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 fun((I use the term in a very, very loose sense)) 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:
Source: An Excel file NOT from DGCIS
2. We need to grow exports, and we need to increase agricultural production. These are, even at an introductory level, obvious statements((ought to be, at any rate)). 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?((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)).
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! 🙂
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.
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!
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.
David Perell writes a mid-year review. It is worth reading in full, and there were multiple excerpts that I wanted to include here.
Writing is nature’s way of showing you how sloppy your thinking usually is. My mind tends to skip between topics, and the quarantine has made it worse because my Twitter usage has increased. At its worst, I develop BuzzFeed Brain where I find myself skimming instead of reading, secretly hoping my next intellectual breakthrough is just a thumb-scroll away. Long-form writing, however, re-activates my focus muscle and that’s why I do it.
2. Scroll on what Mumbai’s coastal road will look like. Next week’s episode on urbanization with Binoy will have this as a primary focus – keep an eye out for that one! The pictures are worth going through – full screen on a laptop/desktop recommended.
But the proposal reflects one of the many flaws that urban planners have found with the Mumbai coastal road project: it is expensive, beyond the city’s means and capacity and is likely to congest the city even further. A group of architects and urban planners in Mumbai have attempted to highlight these problems through visual representations of the planned coastal road. Since 2016, the group – named the Bandra Collective – has created several animated GIFs that superimpose artists’ impressions of the coastal road on actual photographs of Mumbai’s landmark coastline.
3. Varun Grover raises some interesting questions in an article about caste in the Indian Express:
There are two main arguments against reservations — one, they bypass merit and two, they should be given on the basis of economic status alone because otherwise “rich Dalits are taking undue advantage of the policy”. The broad logical observation here is that one can’t offer both these arguments together. If we are okay with poverty-based reservations then merit is not a genuine concern. That means we hate its bypassing only when a ‘lower-caste’ person gets ahead and not when a poor from our own caste does. That’s casteism 101.
4. If you have kids at home, this is worth it – I and my daughter are working through it, and it is genuinely fun, and educational!
Welcome to Camp Google. Two engaging weeks of interactive activities and assignments which will make this extended summer memorable for kids at home. Starting 1st July, 2020, we will share exciting and innovative assignments with your kids to help them explore skills such as painting, writing, storytelling, arts & crafts, coding and cooking. These assignments will also include internet safety tips which will teach you how to be responsible digital citizens while being safe online.
5. I haven’t read this just yet (I’m writing this on the 15th of July), but it was recommended by Grant Sanderson – and that’s good enough for me!
But Gödel’s shocking incompleteness theorems, published when he was just 25, crushed that dream. He proved that any set of axioms you could posit as a possible foundation for math will inevitably be incomplete; there will always be true facts about numbers that cannot be proved by those axioms. He also showed that no candidate set of axioms can ever prove its own consistency.
Simran, a student at the Gokhale Institute asks a series of question about the topic du jour:
I had a query in regard to the news that have been doing rounds – “Why did government order opening of wine shops?”
She asks other, related questions further on in her email, and I’ll get to them, but let’s go with this first.
Now, I am not privy to the decision-making process of either the state or the central governments, but there are two immediate responses that come to mind about the why: one, there is certainly demand for it!
And two, revenues *should* go up with the sale of alcohol. The reason I say should is because there have been arguments made about how the tax that the state government collects is when the distributor sells to the retailer, rather than when the consumer buys from the retailer. I am unable to find a report online of this nature, but I have certainly heard that argument being made. And that as a consequence, opening up liquor shops won’t have that much of an impact on government coffers, because tax has already been collected.
Very briefly, this argument doesn’t hold for at least two reasons. First, because although it is true that part of the tax that is paid is in the nature of an excise duty (that is, taxable when it leaves the manufacturer’s location), there are a whole host of other duties, taxes and cesses that are charged in addition. For instance, did you know that if you raise a glass in Uttar Pradesh, you are doing your bit to take care of abandoned cattle? Other states also impose other taxes – demand, as we are seeing right now, is fairly inelastic, so of course you should expect governments to tax as much as possible.
Second, and to my mind more importantly, never confuse stocks with flows! Forgive the pun, but once alcohol sales start flowing, the chain of taxation will kick into gear at all points. As per this report, all states and union territories put together expected to earn INR 1,75,000 crores (or thereabouts) from the sale of alcohol last year. The flow (and forgive the pun again) is important!
So, simply put, it is about the money.
Simran further goes on to ask:
The Delhi government announced a 70% ‘special coronavirus tax’ on alcohol.
Charging such a huge tax from a daily wage earner does sound cruel. Government claims that the tax will dissuade the poor from drinking but past reports claim that habitual drinker will never quit and this will just shrink the quantity of food he and his family consumes.
I was wanting to delve deeper into this topic –
Alcohol and its effect on poverty or is it
Poverty and its effect on consumption of Alcohol.
A series of tricky questions indeed! Let’s get to them one by one:
I can think of at least two reasons behind the Delhi government’s decision. First, the high price might deter at least some folks from queuing up, and second, revenues will go up. Unfortunately, these reasons are contradictory! If crowds go down because of the high prices, surely revenue cannot go up at the same time? The answer, as any econ student will tell you, lies in computing the elasticity of demand for alcohol. See this video, for instance, on the topic.
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Will the habitual drinker quit with such high prices under these circumstances?
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Honest answer: who knows? You can spend the rest of your lives drawing diagrams and scribbling questions, but at the individual level, we simply don’t know. There are too many variables for us to get a reasonable answer (changes in income, length of the lockdown, the level of desperation for alcohol, the urge to stockpile in face of an uncertain future, for starters). The habitual drinker will certainly think twice, but beyond that nothing useful can, or should, be said. That is my opinion. It is not quite the same topic, but read this article, written by Banerjee and Duflo (and read both of their books!)
… not least because writing this blog post helped me learn about the existence of the Institute for Alcohol Studies! (Dear folks at the IAS, let me know if you are in need of test subjects). They have a page on the impact of price on alcohol, and worries about conflict of interest aside, the report that alcohol is relatively price inelastic.
Both studies report much the same thing, although of course a whole host of other factors also come into play (level of education, extent of addiction being just two obvious ones). But long story short, for a one percent increase in price, you should expect demand to go down by less than one percent.
But that still doesn’t answer Simran’s question: does poverty cause one to consume alcohol, or does the consumption of alcohol cause poverty? My honest answer is that we simply can never know for sure, and it is probably both, but hey, nothing should get between a tricky, potentially unanswerable question and econometrics! Knock yourself out!
Thank you for the questions, Simran! I enjoyed answering them 🙂
In honour of the delayed departure of the monsoons from India, five articles about what the monsoon is, and what it means for us here in India.
“The unique geographical features of the Indian subcontinent, along with associated atmospheric, oceanic, and geophysical factors, influence the behavior of the monsoon. Because of its effect on agriculture, on flora and fauna, and on the climates of nations such as Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka — among other economic, social, and environmental effects — the monsoon is one of the most anticipated, tracked, and studied weather phenomena in the region. It has a significant effect on the overall well-being of residents and has even been dubbed the “real finance minister of India”.
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.. Wikipedia is always a good place to start.
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“Simulations of future climate generally suggest an increase in monsoon rainfall on a seasonal mean, area-average basis. This is due to the twin drivers of an increasing land-sea thermal contrast, but more importantly, warming over the Indian Ocean which allows more moisture to be carried to India. Typically increases in total rainfall over India may be in the region of 5-10%, although some climate models suggest more and some less. Climate simulations also show different patterns of rainfall change, so it is difficult to predict how rainfall might change within India. ”
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.. The Royal Meteorological Society’s take on what is likely to happen in India in the years to come when it comes to the monsoon, and why.
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“This Wednesday witnessed a rare meteorological coincidence. The southwest, or summer, monsoon, finally withdrew from the country, having overstayed and delayed its retreat by a record time. The same day, the northeast, or winter, monsoon made its onset, on time. The two events rarely happen simultaneously, though the three month-winter monsoon season is supposed to begin almost immediately after the end of the June-September summer monsoon season.”
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.. The Indian Express on a relatively rare occurrence in meteorological terms.
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“Along with their ancient perfumery, the villagers of Kannauj have inherited a remarkable skill: They can capture the scent of rain.”
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I’ve probably linked to this before, but it is always worth a reread: on capturing the essence of petrichor.
EconForEverybody 