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  1. For India’s trade, it is advantage agriculture

For India’s trade, it is advantage agriculture

The country continues to overlook the agricultural sector and push services, despite data suggesting the other way

By: | Updated: October 14, 2015 1:01 AM
export

Dollar earnings for India from international agricultural trade are higher than from trade in services. While the services sector has a lion’s share of close to 60% in India’s GDP, when it comes to net foreign exchange earnings, it is the agricultural sector that wins hands down. (Reuters)

Infatuation and idolisation share a common trait. It is the refusal to look at the less desirable side of the person held in high monomania. A similar situation is seen in India’s services trade, too. Services export receives excessive adulation in every available forum within the country. Surprisingly, the heavy import of services does not get to the limelight nor does it attract the scholastic discussion that the subject fully deserves. It remains out of public knowledge and scrutiny. What is more disturbing is that while the data about services export is easily available from various government sources in Delhi, the data on the services import is not available. However, one can obtain authentic data on India’s services imports from data-rich repositories maintained by organisations such as the UNCTAD, WTO, ITC, etc.

Gr9

The data empirically establishes that the services industry is import-intensive. In fact, on a five-year average basis, for every $1.09 billion services exported, India imported $1 billion. The export-import ratio is a highly fragile 1.09.

India was the sixth-largest exporter of services globally in 2013. It slipped to eighth position in 2014. Its net foreign exchange earnings also sharply declined. In value terms, earnings in 2014 from services exports are similar to what the country earned in 2007. As of 2014, India ranks 21st globally in the net income from services trade. Small countries such as Croatia, Cuba, Hong Kong, Israel, etc, earn higher net income from services trade. Surely, the UN data knocks down the self-perceived and self-promoted superiority of the Indian services sector.

At $148 billion, India’s services import for 2014 was larger than the oil import bill of $113 billion (FY15). The trade surplus was a mere $8 billion. This demolishes the popular perception that India’s services export help counterbalance oil import bill.

Woolly data is worrisome

The woolly data about services import is of serious concern. “Exports to touch $100 billion in FY15,” proudly proclaims the website of Nasscom, the industry body created by the software services exporting companies. Pray, what is the import of services by Nasscom members? No information is available and accessible. “Software product imports are now growing faster than software services exports,” cautions Sharad Sharma, former head of Yahoo India in a recent online article.

On July 1, 2015, the Exim Bank released a report titled Catalysing India’s Trade and Investment, giving the latest snapshots of the economy. Regrettably, the report carries incorrect data on the country’s services import as it erroneously claims that services import declined from $81 billion to $80 billion between 2013 and 2015, even as services export increased from $146 billion to $155 billion. It is interesting to observe that the data released by UN agencies do not at all support the Exim Bank data. Minor variation between the government of India data and that from UN agencies is acceptable as the latter follow the calendar year while India follows the financial year, but major variations can be neither be justified nor accepted.

The Reserve Bank of India’s master circular no 13/2014-15 of July 1, 2014, mandates that in case of non-physical imports (i.e. software or data through internet etc), the importers should keep customs authorities informed. Do services importers meet the mandated transparency and accountability? Is there any under-reporting or misreporting? While any further investigation is beyond the scope of this short article, it is a significant matter for regulatory authorities.

The underdog that outperforms

Now comes the proverbial icing on the cake. A sector widely considered as an underdog—Indian agriculture—is actually outperforming the services sector in foreign exchange earnings!

The objective revelation that India’s 0.19 billion hectares of gross cultivated land added $75 billion net income to the national exchequer from exports in the last five years should delight the present government keen on ushering equitable growth and rural prosperity. Agriculture is the largest private sector enterprise. Millions of rural families earn their livelihoods from agriculture. Global exports in agricultural products were $1,745 billion in 2013 (Source: WTO-International Trade Statistics 2014). India ranks the fifth largest exporter of agricultural products after the US, Brazil, China and Canada. While the US earned only $30 billion from agricultural trade in 2013, India earned as high as $23 billion, thanks to low imports.

The statistics send out a clear message. The dollar earnings (aka balance of payments) to India from the international agricultural trade are higher than the one from trade in services. The services sector has a lion’s share of close to 60% in India’s GDP, but when it comes to net foreign exchange earnings, it is the agricultural sector that wins hands down. Unfortunately, this fact remains unknown, unrecognised, unutilised and uncelebrated.

Until 2000, Indian agricultural production was driven predominantly by food security. Subsequent diversification into high-value crops has changed the complexion of our agricultural production and exports as well. India is currently the second-largest player in agricultural production in the world. Between 2000 and 2013, agricultural products exports sharply increased from $6 billion to $47 billion. The added advantage of giving an export thrust to our farm products is that the import component is insignificant in Indian agriculture, unlike services sector. The basic resources for agriculture such as sunlight, land, water and labour are all available locally. This empirical validation should trigger actionable thinking at various levels within the country. In India’s international trade, it is advantage agriculture now. What is urgently needed is creative destruction, which requires replacing the established ways of thinking and doing.

The author has professional qualifications in agricultural science and environmental law, and specialises in policy advocacy

ganesanicc@gmail.com

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