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India’s Competitiveness and Economic Cooperation between Korea and India in Agriculture agricultural policy, industrial policy

Author Soon-Cheul Lee, Yong Joon Jang, Yoon Jung Choi, and Wonbin Park Series 22-04 Language Korean Date 2022.12.30

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India is one of the top five economies and the biggest agricultural producer in the world. Using the second largest arable land after the United States, India produces corn, cotton, peanuts, curry and spices, fresh fruit and vegetables, and sugar as well as crops such as wheat, rice, and beans at scale. Recently, the Indian government’s active investment policies induce large investments in agriculture and thereby great potential for economic growth. At the same time, India has strict non-tariff measures and strengthens conformity assessment procedures in agriculture.

Korea has the trade surplus with India in non-agriculture sectors, but the trade deficit in agriculture. Recently, Korea seizes a chance to enter into the Indian food market due to the global popularity of K-food. In addition, recent events such as global climate change and the war in Ukraine evoke the importance of food security and thereby the need for ensuring and diversifying a stable food supply. However, little is known about competitiveness, potential, limitations, and challenges for India’s agriculture because no research has dealt with them in Korea. 

This study attempts to fill this gap by exploring competitiveness of India’s agriculture and providing policy implications for economic cooperation between Korea and India. In Sections 2 and 3, focusing on India’s domestic market competitiveness in agriculture, we adopted various quantitative methodologies to measure agricultural production, global presence, related policies, and competition level. In addition, considering the importance of productivity and efficiency for agricultural competitiveness, we measured them at firm level. Consequently, we presented opportunities and challenges for Korean exporters by providing a case study of overseas cooperation at firm level as well as performing the SWOT analysis for India’s agriculture. For this, we adopted the DEA analysis and interviewed local experts.

In Sections 4 and 5, we focused on the level of international cooperation in India’s agriculture by analyzing the current trend of trade, overseas activities, and related policies and presented implications for Korean firms’ entering into India’s market. In Section 6, we examined protectionism in India’s agriculture by analyzing TBT and SPS which are main factors of non-tariff measures and suggested solutions.

Accordingly, this study showed a vision for co-prosperity of Korea and India in agriculture and provided key challenges and strategies to realize it. In specific, we suggested practical tasks for economic cooperation in public and private sectors, respectively.

Main findings of this study are as follows.

In Section 2, we found that India’s competitiveness and opportunities in agricultural production are the world-class level. India has the second largest arable land after the United States and the largest number of rural population in large national territory and population. India is the third greatest producer after China and the United States in crops and the second greatest producer after China in vegetables, fruits, potatoes, and onions. India’s productions of livestock and dairy rank in the top 10 of the world. In specific, India produces garden products, livestock, and marine products as well as food and non-food products at large scale.

The empirical results from the Porter’s Diamond model also showed that India’s market competitiveness in agriculture is the second highest in the world, The potential for India’s agriculture is enlarging with 1.4 billion including many young people, their future demand for processed foods, and improvements in supply chains, infrastructures, and global outsourcing. Recently, the Indian government actively adopts various policies for productivity, land management, price compensation for agricultural products, modernization of agriculture, reform for policy and governance, and construction of value chains and infrastructures. Accordingly, these policies are expected to develop India’s agriculture much more. 

However, a portion of agriculture in the whole economy is decreasing and its investment is lower than other sectors despite such high potential for growth and competitiveness. We recognized that India still has many policy issues and challenges for driving agricultural growth.   

In Section 3, we found that Indian agricultural firms leave room for improvement, but at the same time, have many opportunities for growth. The results from the financial analysis for Indian agricultural firms showed that both corporalization and exports are not enough for their aggregate scale. Efficiency of Indian agricultural firms is low in general: the crop industry are somewhat improved, while livestock, seed, and processed food industries are steady and forestry become worse. In general, the efficiency for technological progress is improved, but low levels of net efficiency and scale efficiency decrease aggregate productivity. The SWOT analysis showed that competitiveness of Indian agriculture comes from abundant law materials, abundant and inexpensive labor force, and massive market size, while its weakness comes from complex regulations, low quality, and low productivity. One encouraging fact is that recently K-wave induces the advancement of Korean confectionery and noodle industries in Indian market. 

In Section 4, we reconfirmed that India has the world-class competitiveness in agricultural export. In particular, marine products, rice, spice, buffalo, and meat lead up the growth in export. The Indian government adopts overseas export bases, an export promotion forum, and a profile system for agricultural products to encourage exports. India encourages foreign investment, but offers the different degree of market openness and conditions by items. In particular, India has tighter constraints on retails of multi-brand products. India pursued international cooperation in agriculture through technological cooperation and FTA, and currently works together with FAO and WFP. However, India’s cooperation with Korea remains minimal. Accordingly, both countries require greater efforts to collaborate and thereby utilize great potentials in Indian agriculture.

In Section 5, we found that India has strong protectionism with various non-tariff measures in agriculture. India adopts TBT and SPS to secure human health and safety, protect consumer right, and provide product information in agriculture. Recently, the issue for environmental production is on the rise, especially in processed food, dairy cream, beverage, fruit, and nuts. The theoretical and empirical results for the effects of TBT and SPS on international trade in India during the 1995-2020 period showed that India’s non-tariff measures negatively affect other countries’ exports to India and these effects are heterogeneous across exporting countries’ income level. By period, the negative effects persist for five years from first adoptions of non-tariff measures.

In conclusion, we confirmed that Indian agriculture has high competitiveness and potentials in its production and market size and thereby expect that cooperation between Korea and India will yield great benefit to each other. In particular, India has sufficient production capacities to supply major crops and thereby Korean processed food companies can stably import necessary agricultural raw materials. We conclude that India is suitable for a major partner of food security for Korea. However, a weak spot for Indian agriculture is lacks of productivity, efficiency, and globalization. We assure that India will be a significant sourcing country in agriculture for Korea if these weaknesses can be improved. 

For this, we suggested objectives, strategies, and policy implications for co-prosperity of Korea and India in agriculture. First of all, we set up the main objective of agricultural cooperation between Korea and India to be ‘Economic Cooperation of Co-prosperity to utilize Comparative Advantage of Agricultural Competitiveness’ and the major tasks to be ‘Improvements of Productivity and Efficiency’, ‘Reduction of Transaction Cost’, and ‘Activation of International Cooperation and Globalization’.

To make India’s massive agricultural products be a sourcing hub, we selected necessary items for food security to Korea and for domestic and overseas market expansion to India. For these items, we included food, non-food crops, and livestock products under the objective of making a massive market hub. To realize it, we draw up detailed plans, focusing on overseas advancement of private sectors  to promote international trade and investments to India.

We suggested directions and challenges for agricultural cooperation between Korea and India in the public sector, the private sector, and international cooperation, respectively. For the public sector, we suggested to (1) designate India a strategic cooperative country in agriculture and (2) operate a working force for agricultural development and cooperation between Korea and India. For the international cooperation, we suggested to (1) promote agricultural cooperation through a revision of the Korea-India CEPA, (2) collaborate with the ODA program to India, and (3) join various activities for international regulatory cooperation. Finally, for the private sector, we suggested to contrive a strategy for (1) promoting overseas advancement of private companies and (2) strengthening participation and capacity of the private sector.

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