For this, there is a need to have scientific research and adequate data to establish a case.
By Seema Bathla & Abhishek Jha
The Cabinet approved the first Agriculture Export Policy in December 2018, with the aim to double farmers’ incomes and increase agricultural exports to $60 billion by 2022. The policy also focuses on a stable trade regime, diversify exports by products and destinations, and promote perishables and high value-added products. In fact, a sum of `1,400 crore has been assigned to set up specialised clusters in different states for different produce.
The target, although ambitious, seems achievable in view of India’s rapidly growing food processing industry. From 1981-82 to 2014-15, fixed investment in the organised food and beverage industry across 20 major states increased from `6,21,875 lakh in 1980-81 to `1,06,44,385 lakh, with an annual rate of growth at 9.54% (at 2004-05 prices). The real gross value-added has increased manifold to reach `32,94,243 lakh at an annual growth rate of 5.4% during this period. It appears that the concerted efforts of the ministry of food processing industries to increase private investment through fiscal incentives and other measures have reaped the benefits. Some other initiatives such as investments in mega food parks with state-of-the-art infrastructure and processing facilities, allowing 100% greenfield investments, and incentivising capital subsidy are also gaining ground.
However, the question must be asked: Whether such policies and incentives can help India to be a vivid exporter of processed/value-added agricultural products? A close inspection of the value and share of India’s agricultural exports makes it look equivocal. Agricultural exports stood at $5 billion at the dawn of the opening up of the domestic markets to the world in 1995, and impressively reached $36.8 billion in 2017. In terms of share in total exports, agricultural exports have truncated from 18.2% to 11.68% during the same period. This clarifies that the value of agricultural exports has burgeoned, but their representation in the export basket has plummeted, implying a relatively higher value of non-agricultural products. The lower value of exports can be explained by the fact that India’s export basket consists mainly of low-value and semi-processed commodities such as rice, wheat and marine products.
Further, as much as 76% exports are primary—those that undergo minimal processing such as cleaning, sorting, refrigerating and converting paddy into rice. A 4% increase in their share has been reported in recent years on account of exports of live animals, bovine meat, frozen fish, crustaceans, cereals, flour, groundnut seed, soybean seed and meal, onion, tea, and spices. The remaining 20% share is of processed and value-added products, which entail extensive processing of both raw and semi-processed commodities, such as processing of barley to produce beer or making cheese from milk, or seed to edible oil. There is little increase in their share, even though the export basket has, of late, slightly diversified towards chocolates, wafers, sweet biscuits, preserved edible fruits and nuts, mixed seasoning and sauces, ice-cream, and meals and pellets for fish. In a way, it reflects a growing competitiveness of Indian agriculture, but largely in low-value primary produce.
The estimated revealed comparative advantage (RCA) index also shows much higher values for primary products compared to the processed and value-added ones. The main value-added products that are competitive in the world markets are sugar in solid form, extracts and essence of tea and coffee, oilcakes, manufactured tobacco, and preserved fruits and vegetables. This cogently indicates that the food and beverage industries lack cost-competitiveness and, hence, India may find it difficult in meeting the stated export targets.
The Indian industry has to compete with the major global players, including China, the European Union, Australia, the United States and Canada. Presuming that it is able to bring in better technology and resource-use efficiency to compete in the export markets, non-tariff measures imposed by other countries would act as deterrent. It is also mentioned that the Agriculture Export Policy will provide an institutional mechanism to pursue market access, tackle barriers, and deal with sanitary and phytosanitary issues. However, it does not clearly specify the modus operandi for the same.
Among the various non-tariff measures that India faces on both primary and processed exports, the topmost are food quality, sanitary and phytosanitary and health-related issues, and those too in the key markets of the US, the EU and the ASEAN. The incidence of non-tariff measures has been increasing, and also there is little understanding and transparency of the existing restrictions. Many regulations are poorly designed, failing to protect the public while unnecessarily complicating the business. For instance, many countries have complicated rules for imports of pharmaceuticals, which nevertheless fail to prevent the widespread traffic of counterfeits. This may be explained by the fact that regulations are often enforced in punitive ways, reflecting an anti-business culture of many administrations.
Going forward, it is imperative for India to initiate a dialogue regarding the standardisation of non-tariff measures at the WTO platform. In addition, non-tariff measures typically span the competencies of several ministries, with hardly any coordination mechanisms to make the necessary trade-offs. The way forward would also require India to undertake several domestic measures to improve the quality of its fresh and processed products, and upgrade standards. Yet, in case of any discrepancy and unreasonably high standards set by the importing countries, the exporters and export promotion agencies can raise concerns at both bilateral and multilateral forums. For this, there is a need to have scientific research and adequate data to establish a case.