FE Editorial : Wanted: An agri policy

Written by The Financial Express | Updated: Nov 23 2012, 07:39am hrs
With exports doubling from Rs 42,000 crore in FY11 to Rs 82,000 crore in FY12 and then doubling again (actually 2.2 times) in H1 FY13 as compared to H1 FY12, Indias agriculture is clearly on a roll, of a sort never seen before. Indeed, as Commission for Agricultural Costs and Prices (CACP) chairman Ashok Gulati points out, in the last 12 months, India exported 10 million tonnes of rice for $6 billion, making it the worlds largest rice exporter, replacing traditional biggies like Thailand and Vietnam. And, with 1.7 million tonnes of buffalo beef exported for $3 billion in FY12, India has also emerged as the worlds largest exporter of beef; marine exports added another $3.4 billion, cotton $4.3 billion and guargum, the big surprise, netted another $3.3 billionall of which ensured that, from just around 5% of agri-GDP in 1991, exports+imports are now up to 18%. In other words, India is on the verge of a big export boom, especially given that global agricultural output growth is projected to slow from a little over 2% per annum in the last decade to around 1.7% over the next one while global demand is expected to rise due to extra demand from bio-fuel feedstocks. The only thing spoiling this idyllic picture is sclerotic government policy that, for instance, banned exports of rice and wheat from 2007 to 2011.

If the bans were because of a grain shortage in the country, that would still be excusable at one level. But this is clearly not the case and, against the stipulated reserve stock of 212 lakh tonnes in October, reserves are at a whopping 666 lakh tonnes. According to Gulatis calculations, the bloated excess stocks (as on July 1) added up to a cost of more than R1 lakh crore (thats 1% of GDP). What makes things even worse is that, CACPs rabi report points out, government policy is even driving out the private grain trade almost completelyapart from lowering efficiency levels in the trade, it also means the governments costs rise dramatically as it has to procure all the foodgrains in the market. Government distortions range from very high local levies in states like Punjab and Haryana (around 10% of total food subsidy is spent on taxes in these states) to states like Madhya Pradesh offering additional bonuses that ensure private traders are completely priced out of the marketin major states like Haryana, Punjab, Uttar Pradesh and Madhya Pradesh, nearly 95% of all wheat arrivals in the mandis are bought by government agencies. Things have got so bad, CACP has recommended the Competition Commission of India be asked to look at such anti-competitive market behaviour that has led to a complete collapse of competition in wheat markets. But even before that, the government needs to take action since continuing with the current erratic policy can quickly put an end to the booming agri-exports trade.