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LATEST NEWS UPDATES | Farm trade paints an optimistic picture of the economy-Ashok Gulati and Surbhi Jain

Farm trade paints an optimistic picture of the economy-Ashok Gulati and Surbhi Jain

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published Published on Nov 22, 2012   modified Modified on Nov 22, 2012
-The Economic Times

It has never happened since Independence.

May be not even in the last 1,000 years what happened during October 2011-September 2012. India exported 10 million tonnes of rice, valued at around $6 billion, becoming the largest exporter of rice, replacing Thailand and Vietnam, generally the two largest exporters of rice.

This is now known to many in rice circles.

But what is little known is that in 2011-12, India also emerged as the largest exporter of beef (buffalo) meat, exporting 1.7 million tonnes worth almost $3 billion, beating Brazil, Australia and US, which are traditionally the largest exporters of beef.

Marine exports added another $3.4 billion and raw cotton $4.3 billion. But the biggest surprise came from guargum meal exports worth $3.3 billion, which even surpassed oilmeal exports of $2.4 billion. Sugar exports worth $1.8 billion (almost 3.3 million tonnes) also added to the buoyant agri-exports.

In all, agri-exports during 2011-12 were more than $37 billion against an import of agri-commodities worth around $17 billion, making India a large net exporter of agri-produce. The accompanying chart gives the temporal behaviour of India's exports and imports showing that India has consistently remained a net exporter of agri-products during the last two decades.

This has remained true as Indian agriculture got more and more globalised, as measured by agri-trade as percentage of agri-GDP (see chart).
Agri trade
The agri-trade (exports plus imports) as a percentage of agri-GDP, which was about 5 per cent in early 1990s when economic reforms started is today more than three times of that, touching 18 per cent in 2011-12. This is a remarkable success story of Indian agriculture, which has not been given as much attention and credit as it deserves.
The year 2011-12 may be a little upswing year for agriculture, but the long-term trends do suggest strongly that Indian agriculture is very much globally competitive, and one can tap this potential even more to benefit our farmers, provided we have a stable, predictable, and rational agri-trade policy.

A case in point is that of rice exports policy. As is well known, India had banned exports of wheat and common rice way back in 2007, and these were opened only in September 2011. A four years exports ban resulted in massive accumulation of cereal stocks at home that crossed 80 million tonnes on July 1, 2012, way above the buffer stock norms of maximum 32 million tonnes.

And when the exports were opened, rice exports zoomed as flood waters gush through the sluice gates!

Two things need to be noted: (a) when India exports 10 million tonnes of rice in a global market that hovers around 35 million tonnes, world price of rice is likely to collapse to Indian prices (large country effect) reducing the marginal returns to exports dramatically.

Therefore, there is need to impose an optimal export duty, say, 5-7.5 per cent, which could ensure good returns to Indian exports of rice. (b) This export duty is also justified on the need to save water (and power).

One kg of rice needs 3,000-5,000 litres of water to grow. And if this water is extracted by mining groundwater, as is being done in much of the Punjab and Haryana belt particularly, where water table is receding by 33 cm each year, it is time to signal correct pricing of water and power.

Rice exports of 10 million tonnes means exporting virtual water to the tune of at least 30 billion cu m. Since water and power to irrigate is highly subsidised in India, it is only rational to recover a part of this hidden subsidy from exports of rice.

While talking of recovering a part of water and energy subsidies from exports of water intensive crops like rice, one should also talk of sugar that is another water guzzler. A kg of sugar invariably has virtual water of more than 2,000 litres.

And if that is coming from Maharashtra-Karnataka belt, where the real cost of extracting water for irrigating sugarcane is at least two to three times higher than that in say eastern Uttar Pradesh or Bihar, there is a strong case for putting an export duty of at least 5 per cent on sugar too.

In 2011-12, India exported about three million tonnes of sugar, implying that at least 6 billion cu m of virtual water was exported.

Given that India is short of water, and with each passing day, its per-capita availability of water is shrinking, it should serve as a wake-up call for us to price water and power appropriately to reflect their scarcity and high costs, lest it is too late.

But given that their pricing is a subject matter within the jurisdiction of state governments, in our federal structure, the central government can at least give a signal by imposing a minimal of 5 per cent export duty on rice and sugar exports.

One needs to tweak not only the export policy of water intensive crops, but also their import policies. Preferably, one should encourage zero or very low import duty on water intensive crops like rice and sugar to let virtual water be imported.

But our current import duty structure is perverse: 70 per cent on rice and 10 per cent on sugar, and there is talk to raise it further for sugar at least. That would be irrational and give wrong policy signals on use of water and power. It would make sense to impose not more than 5-7.5 per cent duty on imports of water intensive crops, if not zero.

On imports, our biggest item of import is edible oils (almost $9.7 billion). We have a perverse duty structure in imports of crude edible oil allowed at 7.5 per cent but refined oil is coming at zero import duty, and oilseeds at 30 per cent import duty. It needs to be lowest on oilseeds (raw material), 5-10 per cent on crude oil and 10-15 per cent on refined oil so that refining gets promoted in the country.

Overall, it is high time to review the agri-trade policies and their accompanying duty structures and take a long-term view that can provide stability in trade policy as well as send signals for conservation of scare resources of water and energy.

So, no physical bans on exports and imports of agri-commodities, and moderate duty structures on exports and imports would go a long way to promote efficiency and growth, and take Indian agri-exports even to higher levels on a sustainable basis, benefiting India's peasantry, and agro-processing industry, which is the need of the hour.

(A Gulati is chairman and S Jain is joint director at the Commission for Agricultural Costs and Prices. Views are personal)

The Economic Times, 22 November, 2012, http://economictimes.indiatimes.com/opinion/comments-analysis/farm-trade-paints-an-optimistic-picture-of-the-economy/articleshow/17316992.cms


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