Agriculture markets remain PM Narendra Modi’s Achilles heel

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Published: December 12, 2018 3:56:55 AM

Can’t meet export targets until Government has a veto on farm exports, so can’t expect farm prices to recover either

India’s agriculture exports rose from .7 billion in 1999-2000 to .6 billion in FY14. (File photo)

Given how competitive India’s agriculture exports are compared to industrial ones—the share of farm exports to output is greater than industrial exports to industrial output—it is obvious that any solution to raising overall exports has to have a special focus on agriculture. Indeed, a study by Ashok Gulati and Shweta Saini at ICRIER for the decade FY05-FY14 showed that, for most products, India’s farm exports were competitive with those globally. That is, for most years, most agricultural produce could have been exported. That explains why, for instance, India’s agriculture exports rose from $5.7 billion in 1999-2000 to $42.6 billion in FY14. Not surprising, then, that all plans to raise India’s exports must have a large agriculture component; that this helps raise incomes of farmers is an added plus, given the BJP’s election promise to double farmer incomes by 2022. In an ideal situation, where exports are freely allowed, local prices will be determined by what global prices are, minus the costs of transport to move the goods from where they are produced to the nearest port and, from there, to overseas markets.

But how casually projections are made for agriculture exports can be seen from the fact that, while the Dalwai committee targetted $100 billion of exports by FY23 just a few months ago, commerce minister Suresh Prabhu has just finalised an agriculture export strategy, but with a much lower $60 billion target by 2022. Even this, however, looks optimistic given that agriculture exports have been falling steadily since the FY14 high, to $15.7 billion in April to October 2018, a growth of just 1.2% over the same period in 2017. While Prabhu has said the government will try not to ban or slow agriculture exports as was done in the past, the fact that this has not been explicitly stated in the policy suggests the government could well impose bans or put restrictions once local prices start rising—a wheat export ban lasted from February 2007 to September 2011; rice exports faced various hurdles including a ban for a while between 2007 and 2011. In the past, even onion and dairy exports have been halted or minimum exports prices have been imposed. If the country’s export policy continues to be held hostage to local inflation, it is difficult to see how agriculture exports can really boom on a sustained basis. Buffalo meat exports, for instance, have remained stagnant in the last four years since the BJP came to power while they rose 3.4 times between FY10 to FY14; given a hostile local environment, it is difficult to see how a sustained boom can be maintained in buffalo exports.

Nor is it just the exports policy that is a problem. Farmers need high quality seeds, for instance, but, as the experience with Monsanto shows, the government is trying to finish off its business in GM cotton seeds. Similarly, while the farmers need greater investments in irrigation, etc., as compared to subsidies, the opposite has been happening—while subsidies rose from 2.8% of agri-GDP in 1980-81 to 8% in 2014-15, government investments fell from 3.9% to 2.2% in the same period. And while the government has not made much headway in creating a pan-Indian agriculture market—or even a pan-state one—opposition from the cartels that control agriculture markets has ensured that Maharashtra chief minister Devendra Fadnavis has just withdrawn his limited plans to free up markets in Mumbai. If this wasn’t bad enough, the sharp hikes promised in MSP also threatened to derail export markets since the hikes promised in rice and cotton would have taken local prices to above those prevailing globally had it not been for the collapse in the rupee. Given this, it is difficult to see how agriculture exports can touch $60 billion by 2022, nor does it look likely that farm prices will recover in a hurry.

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