63

Chapter 3

Research Methodology

PLAN AND PROCEDURE

The present work aims at studying the impact of W.T.O. on agriculture

exports in India. It is essential on the part of a researcher to make a blue-print of

the entire gamut of his investigation before actually taking it up. This exercise

helps in ensuring success of a venture without much difficulty. Moreover, having

complete initial planning, there are less chances of being biased in investigations.

While considering the nature of problem in hand, the following steps were chalked

out:

1. Research Methodology

2. Objectives & Hypothesis

3. Scope

4. Collection of data

5. Statistical techniques of analyzing the data

6. Planning of Chapters

7. Limitations of the study

1. RESEARCH METHODOLOGY

Though various methods of research are available for the data collection but the

final decision about the choice of a method depends upon the nature of the problem

selected and the kind of data necessary for its objectives. Generally, the following

methods are used in the field of research:

Exploratory Research:

In Exploratory Research, the focus is on the discovery of ideas. Exploratory

64

Research seeks to develop insights and to provide direction for any future research.

Exploratory research is done for formulating a problem for more precise

investigation or of developing the working hypothesis from an operational point of

view.

Flexibility and creativity characterize exploratory research study since the

aim of its investigation is to find new hypotheses. Hence, formal design is rare in

this type of research and much is left to the creative imagination of the market

researchers. He could conduct a study of secondary sources of information or get

views from the experts or resort to case study analysis. Market researchers exercise

their individual initiative in spotting and following leads in an organized way.

Descriptive Research:

Descriptive studies are undertaken in many circumstances. When the

researcher is interested in knowing the characteristics of certain groups such as

age, sex, education level occupation or income. The objective of such a study is to

answer what, who, when, where and how of the subject under investigation.

Descriptive can be divided in two categories – cross sectional and longitudinal.

The purpose and nature of descriptive research is quite different from that

of exploratory research. Many descriptive studies are made with only hazy

objectives and with inadequate planning. Much of the data collected in such studies

turns out to be useless. Descriptive studies of this type are actually more of

exploratory type. Effective descriptive research is marked by a clear statement of

the decision problem, specific research objectives and detailed information needs.

The research design should be fairly structured. Since the purpose is to provide

information regarding specific questions or hypothesis, the research must be

designed to ensure accuracy of the findings. Since descriptive studies may cost

65

huge amount of money to carry out, there is then this necessity of its formal

design.

Experimental Research

Experimental studies also known as Hypothesis Testing Research studies

are those where the researcher tests the hypothesis of casual relationships between

variables. Casual design investigates the cause and effect relationship between two

or more variables. Suppose a manufacturer has sold his product at two points of

time t1 and t2. The sale in t2 is much higher than that is in the previous year. During

the year the firm has also launched an advertising campaign for its product. The

manufacturer is interested in knowing whether advertising has caused the increased

in sales in the year t2.

Such studies require procedures that will not only reduce bias and increase

reliability, but will permit drawing inferences about causality. Usually experiments

meet this requirement.

Case Study:

Although this method has long since attracted skepties ire because of its

non-scientific nature, it is making a comeback. It involves the comprehensive study

of one of a few specific situations and particularly the study of complex situations

in which interrelations of several individuals are important. A situation is called a

case.

The design of a research project is the plant that ties the data to the

conclusions that will be drawn. This method is based on finding the differences

and the similarities so as to find the answers. Case research is not a quantitative

exercise but is used to enhance understanding. It requires a rare combination of

judgement to select cases and insight in interpreting them. Its strong points are

66

holistic orientation, real life situation, i.e. in case study method inferences are

made on the entire picture and not some of its parts; all the people actually

concerned with the problem are contracted and data is obtained informally as well.

The nature of present research is descriptive. It describes the impact of

World Trade Organization and Agreement of Agriculture upon Indian agriculture

on various dimensions, describes the policy implications and also describes the

initiatives should be taken to improve the position of Indian agricultural trade.

2. OBJECTIVES OF THE STUDY

The specific objectives of this study are as under:

(i) To study the patterns of world trade in agricultural commodities and

compare the relative performance of agricultural trade of developed,

developing and least developed countries.

(ii) To study the export performance of Indian agriculture in WTO era.

(iii) To work out the product specific support, non-product specific support and

aggregate measurement of support for Indian agriculture.

(iv) To study the export competitiveness of India’s major agriculture

commodities in the emerging liberalized farm trade order.

(v) To study the implications of TRIPS and SPS measures for Indian

agriculture.

(vi) To identify problems of agriculture exports and to design suitable policy

measures for enhancing India’s agricultural exports.

67

HYPOTHESES OF THE STUDY

The following hypotheses have been taken for the present study.

(i) AOA of the WTO has enhanced world trade in agriculture.

(ii) Indian agriculture is highly subsidized.

(iii) AOA of the WTO obligates India to abolish its agricultural supports

and protective measures.

(iv) Indian agriculture cannot survive in a free import regime.

(v) TRIPS regime will jeopardize the accessibility of good quality seeds for

Indian farmers.

(vi) SPS measures are hurdles in the way India's agricultural exports.

3. SCOPE

This study covers the activities related to Indian agricultural trade

particularly from 1990 to 2009. The import and export related data is focused to

describe the impact of World Trade Organization’s Agreement on Agriculture

(AoA) on Indian agriculture trade. The performance parameters related to

agricultural trade are used to describe the impact of AoA upon Indian agriculture.

The secondary data is taken in relation to world trade in agriculture in terms of

WTO phases, import and export growth rates, import and export items, and the

impact of AoA’s provisions upon agricultural trade activities.

68

4. DATA COLLECTION

The present study is based on the secondary sources of data. The main

sources of data are:

- Agricultural Statistics at a Glance: Various issues, Ministry of Agriculture

and Cooperation, Government of India, New Delhi

- Economic Survey, Ministry of Finance, Economic Division: Various

issues, Government of India, New Delhi

- Monthly Statistics of Foreign Trade: Various issues, Director General of

Commercial Intelligence and Statistics (DGCIS), Government of India,

Calcutta.

- Reports of the Commission for Agricultural Costs and Prices: Various

issues, Department of Agriculture and Cooperation, Directorate of

Economics and Statistics, Ministry of Agriculture, Government of India,

New Delhi.

- Centre for Monitoring Indian Economy (CMIE) publications.

- Handbook of Statistics on Indian Economy, Reserve Bank of India,

Mumbai.

- FAO Trade Year Book, Rome, Italy.

- International Financial Statistics Yearbook.

69

5. STATISTICAL TECHNIQUES OF ANALYSIS THE DATA

In order to sketch India’s economic growth and export performance,

the relevant time series data for the period 1985- 86 to 2006-2009 has been

taken from various issues of Economic Survey (since 1991 to 2009) and

Handbook of Statistics on the Indian economy (2008-09). In order to estimates

GDP and export performance of the Indian economy growth in GDP and

Export have been measured keeping in view the structural break, if any, in the

time series export data during 1991 and 1995 when economic reforms and

WTO Arrangements respectively came into existence. To analyze the collected

data, various mathematical, statistical and econometric techniques have been used

in the study. To work out the quantum of input, output and export subsidies; the

methods provided by AOA are used. For assessing the competitiveness of Indian

agriculture different types of measures and coefficients are used. To analyses the

impact of AOA on world trade in agriculture, and on India's agricultural trade

performance, we have adopted the regression equations as mentioned below:

Compound Growth Rate

To estimate the trend in the data following semi log-linear regression model

is used

log Y= log A + log B T

Where,

Y : Dependent variable,

B : 1+g; g = compound growth rate,

70

T : Time.

The values of parameters log A and log B in the model are estimated by using

Ordinary Least Square (OLS) method. The compound annual growth rate (CAGR)

is computed by using the formula:

CAGR = [Antilog (log B)-l] 100

Nominal Growth Rate

Let f1 be the ratio of the world agricultural imports in last year to the first year of

the period under consideration. Thus f1 measures the growth due to expansion of

world market for the country's agricultural exports, which will be called 'passive

expansion'.

Let f2 be the ratio of the country's share of world trade in the agricultural exports at

the end of the period to its share at the beginning of the period. Thus f2 measures

the growth due to expansion of market share in the world agricultural exports,

which will be called 'active expansion'.

Let f3 be the trade diversification factor defined as reciprocal of the change in the

share of the agricultural exports from the beginning to the end of the period. Thus

f3 captures the growth in exports due to diversification into non-agricultural

exports.

The nominal export growth rate is now defined as the product of the f1, f2 and f3,

i.e,

G = f1f2 f3

71

Where,

G : Nominal growth rate

f1 = W1/W0; W1 = World agricultural imports in last year, W0 - World

agricultural imports in first year,

f2 = (T1/T0)/ (W1/W0); T1= Country's agricultural exports in last year, T0=

Country's agricultural exports in first year,

f3 = (T0/X0)/(T1/X1); X0 = Country's total exports in first year, X1= Country's total

exports in last year.

It is being noted that individual values of f1, f2 and f3 identify the sources of the

nominal export growth.

Net Terms of Trade

The net terms of agricultural trade is computed as:

100P m

P xNT

Where,

NT : Net terms of trade,

(Px): Value index of agricultural exports,

(Pm): Value index of agricultural imports.

72

Specialisation in Agricultural Trade

The specialization in agricultural trade is assessed by following measure:

IE

IEST

Where,

ST : Specialization in agricultural trade,

E : Value of agricultural exports,

I : Value of agricultural imports.

Subsidy to Agriculture Sector

To work out the quantum of various types of subsidies prevalent into Indian

agriculture following measures are used.

(i) Market Price Support: Market price support is measured on a product by

product basis as the gap between domestic support price and a fixed external

reference price times the quantity of that product, which is eligible to get such

domestic support price. It is defined as:

MPS = red

W

Off

d PPQ

Where,

MPS : Market price support,

Q : Quantity eligible to receive applied price,

73

Off

dP : Applied price/official price,

ref

wP : Fixed external reference price based on 1986-88.i

Now, product specific support as, percentage of value of agricultural output of the

concerned commodity (PVA) is defined as:

100

QP

PPQPVA

Off

d

red

W

Off

d

The fixed external reference price based on the year 1986-88 is the per unit FOB

price for the net exported agricultural product and per unit CIF price for the net

imported agricultural product during the base period (1986-88). The reference

price is adjusted for quality differences. The applied price is the government

procurement price and quantity eligible to receive support is the total output of that

product.

(ii) Fertilizer Subsidy: The fertilizer subsidy is computed as the gap between

import parity price and farm gate sale price of fertilizer times the quantity of

fertilizer utilized by agriculture sector.ii It is defined as:

Fs = Qf(Pi-Pf)

Where,

Fs : Fertilizer subsidy,

Qf : Quantity of fertilizer utilized by agriculture sector,

Pi : Import parity price, i.e., CIF price + dealer margin + pool handling expenses,

74

Pf : Farm gate sale price of fertilizer.

(iii) Power Subsidy: Power subsidy is computed as the gap between unit cost of

power supply to all sector and per unit tariff charged from agriculture sector times

the numbers of units utilized by agriculture sector. Accordingly,

Ps = NC(CS-TA)

Where,

Ps : Power subsidy,

Nc : Number of units utilized by agriculture sector,

Cs : Per unit cost of power supply to all sectors.

TA : Per unit tariff for agriculture sector.

(iv) Irrigation Subsidy: The irrigation subsidy is calculated as the gap between

operational and maintenance expenditure (excluding interest payment) on major,

medium and minor irrigation projects and gross receipts received from these

projects. It is defined as:

Is = Oi,-Ri,

Where,

Is : Irrigation subsidy,

Qi : Operation and maintenance expenditure,

Ri : Gross receipt received from major, medium and minor irrigation projects.

75

(v) Credit Subsidy: The credit subsidy is measured as the differential rates of

interest between the market lending rate of interest on advances and the rate

charged from the farmers for their short-term loans which are used for production

purpose times the amount of short-term loans to agriculture sector.

CS = AL(RB-RA)

Where,

CS : Credit Subsidy,

AL Amount of short-term loans to agriculture sector,

RB : Maximum lending rate of commercial banks,

RA : Average lending rate by primary agricultural credit societies (PACs) for

short-term loans.

(vi) Seed Subsidy: The seeds subsidy is measured as the gap between the annual

income and expenditure of the National Seeds Corporation Limited, i.e., the

amount of revenue foregone for the provision of seeds. It is defined as:

Si = Yi - Ei

Where,

Sj : Seed subsidy in the ith year,

Y; : Income of the National Seed Corporation in the ith year,

Ej : Expenditure of the National Seed Corporation in the ith year.

76

1. Methods for Assessing the Competitiveness of Agriculture

The Competitiveness of Indian agriculture is assessed by employing

following measures-

(i) Nominal Protection Coefficient (NPC): The NPC is the ratio of domestic to

world reference price of the commodity under consideration. NPC helps in

measuring divergence of domestic price from the world reference price and thus

determine the degree of domestic protection/un-protection of the commodity in

question. It is defined as:

W

i

d

ii

P

PNPC

Where,

NPCi : Nominal protection coefficient or the commodity i,

d

iP : Domestic price of the commodity i, adjusted for transportation, handling and

marketing expenses,

W

iP : World reference price of the commodity i, adjusted for transportation,

handling and marketing expenses.

If the Nominal Protection Coefficient (NPC) is greater (lesser) than unity, then the

commodity is protected (un-protected) compared to free trade scenario.

(ii) Effective Protection Coefficient (EPC): The EPC is the ratio of the value

addition of commodity at domestic prices to the value addition at world reference

77

prices; EPC is an improvement over NPC to the extent that it takes care of the

distortions in domestic and world prices of tradable inputs. It is defined as:

W

i

d

ii

V

VEPC

Where,

EPC, : Effective Protection Coefficient of the commodity i,

d

iV : Value added at domestic prices, i.e., domestic price of a commodity minus

the domestic value of all tradable inputs required to produce a unit of that

commodity,

W

iV : Value added at world prices, i.e., world price equivalent minus value of all

tradable inputs at border prices adjusted for transport, handling and marketing

expenses.

A more specific expression of EPC is:

W

j

K

1j

b

i

d

j

K

1j

d

i

i

AijPP

AijPP

EP C

Where,

Aij : Quantity of the jth input used to produce one unit of the ith commodity,

d

iP : Domestic price of the jth tradable input adjusted for transportation,

handling and marketing expenses,

78

W

jP : World price of the jth tradable input adjusted for transportation, handling

and marketing expenses,

k : All tradable inputs.

If the value of EPC is greater than unity (EPC>1), it indicates that the protection in

input and output market provides incentive to produce the commodity and vice

versa.

(iii) Effective Subsidy Coefficient (ESC): The ESC is an improvement over EPC

as it corrects the latter by adjusting it for the subsidies on non-tradable inputs in

domestic economy. It is defined as the ratio of value added at domestic prices

adjusted for net subsidies-subsidy minus tax-on all inputs to the value added at

border prices. It is defined as:

W

dd

iVA

)NS(VAESC

Where:

ESCj : Effective Subsidy Coefficient for the commodity i,

VAd : Value added at the domestic prices,

VAw : Value added at the world prices,

NSd : Net subsidy on non-tradable inputs in domestic economy.

The whole expression may be defined as:

79

W

j

K

1j

b

i

jij

n

1kj

jij

n

1kj

d

jij

K

1j

d

i

i

AijPP

TASAPAP

ESC

Where,

Sj : Subsidy on the jth non-tradable input.

Tj : Tax on the jth non-tradable input.

jij

n

1kj

jij

n

1kj

TASA : Net subsidy on non-tradable inputs.

While the others expressions are same as discussed for EPQ.

If the value of ESC is greater than unity (ESC>1), it indicates that protection is

accorded to the commodity in question and less than unity (ESC<1) means, that the

commodity in question is competitive in the world market,

(iv) Domestic Resources Cost (DRC): The DRC is defined, as the value of factors

of production needed to earn a unit of foreign exchange through export or save a

unit of foreign exchange through import substitution by production of commodity

under consideration. In the other words, DRC is the ratio of the cost of domestic

non-tradable resources (evaluated at shadow prices) to net foreign exchange

earnings - value of output minus value of tradable inputs. Accordingly,

W

jij

K

1j

W

i

d

jij

n

1kj

i

PAP

PA

DRC

80

Where,

DRCi : Domestic Resources Cost of the ith

commodity,

Aij : Requirement of the jlh input to produce one unit of the ith

commodity,

S

jP : Showed price of the jth

non-tradable input,

WPi : World reference price of the ith

commodity adjusted for the value of by-

product,

W

jP : World reference price of the jth

tradable input adjusted for transportation,

handling and marketing expenses.

If the value of DRC is greater than unity (DROl), it means that the domestic

resources can be put to better use in an alternative way, and if less than unity

(DRC<1), then producing the commodity in question is a relatively sound use of

resources.

(v) Export Performance Ratio (EPR): The EPR is defined as the ratio of the

share of a particular commodity in the country's total exports to the share of

that commodity in the world total exports. The export performance ratio of ith

commodity may be defined as:

Wi/We

Ei/CeEP Ri

Where,

EPRj : Export Performance Ratio of the ith commodity.

81

Ei : Export of ith commodity from the country,

Ce : Total exports of the country in reference year,

Wj : World total exports of the ith commodity,

We : World total exports in the reference year.

If the value of EPR is greater than unity (EPR>1), it indicates that country has

comparative advantage in the exports of commodity and vice versa.

6. PLANNING OF CHAPTERS

The study is divided into six chapters. First chapter describes introduction to

the development in Indian agriculture sector in historical perspective. Second

chapter provides the review of literature and describes the need of research. The

third chapter describes the research methodology of the study, data collection, and

tools adopted for data analysis. Fourth chapter describes the volume and trade of

Indian agriculture. It describes the major points related to import and export of

Indian agricultural products. It also describes the agricultural trade in the whole

world besides comparing the performance of developed and developing

economies. Fifth chapter is of analysis of data which examines the implications of

WTO regime for Indian agriculture exports. Finally, the sixth chapter presents the

findings and policy implications which summarize the study. The chapter also

gives directions for further research in this area.

7. LIMITATIONS OF THE STUDY

The secondary data is mainly sourced from national and international

records of esteem organizations; however, it may be influenced from the political

82

interferences and manipulation. The Agricultural sector is very wide and affected

with various external factors which are beyond the control of developing as well as

developed nations like drought, flood, seasonal fluctuations, and other natural

calamities. Due to involvement of external factors, the growth of Agricultural

sector cannot be easily improved. Further, due to time constraints, the data is

collected only from the major national and international data sources, and it was

not possible to collect the primary data. But despite these limitations, the research

study is quite useful and its findings recommend certain decisions to be taken to

improve the growth of Indian Agricultural exports and reduce the imports related

to certain Agricultural products.

83

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