Column: For a high-yield agri-trade

Written by Surbhi Jain | Surbhi Jain | Ashok Gulati | Ashok Gulati | Updated: Jun 6 2014, 06:30am hrs
This is for the first time in the history of independent India that Indian agriculture has given a net trade surplus of more than $25 billion, in FY14. Its agri-exports crossed $42 billion vis-a-vis imports of about $17 billion indicating that Indian agriculture is quite export competitive, as the accompanying chart shows. The Balassa index measuring export competitiveness for agriculture is 1.6 vis-a-vis only 1.0 for manufacturing products, implying that our agriculture is more competitive globally than our manufacturing sector.

India's agri-export basket is quite diversified. But a few need special mention. India has emerged as the largest exporter of rice with exports touching $7.7 billion, second-largest exporter of meat with exports of $4.5 billion and cotton ($3.6 billion), and a large exporter of number of other products ranging from marine products ($5 billion) to oil meals ($2.8 billion), spices ($2.6 billion) and guar gum ($2 billion). The most impressive growth in FY14 over FY13, in terms of size and growth rate, has been dairy & poultry registering a growth of 72%, marine products of 45%, meat and preparations of 36%. Even rice has witnessed a growth of about 25% growth in value terms though the quantity exported in FY14 may be similar at 10 million tonnes as in FY13. This is largely credited to the better price that Indian basmati has fetched this year. Even fresh fruits and vegetables, with a total of $1.6 billion exports, have registered a 29% growth. This is commendable especially in the face of tough SPS laws in importing countries and somewhat weak value-chains that India has. Indian farmers, scientists, processors, traders and policy-makers, who have played a catalytic role in making this happen, deserve compliments and rewards for achieving these results.

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On the import side, much of India's imports are concentrated in a few commodities: edible oils ($9.3 billion), wood and wood products ($2.6 billion) and pulses ($1.6 billion). Interestingly, pulses imports have fallen by more than 30% in FY14 over previous year despite zero import duty, and edible oils by 17% despite import duty of 2.5% on crude and 7.5% on refined oils (raised to 10% w.e.f. January 2014).

But a few interesting things need to be noted and rationalised. While India is the largest exporter of rice in the world, it imposes an import duty of 70% on paddy and 80% on rice, which sounds absurd. These can straight away be reduced to 5-10%. Further, in case of rice, it must be noted that a part of the export competitiveness comes from highly subsidised water, power and fertilisers that go into its production. It is a matter of grave concern that one kg of rice production needs 3,000-5,000 litres of water for irrigation depending upon where it is being grown. Exporting 10 million tonnes rice means virtually exporting 30-50 billion cubic meters of water. In a water scarce country, this may not be a rational action. Rice growing areas of Punjab and Haryana are facing serious water crisis, with the groundwater table depleting by 33 cm a year. These states urgently need to rationalise prices of water and power for agriculture to give right signals to farmers to economise these scarce inputs. As an alternative, a 5% export duty on common rice to recover a part of this subsidy may be imposed so that virtual export of water can be somewhat reduced.

Next, take the case of meat and marine products. These are protein products of reasonably high value. India is the second-largest exporter of meat, but has put an import duty of 100% on cut pieces (chicken legs) and 30% on marine products. Given that our exports of dairy and poultry products have grown fastest in FY14, and that domestic prices of these products are taking a lift, is it justified to keep high import duties on these One needs to rationalise that too, and bring it down drastically to say 10-15%, especially when we have zero import duty on pulses, another source of vegetarian protein.

However, the most interesting case is that of edible oils. Roughly 10-11 million tonnes of oil is being imported at 2.5% import duty on crude and 7.5 (10)% on refined. But on oilseeds, there is a duty of 30%. One wonders if there is any rationality of having a lower duty on finished products and higher duty on the raw material. Should the duty on oilseeds not be less than that on oil Simple economic theory states that the import duty is graduated from low on raw material to the highest on refined product.

Today, India is importing 60-65% of its edible oil consumption from abroad. The ministry of agriculture recognises this as one of the big shortcomings of their agri-production strategy. Three-fourths of this import of edible oils is palm oil. If India wants to produce that much of oil from existing oilseeds complex, it needs roughly an additional 30 million hectares of land under oilseeds. That land is not available. But if India can put two million hectares under oil-palm in a globally competitive manner, it can produce an additional 8 million tonnes of palm oil. This will drastically cut down India's import bill of agri-products and raise the trade surplus even further. How can one do that Much of that area is identified in Godavari belt of Seemandhra. Can the new state take it up on priority to augment income of farmers as well as do efficient import substitution Given that oil-palm is a long gestation period crop, two things will be required: one, either declare oil-palm as a plantation crop and let corporate firms develop it, or if one wants to follow the household model, give capital subsidy to farmers so that they can sustain it for the first 3-4 years when the plant does not give any fruit (the subsidy can be equal to the opportunity cost of land, i.e., profits from say rice cultivation in that area); second, pricing of fresh fruit bunches is fixed at 13.5% of the value of crude palm oil, a recommendation made earlier by CACP which had been accepted by the government of the erstwhile Andhra Pradesh. Action is awaited from the Centre on the first point.

In a nutshell, Indian agriculture has demonstrated its strength in the domain of external trade. In light of that, a purposive and rational tweaking of the trade policies would go a long way in harmonising gains with the rational utilisation of our resources. For this, India needs to have an open trade policy where exports and imports both are open, and tweak these only with mild duties (10-15%) whenever needed. This would bring rich harvest to farmers in a sustainable manner and also protect the interests of consumers, giving a win-win situation. And the time to do that is now!

Gulati is Chair Professor for Agriculture, ICRIER and Surbhi Jain is Director at CACP. Views are personal