Sisyphus was lucky to be given the task of pushing that boulder. If they really wanted to be cruel, they could have asked Sisyphus to write about India’s agricultural policies.
Given that a number of state elections are coming up, one can understand the central government’s overdrive to tame food inflation. Obviously, it does not want inflation to be an issue in election campaigns. But how we tame food inflation, and at whose cost, is important to analyse for rational policy making.
Thus begins Ashok Gulati’s recent column on taming food inflation in India – and it becomes angrier from there on in. And with good reason.
We now have a minimum export price on basmati rice, of $,1200 per tonne. The typical export price for this commodity for the last five years or so has been not more than $1,000 per tonne, so let’s call this what it really is: a ban on exporting basmati rice.
So if there is supply, and the government artificially curtails demand, what do you think will happen to the price? Who will get this lower price?
Plus, demand has been curtailed not in India, but abroad (say, for example, in Dubai). Who will help meet this demand in Dubai? Farmers in Pakistan – so it would seem the Indian government has put in place policies to help Pakistani farmers. Go figure. Here’s how Ashok Gulati puts it: “Externally, it must be remembered that it takes years to develop export markets, and by putting such a high MEP, India is basically handing over our export markets to Pakistan, who is the only other main competitor of basmati rice. Is this a conscious policy decision?”
There’s this rather depressing statistic in the piece: “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 power at the centre. This is almost a five-fold growth in 10 years. If the same momentum had been maintained during the 10 years of NDA rule, agri-exports should have touched $200 billion. But in reality, they may not touch even $50 billion this year (2023-24).”
Finally, Ashok Gulati also points out that our R&D expenditure on agriculture is 0.5% of our agri-GDP. And that, as he says, is simply too small a number, and needs immediate doubling, if not tripling.
Very few things in life are as frustrating as analyzing India’s agricultural policies in general. And within this set of policies, our muddled thinking about agricultural exports takes the cake.
“Agri-exports touched $41.8 billion in FY 2020-21, registering a growth of 18 per cent over the previous year.” .. .. Here’s a fun1 exercise. Figure out where the authors got the data from? There’s a very good reason I ask this question. We don’t (yet) have something like FRED available in India. When you read an article such as the one we’re going through today, it is one thing to take a look at the statistics and think about them – and quite another to try and dig out the data yourself. It is a skill that most of us pick up out of necessity when we start work – you’d do well to start practicing right now. You’ve won if you can see this on your screen:
2. We need to grow exports, and we need to increase agricultural production. These are, even at an introductory level, obvious statements2. But as the article points out, we therefore need to dig deeper into the data to be able to answer this question in its entirety. Which products can we export more of? Why? At what cost? Think of it this way: in what ways can the Indian cricket team get better? That’s like asking which specific Indian players can get better, in a way. So if we say that the team will get better if Kohli bats better and Bumrah bats better, is that a correct answer or just lazy thinking? Because they’re already pretty good, no?3.
3. As the article points out, rice accounts for about 21% of the $41 billion. Note that the statistics split this out by basmati and non-basmati rice, we’re adding these up. After that it is marine products (14.46%), spices (9.66%), buffalo meat (7.69%) and sugar (6.77%). That is, the top five categories together account for about 60% of all our agricultural exports. (Get familiar with the power law, if you aren’t already)
4. The rest of the article focusses on rice and sugar, and points out that exporting these two crops is akin to exporting water – and it is not as if we have a lot of it to go around.
India is a water-stressed country with per capita water availability of 1,544 cubic metres in 2011, down from 5,178 cubic metres in 1951. This is likely to go down further to 1,140 cubic metres by 2050. It is well known that a kg of sugar has a virtual water intake of about 2,000 litres. In 2020-21, India exported 7.5 million tonnes of sugar, implying that at least 15 billion cubic metres of water was exported through sugar alone. Another water guzzler, rice, needs around 3,000 to 5,000 litres of water for irrigating a kg, depending upon topography. Taking an average of about 4,000 litres of water per kg of rice, and assuming that half of this gets recycled back to groundwater, exporting 17.7 million tonnes of rice means that India has virtually exported 35.4 billion cubic metres of water just through rice.
6. “Moreover, the export subsidy given by the government to clear excessive domestic stocks of sugar has led many other sugar-exporting countries like Australia, Brazil and Thailand to register a case against India at the WTO, which India may find difficult to defend.” .. .. As a student, here are the questions you should be asking (in my opinion). Where can I find details about this case? How do these things work? They have a whole course about it, and you really should sign up for it. If you even think about asking if you get a certificate for this course, you end up killing a little kitten. Yes, really.
7. “Farming practices such as alternate wetting drying (AWD), direct-seeded rice (DSR) and micro-irrigation will have to be taken up on a war footing.” .. .. What is AWD? What is DSR? What is micro-irrigation? Better questions: which countries do this extensively? To what effect? What stops India from doing this? What can be done about it? I haven’t hyperlinked to the last five questions, and that is deliberate. Try searching for the answers yourself, and tell us what you learnt! 🙂
8. “Closer evaluation of non-basmati exports exposes another interesting fact: These exports are actually sourced not only below-MSP but also below the average domestic mandi prices prevailing in the country after one adjusts for freight from mandi to port and loading charges at the port. How does that happen? One possibility is that a substantial part of supplies through the PDS and the PM Garib Kalyan Yojana are leaking out and swelling rice exports.” .. .. This really takes us into the weeds of agricultural economics, but here’s an article to get you started.
9. And finally, the authors’ proposed solutions:
“It is high time that policymakers revisit the entire gamut of rice and sugar systems from their MSP/FRP to their production in an environmentally sustainable manner. We must ensure that we produce more from every drop of water. Also, at least in the case of rice, procurement will have to be limited to the needs of PDS, and within PDS, it is high time to introduce the option of direct cash transfers. All these will go a long way to promote better diversification of our agri-systems and better use of our scarce water supplies and lesser GHG emissions. We could save on the unproductive use of financial resources locked up in burgeoning grains stocks with the FCI. These savings can be used for doubling investments in agri R&D to improve productivity on a sustainable basis and improve farming practices for minimising carbon emissions. An export-led strategy also needs to minimise logistics costs by investing in better infrastructure and logistics. Only then one can ensure sharing the returns of these investments with farmers to give them a better deal in terms of higher and more stable incomes.”
I’ve been writing posts like these for a while now. Here’s one about fiscal policy in India, here’s one about footwear in India, here’s one about a Marques Brownlee interview, and if you dig through the archives, you’ll find plenty more. The reason I bring this up is that I think there is genuine value to taking notes as you read anything, and publishing these notes online. Plus, as a student, there is genuine merit in asking a simple question repeatedly: where did the authors get the data from? Especially in India, the answers often aren’t simple, and the exercise is therefore worth your time.
Another reason I bring this up is that if you do this long enough, you end up making a very helpful mental map of whatever it is that you’re studying. And trust me, over time, learning compounds.
So I hope that this helped you learn a little bit more about agriculture in India, but I also hope that you learnt how simple, and powerful, it is to take notes regularly. Please do! 🙂
Yes, yes, I know. My point is to ask if we should be focusing on the star performers, generally speaking, or the relative laggards. And yes, I agree that both were not at peak performance in the WTC final[↩]
If you are confused about the difference between self-reliance and self-sufficiency, here is Swaminathan Aiyar in ET:
Self-reliance means making your own economy strong and strong does not mean giving it crutches like protectionism. That is the wrong way. Self-reliance means we say, look I am uncompetitive because I have relatively high cost of land or labour, high interest rates, high electricity rates and high freight rates. If I get all these down, I become more competitive. So if you are going in that direction, India will become strong and competitive. It will be able to trade in the world and we will not have a trade deficit problem. So the correct self-sufficiency means you strengthen your economy by making it more productive and more low cost. It does not mean you make it high cost by putting up tariffs. Therefore, protecting your least productive industry is the wrong direction.
The consensus among economists seems to be that we should be targeting self-reliance rather than self-sufficiency, but I would say that it is one thing to debate which to aim for without being explicit and crystal clear about what each of these terms mean.
You might want to read this Wikipedia article about the issue. Also, a request: if any of you have articles about the distinction, and any clear articulation about India’s policy stance in this regard, I would love to read it.
It is presumed that for a large country like India, with a population of 1.37 billion, much of the food has to be produced at home. We don’t want to be in a “ship to mouth” situation, as we were in the mid-1960s.
You might want to read about the following if you are unfamiliar with our “ship to mouth” situation: the sorry saga of the PL480 schemeand India (two separate links)
In the mid-1960s, if India had spent all its foreign currency reserves — the country had about $400 million — just on wheat imports, it could have imported about seven million tonnes (mt) of wheat. Today, India has foreign exchange reserves of more than $500 billion.
A question that is rarely asked – or at least, not asked as often as I would like it to be asked – is how did we get to a stage where we have more than $500 billion in reserves? We must have earned it, we obviously can’t print dollars. Which begs the question, how did we earn it? Two things: we depreciated our exchange rate, and we exported a helluva lot more post 1991. Self-sufficiency, in other words, tends to not work well!
Agri-exports have been subdued for the last six years or so, and we have yet to recover the peak of the ear 2013-2014. As Ashok Gulati mentions in his article, that year’s performance has not been bettered since.
What do our exports look like currently?
Marine products with $6.7 billion exports top the list, followed by rice at $6.4 billion (basmati at $4.6 billion and common rice at $2.0 billion), spices at $3.6 billion, buffalo meat at $3.2 billion, sugar at $2.0 billion, tea and coffee at $1.5 billion, fresh fruits and vegetables at $1.4 billion, and cotton at $1 billion.
Of which, Prof. Gulati picks rice and sugar for analysis – $8.4 billion worth of exports in total. Now, here is where all of what you may have learnt in microeconomics starts to make sense.
Think of a farm producing rice. The production function will tell you that you produce rice by combining inputs to produce output. What inputs? Labor, land – but also water and fertilisers. And the problem with fertilisers and water is that it is heavily, heavily subsidised in India.
Again, microecon 101: whatever isn’t priced tends to be overused, and that too indiscriminately. So what happens when you export more rice and more sugar every year? Well, to export more you have to produce more, and to produce more you have to use more inputs, and when you use inputs inefficiently, you end up exporting that input in larger quantities than is optimal.
Or, the simple version: we are exporting a lot of our water when we export sugar and rice. We’re also polluting our rivers and our soil, but that’s a story for another day.
But more importantly, it is leading to the virtual export of water as one kg of rice requires 3,500-5,000 litres of water for irrigation, and one kg of sugar consumes about 2,000 litres of water. So, in a sense, the two crops are leading to a faster depletion of groundwater in states such as Punjab, Haryana (due to rice) and Maharashtra (due to sugar). Thus, quite a bit of the “revealed comparative advantage” in rice and sugar is hidden in input subsidies. This leads to increased pressure on scarce water and a highly inefficient use of fertilisers.
What about the other side of the story – which is the big ticket item when it comes to imports of agricultural goods?
On the agri-imports front, the biggest item is edible oils — worth about $10 billion (more than 15 mt). This is where there is a need to create “aatma nirbharta”, not by levying high import duties, but by creating a competitive advantage through augmenting productivity and increasing the recovery ratio of oil from oilseeds and in case of palm oil, from fresh fruit bunches.
And within oils, Prof. Gulati recommends increasing our productivity in oil palm:
This is the only plant that can give about four tonnes of oil on a per hectare basis. India has about 2 million hectares that are suitable for oil palm cultivation — this can yield 8 mt of palm oil. But it needs a long term vision and strategy. If the Modi government wants “aatma nirbharta” in agriculture, oil palm is a crop to work on.
And on a related note, you may want to read this article from Scroll, an excerpt from which is below:
It is now clear that, in the face of rising demand, domestic production will remain way under 10% in the years to come. That essentially means that India will continue to import palm oil in various forms. However, the dynamics of imports is not just dictated by demand but also geopolitics. For instance, diplomatic tensions with Malaysia led the Indian government to discourage imports of refined palm oil from the Southeast Asian nation, resulting in a precipitous fall in recent months. Domestic palm oil processors, such as millers and refiners, also routinely demand restrictions on imports so they can protect their margins. The Solvent Extractors’ Association of India recently presented the government with a list of demands that would favour local processors. This puts further price pressures in Malaysia and Indonesia, making it more difficult to green the palm oil supply chain.
The usual five articles today, and as usual, about India. But there is a common theme that runs through them: that not just of agriculture, but also a tribute of sorts to a man about whom many more people should know.
“It was time for a satyagraha — and not just in Gujarat. The late Sharad Joshi, leader of the Shetkari Sanghatana in Maharashtra, took around 10,000 farmers to Gujarat to stand with their fellows there. They sat in the fields of Bt cotton and basically said, ‘Over our dead bodies.’ Joshi’s point was simple: all other citizens of India have acesss to the latest technology from all over. They are all empowered with choice. Why should Indian farmers be held back?”
Today’s series is inspired by Amit Varma’s article yesterday in the Times of India, in which he speaks about farmers in India not getting access to technology, but also speaks about Sharad Joshi…
“Joshi’s insights in the late 1970 was that this was caused not by the greed of middlemen but the interference of the Indian state. The state had set forth rules that the farmer could not sell his produce in an open market, responding to supply and demand, but only to a government appointed body called the Agricultural Produce Market Committee (APMC). Because the farmers are not allowed to sell to anyone else, they are forced to take the price offered to them. And because all produce comes through the APMC, buyers also have no bargaining power.”
…about whom he has written earlier as well.
“Sharad Anantrao Joshi (3 September 1935 – 12 December 2015) was an Indian politician who founded the Swatantra Bharat Paksh party and Shetkari Sanghatana (farmers’ Organisation), He was also a Member of the Parliament of India representing Maharashtra in the Rajya Sabha, the upper house of the Indian Parliament during the period 5 July 2004 till 4 July 2010. On 9 January 2010 he was the sole MP in Rajya Sabha to vote against the bill providing 33% reservation for women in Indian parliament and assemblies.Sharad Anantrao Joshi was a member of Advisory Board of the World Agricultural Forum (WAF), the foremost global agricultural platform that initiates dialogue between those who can impact agriculture. He is also founder of Shetkari Sanghatana, an organisation for farmers. Shetakari Sanghatana is a non-political union of Farmers formed with the aim to “Freedom of access to markets and to Technology”
Who exactly was Sharad Joshi: the Wikipedia version
“In his massive rallies, Joshi would often speak of farmers as entrepreneurs who were shackled by statism. He campaigned for higher prices because he believed these were being kept artificially low by the government, but he insisted that what was really needed was to liberate Indian farmers from a web of state controls.He believed the solution was free markets. Joshi was perhaps a soulmate of another liberal leader of the farming community, N.G. Ranga, one of the founders of the Swatantra Party in 1959. It is perhaps not a coincidence that both Ranga and Joshi were economists by training.”
And to finish off today’s list, two articles that were written in his honor after he passed away four years ago. One from Livemint…
“However, unlike many other farmer leaders who often ask for more subsidies and higher Minimum Support Prices (MSP) from the government, Sharad Joshi’s main instrument to better farm incomes was to seek economic freedom for farmers – freedom to obtain best farm technologies from anywhere in the world and the freedom to sell their produce anwhere across time and space and time. This he gathered from his early experience in farming.”
… and the other from TOI, written by Ashok Gulati.