India is one of the most populous, influential, and transformational economies in the world today. The IMF tags India as a serious contender for the title of the world’s fastest growing major economy. And Indian agriculture is not far behind. Our last two posts have examined how India’s agricultural export and import policies have contributed to a declining trade surplus. In this post, we will make recommendations on how to address some of the issues with current policies.
Phasing Out Pro-Consumer Bias
Protecting domestic prices from global trends has been a major factor behind India’s stringent agricultural trade policies. However, a recent ICRIER and World Bank study pointed out that global price trends, through multiple conduits, transmit into domestic markets. The study concluded that bans and restrictions only defer the transmission. But global and domestic prices eventually converge in the medium to longer run. Thus, while farmers lose the timely opportunity to explore global markets, the main aim of restrictive policies, which is to protect domestic prices, is also not fully met. A gradual phasing out of consumer bias in trade policies will enable farmers to explore suitable opportunities in global markets.
Developing an Effective Policy on Stock Management
An effective policy on stock management of food grains will eliminate overstocking situations and make these quantities available for exports ‘in the normal course.’ In July 2012, the Centre approved the export of two million tonnes of wheat to ‘dispose off’ excess stock and make space available for the forthcoming kharif crop. With a proper food management policy in place, excess stock can be utilised for immediate export and cases of distress exports can be avoided. Even the WTO recently asked India to expedite the overhaul of food grains inventory management so that the “need for exports from public stockholding of these items can be obviated.”
Diversify Export Basket
The Organisation for Economic Co-operation and Development (OECD) and the Food & Agriculture Organization’s (FAO) recent report forecast a declining global prices outlook for India’s major agriculture export commodities like rice, sugar and cotton among others. This, along with a need to increase agricultural exports, calls for a diversification of the country’s export basket.
Option 1: Export of processed and value-added food products
India has a very small share of the world’s processed food exports market – only 2.36 per cent in 2015. Recent years have seen a significant increase in demand for quality processed food, organic food, and health food in attractive packaging. Our export competitors around the world are already adapting to the latest technology for processed foods. Technology may soon become a deciding factor in future competition. Developing a policy on processed and value-added food exports can help India capture this expanding market.
Option 2: Agriculture focused Export Oriented Units (EOUs)
Domestic policies like MSP, rather than the global demand-supply scenario, are driving farmers’ sowing decisions. A policy that focuses on developing Agricultural EOUs can help India overcome this trend and increase its export basket. These EOUs can focus on agricultural products that have a high demand in global markets, even if they are not consumed locally in large quantities. The successes of shrimp and beef exports are good examples on which to lay the foundation for such policies.
Supporting Pulses and Oilseeds Production
Domestic support, in the form of government procurement and reactive foreign trade policies, is required for oilseeds and pulses. Policy support will ensure a consistent increase in area sown and production, thereby reducing the country’s reliance on imports.
Developing Agricultural Infrastructure
India lags in the area of agricultural infrastructure, an effective policy for which will enhance crop production and yields. Greater production will enhance exports. Increased production of oilseeds and pulses will help reduce the agricultural import bill. An infrastructure development policy along with crop production will also provide support to the processed and value-added food products industry (e.g. better cold-chain facilities).
Effective agricultural trade policy will ensure better incomes to our country’s farmers. They will also assist the government in achieving the goal of doubling farmer incomes by 2022. Actions outlined above, can help India achieve its full potential.