Notes on being Aatmanirbhar in Agriculture

The full title of the article is “Aatmanirbhar in agriculture will require incentives for export of high-value agri-produce” and it has been written by Ashok Gulati.

One may ask: What does Aatma Nirbhar Bharat mean? Is it self-reliance or self-sufficiency in all essential items?

https://indianexpress.com/article/opinion/columns/atma-nirbhar-bharat-scheme-agriculture-narendra-modi-govt-covid-19-6491672/

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.

https://economictimes.indiatimes.com/markets/expert-view/govt-needs-to-understand-the-difference-between-self-sufficiency-and-self-reliance-swaminathan-aiyar/articleshow/76710928.cms?from=mdr

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.

https://indianexpress.com/article/opinion/columns/atma-nirbhar-bharat-scheme-agriculture-narendra-modi-govt-covid-19-6491672/

You might want to read about the following if you are unfamiliar with our “ship to mouth” situation: the sorry saga of the PL480 scheme and 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.

ibid

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!

Chart from the IE article

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.

ibid

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.

ibid

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.

ibid

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.

ibid

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.

https://scroll.in/article/967186/as-worlds-largest-importer-of-palm-oil-india-has-a-duty-to-push-for-ethical-production-practices

India: Links for 16th December, 2019

  1. “Farmers cultivating perishable crops suffer more in times like these. The harvest is destroyed quickly due to unseasonal rains, and what survives has to be sold off without any delay. like fenugreek, that cost Rs 8, Rs 7 and Rs 13 respectively at Nashik market cost about Rs 30, Rs 15 and Rs 30 respectively at the typical vendor’s stall in Matunga. Cabbage goes up to Rs 70 per kilo from Rs 8 per kilo in a span of 300 km. Eggplant, following a similar trajectory, is pegged at Rs 80 per kilo in Mumbai, while even at Vashi, it is sold at Rs 15 per kilo.”
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    I wish it had been written (and edited) better, but that being said, it is still an interesting, informative read about the supply chain in agriculture.
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  2. “if the Assembly had been elected on the basis of universal suffrage it would not necessarily have “possess[ed] greater wisdom…”. Indeed, “It might easily have been worse…I am quite frank enough to say that this House, such as it is, has probably a greater modicum and quantum of knowledge and information than the future Parliament is likely to have.” Despite being an ardent backer of universal franchise and (limited) reservations, Ambedkar expressed unease throughout the life of the Constituent Assembly about what would happen to the quality of the country’s democratic institutions once all Indians were allowed to participate.”
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    This might be behind a paywall, and if so, my apologies. But even the excerpt above is worth spending some time over. Dr. Ambedkar on the Constitution of India. That is from an essay in the Caravan magazine.
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  3. I find myself unable to excerpt form this article, I am not quite sure why – but the entire thing is worth a read, particularly if you are not familiar with the politics of CAB in the North-East.
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  4. “Much of the decline in the overall LFPR is because of a steep fall in the female LFPR, from 43 per cent in 2004-05 to a pathetic 23 per cent in 2017-18. This compares poorly with female LFPRs (in 2018) of 61 per cent in China, 52 per cent in Indonesia and 36 per cent in Bangladesh. Nor can this precipitous decline in female LFPR be explained away by higher rates of female enrolment in education, since the 20 percentage point drop in LFPR is observed among both the 30+ age group (down from 46 per cent to 27 per cent) and female youth (down from 37 per cent to a heartbreakingly low 16 per cent). The current and future implications for overall female economic and social empowerment are deeply saddening.”
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    Two articles by Shankar Acharya in the Business Standard next. One on the employment crisis in India
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  5. “The chart shows that between 2011 and 2018, India’s goods exports increased by only 8 per cent. In sharp contrast, Vietnam’s exports grew by 154 per cent, Cambodia’s by 114 per cent, Myanmar’s by 82 per cent, Bangladesh’s by 61 per cent, the Philippines’ by 40 per cent, and China’s by 31 per cent. Rapid export growth is all about increasing market share. Between 2011 and 2018, our share of world exports stagnated at 1.7 per cent, while Vietnam’s share more than doubled, Myanmar’s increased by 80 per cent, Bangladesh’s by more than 50 per cent, the Philippines’ by 27 per cent, and even giant China’s by over 20 per cent despite trade wars. China’s share of world exports increased by 2.4 percentage points over the seven years, which is 60 per cent more than India’s total share in 2018!”
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    And the second, in which he debunks the notion that the slowdown in India is because of the slowdown in global trade.