Given that a number of state elections are coming up, one can understand the overdrive on the part of the Union government to tame food inflation. Obviously, it does not want inflation to be an issue in the election campaigns. But how do we tame food inflation, and at whose cost, are important to analyse for rational policy-making.
The classic case is limiting the exports of basmati rice by setting a minimum export price (MEP) of $1,200/tonne. India has been exporting, on an average, about 4.5 million tonnes (mt) a year over the last five years or so. This is a premium rice consumed by the upper middle class and rich in India, and is exported to Gulf countries, some European nations, and also to the US. Punjab and Haryana are the primary producers. The export price normally hovers between $800 to $1,000/tonne. By adopting an MEP of $1,200, practically much of the basmati export is restricted. And if this MEP continues, in all likelihood, India’s basmati exports this year will register a sharp fall.
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In many mandis of Punjab-Haryana, traders have been shy in buying basmati and, as a result, the prices for farmers have been ruling low compared to what they were when exports were fully open. So, the losers are ultimately the farmers of Punjab and Haryana, while the gainers would be upper income urban residents of India. Externally, it must be remembered that it takes years to develop export markets, and by having such a high MEP, India is basically handing over our export markets to Pakistan, which is the only other main competitor in basmati rice. Is this a conscious policy decision? Do our trade-policy-makers know what damage they are doing to agri-exports? There is a crying need to revisit and revise this MEP as soon as possible, preferably fixing it at $800-850/tonne.
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Our restrictive export policy has gone on to wheat export bans, export duty of 40% even on onions, and so on. With such restrictive policies, how can one dream of doubling India’s agri-exports, a target set by the Union government? It may be noted that in 2013-14, the last year of the UPA government, India’s agri-exports touched $43.27 billion, up from $8.67 billion in 2004-05 when it took over the power at the Centre. This is almost five-fold growth in 10 years! If the same momentum had been maintained during 10 years of NDA rule, agri-exports should have touched $200 billion. But, in reality, it may not touch even $50 billion this year. A large explanation of this failure lies in restrictive exports to favour domestic consumers at the cost of farmers. A typical urban consumer bias, which inflicts a large ‘implicit tax’ on our farmers. That’s surely not the right way to design agri-export policies. Export markets are premium markets and need to be developed and maintained over years.
If domestic consumers need to be helped, it should be through domestic income policy, well targeted (aimed at only the vulnerable sections of the society). When poverty is hovering around 15%, as per the multi-dimensional poverty estimate of the NITI Aayog, and when more than 800 million people get free wheat/rice (5kg/person/month), one does not understand the logic of putting an MEP of $1,200/tonne on basmati rice, and handing over years of hard work of Indian rice traders to Pakistan. This is simply perverse.
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Overall, it must be kept in mind that exports of agriculture also reflect how competitive our agriculture is vis-à-vis the rest of the world, and how much surplus it can generate. Competitiveness results primarily from increasing productivity and getting more from less. That, in turn, requires massive investments in agriculture R&D, seeds, irrigation, fertilisers, better farming practices including precision agriculture. India’s overall investment in agriculture R&D—both of the Centre and of the states—hovers around 0.5% of the agri-GDP. This is too small, and needs to be immediately doubled, if not tripled, if India is to become a powerhouse of agriculture production as well as agri-exports. But unfortunately, with populism which peaks at election times, we go for more subsidies—be it food subsidy of more than `2 trillion for consumers or fertiliser subsidy of another `2 trillion for farmers. On top of this, many states announce loan waivers, free power, and many other “revdis” (doles).
In sum, there is no dearth of money being spent on agriculture or consumers to have food security. But the manner in which that money is spent is very sub-optimal. You can not get the big bang for your buck with such a poor design of policies. Our policy makers, being in competitive populism, feel that they can come back to power through such doles, and sometimes they do succeed. But they inflict a lot of damage to the sector’s health and its competitiveness. A nation’s power will be reflected in its capacity to innovate, produce and export to the world at competitive prices. Can India rise to this challenge?
The author is a distinguished professor at ICRIER. Views expressed are personal.
Given that a number of state elections are coming up, one can understand the overdrive on the part of the Union government to tame food inflation. Obviously, it does not want inflation to be an issue in the election campaigns. But how do we tame food inflation, and at whose cost, are important to analyse for rational policy-making.
The classic case is limiting the exports of basmati rice by setting a minimum export price (MEP) of $1,200/tonne. India has been exporting, on an average, about 4.5 million tonnes (mt) a year over the last five years or so. This is a premium rice consumed by the upper middle class and rich in India, and is exported to Gulf countries, some European nations, and also to the US. Punjab and Haryana are the primary producers. The export price normally hovers between $800 to $1,000/tonne. By adopting an MEP of $1,200, practically much of the basmati export is restricted. And if this MEP continues, in all likelihood, India’s basmati exports this year will register a sharp fall.
In many mandis of Punjab-Haryana, traders have been shy in buying basmati and, as a result, the prices for farmers have been ruling low compared to what they were when exports were fully open. So, the losers are ultimately the farmers of Punjab and Haryana, while the gainers would be upper income urban residents of India. Externally, it must be remembered that it takes years to develop export markets, and by having such a high MEP, India is basically handing over our export markets to Pakistan, which is the only other main competitor in basmati rice. Is this a conscious policy decision? Do our trade-policy-makers know what damage they are doing to agri-exports? There is a crying need to revisit and revise this MEP as soon as possible, preferably fixing it at $800-850/tonne.
But, such restrictive export policies are not limited to just basmati rice. They cover even broken rice, non-basmati white rice, parboiled rice, either through complete bans or export duties. What is needed is a stable export policy and not knee-jerk reactions. It is well known that India is the largest exporter of rice in the world, accounting for about 40% of the global exports in 2022-23. Much of the non-basmati rice goes to several African countries, which had to press the panic button when India announced ban on exports of non-basmati white rice. That does not leave India with a good image as a leader of the Global South. The only saving grace was the clause in the export policy which mentioned that if some countries write to Government of India, then it can consider their request on case-by-case basis. That’s surely not a good way to design an export policy.
Our restrictive export policy has gone on to wheat export bans, export duty of 40% even on onions, and so on. With such restrictive policies, how can one dream of doubling India’s agri-exports, a target set by the Union government? It may be noted that in 2013-14, the last year of the UPA government, India’s agri-exports touched $43.27 billion, up from $8.67 billion in 2004-05 when it took over the power at the Centre. This is almost five-fold growth in 10 years! If the same momentum had been maintained during 10 years of NDA rule, agri-exports should have touched $200 billion. But, in reality, it may not touch even $50 billion this year. A large explanation of this failure lies in restrictive exports to favour domestic consumers at the cost of farmers. A typical urban consumer bias, which inflicts a large ‘implicit tax’ on our farmers. That’s surely not the right way to design agri-export policies. Export markets are premium markets and need to be developed and maintained over years.
If domestic consumers need to be helped, it should be through domestic income policy, well targeted (aimed at only the vulnerable sections of the society). When poverty is hovering around 15%, as per the multi-dimensional poverty estimate of the NITI Aayog, and when more than 800 million people get free wheat/rice (5kg/person/month), one does not understand the logic of putting an MEP of $1,200/tonne on basmati rice, and handing over years of hard work of Indian rice traders to Pakistan. This is simply perverse.
Overall, it must be kept in mind that exports of agriculture also reflect how competitive our agriculture is vis-à-vis the rest of the world, and how much surplus it can generate. Competitiveness results primarily from increasing productivity and getting more from less. That, in turn, requires massive investments in agriculture R&D, seeds, irrigation, fertilisers, better farming practices including precision agriculture. India’s overall investment in agriculture R&D—both of the Centre and of the states—hovers around 0.5% of the agri-GDP. This is too small, and needs to be immediately doubled, if not tripled, if India is to become a powerhouse of agriculture production as well as agri-exports. But unfortunately, with populism which peaks at election times, we go for more subsidies—be it food subsidy of more than `2 trillion for consumers or fertiliser subsidy of another `2 trillion for farmers. On top of this, many states announce loan waivers, free power, and many other “revdis” (doles).
In sum, there is no dearth of money being spent on agriculture or consumers to have food security. But the manner in which that money is spent is very sub-optimal. You can not get the big bang for your buck with such a poor design of policies. Our policy makers, being in competitive populism, feel that they can come back to power through such doles, and sometimes they do succeed. But they inflict a lot of damage to the sector’s health and its competitiveness. A nation’s power will be reflected in its capacity to innovate, produce and export to the world at competitive prices. Can India rise to this challenge?
The author is a distinguished professor at ICRIER. Views expressed are personal.
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