomes capital
intensive, the more would be the average size of the firm in different clusters. The automobile
cluster would always have a larger average size of firms than that in garments or footwear cluster.
On the other side, within a cluster the difference in size could not always be explained by
difference in technology. For instance in the footwear producing cluster in Agra it is seen that
larger exporting firms operate with more or less the same technology albeit with greater division
of labour and detailed planning and standardization of the production process. With similar capital
intensities in technology, division of labour in the production process determines the average size.
The tiny firms in Agra producing shoes on an average have a larger size compared to chappal
producing firms in footwear cluster at Kolkata and the reason being that production of shoes
involves greater division of labour than that in chappals. Technological determinants apart from
other things might have strong influence on the size of the cluster as a whole. For instance, in the
case of Tirupur producing knitted garments there can be large number of permutations and
combinations within stages such as knitting, dyeing and printing depending on the type of the
garment and it is very difficult to produce all the types by a single firm. Rather cooperation
between specialized subcontractors emerges as the natural outcome. Thus, large integrated firms
seem to be less efficient an arrangement compared to coordination between similar sized firms
having strong complementarities between them. The average size of the firm in a cluster might
well be the result of various institutional factors. Sometimes legal norms limit the size of a firm in
way of determining the land allotted by the local government. The garments producing firms in
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
9
Delhi have a greater uniformity in size because of such reasons and institutional rules offer options
only for horizontal expansion rather than vertical integration.
Is this flexible specialization?
The rise of industrial clusters has often been explained uncritically by the notion of ‘flexible
specialisation’ signifying the post-Fordist structure of production. In India only a few clusters are
involved in the production of customized goods that is assumed to require flexible production
process. In majority of the clusters goods are produced to cater to the lower end of the domestic
market. Within a cluster we might find only a thin layer of firms producing high valued goods for
exports or for the higher value-added demand in the domestic market. The exporting firms in
garments and footwear produce goods, especially catering to the demands of the mass market in
Europe and US. Although, on an average, India might have a higher edge compared to Bangladesh
in terms of variety in value-added but products with similar quality and even with much higher
value-added are being produced in larger scale of production structures in China and also some in
Bangladesh. The underlying fact precisely is that Indian firms on an average do not operate at a
quality range that is incompatible to Fordist structure of production organization. On the contrary,
in many instances the nature of subcontracting relationships that exists in most of the clusters
discourages producing higher value-added goods. In many of the cases the parent firm retains part
of the working capital of the subcontracting firm in such a way that the subcontracting firm would
not be inclined to invest for producing higher value added goods and get entangled to increased
dependence. The subcontracting relationships that define the interaction between small firms in
most of the clusters in India reflect the cause of numerical flexibility driven by cost concerns that
hardly has any relation to the kind of flexibility often talked about in the context of ‘new
competition’.
The reproduction of clusters producing low valued goods could be explained both from the
demand and supply side. Low valued consumer goods are produced in clusters of small enterprises
in this case not because of increased customization in demand. It is only because of the absence of
standardized mass market together with highly fragmented multilayered demand for consumer
goods that the small enterprise clusters exist. Income inequality and resulting segmentation in the
domestic market might not allow firms to produce at the minimum point of the long run average
cost curve given by a technology that fits to larger scale. On the other side, the large reservoir of
low wage labour contributes to the demand for low quality goods and supply labour at a lower cost
for the production of the same. The availability of large pool of unskilled labour gives rise to
contradictory and opposing trends in the choice of technology. On the one hand, in labour
intensive sectors it delays the process of ‘creative destruction’ in the sense that because of low
labour costs use of outdated technologies would not impede profitability. On the other hand, in
industries with higher technology intensity, such as automobile, the response would be
introduction of technologies that deskill the labour process. Firms in the automobile component
sector introduce machines and production techniques that standardize and routinise the production
process at a level such that undergoing a training of one or two days would make a ‘raw’ labour
capable of working in the automotive industry. This process is quite similar to the Fordist mode of
standardization involving routinised labour albeit with higher levels of technology. This narrative
matches well with the situation that prevails in the large majority of the small enterprise clusters in
India and could be better explained by the notion of ‘flexible accumulation’ rather than ‘flexible
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 10
specialisation’. Nevertheless, the other side of the picture exits although limited to a small
minority of automobile and IT clusters that might capture the image of the ‘second industrial
divide’.
Disconnect between the ‘global’ and ‘local’
There are a large number of firms in Tirupur, Agra as well as in National Capital Region that are
exclusively involved in exporting garments or footwear. These are buyer driven value-chains
although all the firms produce the final product and none such are found performing some
intermediate task in the global value chain. These global chains seem to have a limited extension
in the domestic production process. In fact one can easily find a ‘disconnect’ within the cluster
between exporters and those producing for the domestic market. The size of the exporting firm as
mentioned earlier is relatively large not because of the technology of production, but primarily
because of the following two reasons: First, exporters could get access to a large volume of
standardized demand at a lesser transaction cost compared to those selling in the domestic market
because exports involve only a few number of buyers, comparatively less circulation time, and
also relatively no fixed costs for establishing marketing channels; Second, more the asset
specificity increases due to the rise in the quality of goods, the more it becomes difficult to
coordinate through market transactions and that prompts vertical integration giving rise to
comparatively large exporting firms. But this might not be the only possible response to the rising
demand for quality. The institutional aspect of size distribution of firms goes beyond the domain
of technology. Transactions become idiosyncratic with rise in the quality of product and since
most of the smaller firms could not secure the required standard, the value chain could not flow
further down involving the vast number of tiny firms in the cluster. However, if the necessary
monitoring of quality could be done otherwise, vertical integration might not be the necessary
outcome. This is the case in Tirupur where trust among the owners and subcontracting firms
primarily flows from caste relations to which the majority of the owners belong to. These value-
chains represent some sort of Taylorism in which low labour costs are the primary determinant of
competitiveness.
Autonomy or fragmentation?
The rise in the relative scarcity of tacit knowledge and also transforming the knowledge output
into commercial products brings to the fore the critical input of entrepreneurship and the notion of
autonomy in the work process. And this critical input, although remains largely unexplained,
determines the responses of firms to risks and uncertainty. These responses define the amount of
irreversible investments the firm would like to incur and is critically influenced by the nature of
capital engaged in the production, their short and long run interests, social embeddedness and so
on. The rise and expansion of small enterprise clusters in India might be viewed as a nursery of
such entrepreneurship and proliferation of autonomy in the production process. In many of the
clusters the number of small firms is increasing but this might be because of different reasons
altogether. In knowledge intensive sectors, especially in sectors such as information technology,
the contribution of the worker who might be a programmer or an inventor is the largest
contribution to the production of output. But the input in this case is highly intangible and non-
standard. In such sectors, as the argument goes, if the gap on expected return occurring from the
potential innovation between the inventor and the corporate decision-maker is sufficiently large
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
11
and if the cost of starting a new firm is sufficiently low, then the employee might decide to
establish a new enterprise (Audretsch and Aldridge, 2009). In the case of knowledge intensive
industries, the proliferation of new start ups could be explained by such dynamism in the
mismatch in expected returns but the reasons for spawning of tiny firms in traditional clusters are
largely linked to the production organization that exist in such clusters.
The dynamics of growth in any of the small enterprise clusters in India producing footwear or
surgical instruments is conditioned by the exchange relationship between traders and small
producers. A large number of small producers depend on a few buyers. The parent firms or the
traders although face a competitive market in selling their products, however, while buying
intermediate goods or final products they behave like oligopsonists. The power relation involved
in the governance of the value chain gives rise to a situation where the producer can only get
access to the final market by mediation of the trader. The trader-producer relationship in these
clusters is a contested exchange, where the trader has the power over the small producer to impose
sanctions affecting the future stream of revenue while the latter lacks the capacity with respect to
the trader (Bowles and Gintis, 1990). To the small producer the objective function is not to
maximize profits as they can hardly access the market independently. Rather, the producer’s goal
of maximizing sales and increasing the revenue in that case is subject to paying a greater premium
of profit to the trader, be it directly or indirectly. More the degree of imperfection, the less will be
the margin of profit for smaller units as the pressure for reducing costs cannot be transferred to the
workers whose wage level has already touched the level of reservation wage. The only space left
for an owner of a small unit is to restrict the upward mobility of labour, by refusing to recognize
the skill accumulation, and thereby claims for increased wage. And if the wage increment after a
certain period is not remunerative to the skill and productivity that the worker attains, the skilled
worker would be inclined to establish a new unit if the initial capital required is relatively low and
enjoy the ‘freedom’ of self-exploitation. The tiny producer in that case might earn more than what
s/he earned earlier as wage worker because of having the option of working for longer hours.
Thus, the expansion of clusters in most of the traditional sectors is the result of some sort of
‘forced autonomy’ driven by the dynamics of self-exploitative fragmentation.
‘FLUID’ LABOUR AND ‘FOOTLOOSE’ INDUSTRY
Finally, I draw attention to the process of creation of space as a ‘spatial fix’ to the problem of
accumulation. Although in the literature on clusters we find the underlying importance of social
embeddedness defined by the cumulative interaction between firms and institutions. The meaning
of institutions in this discourse is not limited to the context of transaction costs relevant to
technological interface; it rather includes those cultural and political interactions which increase
the predictability of repeated transactions. The notion of ‘trust’ in industry district literature is
such an institution that grows in a cumulative manner; it might be originally built upon ascribed
characteristics such as caste, linguistic homogeneity or other sociological identities but it could
gradually be transformed into acquired characteristics over time due to increasing predictability in
transactions. These intangible inputs are often captured in the nebulous term ‘social capital’ since
1990s, which in so many words tries to factor in the complex interaction between economic and
non-economic elements as essential to understand the production process. In the context of
geographical clusters this brings back the ‘place’ once again, where people live and work; the
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 12
social and political milieu in which the cluster is embedded. However, the drive towards
profitability in reference to concrete situations might give rise to contradictory determinations.
The owners would not be inclined to horizontal cooperation if there are no proper institutions in
place to protect the property rights of designs and developments they produce. As a result,
localization would not necessarily lead to knowledge spillovers and cooperative efficiency.
Moreover, many units often prefer to employ migrant workers and discourage employing local
workers for the following reasons: a) migrant workers normally do work on lower reservation
wage; b) they normally do not have the social clout to raise there claims. On the other side, there is
an increasing trend of choosing and creating new sites of production in order to get rid of the
rising rents in established cities as well as to take advantage of low paid workers in far away sites.
Industries are looking for new ‘space’ creating new areas of production, denying the role of
‘place’ and the social embeddedness talked about in the context of cluster. In such situations we
find a combination of ‘fluid labour’ and ‘footloose industry’ and, of course, neither the capital nor
the labour participates in the production process from a long term perspective (Roy, 2009). What
follows is a typical ‘spatial fix’ that reflects the conflicts between mobility and fixity in the course
of spatial organization of production and at the same time underlines the fact that in competitions
heavily dependent on labour costs the availability of critical inputs embodied in social milieu
hardly matters.
TOWARDS A REGIONAL POLICY
The primary aim of this paper was to focus on the contesting themes that confront the existing
literature on spatial organization of production. It is neither to say that such distractions nvalidate
the broader perspectives, nor does it aim to propose an alternative set of generalizations that could
be applicable to all the industrial clusters. Nonetheless the limited hypothesis one could draw is
that policies need to be contextualized, appropriate institutions need to be built and authorities be
empowered at a more disaggregated level. Industrial structures across the world are undergoing
significant changes. Participation of developing countries in global manufacturing and exports
shows a decisive rise, although share in trade in manufacturing is increasing much faster than the
growing share in output. Moreover, scale and specialization bottle-necks that primarily emerge
because of limited domestic market could also be released to a great extent, as expected, through
globalization. But integration of markets on the other side gives rise to a situation in which
howsoever big few firms might be, they would not really be capable of supplying the required
amount. The optimal size becomes indeterminate and the point at which diseconomies of scale sets
in is determined by political, cultural and social aspects of organization of production.
In the case of goods for mass consumption the Fordist structure was sustained by appropriate
policy regimes that created enough employment and hence generated demand for such goods. In
the process of globalization such policies are no more in place. On the other side, integration with
the global market has driven large enterprises into a process of competition that primarily depends
on the ability of generating innovation-rents and the same process, as a result, involves more
capital-intensive technologies and hence lesser employment elasticities. The ‘small’ in this context
has been traditionally considered as ‘absorbing sponge’, but absorption by default does not imply
gainful employment and hence needs to be looked at in reference to its contribution in the process
of generating economic surplus. This primarily calls for promoting modern enterprises that could
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
13
be linked either to the global value chain or could cater to domestic demands for higher valued
goods. Promotion of modern small enterprises is not just a supply-side issue; rather it involves
significant intervention in policies that affect income distribution. The demand needs to be
propped up by a shift in distribution of income that reduces both the high and low segments of the
income spectrum implying a gradual reduction of demand of very high quality luxury
commodities on the one hand, and low-end products on the other.
Given the fact that the premise of policy intervention is increasingly getting blurred at the national
level, it is even more difficult in a space such as a region that is relatively more porous and open
ended. Because of the nature of the space, policies at the regional levels have to be more oriented
towards supply-side mechanisms that are targeted towards increasing capabilities and creating
institutions appropriate for an upward spiral of growth. However, retaining capabilities also needs
generating a virtuous circle where idiosyncratic skills and knowledge are required in the
production of high-valued goods. Only such skills that are context specific could be relatively
more sticky and hence promotion of such skills and specialized production could be one of the
major considerations for regional intervention. Even if few firms in the cluster grow at a faster
rate, this higher growth path has not been diffused at large since most of the dynamic firms get
linked to higher value added markets, and so it becomes imperative to break all sorts of
subcontracting linkages with household enterprises that hardly suffice to provide a standard norm
of quality. As a result, there seems to be little diffusion of the incremental value added and the
small firms remain caught in the lower end of the market. Policies on small enterprise clusters
should evolve tools to codify quality and enhance capabilities of tiny enterprises such that most of
them could be integrated to a larger value chain through subcontracting.
In the context of goods for mass consumption it is generally argued that although larger scale of
operation would be appropriate for the production of standardized goods, in India we have small
enterprise clusters involved in such activities. Quite often issues related to labour market
regulations are drawn in saying that firms would go for higher scale employing more workers if
they could be given the option of shedding excess labour during cyclical downturns. Apparently
there can be two kinds of choices left to the firm: One, given there is no constraint in demand a
firm would like to bear the costs of regulations including those related to labour only when such
costs are outweighed by the gains they make through scale economies and related economies of
coordination. Two, a strategy quite suitable in the face of demand uncertainties as well as that of
fragmented markets is to limit the scale of operations to a smaller establishment that might be
operating within a larger network of subcontracting units and compete on the basis of low labour
costs by taking advantage of the unregulated labour market. Both these strategies would not be
sustainable for two separate reasons: First, the former strategy of large-scale employment based
industries would gradually drive up the wages, as happened in the case of China, waning out the
comparative advantages derived from margins on wage cost. Second, the strategy of remaining
small and catering to relatively customized markets but at the same time deriving advantages from
avoiding labour laws would not work for long. This is simply because catering to customized
markets would increasingly demand more skills and that would obviously entail higher costs:
either in the way of training workers or by employing skilled workers who would ask for higher
premium. Hence it is always better to plan for a longer time horizon, create proper infrastructure
and skills and move up the value chain such that value realized could be much greater than the
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 14
cost borne. This is precisely suggesting a gradual transformation to a ‘high road strategy’ that of
course requires a critical size and entails competing on the basis of quality and flexibility in place
of ‘low-road’ where competition is primarily based on reducing labour costs.
Finally the regional dimension needs to be incorporated in policy discourse in a more effective
way. For instance, evaluation of cluster development should be primarily based on collective
efficiency using meso-level parameters such as total output of the cluster, size distribution of units
in terms of output and employment, extent of horizontal and vertical linkages, collaborative efforts
within the cluster and resilience to fluctuations in changing demand and so on. Facilities and
subsidies given to firms at various levels should encourage clustering and cooperative
competition. Within a cluster a firm participating in joint action, participating in bulk raw material
purchase, introducing new technologies or contributing in workers’ training should be preferred
against those who do not. This helps in building the critical core, which becomes self-perpetuating
and creates a different norm of performance and a structure of rewards and punishments. A
process of regional planning should evolve primarily to take care of these issues specific to the
region. This also involves a political process such that the voice of the cluster should be
adequately represented in order to appreciate their claims in the public good not as individuals or
households but with the defined identity of a cluster.
________________________________
The paper was presented in SSE Conference, 2011 at Houston, Texas. The comments received on the earlier
version of the paper presented at the International Conference organised by ISID, CSH and CEFC, 2010 is
highly appreciated.
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17
REGIONAL DISPARITIES IN THE POST REFORM PERIOD
Ajit Kumar Singh1
Interstate economic disparities in India have sharply risen in the post reform period, bringing
back the issue of regional disparities into the debate on Indian political economy. Present paper
contends that while the economy has moved to a higher growth path, the pattern of growth has
been regionally concentrated and many regions have been bypassed in the race towards economic
growth. This uneven pattern of growth lies behind the demand for creation of separate states from
different regions of the country. A valid question that rises in this context is whether the creation
of new and smaller states will be desirable in the national interest and help in promoting faster
development in the lagging regions. The author is of the view that the feelings of regional identity
if channelled into healthy lines can provide a powerful force to mobilise people of a region for
regional and national development and there is a strong case for another reorganisation of the
Indian states into smaller units based on objective criteria. Political sagacity demands that a
rational and objective view of these issues is taken and timely action initiated instead of waiting
till the time when the situation takes a violent turn and goes out of hand as has happened in
several parts of the country recently. It is high time for a Second State Reorganisation
Commission.
INTRODUCTION
Independent India inherited a backward and regionally imbalanced economy reflecting the
distorted pattern of development imposed by the colonial power to subserve its own interests.
Most of the industrial and commercial activities were concentrated in the three metropolitan
centres, namely, Bombay, Calcutta and Madras and a few major cities like Ahmedabad, Kanpur
and New Delhi. Most of the other areas of the country remained in the backwaters of
underdevelopment. Not only there were marked disparities in economic development at the state
level, but in nearly all the state were characterised by sharp intra-regional disparities.
Removal of the existing regional disparities was thus a major challenge before the policy makers.
Rightfully, balanced regional development has been one of the important objectives of economic
planning in the country since the beginning. A large battery of policy instruments was pressed into
service to achieve the objective of balanced regional development. These included larger flow of
resources in favour of the poorer states, location of public sector projects in the backward areas,
capital and transport subsidies to industrially backward areas, etc. (see for details Ajit Kumar
Singh 1981, Ch. 1). In due course of time, several area based programmes were adopted for the
development of geographically handicapped regions like Drought Prone Area Development
Programme, Desert Development Programmes, Hill Area Development Programme and Tribal
Area Development Programme. Horizontal equity among states was also given priority in resource
transfers to the states both by the Finance Commissions and the Planning Commission.
In several earlier studies the present author has examined the impact of the government policies
and measures on inter-state disparities in the Country (Ajit Kumar Singh 1984, 1992, 1999). It
was found that disparities declined in the fifties, but showed a divergent trend in the sixties (Ajit
1 Director, Giri Institute of Development Studies, Lucknow; E-mail: [email protected]
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 18
Kumar Singh 1984). The process of divergence continued in the seventies, but it seemed to have
been arrested in the early eighties (Ajit Kumar Singh 1992). The study of the experience of the
first four decade of development planning in India led the present author to conclude that:
“Development planning did succeed in breaking the long standing barriers to growth and initiating
a geographically wide spread process of growth throughout the country, though it has not been
able to fully reverse the process of spatially uneven development. At the best it has slowed down
the inherent economic tendency towards increased regional imbalances” (Singh 1992).
IMPACT OF ECONOMIC REFORMS
The economic reforms initiated in India from 1991 brought about a paradigm change in the
economic policy regime. The policy of state led and directed development gave place to market
led growth. The regulatory mechanism which was under operation for last four decades was
gradually dismantled and a policy of liberalisation of domestic and external market was vigorously
adopted. This led to withdrawal of state from several important sectors of the economy and greater
reliance on private capital both domestic and foreign to spur economic growth in the country.
Thus, we find that the share of public investment, which exceeded 60 percent of total investment
in the earlier plans, has gradually come down to 22 percent in the Eleventh Five Year Plan.
The fiscal crisis which widely characterised the budgets of the central and state governments
affected the capacity of the government to invest in productive activities or economic and social
infrastructure, where again public private partnership mode was adopted. The backward states
were particularly handicapped in this respect.
The main public instruments which were used in the pre-reform era to direct the flow of public
and private investment in favour of the backward states and regions were withdrawn. These
included the location of public sector projects in backward regions, removal of licensing control
which provided for relaxation of investment in backward regions by private sector, withdrawal of
capital subsidy and other financial incentives for investment in backward areas, etc. The financial
sector reforms too led to dilution of the social objectives of directed flow of credit to backward
regions and priority sectors. The states were also persuaded to remove the concessions they
offered to attract industry to their respective states.
In the new policy regime private investment was likely to flow to regions which will yield highest
profits rather than which need higher investment. The richer states with better infrastructure were
likely to attract more private investment to the detriment of the poorer states.
From the very beginning of the reform process economists expressed the apprehension that the
new economic policies would promote a regionally more concentrated pattern of investment and
growth and adversely affect the regional disparities in the country. This led to renewed interest in
the issue of regional disparities and a number of articles and studies came out in the nineties and
the present decade seeking to examine whether growth is leading to regional convergence or
divergence (Ahluwalia, 2000; Bhattacharya and Saktivel, 2004; Gupta and Kalra, 2005; Singh,
1999).
Flow of Private Investment
The actual pattern of investment flow in the post reform period confirms the apprehension of the
economists that the new liberal economic policies will lead to a concentrated pattern of investment
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
19
in favour of the richer states. Table 1 shows the statewise distribution of proposed investment
through IEMs (Industrial Entrepreneurs Memorandum). Thus, during the period 1991-2001 almost
68 percent of proposed investment went to the eight richest states of India. Only three states,
namely, Maharashtra, Gujarat and Andhra Pradesh cornered half of the investment. Among the
poorer states the share of UP and MP was about 7 percent each, much below their share in
population. Rajasthan’s share was about 4 percent, while Orissa got only 2.3 percent and Bihar a
paltry 1.4 percent.
Table 1
Statewise Investment Proposed – Industrial Entrepreneurs Memorandum (1991-2009)
1991-2001 2001-2009 1991-2009 States Investment
(Rs. Crore) % of Total Investment
Investment (Rs. Crore)
% of Total Investment
Investment (Rs. Crore)
% of Total Investment
Haryana 28423 3.00 47892 1.00 76315 1.33
Maharashtra 205431 21.72 342995 7.13 548426 9.53
Kerala 7959 0.84 2842 0.06 10801 0.19
Punjab 38189 4.04 54209 1.13 92398 1.61
Gujarat 157491 16.65 567297 11.80 724788 12.59
Tamil Nadu 56512 5.97 204560 4.25 261072 4.54
Karnataka 43759 4.63 404639 8.41 448398 7.79
Andhra Pr 105467 11.15 392737 8.17 498204 8.66
West Bengal 31681 3.35 259851 5.40 291532 5.07
Rajasthan 37426 3.96 66436 1.38 103862 1.80
Orissa 21424 2.26 701823 14.59 723247 12.57
Jharkhand 388737 8.08 388737 6.75
Madhya Pr 66878 7.07* 300843 6.26 367721 6.39
Uttar Pr 71515 7.56* 120319 2.50 191834 3.33
Bihar 13436 1.42* 28145 0.59 41581 0.72
India 945965 100 4809369 100 5755334 100
Note: States are arranged in Descending order of Per Capita GSDP
Source: Ministry for Industries, Govt. of India
During the current decade, there was some improvement in the pattern of investment in terms of
its spatial spread. The share of the top 8 states came down to 42 percent from 68 percent in the
previous decade. The share of Maharashtra, Gujarat and Andhra Pradesh, which attracted the
largest investment in the previous decade declined markedly in this period. The main gainers were
the states of Orissa and Jharkhand. These states are richly endowed with mineral resources, which
attracted heavy investment. However, other poor states like UP, Rajasthan and Bihar show a
dismal situation in this respect. However, taking the entire post reform period (1991-2009) the
pattern of investment has remained highly skewed in favour of the richer states. About 31 percent
of total investment in the post reform period has gone to the three states of Gujarat, Maharashtra
and Orissa. On the other hand, the share of poorest six states excluding Orissa is hardly 20 percent.
Fiscal Transfers to States
There are marked differences in the fiscal capacity of the states. The poorer states are unable to
raise sufficient revenue from their tax and non-tax resources to provide required level of public
services to their people. These fiscal imbalances are also reflected in the differences in per capita
expenditure of the states. Srivastava has found that per capita expenditure level is substantially
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 20
below average in Bihar, Uttar Pradesh and Madhya Pradesh, while it is more than 50 per cent of
the average expenditure in Punjab, Maharashtra and Gujarat (Srivastava, 2005, p. 294). Given the
large variations in per capita public expenditure at the state level, differences in the availability
and quality of public services are bound to exist.
The Finance Commissions were expected to address the problem of the vertical and horizontal
imbalances in fiscal system in India. Horizontal equity has been an important consideration in the awards of the successive Finance Commissions. However, a close scrutiny of the devolutions by
the Finance Commissions reveals that they have not been able to do full justice to the issue. In
fact, the post devolution surpluses have been modest in amount in per capita terms. But a more
glaring failure of Finance Commission awards is that the post-devolution surplus shows a strong
positive association with the level of per capita income of the states (Ajit Kumar Singh 2008). As
a perceptive observer of Indian public finances has observed transfers by Finance Commissions
have failed to remove the disparities in the revenue capacities of the states in any substantial
measure (Bagchi 2005, p. 3395). As pointed out by him the capita revenue capacity of richer states
like Punjab, Haryana and Maharashtra is almost double that of the poorer states like Uttar Pradesh
and Bihar.
In short, the generous transfers by the Finance Commissions have failed to remove disparities in
revenue capacities of the states in any substantial measure. This means that not only the quality and level of public services and infrastructure is much better in the richer states, their capacity for
investment expenditure is also higher and they are in a better position to get more funds from the
Planning Commission and are in a better position to attract private investment. It is this situation
that lies at the root of the persistent and growing inter-regional disparities at the state level in the
country. The system of fiscal transfers in the country must address this situation taking into
account the totality of the flows.
What is a more serious matter of concern is that total governmental transfers now constitute a
rather small and declining part of the total financial flows in the economy. The share of gross
fiscal transfers from the Central Government to the states, which amounted to a little less than
one-fourth of the total financial transfers in the early 1990s, has come down to around one-sixth of
the total transfers in the recent years (Ajit Kumar Singh 2008). Thus, in the post reform scenario the inter-governmental fiscal transfers are now completely dwarfed by flows through financial
institutions. The main determinant of economic growth in the changed scenario is private
investment, which tends to go in favour of the richer states as we have shown above. However,
Finance Commissions’ devolutions remain important particularly for the poorer states, which have
a limited resource base of their own and are also unable to attract sufficient resources from other
financial channels.
Trends in Inter State Disparities Since 1991
Given the pattern of skewed investment and resource flow observed during the last two decades,
one would expect that the pattern of growth has been uneven across states. Table 2 shows the
statewise growth rate of GSDP in the pre and post reform period. During the eighties the
differences in growth rates of GSDP in different states were not very marked. However, growth
rates of GSDP in the poorer states decelerated in the 1990s as compared to the 1980s, while the growth rates accelerated in the richer states. All the poor states except Madhya Pradesh witnessed
lower economic growth in the nineties as compared to the eighties. Among richer states, Haryana
and Punjab show a relative slowdown in their rates of growth during this period, though their
growth rates are still fairly high. The main gainers of higher growth in the nineties were the states
of Kerala, West Bengal, Gujarat, Karnataka, Tamil Nadu and Madhya Pradesh. All these states
with the exception of Madhya Pradesh belong to high or medium per capita income category. The
coefficient of correlation between per capita SDP and growth rate of GSDP was 0.5 during the
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
21
nineties, indicating that the richer states have grown faster than the poorer states during this
period.
During the last decade all the states except Tamil Nadu have witnessed faster growth as compared
to the nineties. The jump in growth rate was quite marked in some of the poor states, e.g., Bihar,
Orissa, Rajasthan and UP. This indicates that there has been some catching up on the part of the
lagging states in the recent years. In fact, the coefficient of correlation between per capita SDP and growth rate of GSDP was -0.19, showing better performance of the poor states during the recent
years.
Table 2
Trend Growth Rate in GSDP during 1980s and 1990s Average Annual Growth Rate % point change
States Per Capita GSDP in `̀̀̀
(1999-2002)
1980-81 to 1989-90
1990-91 to 2001-02
2002-03 to 2008-09
1990s over 1980s
2000s over 1990s
Punjab 28030 5.44 4.66 6.00 -0.78 1.34
Maharashtra 26994 5.64 6.27 7.07 0.63 0.80
Haryana 26256 6.21 4.72 9.09 -1.49 4.37
Kerala 22824 3.16 5.51 8.27 2.35 2.76
Gujarat 22708 5.05 7.2 10.75 2.15 3.55
Tamil Nadu 22587 5.18 6.26 6.12 1.08 -0.14
Karnataka 20703 5.36 7.17 8.63 1.81 1.46
Andhra Pradesh 18869 5.35 5.6 9.09 0.25 3.49
West Bengal 17377 4.70 6.93 7.14 2.23 0.21
Rajasthan 15059 6.01 5.85 10.14 -0.16 4.29
Madhya Pradesh 13340 4.02 4.81 6.16 0.79 1.35
Orissa 11234 5.01 4.21 10.95 -0.8 6.74
Uttar Pradesh 10798 4.80 3.84 6.12 -0.96 2.28
Bihar 6539 4.60 3.79 9.08 -0.81 5.29
India 28030 5.44 4.66 6.00 -0.78 1.34
Note: States are arranged in Descending order of Per Capita GSDP
Source: Column 2, 3 and 4 taken from CSO estimates as reported in the Twelfth Finance
Commission Report, p. 58. Growth rates for 2002-09 have been calculated from CSO
estimates of GSDP. While the growth rate of GSDP has been slower in the poorer states, population growth has been
faster in these states. As a result the increase in per capita income has been slower. Not
surprisingly indicators of inter-state disparities in per capita SDP like minimum-maximum ratio
and coefficient of variation show a clear worsening of the situation in the 1990s as observed by the
Twelfth Finance Corporation in its report. Bihar has remained the poorest state of the country
throughout this period, while Punjab (in some years Maharashtra) had the highest per capita
income. The ratio of minimum to maximum declined from 30.53 percent in 1993-94 to 28.90
percent 1999-00. The coefficient of variation in per capita income jumped in this period from
34.55 percent to 37.42 percent (Table 3).
The trend towards worsening of interstate income disparity continued unabated in the present
decade (Table 4). Haryana emerged as the state with highest per capita income, while Bihar
remained at the bottom. The minimum-maximum ratio declined sharply from 30.0 percent in 2001-02 to 20.4 percent in 2007-08. Coefficient of variation in per capita SDP also maintained the
upward trend throughout the period.
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 22
DEMAND FOR CREATION OF NEW STATES
As the above analysis shows, interstate economic disparities have sharply risen in the post reform
period. Thus, the issue of regional disparities has again emerged as a major issue of Indian
political economy. While the Indian economy has moved to a growth path, the pattern of growth
has been regionally concentrated and many regions have been by passed in the race towards
economic growth. The uneven pattern of growth lies behind the demand for creation of separate
states from different regions of the country. These regional pressures led to the creation of three
separate states of Uttarakhand, Chhatisgarh and Jharkhand which were created in 2000 by
bifurcating the erstwhile states of Uttar Pradesh, Madhya Pradesh and Bihar. Similar demands are
emerging from several other regions of the country, e.g. Bundelkhand, Telengana and Vidharbha.
Table 3
Trends in Inter-State Disparity in Per Capita GSDP: 1993-2000
Year State with lowest
per capita
GSDP
State with highest per capita
GSDP
Ratio of Minimum to Maximum per capita
GSDP (%)
Coefficient of variation
(%)
1993-94 Bihar Punjab 30.53 34.55 1994-95 Bihar Punjab 29.70 35.03 1995-96 Bihar Punjab 26.11 37.89 1996-97 Bihar Maharashtra 27.59 36.78 1997-98 Bihar Maharashtra 28.28 35.93
1998-99 Bihar Maharashtra 30.02 35.90
1999-00 Bihar Maharashtra 28.90 37.42
Note: Based on CSO data. Relates to 15 major states only. Source: Twelfth Finance Commission Report, p.59.
A valid question that rises in this context is whether the creation of new and smaller states will be
desirable in the national interest and help in promoting faster development in the lagging regions.
The author is of the view that the feelings of regional identity if channelled into healthy lines can
provide a powerful force to mobilise people of a region for regional and national development. It
would be appropriate to quote the views of the State Reorganisation Commission 1955 on this
issue. The Commission recognized the positive role of regionalism and observed as follows:
“......a regional consciousness, not merely in the sense of a negative awareness of absence
of repression or exploitation but also in the sense of scope for positive expression of the collective personality of a people inhabiting a state or a region may be conducive to the
contentment and well-being of the community” (Report of the State Reorganisation
Commission, 1955, p. 255).
Dr. B.R. Ambedkar commenting on the report of the State Reorganisation Commission supported
the idea of smaller states in the following words:
“As the area of the state increases the proportion of the minority to the majority
(communities/castes) decreases and the position of the minority (castes) becomes
precarious and opportunities for the majority to practise tyranny over the minority
become greater. The States must therefore be small (as reported in Hindustan Times,
New Delhi Feb. 2, 2010, p, 9).”
He gave the following criteria for division of a linguistic state:
“Into how many states a people speaking one language should be cut up, should depend
upon (1) the requirement of efficient administration, (2) the needs of the different areas,
(3) the sentiments of the different areas, and (4) the proportion between the majority and
the minority (as reported in Hindustan Times, New Delhi Feb. 2, 2010, p, 9).”
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
23
Table 4
Trends in Inter-State Disparity in Per Capita GSDP: 2000-2009
Year State with lowest
per capita GSDP
State with highest per capita
GSDP
Ratio of Minimum to Maximum per capita
GSDP (%)
Coefficient of variation
(%)
2001-02 Bihar Punjab 30.02 34.78 2002-03 Bihar Haryana 28.90 36.06
2003-04 Bihar Haryana 22.71 35.93 2004-05 Bihar Haryana 20.11 36.18 2005-06 Bihar Haryana 20.38 37.13 2006-07 Bihar Haryana 21.89 37.77
2007-08 Bihar Haryana 21.87 38.31
Note: Based on CSO data. Relates to 16 major states only. Source: Calculated from CSO data based on 1999-2000 constant prices..
CONCLUSION
There is a strong case for another reorganisation of the Indian states into smaller units based on objective criteria. The states of U.P., Maharashtra, Rajasthan, Andhra Pradesh are too large
entities to be governed efficiently. Splitting of these states into smaller units will be beneficial for
the people of all the regions. The new states will be politically more stable states as compared to
the present situation with no single party dominating all the districts of the state. The smaller states
will also be administratively more manageable. This will definitely improve the efficiency and
improve the quality of delivery of public services. The smaller states will be able to plan for the
development of their area and people more effectively in the light of region specific resources and
problems. The resources they will get from the centre through Finance Commission devolution or
Planning Commission grants will go directly for the benefit of people residing there, instead of the
present system when allocation of resources to districts largely depends on the discretion of the
state government. They would also be in a better position to attract more private investment for their development, as the experience of the newly created States of Uttaranchal, Chhattisgarh and
Jharkhand has shown. These states have also shown an upsurge in growth rate after their creation.
This was also the experience of reorganisation of erstwhile Punjab into three smaller states of
Punjab, Himachal Pradesh and Haryana.
Political sagacity demands that a rational and objective view of these issues is taken and timely
action initiated instead of waiting till the time when the situation takes a violent turn and goes out
of hand as has happened in Andhra Pradesh recently. It is high time that the Central government
appoints a Second State Reorganisation Commission.
______________________________________
References
Ahluwalia, M.S. (2000), ‘Economic Performance of States in Post Reform Period,’ Economic and Political
Weekly, May 6, Vol. 35, No. 19.
Bhattacharya, B.B. and S. Saktivel (2004), ‘Forecasting Regional Growth and Disparity in India:
Comparison of Pre and Post Reform Decades’, Economic and Political Weekly, Vol. 39,
No. 10.
Bagchi, Amaresh, “Symposium on Report of Twelfth Finance Commission: Introduction and
Overview,” Economic and Political Weekly, Vol. XL, No. 31, 2005.
Government of India (1955), Report of the State Reorganisation Commission, New Delhi.
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 24
Gupta, J.R. and Manjit Kalra (2005), Federal Transfers and Inter-State Disparities in India,
Atlantic Publishers & Distributors, New Delhi.
Hindustan Times, New Delhi, February 2, 2010.
Singh, Ajit Kumar (1981), Patterns of Regional Development: A Comparative Study, Sterling
Publishers, New Delhi.
______________(1984), “Trends in Regional Disparities,” Productivity, Vol.35, No.2, July-
September.
______________(1992), “Regional Dualism, Regionalism and Development Process in India,” in
In Search of India’s Renaissance, Centre for Research in Rural and Industrial
Development, Chandigarh.
_____________(1999), “Inter-State Disparities in Per Capita SDP in India : Trends and Causes,”
Arth Vigyan, Vol.51, No.2.
____________(2008), “Finance Commission Devolutions and Regional Imbalances,” in Singh,
Ajit Kumar (ed.), Twelfth Finance Commission Recommendations and Their Implications
for the State Finances, APH, New Delhi.
Srivastava, D.K. (2005), Issues in Indian Public Finance, New Century Publications, New Delhi.
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
25
AGRICULTURAL GROWTH DECELERATION IN INDIA: A REVIEW OF
EXPLANATIONS
Kiran Kumar Kakarlapudi Since the inception of economic reforms, Indian economy has achieved a remarkable rate of
growth. This fantabulous performance, to a large extent, was driven by service sector and
improvements in the secondary sector. However, this growth process bypassed the agricultural
sector, which showed sharp deceleration in the growth rate (3.62 percent during 1984/85 -
1995/96 to 1.97 percent in 1995/96 – 2004/05). Given the relevance of the sector for employment
and rural development the declining trend in agricultural growth has emerged as a major concern
for researchers and policymakers. A large number of studies have enquired into the growth
process of agricultural sector and has criticised the neo-liberal policy regime for a general
neglect of the sector. The sector has recorded wide variations in yield and productivity and there
was a shift towards cash crop cultivations. Moreover, agricultural indebtedness pushed several
farming households into poverty and some of them resorted to extreme measures like suicides. In
this context, the present paper reviews the performance of the Indian agriculture since reforms
and compares it with pre-reforms conditions. A systematic and critical review of literature is
presented to comprehend the poor performance of Indian agriculture. The review focuses on the
pattern and determinants (price and non-price) of agricultural growth and evaluates the influence
of policy and environmental factors on its performance. This paper exclusively explains the
following objectives. To explain the growth of agriculture in terms of area, yield and cropping
pattern and findings that have taken place in the recent past. To understand the determinants that
contributes to the changes in the sources of growth. To explore the influence of the policy factors
and natural factors, which lead to changes in the growth of agriculture? The study identifies that,
in the post reform period there has been an increase in prices of cash crops and the cropping
pattern changes towards non-food grains have a significant effect on growth. The review also
concludes that much of the slowdown in agriculture is caused due to other pertinent factors such
as infrastructure, technology and environmental factors, lack of political commitment and poor
implementation of policies.
INTRODUCTION
India’s economic growth performance has started taking its pace since after economic reforms and
emerged as one of the fastest growing economies in the world. Annual growth rate in total Gross
Domestic Product (GDP) rose from below 6 per cent during reforms to over 8 per cent during last
couple of years. In the post reform period, the growth was mainly driven by the exceptional
growth in service sector which at present contributes 54 per cent of total GDP. Manufacturing
output, seen as bellwether for the policy stance since 1991, has even registered double-digit
growth in some recent years. On the other hand performance of agriculture in terms of its growth
rates has been disappointing. The growth of agriculture started declining since the reforms and
became worse in the post WTO period. The growth of agriculture has come down from 3.62 in
1990-91 to 1.97 by 2004-05 and the share of agriculture in the gross domestic product has
registered a steady decline from 36.4 per cent in 1982-83 to 18.5 per cent in 2006-07(Chand et al
2007). Yet, this sector continues to support more than half a billion people providing employment
to 52 per cent of the total workforce. Between 1950-51 and 2006-07, production of food grains
increased at an average annual rate of 2.5 per cent compared to the growth of population which
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 26
averaged 2.1 per cent during this period. As a result, India almost became self-sufficient in food
grains and there were hardly any imports during 1976-77 to 2005-06, except occasionally the rate
of growth of food grains production, however, decelerated to 1.2 per cent during 1990-2007, lower
than annual rate of growth of population, averaging 1.9 per cent (Economic survey 2007-08). This
is showing agrarian situation during last decade and half.
The government is yet to comprehend the real picture of the current agrarian situation in India.
The agrarian crisis being experienced today is an unprecedented and all encompassing
phenomenon. All sectors in agriculture and sections among the peasantry are affected by the
deepening agrarian crisis. The poorer sections among the peasantry, especially the small and
marginal farmers and the agricultural labourers, who constitute the vast majority of the Indian
population, are the worst sufferers. Indian agriculture is characterized by small farm holdings. The
average farm size is only 1.57 hectares. Around 93 percent of farmers have land holdings smaller
than 4 ha and they cultivate nearly 55 percent of the arable land. On the other hand, only 1.6 of the
farmers has operational land holdings above 10 ha and they utilize 17.4 percent of the total
cultivated land (Pillai 2007). Ministry of Finance, Planning Commission, and office of Prime
Minister are emphasising on concerted measures to address poor growth rate in agriculture, partly
because poor growth rate has serious implications for large percent of India’s population that
depends upon agriculture for livelihood, and partly because poor growth of agriculture affects
growth of overall economy (Chand 2005). While there have been many arguments that reform
process acted against agriculture sector. State intervention has been consciously reduced in order
to make way for the ‘market’, a euphemism for the dominant role for the private players,
especially big business, in all spheres of the economy. It was argued by the proponents of
liberalisation that freeing agricultural markets and liberalising external trade in agricultural
commodities would provide price incentives leading to enhanced investment and output in that
sector, while broader trade liberalisation would shift inter-sectoral terms of trade in favour of
agriculture. A decade and a half later, the hollowness of these claims stand exposed (Pillai 2007
and Patnaik 2005). But this policy option did not become viable rather it worsened further. The
poor performance of agriculture has become a serious matter of concern and this has lead to
initiation of debates about the causes of agrarian crisis among researchers and policy makers in the
country. Recently UPA government came with 4 per cent target growth rate in agriculture during
11th plan.
This chapter is organized as follows. In the section two presents a brief review of literature, where
in this we examine various arguments that have come up in the recent periods explaining growth
crisis in agriculture. In the third section sources of agricultural growth are presented, it mainly
investigates how sources of growth in agriculture have changed in the period by comparing it with
pre reform period. Section four gives the information as to what factors have contributed for the
changes in the sources of growth in the post reform period and it also tries to identify to what
extent economic factors contributed and how much on other factors and final section concludes
REVIEW OF LITERATURE
As it is already mentioned, the recent trends in agricultural growth and development have shown a
sharp deceleration in the agricultural sector despite an overall impressive growth of Indian
economy is a major cause of concern today. Thus, it led to intense debate in the country, both in
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
27
academic and policymaking circles. In the recent period, many arguments have come up analyzing
the potential impact liberalisation on farming community. There are two groups of people
explained the reasons for poor performance of agriculture in the post reform era. One group of
people, Gulati, Kelly and Narayanan, S. claimed that the slow pace of agricultural liberalization
(domestic and external) is responsible. Another group, Sen and Patnaik blames the withdrawal of
state support to agriculture and the integration of agriculture into global markets, due to
liberalization pressures. The two groups have advocated an increased role for either markets or the
state as the solution. There are many other arguments came up arguing in this line showing multi
dimensions of the crisis.
In the light of above discussion, we now try to look at the reasons addressed by different authors
in explaining crisis. They are variety of reasons put forward in the literature, sum of them are
discussed below. Vakulabharanam (2008, 2005) argues that the state had offered various input
subsidies, especially in the provision of fertilizers, electricity and credit. It had provided
infrastructural support (primarily in irrigation and electricity) and extension services to cultivators.
It had also provided minimum support prices for agricultural output. The policies after 1990,
unevenly withdraw this support to the farming community. The reduction of domestic support in
terms of subsidy and credit on the one hand and drastic price fall of agricultural commodities in
the international market on the other hand led to distress in the farming class. Chand et, al (2007)
and Chand (2005, 2004) argues, the main factors which led to a slowdown in agriculture at
national level after 1996-97 are: (a) decline in the area under cultivation, which seems to be a
result of expanding urbanization and industrialisation, (b) deterioration in the terms of trade for
agriculture, (c) stagnant crop intensity, (d) poor progress of irrigation and fertiliser, (e) Decline in
supply of electricity to agriculture, and (f) slowdown in diversification.Mishra Srijit (2007) and
Reddy and Mishra(2008), Crisis in agriculture was well underway by the 1980s and economic
reforms in the 1990s have only deepened it the major reasons brought out in the light of
agricultural distress are vagaries of nature (primarily, inadequate or excessive water),lack of
irrigation facilities, market related uncertainties such as increasing input costs and output price
shocks mainly commercial and plantation crops due to agricultural trade liberalisation,
unavailability of credit from institutional sources or excessive reliance on informal sources with a
greater interest burden and new technology among other.
Narayanamoorthy (2007) argues that fall in wheat and rice production is not due to technology
fatigue rather due to extensive mono crop cultivation and high use of fertilisers and faulty
agricultural pricing. Lack of allocation of funds to irrigation development after liberalisation
during this period net area irrigated remained constant. This poor growth in surface irrigation has
compelled farmers to rely heavily on groundwater irrigation. The increased dependence on
groundwater irrigation increases the cost of cultivation and depletion of ground water resources
and in addition to this credit unavailability for investment on inputs put farmer in further
crisis.Pillai (2007) in his, study he basically observed major aspects of the crisis and try to find out
the reasons contributed for it. Study came up with the issues liberalisation, price volatility and
weak domestic support in price policies and credit. The single most adverse effect of trade
liberalisation has been the combination of low prices and output volatility for cash crops. While
output volatility increased especially with new seeds and other inputs, the prices of most non-
foodgrain crops weakened, and some prices, such as those of cotton and oilseeds, plummeted for
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 28
prolonged periods. This reflected not only domestic demand conditions but also the growing role
played by international prices consequent upon greater integration with world markets. In addition
to that, high volatility of output and lack of proper domestic price support and credit facility to
invest in agriculture worsened the agrarian situation in the last part of 20th century. Suri (2007)
argue that that agrarian distress is the result of the policies pursued by the governments over the
years. Other factors such as changed cropping pattern due to a shift away from light crops to cash
crops; liberalisation policies which prematurely pushed Indian agriculture into the global markets
without a level-playing field; heavy dependence on high-cost paid out inputs; growing costs of
cultivation; volatility of crop output; market vagaries; lack of remunerative prices; indebtedness;
neglect of agriculture by the government; decline of public investment have contributed further to
agrarian crisis. Galab and Reddy (2006), the authors precisely talked about the factors that caused
crises in agriculture. They are technological factors, ecological, socio cultural and policy related
factors. Extensive cultivation has led to decrease in fertility and productivity this is also because of
intensive use of fertilisers, since the input intensity is increased in the marginal farms the
productivity fell down coupled with increasing cost of inputs, these factors ultimately led to
decrease in profit margins. Ecological factors include decreasing quality of land and water
resources due to intensive chemical and fertiliser use. Socio and cultural factors include the effects
of globalisation and urban culture on villages had shown impact on health and education
consciousness in the rural agrarian families, in order to get the access of better facilities farmers
have changed their cropping pattern. Policy related factors like decrease in public investment from
4 per cent of agricultural GDP during 1980’s to 1.86 during early 2000.
Patnaik (2005), tried to identify changing agrarian situation after reforms. This study tries to
explain how neo liberal policies introduced in the 1990’s affected peasant community by
examining the fund allocation to the rural development from the Net National Product. Fund
allocation to the rural development will result in improving irrigation, irrigation and other heads of
agriculture and this fund allocation has come down from 4 per cent of NNP to 1.9 of NNP by
2001-02. The study also explores the impact of liberalisation on food security and found out that
shift in cropping pattern towards non food grains has led to food security problem. Since advanced
country markets were in recession and global primary product prices went into a steep tailspin
with 40-50 per cent decline in unit dollar prices of all crops –cereals, cotton, jute, sugar, tea, coffee
– and up to 80 per cent decline in some oil crops between 1995 and 2001. With a brief spike in
2002 most prices have continued to fall and some prices are today lower than as far back as 1986.
This resulted in distress of farmers which had led to farmers committing suicides. Gulati and
Bathla (2001) and Chand and Kumar P (2004) studied impact of capital formation on Indian
agriculture and it is found that growth in capital formation is significantly related with growth of
agriculture. But capital formation in Indian agriculture has been either stagnating or falling since
the beginning of 1980s but macro economic reforms further squeezed public investment, though
there is rise in private investment that was not rising to meet the requirements.
Rao C H (2001), tried to study the impact of WTO on viability of Indian agriculture in which, he
explain the main rationality of introduction of WTO and whether Indian agriculture reaped the
benefits in the post globalisation period. He argued that India could not exploit the trading
opportunities with comparative cost advantage is due to high domestic support, export subsidies
and denial of market access through various tariff and non-tariff barriers in the developed
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
29
countries. The major challenge to the viability of agriculture of India is posed by the shortfalls in
public investment and in the provision of agricultural services account for the failure of
agricultural supplies to respond to the favourable incentive framework created by macroeconomic
reforms, including trade liberalisation, in the 1990s. India was major exporter of food grain in the
world but due to the unfavourable terms of trade exports have come down and finally, the price
fall in the international market has significantly affected whole farming community. Vyas and
Reddy (2001) they examined impact on economic reforms on agriculture. They claim that Indian
farmers are mostly consists of small and marginal farmer who mainly depend on agricultural price
policies such as Minimum Support Prices (MSP), subsidies on inputs and irrigation. But after pro
market strategies developed after liberalisation has minimum role in providing them. Withdrawal
of public investment due to structural adjustment is also another reason for poor performance of
agriculture.
SOURCES OF AGRICULTURAL GROWTH IN INDIA
Period 1 – From Independence to Green Revolution
As we know, agricultural growth is very vital in developing countries like India with population
over one billion. The most importantly, it feeds whole nation with its supply of food on the one
hand and on the other hand it provides employment to more than half of work force in the country,
which implies growth of agriculture plays very important role in the growth of economy.
Therefore, it is important to know the growth performance of agricultural sector and what is the
engine of its growth. Principally the main sources of growth are area, yield and cropping pattern
which are affected by various factors. The contributions of these three sources have been changing
over a period with respect to supply and demand factors including some other socio economic and
environmental factors. First one half decade after independence, during so called pre Green
revolution period, area growth land has played significant role in the growth of agricultural output.
Partly because of land reforms though not successfully implemented everywhere, has shown area
expansion due to distribution of surplus land. In the mid 60’s with state intervention in agricultural
development had led to introduction of HYV seeds, improved irrigation facilities. This was done
by creating infrastructure through public investments and by policy changes affecting agricultural
marketing, production, processing and trade (Vaidyanathan 1994). Bhalla and Alagh (1979) in
their state level as well as in district level study found that total agricultural output grew at a
compound rate of 1.95 per cent during 1962-65 and 1970-73, in overall situation. Area under 19
crops increased from 124 mn. hectares to 127 mn. hectares, that is, at a compound rate of 0.30 per
cent. Productivity increased at a much faster rate of 1.66 per cent from Rs 853 per hectare to Rs
973 per hectare. Another study by Singh et al. (1997) examined temporal and spatial performance
of important food grain and non-food grain crops in terms of area, production and yield. They also
examined the factors responsible for determining yield and acreage of important food grain crops
across the states and the country. The study revealed that in case of total food grains as well as for
the individual grain crops, yield witnessed higher growth rates as compared to acreage in the last
two decades. Area effect played a significant role in the pre green revolution while yield effect and
changing cropping pattern played a crucial role in agricultural growth despite the reduction in the
overall area cultivated due to the effective state intervention in creating favourable environment
for agricultural development. Ray (1983) shows that sources of area expansion became less
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 30
significant to agricultural growth, at the same time cropping pattern shifts became progressively
important contribution of yield was an important contributor growth during 60’s and 70’s.
Period 2 – 1980 onwards
It is well approved that, agricultural growth performance during 80’s is impressive compare to the
previous periods due to spread of Green revolution technologies to many places backed by huge
investments made on irrigation and infrastructural development. The efforts of state resulted in the
growth of productivity of products. During this period area expansion has shown a decline but
massive increase in the yield compensated the reduction in area and kept agricultural growth in
better place. When we see the trends in area expansion, it is showing decline in trend in the coarse
cereals and increasing trend in the non food grains such as oilseeds and horticultural crops, spices
and sugarcane. Area effect is mainly because of relative price changes among crops, this gave rise
to importance of cropping pattern and crop diversification has become important particularly after
economic reforms. It is found that area and yield accounted for 45 and 48 percent of growth while
cropping pattern accounts for only 8 per cent. During 1980’s growth in production was mainly
contributed by growth in the yield while area expansion and cropping pattern was main source
during 1990’s due to technological slack and weak input delivery system and poor infrastructure
(Joshi et al, 2004). Macro level study on agricultural growth after reforms gives very different
look despite increase in cropping intensity and area expansion which are considered as major
sources of growth. In the Post reform period, agricultural growth is recording a fall mainly is in
food grains in the first phase of reform but growth during this period sustained due to rise growth
rate of commercial crops such as horticulture and oilseeds, cotton and allied sectors like livestock.
But after globalisation agriculture as a whole declined drastically while non agriculture sector is
growing fast, this poor performance of agriculture particularly food grains has become a serious
concern for the policy makers as there is a chance of facing the problem of food security. In this
section we try to explore the causes of poor performance of agriculture by examining the sources
of growth first and its changes over a period of time and finally find out the factors that have
caused deceleration in growth performance in agriculture. Now first let us have a look at the
growth performance of agriculture since 1980’s and how it performed during the post reform
period and then explore the sources of growth and factors contributed for it.
Table 1
Growth Rate of GDP by Sectors (% p.a. at constant prices)
Sector 1980-81 to 1989-90
1990-91 to 1996-97
1996-97 to 2004-05
GDP 5.52 6.01 5.72 GDP non Agriculture 6.88 7.04 7.06 GDP Agriculture and allied 3.12 3.64 1.66 GDP Agriculture 3.29 3.69 1.65
GDP Fishery 5.93 7.41 4.30
Source: Chand et al 2007
Agricultural performance has shown slight 0.5 percentage points increase in its growth rate in the
initial phase of liberalisation at 3.64 per cent during 1990-91 to 1996-97 against 3.12 during the
pre reform decade, which is due to impressive growth rates witnessed in horticulture (5.92 per
cent)and fishery (7.41per cent) in the initial period of reforms but after 1996 growth in agriculture
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
31
sector as a whole experienced a drastic reduction in the growth rates to 1.66 out of this fishery
fallen from 7.41 to 4.3 and horticulture has fell down from 5.92 to 3.28. We conclude that
agricultural growth in the initial years of reform was led by horticulture crops and fishery due to
the favourable terms of trade during the period. Agricultural sector after WTO period has
experienced growth deceleration due to various factors to which we will come shortly.
Table 2
Growth Rate of Agricultural Sub-sectors (% p.a. at constant prices)
Sector 1980-81 to 1989-90
1990-91 to 1996-97
1996-97 to 2004-05
Crop sector 2.71 3.22 0.79 Live stock 4.84 4.12 3.67 Fruits and Vegetables 2.42 5.92 3.28 Non-Horticulture crops 2.77 2.59 0.05 Cereals 3.15 2.23 0.02
Source: Chand et al 2007
In the post reform period, except for the horticulture which has shown significant growth in the
first phase of reforms, all other sub sectors of agriculture have undergone a growth deceleration
(Table 2). Many scholars have attributed different reasons for the growth deceleration. Now, this
paper will try to look at the sources of growth namely area, yield and cropping pattern and their
changes in the post reform period. By doing so, we will come to know what are the changes that
affected positively in the initial reform period and negatively in the in the post WTO period.
Changes in Sources of Agricultural Growth
It is very important to understand the sources of growth and their changing contribution and
impact on the overall growth of agriculture in order to judge the performance of agriculture as a
whole. As it is discussed earlier, the main drivers of growth are area, yield and cropping pattern.
We will discuss how these sources have changed from pre reform period to post reform period.
Area expansion is mainly affected by the relative prices and other factors like urbanization and
industrialisation, these two are not concerns of our study coming to the area change it can be seen
from the Table 3 that food grains constitute 70 per cent of total cultivated area and non food
grains contribute around 30 per cent but it accounts for 51 per cent of value of output during the
pre reform period. The high value of non food grains has attracted farmers to shift from food
grains to non food grains, in the post reform period acreage area in food grains has come down to
65.44 per cent while area under non food grain increased to 34.56 in the post reform period. This
shows that there is shift in cropping pattern to high value non food grains such as horticulture
crops, oilseeds, cotton and sugarcane as the prices of these high value commodities are high
compare to the food grains. But if we look at the expansion of area in the post reform period, it is
seen that acreage area has come down for many crops in the post reform period (see Table 7). Net
area sown has come down in the post reform period. Net sown area witnessed a decline at the rate
of 0.55 per cent which was not compensated by an increase in cropping intensity. Similar trend
has been observed in gross cropped area. Decline in the area under cultivation, which could be a
result of expanding urbanisation and industrialisation (Chand et al 2007).
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 32
Table 3
Share of Foodgrain and Non-Foodgrain in Area and Value of Output Triennium Ending 1981-82 Triennium Ending 1998-99
Foodgrains Non-foodgrains Foodgrains Non-foodgrains Region
Area Value Area Value Area Value Area Value
Eastern 81.6 51.7 18.4 48.3 73.8 43.0 26.2 57.0 Northeastern 70.1 44.4 29.9 55.8 65.1 35.8 34.9 64.2 Northern 77.4 54.9 22.6 45.1 76.9 53.7 23.1 46.3 Southern 62.9 41.8 37.1 58.2 53.1 28.2 46.9 71.8 Western 71.9 44.4 28.1 55.6 61.9 36.1 38.2 63.9 All-India 70.3 48.1 29.7 52.0 65.4 39.9 34.6 60.2
Source: Joshi, 2005
The rate of growth of both gross cultivated area has started coming down from the beginning of
1980’s but it was compensated by the impressive growth in the yield due to the wide spread of
Green revolution technology and improved irrigation system and also changing cropping system
towards more high value crops and yields of these crops helped to sustain agricultural growth
around 3.16 per annum during the decade of eighties despite the reduction in the public
investment. The contribution of growth of area to the total output growth is explained below.
Table 3 essentially to show the main contributors of growth in agriculture during pre and post
reform period. A region wise analysis is made us to better understand the changes in sources of
growth across country during the post reform period as Indian agricultural scenario is diverse due
to different tropical regions so infrastructural and technological advancements vary across states
and hence its sources of growth to total growth vary.
Table 4
Sources of Agricultural Growth in Different Regions of India Sources of Agricultural growth
Region Period Area Yield Prices Diversification Interaction
1980s 1.4 75.4 -6.5 29.7 0.1 Northern
1990s 10.1 16.6 44.0 28.2 1.1
1980s 11.6 36.5 7.3 39.0 5.5 Western
1990s 13.4 24.8 25.7 35.8 0.4
1980s 17.8 49.7 11.8 19.7 1.0 Eastern
1990s -29.7 38.7 45.8 42.6 2.6
1980s 10.4 39.5 16.8 32.1 1.3 Southern
1990s -8.7 36.2 29.3 45.0 -1.8
1980s 10.1 54.0 7.7 26.6 1.6 All-India
1990s 4.0 29.3 35.2 30.7 0.8
Source: Joshi, 2005
From the Table 4 it is clear that yield contributed higher share to the growth of agriculture not
only overall India but all the regions in the country. During 80’s 54 per cent of agricultural growth
was contributed by yield alone while 26 per cent was contributed by crop diversification. Yield
contributed very high share 75 per cent in the growth of output due to wide spread of green
revolution to northern regions. Coming to post reform period, the share of yield growth to total
growth had decreased nearly half from pre reform period to 29.3 per cent. In the post reform
period prices and crop diversification has played crucial role in the growth of agriculture with the
contribution of 35.2 and 30.7 per cent. The same trend witnessed in all regions in the country. We
can conclude that agricultural growth in the post reform period is mainly due to high market prices
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
33
for the produce and crop diversification towards high value commodities from the food grains as
shown in table 3.
In Table 5 we decomposed the area effect, yield effect, price effect, and diversification on growth
over various food grains and commercial crops.
Each of the above growth sources has implications for future agricultural development policies
(Minot 2003). If the growth stems from the technological change (yield improvements),
investments in research and extension need to be accorded priority. The area-driven growth
implies need for greater extension efforts to make agriculture broad-based, while the price-driven
growth requires an appropriate pricing policy for a balanced growth of the agricultural sector. If
the growth occurs due to crop diversification, there is a need for increasing investments in
development of markets and infrastructure.
Surprisingly, the share of real prices of all cereals, which depicted a declining trend during the
1980s, turned out to be positive during the 1990s, which eventually contributed to agricultural
growth. The prices of a majority of commodities, except oilseeds, increased during the 1990s, with
maximum rise in prices of rice, wheat, and fruits & vegetables. Rice and wheat were, however,
covered under the government policy of ‘Minimum Support Price’ (MSP); consequently their
prices were consistently increased to protect the interests of the farmers. But for fruits &
vegetables, it was the growing demand that pushed up their prices. The yield-effect on agricultural
growth slowed down during the 1990s. A majority of crops depicted either stagnation or
deceleration in their yield levels during the 1990s as compared to values in 1980s. It was a clear
indication of the fatigue in the technology being used for these crops. The improved technologies
were reported inaccessible to the farmers due to various reasons. This indeed is a matter of
concern as the potential yield of most of the crops is yet to be tapped to harness the benefits of
improved technologies. Moreover, with only a limited scope of expansion in the area, increase in
yield through technological innovation is the only viable option as the source of agricultural
growth in the future.
The crop diversification emerged as a prominent source of growth in agriculture both during 1980s
and 1990s. The rise in its share in the growth was an indication of the changing production
portfolio in favor of superior and high-value commodities. It was noted that the areas under most
of the coarse cereals, pulses, and spices had shifted towards fruits & vegetables and other more
remunerative crops. During the 1980s, the area substitution was in favor of oilseeds, while the
trend shifted to wheat and fruits & vegetables in 1990s. The share of fruits & vegetables in crop
diversification went-up to 61 percent during 1990s from about 56 percent during 1980s. Their
share in the total cropped area increased from 2.8 percent in TE 1981-82 to 4.8 percent in TE
1999-2000. Their corresponding share in the gross value of agricultural output moved-up from 8.9
to 17.5 per cent during this period( see table 3).
It was interesting to note that the contribution of output prices and crop diversification
(particularly fruits & vegetables) had gone-up in agricultural growth during the reform period,
whereas during the pre-reform period, it mainly relied on technology and crop diversification
(particularly oilseeds and fruits & vegetables). During the reform period, the focus was on
agricultural prices, particularly of rice and wheat, whose prices depicted a change of 30 and 27
percent, respectively. However, a continuous rise in the output prices is not a sustainable source of
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 34
growth in the long-run. Increasing production and globalization could suppress the output prices
and may affect the agricultural growth adversely. Thus, accelerating the pace of crop yields
(through technological change) and crop diversification (in favor of high-value commodities) are
the options to provide sustainable sources of agricultural growth in future.
Table 6
Growth of Area, Production, Yield and Area under Irrigation for Major Crops
Years Rice Wheat Pulses Foodgrains Cotton Oilseeds Sugarcane
Growth in the Area under Crops (% pa)
1989-90 to 2006-07 0.14 0.73 -0.35 -0.26 0.86 -0.02 1.15
1992-93 to 1996-97 0.46 1.51 -0.33 0.17 4.04 0.56 2.6
1997-98 to 2001-02 0.34 -0.15 -1.82 -0.57 -1.26 -3.38 1.77
2002-03 to 2005-06 -0.29 1.09 2.06 0.55 1.26 5.62 -1.67
Growth in Area under Irrigation (% pa)
1989-90 to 2006-07 1.33 1.42 1.85 1.25 0.88 -0.28 1.94
1992-93 to 1996-97 1.97 2.18 3.57 1.74 5.24 2 2.73
1997-98 to 2001-02 1.26 0.34 0.78 0.91 -2.64 -4.8 2.38
2002-03 to 2004-05 -1.86 1.03 5.11 -0.06 -4.43 7.35 -4.7
Growth in Production (% pa)
1989-90 to 2006-07 1.17 1.9 -0.03 1.18 2.04 1.25 1.13
1992-93 to 1996-97 1.73 3.6 0.66 1.88 4.88 3.57 3.74
1997-98 to 2001-02 1.13 1.26 -2.52 0.67 -5.79 -4.68 1.23
2002-03 to 2005-06 1.75 0.42 3.27 1.61 20.22 9.81 -1.23
Growth in Yield (% pa)
1989-90 to 2006-07 1.02 1.16 0.32 1.43 1.17 1.24 -0.04
1992-93 to 1996-97 1.27 2.06 1.01 2.05 0.77 2.96 1.14
1997-98 to 2001-02 0.75 1.41 -0.76 1.23 -4.56 -1.38 -0.53
2002-03 to 2005-06 2.1 -0.66 1.25 1.09 18.48 4.11 0.36
Source: Economic survey, 2007-08
Note: All growth rates are based on moving averages of three years
There has been a considerable decline in the rate of growth of area, production, productivity and
area irrigated for the major crops The area under the production of foodgrains over a 16-year
period witnessed an average annual decline of 0.26 per cent during 1989-90 to 2005- 06, largely
because of a shift in area away from coarse grains. The trend, however, was moderately reversed
during 2002-06, partly because of a low base. Cotton and oilseeds also witnessed an increase in
area during the period. Average annual rate of growth in production and yield varied across crops
and over different time periods. For cotton and oilseeds, the rate of growth in production remained
high during 2002-06, while in case of wheat and sugarcane, annual growth in production peaked
during the initial phase of reform period, that is, 1991-92 1996-97. Rice maintained a positive
growth in yield during this period, but in case of wheat, average annual growth in yield during
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
35
2002-06 was negative. Growth of productivity in pulses fluctuated over the three Plan periods. It
became negative during 1997-2002 (Ninth Five Year Plan period), but turned positive again
during the Tenth Five Year Plan. Increase in production and productivity of cotton during the
Tenth Five Year Plan may be due to increased use of BT cotton.
Table 7
Growth Parameters before and after Reforms Variable 1980-81 to 1990-91 1990-91 to 1996-97 1996-97 to 2004-05
Gross Cropped Area 0.43 0.43 -0.48
Net Sown Area -0.08 0.04 -0.55
Cropping Intensity 0.51 0.39 0.07
Gross Irrigated Area 2.28 2.62 0.51
NPK use/ha NSA 8.255 2.401 2.044
Electricity consumed in
agriculture/ha NSA 14.162 9.39 -0.159
Area witnessed crop shift 5.6 5.6 4.8
Terms of trade 0.189 0.947 -1.63
Public sector net fixed capital stock/ha NSA 3.939 1.872 1.976
Private sector net fixed capital stock/ha NSA 0.642 2.134 1.721
Total net fixed capital stock/ha NSA 2.085 2.01 1.838
Credit supply/ha NSA 3.81 7.466 15.336
Source: Chand et al (2007)
Note: Growth rates in the area and crop intensity are up to year 2003-04, in % pa
Table 7 gives a broad look about the factors that affect growth in three periods period I represents
the pre reform period 1980-81 to 1990-91, period II represents initial phase of reform s 1990-91 to
1996-97 and third period represents the period after globalisation 1996-97 to 2004-05. Gross area
under cultivation remained constant from pre reform period to period II and declined after
globalisation period. After 1996-97, almost all factors except credit, turned unfavourable for the
growth of agricultural output. Net sown area witnessed a decline at the rate of 0.55 per cent which
was not compensated by an increase in cropping intensity. Gross cropped area also declined on the
trend. The biggest setback to output of the crop sector came from the decline in terms of trade for
agriculture and slowdown in expansion of irrigation. The terms of trade for agriculture after 1996-
97 have declined annually by 1.63 per cent. Liberalisation of trade has led to increased integration
of the domestic market with the international market. Accordingly, a downward trend in
international prices of agricultural commodities after 1997-98 has been transmitted to domestic
prices resulting in deterioration in TOT for agriculture.
FACTORS AFFECTING AGRICULTURAL GROWTH
In the preceding section we have seen what are the main sources of growth and their changes in
the reform period. It is identified that the sources of growth have changed compare to the pre
reform period. The main changes are area reduction both in terms of gross cropped area and net
sown area, reduction in the yield for many crops both food grains and non food grains and hence
its contribution to total growth has declined and finally there is cropping pattern change started
from the 80’s and accelerated in the 1990’s (table 2.3) from food grains particularly coarse cereals
to non food grains high value crops like horticulture crops, cotton, oilseeds and sugarcane which
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 36
contributed to growth. It is broadly understood that it is cropping pattern mainly crop
diversification that drive growth with the support of high prices for these commodities. In this
section we will try to explore the underlying factors responsible for the above changes.
Factors affecting Area
Expansion of area under cultivation depends on the prices of crops, but the acreage of cultivable
land was adversely affected by the urbanisation, industrialisation through special economic zones
and marginalization of land holdings resulted mainly in the post reform period. The study of
Parthasarathy et al (2004) shows that in the world of globalisation, with the vast development of
secondary and tertiary sectors, and their spread to the semi urban areas led to the substitution of
cultivable land and also rapid development of special economic zones to some extent played a role
in reducing acreage. In addition to this there is marginalization of land holdings in the post reform
period with the increase in landlessness to 48 per cent in the post reform period compare to 30 per
cent in 1970’s (Reddy and Mishra 2008). A persistent trend in Indian agriculture is the shrinking
farm size. This is a long-term trend and unless addressed can have permanent adverse
consequences for the sector, impinging upon its prospects. At the same time as the smaller farms
have come to predominate, due to the fixity of land, they have come to account for the greater part
of the area operated. In 1960-61 over 60 per cent of the cultivated area was operated by farms
exceeding 4 hectares by 2002-03 the figure is less than 35 percents farm size is reduced while size
marginal farmers increased from 6.9 in 1960 to 22.6 in 2002-03 as marginalization of land
increases the members of the family are driven to look outside the farm to supplement their
income, in turn being forced to neglect production management, thus slowing growth. The decline
in land holdings and area cultivated in a way contributed to the decline in output.
Factors affecting Yield
Agriculture growth after Green revolution period was mainly sustained by the impressive growth
in the yield of all most all crops. As we have seen yield played significant role in the growth of
agriculture during 1980’s. But it turned out very disappointing in the post reform period with the
massive reduction in yield for major principle crops (table 2.6). Analysis of new varieties released
of major crops (rice, wheat, maize, groundnut, mustard and sugarcane) shows significant
deceleration of the growth of yield potential, with negligible increase over the last decade due to
advent of neo liberal policies. There are many supply side factors that have affected yield in the
post reform period in the market led economy such as public investment on irrigation and
infrastructure development, fertiliser, seed varieties, price policies, technological progress,
weather, intensive farming etc. The policies of the Government in the post-liberalisation phase
have had direct and indirect adverse effects on agriculture and the peasantry. In terms of fiscal
policies, the reduced spending of Central and State governments was the most significant feature.
We will enquire the details how the above factors turned adversely with the introduction of market
led policies in the post reform period (Patnaik 2005).
Public Investment in Agriculture
It is well known that fixed capital formation is essential for sustaining the growth of agriculture as
it reduces the transaction cost for private farmers besides reducing the operational cost of
cultivation. However, fixed capital formation by the public sector in agriculture has been
continuously declining both in absolute terms and also in relation to agricultural GDP. It plays a
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
37
crucial role in the expansion of irrigation and research and technology for improved seeds and
inputs and also infrastructural development in the improvement of yield of crops. The reduction
in the public investment in the post reform period did show a significant effect on yield. The trend
in the public investment has shown a decline from 80’s onwards and it further squeezed in the post
reform period as India had gone for structural adjustment policy which impacted on reduction in
the fiscal deficits though reduction in investment.
Aggregate capital formation appears to collapse with the initiation of reforms remaining depressed
throughout the nineties. The behavior of private capital formation is more volatile, unlike public
capital formation, collapsing with the onset of the reforms and remaining depressed during the
first half of the nineties. However, unlike public capital formation it begins to rise from the mid-
nineties, only to stagnate from around the year 2000. Dhar and Kallumal (2004) suggested that
throughout the 1990s, the share of agriculture in gross capital formation (at constant prices) has
remained in single digits, which explains the slackening of its growth momentum during the past
decade. Gulati and Bathla (2001) observed that there has been an increasing role played by private
sector investment in agriculture over time while there is a decline in public sector capital
formation in the sector. Public sector investment along with terms of trade has an inducement
effect on private sector capital formation. Desai (2002) suggested that government expenditure
should be focused on agricultural R and D, education and extension services, rural electricity,
roads and marketing, irrigation and watershed development, etc. The reduction in capital
formation has witnessed in the less R&D development in agriculture in terms of seeds and
fertilisers which adversely resulted in the decline of yield of crops in the post reform period.
Natural Factors
Agro climatic situation in India is diverse across regions in terms of soil, temperature and rainfall
distribution and hence yields to the crops also different. In India nearly 41 per cent gross cropped
area is under irrigation in 20051 remaining land depends on rainfall hence rainfall and availability
of water resources significantly affects productivity in addition to that monsoons and flood affect
yield in agriculture. Lack of adequate irrigation is another reason for cropping pattern changes
towards cash crops such as horticultural crops which are grown in rain fed areas. Flood prone
mainly Assam, Andhra Pradesh, Tamilnadu and other states. Irrigation is considered to be the
paramount factor that determines the performance of agriculture. Though the net irrigated area has
increased substantially from 20.58 million hectares in 1950-51 to 53 million hectares in 1994-95,
there is no appreciable improvement in it since the mid-1990s because of inadequate allocation of
funds required for completing ongoing projects and poor monitoring of irrigation projects by the
state agency. This poor growth in surface irrigation has compelled farmers to rely heavily on
groundwater irrigation. The increased dependence on groundwater irrigation increases the cost of
cultivation. It also depletes the water level and increases the rate of well failures in many places in
peninsular India. Farmers in most of the regions in India are fed up with crop cultivation because
they have not been able to recover even the cost of cultivation in the past several years now. The
SAS data clearly acknowledges this fact [Narayanamoorthy 2006; Balakrishnan et al 2008].
Factors affecting Cropping Pattern
1 Own calculation based on RBI Hand book of Statistics
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 38
From the previous section it is observed that, it is changing cropping pattern towards high value
commodities from food grains that contributed to growth of agricultural sector in the initial phase
of reforms and when there is reduction in both area and yield and. But growth in the post WTO
period is turned out to be very disappointing. There are various factors explaining the growth
crisis such as Economic factors (input and output prices), Technological factors (improved seeds
and irrigation), and Institutional factors (market and road density and access to credit) Policy
induced factors (fertilizer and irrigation subsidy, procurement price and Trade liberalisation)). In
addition to these factors cropping pattern is determined by climate, rainfall, soil type, irrigation
and drainages. Changes cropping pattern takes place according to changing irrigation facilities,
cost of cultivation, and returns from the cultivation, credit and market facilities. Among various
factors irrigation facility is considered as significant factor in rising crop intensity and permits
changes in cropping pattern in favour of more productive crops. So cropping pattern is influenced
by both irrigation facility and rain fed area (Renuka 2003).
Economic factors
Economic factors played equal role in the growth of agriculture in the initial period of reforms and
deceleration of growth in the total growth due to very low remunerative prices for output in the
post WTO period. With the high remunerative prices for the commercial crops during late 80’s
and early 90’s the crop intensity of those high value products which resulted in the growth rate of
horticulture crops, mainly crops of non food grain in the pre globalisation period and same is the
cause for deceleration of growth in the food grains which are considered as less profitable crops
(table 2.2). On the other hand with the reduction of subsidies on fertilisers and other agricultural
inputs and with the entry of foreign players due to the opening up of boundaries among countries
domestic input market has taken a new shape in the production of seeds and inputs had also
affected on rising input prices. Growing reliability on commercial crops have adversely affected
whole peasant class due to the highly volatile output( because most of the commercial crops are
grown in rain fed area) and its prices with high input costs put farmers in distress. High cost of
cultivation of crops with very less remunerative prices for the produce has become a reason for the
slowdown of agricultural growth.
Technological factors
As it is already mentioned in the preceding section due to the reduction public investment the
investment on improving seeds has come down. Application of traditional inputs without proper
irrigation which is a significant source growth of output resulted in the decline in the production in
the post reform period.
Institutional factors
In India, the marketing conditions for agricultural produce were never good. If the farmers are not
aware of market signals about price and demand conditions, they cannot really reap produce the
demanded goods in the country and access to market also play a crucial role in agricultural output.
Another factor which affects agriculture significantly is credit. It has always been maintained that
the availability of concessional credit would help the farmer to adopt new technology, encourage
investment in machinery and irrigation and augment the use of quality inputs to increase
agricultural productivity. After trade openness in agriculture, with the entry of foreign nationals in
the input market, the prices of input have gone up which were not supported by ample credit
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
39
supply to the farmers. It is observed that there is cropping pattern shift towards cash crops which
need high investments on inputs like fertiliser, seeds and adoption of new and improved
technology etc. to compete in the world market. But Indian farmers are as it is already mentioned
small and marginal who cannot take any investment activity without financial support by the
credit institutions. In India accessibility of formal credit is very low and hence the new production
initiatives are shrinking which is also due to un-remunerative pricing. Finally, these factors
together contribute to the slowdown in agriculture.
Policy induced factors
The policies of the Government in the post-liberalisation phase have had direct and indirect
adverse effects on agriculture and the peasantry. Factors mainly affected by the policy initiatives
are fertiliser and other input subsidy, irrigation and procurement price and trade liberalisation.
Indian economy, before economic reforms was supporting farmers with enormous subsidies on
fertilisers and inputs, assisting peasant community to increase production capacity with low cost
of production. Advent of economic reforms has led to withdrawal of state support on these
subsidies and others. In a market led economy, providing subsidies to farmers is not feasible. The
withdrawal of subsidies in the post reform era has shown its impact on cost of cultivation of crops
and also reduction in yield. Another factor is price supports to the farmers. Peasant agriculture
depends heavily on the support of the state for its survival and growth. There was no proper price
support in terms of MSP by the government. It was argued by the proponents of liberalisation that
freeing agricultural markets and liberalising external trade in agricultural commodities would
provide price incentives leading to enhanced investment and output in that sector, while broader
trade liberalisation would shift inter-sectoral terms of trade in favour of agriculture (Gulati and
Kelli 1999). External trade in agricultural commodities have been liberalised, first through lifting
restrictions on exports of agricultural goods, and then by shifting from quantitative restrictions to
tariffs on imports of agricultural commodities. Trade liberalisation in agriculture accelerated from
the late 1990s, in tune with WTO commitments, and import tariffs were reduced progressively.
The single most adverse effect of trade liberalisation has been the combination of low prices and
output volatility for cash crops. While output volatility increased especially with new seeds and
other inputs, the prices of most non-foodgrain crops weakened, and some prices, such as those of
cotton and oilseeds, plummeted for prolonged periods (Pillai 2006). This reflected not only
domestic demand conditions but also the growing role played by international prices consequent
upon greater integration with world markets. Without ensuring remunerative prices backed by
procurement operations, it is not possible either to increase agricultural production or to make
Indian agriculture internationally competitive.
DIVERSE EXPLANATIONS IN THE LITERATURE: A SYNTHESIS
It has been observed that there are vast range of studies came up explaining the deceleration in the
growth performance in the agriculture in the recent years in which, some of them are cited above.
The fascinating issue is that, each study on poor performance of agriculture came out with diverse
reasons though there are some commonalities in the diversities. So it is essential to have a look at
it to know why so many interrelated factors are explained in each of the study and also to observe
whether all factors explained are equally important in analyzing crisis in agriculture. In the
literature, it is found that many studies have highlighted some common factors like reduction in
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 40
public investment, withdrawal of domestic subsidies and trade liberalisation. Giving central
importance to these three factors, many other interrelated factors are explained in the literature. In
this particular study focus has been made to understand how and in what context the explanations
are different from other studies. It is understood that as agrarian crisis is subject to multi
dimension issue, it is viewed in different dimensions with various methodologies to understand the
factors and thus it gave rise to different explanations of crisis. For instance, the studies on farmers
distress by Suri (2006), Mishra and Reddy (2008) Mishra (2008) Vakulabharanam (2005)
Vaidyanathan (2004) Galab and Reddy (2006) showed that heavy dependency on commercial
crops has led to increased cost of cultivation due to use of expensive seeds and fertilisers and
rising input prices which were not backed by favourable output pricing and credit facilities and
also depletion of natural resources and other natural factors. Studies on trade liberalisation by Rao
(2001) Gulati and Kelli (1999) attributed agricultural crisis to the volatile prices in the
international market and lack of competitiveness. Another study on economic liberalisation by
Vyas and Reddy (2001) and Vakulabharanam (2008) Balakrishnan et al (2008) Chand et al (2007)
argued that withdrawal of state intervention has resulted in decline in public investment and
domestic subsidies on irrigation, fertiliser and inputs. Having looked at the broad classification of
literature in terms of explanations, one can derive a conclusion that factors varied according the
dimension of the studies and its methodologies. Coming to the second point, whether all factors
play equal role in the deceleration of agricultural growth? The answer is no. having explained each
and every factor clearly it would be fair to argue that mainly policy induced factors such as price,
domestic support and credit plays important role in growth performance of agriculture. In addition
to this public investment also plays an important role but the trend showing that private investment
is continuously rising and gross investment is also increasing. Many argued that Agriculture has
become unviable in the post reform period. If it is so, there is no explanation as to why private
investment would keep on increasing unless there is a hope profit from the agricultural sector and
by looking at the trend in public investment it is observed that public investment started declining
right from the 80’s on the other hand there was increasing trend in growth in agriculture till mid
1990’s. from the we can derive that more than public investment, some factors play an important
role in agricultural crisis.
SUMMARY AND CONCLUSIONS
To conclude, this paper essentially tried to look into the growth performance of Indian agriculture
and explanations for dismal performance in agriculture by observing its sources of growth mainly
area, yield and cropping pattern in the recent years and tried to explore what mainly contributed
for slow growth by critically examining the literature.
While many arguments say that, during the era of neo liberal period the policies initiated were
acted against agriculture and negligence of agriculture, the growth rate in agriculture during the
first half of 1990’s was recorded better than pre reform period at 3.62 per cent during 1990-91 to
1996-97 from 3.2 per cent during 1980-81 to 1989-90. After agreement with WTO, growth in
agriculture has actually come down to less than 2 per cent. So, we could attribute the crisis in
agriculture to the policies that have come up after trade liberalisation.
Sources of growth of agriculture have been changing right from the independence. Area cultivated
both in term of net sown are and gross sown area has shown a decline in the post reform period
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
41
due to urbanisation, industrialisation and marginalization of land holdings which had an impact on
growth on agricultural production. Yield which played a significant role in the growth of
agriculture during 80’s due to spread effects of green revolution has come down during 90’s with
the advent of neo liberal policies due to reduction in public investment on irrigation and seeds,
technology and extension has greatly affected yield. The engine of agricultural output during post
reform period is cropping pattern. It is observed that, there is a shift in cropping pattern towards
from food grains to commercial crops due to favourable prices and terms of trade but these factors
turned negative which had significant effect on growth of agriculture.
There are number factors contributed for the slowdown in growth of agriculture in addition to
reduction in public investment. Volatile output prices, reduction of subsidies on inputs,
dependency on high cost inputs increased cost of cultivation which was not backed by adequate
credit supply on the one hand and on the other hand crop failures and faulty remunerative prices
affected whole peasant community and pushed them into debts. The NSS 59th round Survey on
Indebtedness of Farmer Households conducted in 2003 reported that 48.6% of farmer households
were indebted.
Finally, all sectors in agriculture and sections among the peasantry are affected by the deepening
agrarian crisis. The poorer sections among the peasantry, especially the small and marginal
farmers and the agricultural labourers, who constitute the vast majority of the Indian population,
are the worst sufferers.
____________________________
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JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 44
APPLICATION OF TRAVEL COST METHOD TO ASSESS THE PRICING
POLICY OF PUBLIC PARKS: THE CASE OF KAZIRANGA NATIONAL PARK
Abinash Bharali1 and Ritwik Mazumder
2
National parks are established to preserve wildlife or biodiversity. But conservation often
displaces local communities and has the potential of raising their distress levels. “Ecotourism”
helps in the conservation of natural resources or services and raises the standards of living of the
local people. But unregulated tourism creates problems in preservation of the wildlife of public
parks especially in developing countries. In recent years Kaziranga National Park has faced these
problems and the park authority may possibly use revenue maximizing entry fee as an effective
instrument. In this study the Zonal Travel Cost method is used to estimate the revenue
maximization entry fee. The study is based on primary data collected from 300 visitors during the
winter of 2010-11. The total recreational value of the park is estimated at ` 773.45 million.
Revenue maximization entry is estimated at ` 187.6 per visitor per visit assuming zero entry fees.
By introducing this revenue maximization entry fee the park authority can ease the tourist
pressure to a certain extent. The additional revenues may be used for conservation of the wildlife
and biodiversity. By conducting well-crafted publicity campaign for other parks and sanctuaries
in Assam it is possible to divert a large chunk of visitors towards other national parks. This would
generate additional funds that can be directed towards the preservation of the wildlife and
biodiversity.
INTRODUCTION
National parks and Sanctuaries are established and developed to preserve the unique wildlife or
biodiversity of the local areas. But these efforts often displace the local communities and make
them poorer. For this purpose various efforts were made including legislations to minimize the
human interference in these areas. But these efforts did not prove to be as effective as they were
expected to be. This necessitated the development of novel strategies like “Ecotourism” which has
the potentiality of integrating the conservation of natural resources or services with the
development of the local people. But in some cases unregulated tourism creates various problems
in the preservation of the wildlife of the public parks especially in the developing countries.
Market also fails or the market misprices or under-prices these resources because these are
characterized by non-excludability and externalities, which prevents the market price from
capturing the correct signals about the true economic value. In an economy, the resources are
allocated according to the value of the assets. Without proper estimation of value, resources are
bound to be misallocated. To estimate the true economic value of the public parks non-market
valuation methods are appropriate.
Kaziranga National Park is the home land of Indian one-horned rhinoceros along with many other
species. It is located on the banks of the mighty Brahmaputra River, Assam covering an area of
approximately 430 square kilometers (sq-km). There are proposals of adding an area of 454.50 sq-
1 Research Scholar, Department of Economics, Assam University, Silchar, Assam-788011, India, Email:
[email protected], 09435269117
2 Corresponding Author: Assistant Professor, Department of Economics, Assam University, Silchar, Assam-
788011, India, Email: [email protected] , 09435073899
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
45
km by including the Brahmaputra River in the north and part of the Miker Hills in the south. With
the passing of the Assam National Park Act of 1968, Kaziranga became a National Park on
January 01, 1971. In 1985 it was notified as World Heritage Site by UNESCO. Kaziranga
National park is not kept open for tourists for the entire part of a year. Its visiting season is mid-
November to early April as because during monsoons, the Brahmaputra River overflows, flooding
the low-lying grasslands of the park. In 2010, there were 497 employees providing services for
the preservation of wildlife in Kaziranga National Park. It is too small staff strength as compared
to the area of the park. The forest guards are not well equipped with arms and moreover they do
not get their wages/salaries regularly. In 2011 many of the home guards who were temporarily
appointed as forest guards left their jobs because they were not paid their salaries for five to six
months in succession.
Tourists come from various part of the world for viewing the unique wildlife and biodiversity of
the national park. In 2005-06 the total tourists flow was 54,326, which increased to 109,606 in
2009-10. On an average 5 percent of the tourists are foreigners. The Kaziranga National Park
(KNP) has been suffering from over-exposure in recent years. In the southern part of the
Kaziranga National Park, almost seventy private and public hotels and lodges (there are only four
Government lodges) have been constructed providing hospitality services to the visitors. However
most of the hotels and lodges are not owned by the local people. The haphazard growth of tourism
related infrastructure, especially unchecked expansion of tourism and hospitality industry on the
southern boundary of the park, is blocking traditional animal corridors. The 54 km stretch of the
National Highway 37 running parallel to the southern boundary of the Kaziranga, divides the park
between the low-lying grasslands in the north and the elevated Karbi Anglong hills in the south.
During rainy season when much of the park is flooded by the Brahmaputra the animals migrate
from the low lying grasslands to the hills using these corridors by crossing National Highway 37.
Many wild animals are killed by vehicles every year while attempting to cross the highway. There
are 23 villages surrounding the park along with four tea gardens. Another 30 villages are located
in the vicinity. The total human population in the immediate surroundings of the park is about
70,000 according to the 2001 census report. The tea gardens located near the park boundaries also
create a threat to the preservation of wild life through pesticide run-off. Hathikuli Tea Estate is a
typical example. During the last 50 years large scale habitat changes in the Karbi plateau include
expansion of tea gardens, human settlement, logging and jhum (shifting agriculture) cultivation.
One impact is that the gap between the park and the plateau is increasing and suitable habitat of
wildlife is being destroyed. In 2010, altogether 68 rhinos, 11 elephants and 5 tigers had died in the
park due to various reasons such as disease, poaching, unregulated tourism infrastructure
expansion, road mishaps, floods, encroachment by tea gardens, shifting cultivation, rising human
settlements and so on.
Unregulated tourism industry in the park has created several problems in pursuing the main
objectives of establishment of KNP – namely conservation of biodiversity. Four National Parks
and nine Sanctuaries have been established in Assam to preserve wildlife and biodiversity of the
region. But the tourist inflow pressure is much higher in KNP as compared to the other National
Parks and Sanctuaries in Assam. The tourist inflow data of the last two years shows that more than
0.1 million visitors visit KNP per year, but in the other parks and sanctuaries the tourists inflow
pressure is less than even 0.05 million per annum. The focus of government and other
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 46
organizations should remain on the core aspect of the establishment of the park (to keep KNP as a
safe haven for wild-life) and not on pure commercial aspects like hotel construction to
accommodate more tourists. Thus there is an urgent need for a strategic shift of policy on the part
of the Tourism and Forest departments so that a segment of the tourist inflow can be diverted
towards other parks and sanctuaries to lessen the pressure on KNP. The main objective of this
paper is to examine the role of entry fee in pursuing the prime objective of the establishment of the
park.
Since the 1970s and the 1980s a large number studies have been devoted to developing the
literature on non-market valuation methods and its applications in various fields of environmental
economics studies, especially in valuing environmental goods and services besides environmental
damages and hazards. To measure the recreational value of environmental resources and services
both Travel Cost Method (Rockel and Kealy, 1991; Guha and Ghosh, 2009; Khan, 2004,
Chaudhary and Tewari, 2008; Chopra, 2004) and Contingent Valuation Method (Bowker and
Stoll, 1988; Marawila and Thibbotuwawa, 2010; Cook and Cable, 1990, Kadekodi, 2004) have
been used. On the other hand some studies have used both methods simultaneously to estimate the
monetary value of the same environmental resources (Navrud and Mungatana, 2004; Herath and
Kennedy, 2004; Jabarin and Damhoureyeh, 2006; Chaudhary and Tewari, 2006) and compare the
estimates of these two different methods.
METHODOLOGY FOR ZONAL TRAVEL COST METHOD (ZTCM)
The travel cost model is generally used to estimate the recreational value or use value of
environmental resources, amenity or services. The ZTCM can be applied to the recreational sites
which receive few multiple visits by the same visitor (Tobias and Mendelsohn, 1991; Guha and
Ghosh, 2009). Most of the visitors visit the Kaziranga National Park once in a year or two or three
times during his whole life time, so in this study ZTCM is used. The demand function or Trip-
Generating Function (TGF) which will be estimated in this study can be written as
………………… (1)
where, Visitation rate of i-th zone, which can be calculated by
= Estimated number of visitors of the zone i
= Total population of the zone i
= Average Total Cost of the trip which includes the total travel cost from the place of origin or
the i-th zone to the Kaziranga National Park (KNP), cost of fooding and lodging, other
miscellaneous expenditure.
= Average House Hold Income of visitors of zone i
= Average Age in Years of visitors of zone i
When the total travel cost is calculated in the ZTCM, the opportunity cost of travel time and the
on-site time spent is excluded because the opportunity cost of travel time can be valued at a
fraction (usually between ½ and ¼) of the wage rate [Becker (1965), Cesario (1976)] but the
surveys provide data on household income rather than the hourly wage rate of the visitor; inferring
wage rates by dividing household income by some estimate of hours worked will introduce
measurement error (Freeman, 1993). This can be estimated only for the fixed worked hour’s
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
47
labors. And according to McConnell (1992), the inclusion of on-site time create problems, as
spending more time at a site should enhance the value of the visit, while simultaneously increasing
the (time) cost. This dual role of on-site time creates a problem for travel cost demand estimation
and therefore various researchers advocate to exclude this time cost (Ward and Beal, 2000;
Whitten and Bennett 2002) from the demand model. In many studies the duration of stay of
different visitors in the site is taken as independent variable because this variable greatly affects
the travel costs of the visitors. But in this study we do not consider it as an independent variable
because 86% of the total sample visitors stay one day in the Kaziranga National park.
The consumer surplus (CS) is the difference between the estimated demand prices and the actual
expenses that the visitor incurs during the whole trip. The aggregate consumer surplus has to be
estimated with the help of the estimated TGF. The TGF takes the form as follows for zone ‘j’
……………………….. (2)
( Assuming )
Or, ………………………………(3)
To estimate the aggregate surplus at first consumer surplus for each zone has to be estimated. For
this purpose, a ‘choke price’ which represents that maximum value of travel cost for which
estimated visitation rate falls to zero can be calculated for each zone using the estimated TGF or
using equation (3). Then the consumer surplus (per 100,000 population) is estimated for zone j as
follows:
The total recreational value of the Kaziranga National Park is measured by summing the total
consumer surplus and the total actual expenses of the visitors on this trip that is the whole area
under the demand curve for visits to the park.
SURVEY DESIGN AND SAMPLING
In this study, both primary and secondary data are used to estimate the value of the park.
Information was collected in three distinct sets. In the Kaziranga National Park, every
visitor/group must produce their entry permits at the checkpoints. These permits contain
information on number of visitors and their respective places of origin (addresses). Firstly the
study uses this secondary data for all visitors of the month of January (2011). This part of the year
is chosen as because it is the peak tourist season for visiting the park. The zonal distribution of the
tourists for this particular period is shown in Table 1. It is assumed that this zonal distribution of
visitors is applicable during the entire year. Using this zonal distribution of tourists all visitors are
divided into 8 zones. The second data set was collected from the Census report, 2001 of India and
it comprises of zonal population of different zones that are assumed in the study.
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 48
The third set of data is primary data which comprises of travel cost and other individual household
level information obtained by interviewing a sample of 230 visitors. The survey for this purpose
was conducted simultaneously during the same period. Sampling is a critical issue here as because
tourist’s visitation rate is a flow concept. Moreover there is no certainty regarding the period
during which the park can be kept open for visitors because of the occurrence of frequent floods in
the region. While some researchers have used stratified sampling from total population (Choe,
1996), others prefer random sampling from user group only (Farber, 1988). In order to estimate
the total universe of visitors, visitors entry records in the last three years (i.e., from 2007-08 to
2009-10) were used and it was found that on an average 255 tourists visited the park per day
during the peak season. In the present paper, 300 visitors were selected randomly and interviewed
after their visitation using a well structured pretested survey schedule. A single respondent from
each visiting group or family was chosen for interview. This is just 4% of the average total tourist
flow to the park in a particular winter month (Jan, 2011) during the last three years.
Table 1
Zonal Distribution of the Visitors of the Park Sl
No Place of Origin of the Visitors or Zones
No of
Visitors Percentage
1 Upper Assam (Composition of Tinsukia, Dibrugarh, Sivasagar, Dhemaji, Lakhimpur and Jorhat districts)
2095 22.29%
2 Middle Assam (Composition of Golaghat, Sonitpur, Karbi
Anglong, Nagaon, Marigaon districts) 2708 28.8%
3 Lower Assam (Composition of Darrang, Kamrup, Nalbari,
Barpeta, Bongaigaon, Goalpara, Kokrajhar, Dhubri, Kamrup Metropolitan, Baksa, Udalguri and Chirang districts)
1520 16.17%
4 South Assam (Composition of North Cachar Hills, Cachar,
Hailakandi and Karganj districts) 19 0.2%
5 Other North Eastern States Excluding Assam 268 2.85%
6 West Bengal 1772 18.85%
7 Other States of India Excluding West Bengal and NER states 681 7.24%
8 Other Countries of the World Excluding India 337 3.58%
Total 9400
Source: Forest Department, KNP, 2011
RESULTS
The OLS regression is used to estimate the trip generating function (TGF) in this study. At first in
the TGF various socio-economic variables of the visitors (such as average household income,
average travel cost, average age, educational level, sex family size) are taken as independent
variables, but all these variables are not significant. In the final regression model only those
variables are kept which are significant.
Generally in ZTCM, that functional form is used which gives the most suitable results and here
experiments with different alternative forms have been carried out and found that a double-log
between visitation rate and travel cost as the most suitable to estimate the TGF. The estimates of
three different models are shown in the Table 2. The TGF takes the following form
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
49
From this equation it can be easily concluded that there is an inverse relationship between the
travel costs of a particular trip and visitation rate (VR), which reflects the law of demand. It also
reflects that average household income of the visitors positively affects the VR and average age
negatively affects it.
Table 2
The OLS Estimation of the TGF Linear Model Log Linear Model Double Log Model Variables
Coefficient t-value Coefficient t-value Coefficient t-value
Constant 16713.0724 5.1223* 24.7186 4.553* 30.3701 30.993*
In TC 0.0212 0.3432 -0.0000246 -0.2387 -2.3208 -11.5069*
HHI -0.0209 -0.6942 -0.0000195 -.3896 0.0000197 4.2769*
AGE -336.1971 -4.8097* -0.4047 -3.4794 -0.1466 -4.8969*
0.87 0.88 0.99
F 9.69 10.28 389.19
Note: *significant at 1% level of significance
Source: Authors’ calculations.
CONSUMER SURPLUS ESTIMATION
The estimated consumer surplus for the different eight zones is shown in the table 3 and sum of
these surpluses is considered as the value of the recreational services of the Kaziranga National
Park by the visitors of the park. The total consumer surplus is estimated to be ` 2.79 million and
this estimate signifies the value of the benefits that the visitors derived from visiting the park. This
surplus also indicates the amount that the visitors are willing to pay over their actual cost to
participate in the recreational activities of the National Park. By summing up the total consumer
surplus and the total actual travel cost of visit, the total recreational value of the park can be
estimated. The total recreational value of the Kaziranga National Park (shown in Table 3) is found
` 773.451 million.
Table 3
Estimation of Consumer Surplus and Recreational Value
Sl. No Zones Consumer Surplus (in `̀̀̀ millions)
Total Recreational Value (in `̀̀̀ millions)
1 Upper Assam 0.637786 61.047
2 Lower Assam 0.927478 78.9
3 Middle Assam 1.06047 33.75
4 South Assam 0.001076 0.849
5 NER States excluding Assam 0.03259 10.787
6 West Bengal 0.111759 165.127
7 Other States of India 0.011233 110.594
8 Foreigners 0.00902 312.397
Total 2.7914 773.451
Source: Same as Table 2.
REVENUE MAXIMIZATION ENTRY FEE ESTIMATION
The park authority of KNP introduced two different types of entry fees for visiting the park at
present and authority collect ` 20.00 from the Indian visitors and from the foreigners ` 250.00. By
introducing these two different levels of entry fee the authority collects ` 3.18 million revenues in
2010-2011, which is suboptimal because the visitor’s willingness to pay is much more than their
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 50
actual expenses. With the help of the Travel Cost Method, it is possible to estimate an entry fee for
the Park that can maximize revenue collection for the authority. By changing the per capita travel
cost (representing equal changes in entry fee) in the TGF, we get sets of estimated number of
visitors corresponding to different entry fees and this generates a demand curve. At the middle
point of the demand curve the revenue is maximum. The estimated number of visitors against
various entry fee levels is shown in the Figure 1 assuming that the park authorities have not
introduced any entry fees for visiting the park at present. It is thus found that ` 187.6 per visitor
per day can be increased by the park authorities over and above the current level of entry fee to
maximize the revenue collection. By introducing these new levels of entry fees the authority can
collect ` 24.3 million as revenue which is far higher than the current level of revenue collection.
This additional amount of revenue can be used for the preservation activities of the unique wild
life of the park especially by technological up-gradation and by recruitment of skilled scientists,
ecologists and animal experts. Finally it is evident from the demand schedule that by increasing
the entry fee to the extent mentioned the tourists flow pressure to the park can be reduced to 0.06
million.
Figure 1
Estimation of Revenue Maximization Entry Fee for KNP
Source: Author’s Calculation
CONCLUSIONS
Kaziranga National Park is an eco-tourism destination in the North-East. Keeping in view the
large amount of consumer surplus and the recreational value of the park, the Union Government
and the State Government of Assam should allocate large budgetary resources for the preservation
of the park. By introducing the revenue maximizing entry fee on the visitors of, the park
Journal of Regional Development and Planning, Vol. 1, No. 1, 2012
51
authorities can solve two major problems relating to the park, that is, lack of funds and tourist
inflow pressure. Now, as mentioned in the introductory section the bulk of tourists interested in
wild-life tourism, mainly visit Kaziranga but not other national parks and sanctuaries in Assam.
The other parks and sanctuaries also have their unique wildlife and biodiversity, but these are not
famous among the tourists because of their dearth of knowledge which in turn is due to lack of
publicity. If a well-crafted publicity campaign is conducted for the promotion of these other parks
and sanctuaries, besides introducing the revenue maximization entry fee in Kaziranga, then a large
chunk of visitors would be forced to think beyond Kaziranga and visit other parks and sanctuaries
of Assam. If the Government is successful in doing this, it can generate additional funds that may
be utilized for the preservation of wildlife and biodiversity of not only KNP but other national
parks and sanctuaries of Assam as well. Thus, in final conclusion this paper suggests that the
Government should develop scientifically sound management policy for the preservation of the
park and for this very purpose an optimum level of entry fee should be imposed on the visitors of
the park.
__________________________________
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BOOK REVIEW
Development, Displacement and Disparity: India in the last quarter of the twentieth
century; Ed: Nirmala Banerjee and Sugata Marjit; Orient Blackswan, 2005; 317
pages; Price: `̀̀̀ 545.00
The volume under review is a collection of essays on issues related to regional and interpersonal
disparity in India, a topic that is both important and contemporary. The book has three sections –
first section explores theoretical issues related to regional disparities, second section deals with
issues related to interpersonal disparities, and the third section discusses inequalities emerging in
the last two decades out of the structural adjustment program.
The first paper of the first section by Amiya Bagchi provides a historical context on the concepts
of inequality and disparity. While he accepts that inequality is a moral concept, he argues that
ownership of productive assets has been instrumental in creating inequality in the modern world.
According to him, the caste system has been the root cause of inegalitarian society in India and the
affirmative action provide by the constitution have not succeeded to bridge the chasm.
The second paper by Sanjoy Chakravorty explores the issue of theoretical proposition to explain
or predict regional disparities, past and present. Discussing Jeffrey Williamson’s inverted-U
theory, Solow’s model of convergence, Myrdal’s arguments and the Latin American models of
centre-periphery relations, Chakravorty contends that the state in developing countries has never
seriously pursued the objective of balanced regional development. Bringing in a historical
perspective the author narrates the course of regional disparities in the colonial and the nationalist
periods and predicts that the current globalization trends will aggravate interregional disparities.
The third paper by Santanu Gupta examines the conflict between policies that promote equity and
those that encourage efficiency from welfare economy perspective. While egalitarianism should
spread public investment across space evenly, efficiency considerations would require public
investments to be chanellised to areas and activities that provide the highest returns. Gupta argues
that the amount as also the method of devolution of funds by successive Finance Commissions in
India have had significant impact on regional disparity.
The last paper of first section by Rongili Biswas and Sugata Marjit also deals with devolution of
funds from the Centre to the states under discretionary grants. They argue that direction and
amount of these grants are mostly determined by political considerations and influence, rather than
economic ones. Using a ‘Lobbying Index’ for the period 1974-94, they show that actual devolution
of discretionary funds is fairly well related to the lobbying index.
The second section has two papers, starting with a paper by Martreesh Ghatak exploring the issue
of delivery of public goods, especially to the poor. Arguing that governmental institutions have
not succeeded in this task, Ghatak justifies emergence of Non-Governmental Organizations
(NGOs) in this field. A theory for understanding the role of NGOs in provision of public goods
has been developed using various case studies.
The second paper is by Abhijit Banerjee explaining the pattern of industrialization in the
developing countries. Banerjee argues that location of new industrial units in developing world do
not follow the standard locational theories and hence he develops various topologies of industrial
development. Notable among them are the Saving-Driven Industrialisation or SDIs, and the
JOURNAL OF REGIONAL DEVELOPMENT AND PLANNING 54
Savings-Constrained Industrialisation or SCIs. Banerjee provides various examples of community
based neo-industrialisation dirves from India and China and contends that these efforts would be
more efficient if the entrepreneur is an insider and can effectively tap the strengths of the
community.
The third section on post-reform inequalities begins with a paper by Subhash Ray and Kankana
Mukherjee on the impact of ‘Surplus Labour’ on the efficiency of production in Indian industries
between 1986-87 and 1999-2000. They argue that there is a common perception that industrial
productivity in India has been historically low because employment and efficiency never went
together and the reforms were meant to correct this incongruence and promote efficiency in the
industrial sector. Using Data Envelopment Analysis the authors argue that ‘Input Congestion’ due
to production workers has adversely affected productivity in Indian industries. They also infer that
output-oriented technical efficiency has declined and the problem of labour input congestion has
increased after the reforms.
The second paper of this section by Buddhadab Ghosh and Prabir De prepares a infrastructure
development index (IDI) from several components of economic and social using Principal
Component Analysis. To solve the problem of heterogeneity due to varied units of the components
where changes in units may lead to greater value of indices, Ghosh and De have divided the
original values of the individual variables by their Standard Deviation. This, however, makes the
Variance of all the transformed variables equal to unity, thereby loosing their individual
variability. The authors infer that hierarchy of the states remained more or less unchanged over
1971–1981, changing only marginally by 1991. The importance of social infrastructure is
underlined from the good performance of Kerala in terms of PCNSDP. The relation between IDI
and PCNSDP seems to be non-linear.
The third paper is by Abhirup Sarkar and Sukanta Bhattacharya on the effect of trade in foodgrains
on industrial employment, poverty and balance of payments using a two-sector macroeconomic
model and incorporating the fact that land reforms in India have been uneven across regions. They
infer that greater exports of foodgrains would increase the price of food, bring down real income
of an average worker, may raise industrial employment and output subject to the condition that
mid-sized farms cover a large portion of farmland.
The last paper by Saikat Sinha Roy explores the dissimilarity between global trade pattern and
India’s export performance. This is an important issue as any dichotomy between India’s export
pattern and the global consumption trends will hinder India’s export growth. Sinha Roy argues
that growth in exports as seen in the post-reform period is not sustainable because of such
contradiction. He recommends diversification of exports, investment in dynamic export-oriented
sectors, and transformation of the export basket towards high-technology and more value-added
items for future growth of exports.
Overall, this book is an important addition to the library of researchers working on regional issues.
Tanushree De