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

Links for Friday, 17th July, 2020

  1. 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.

https://www.perell.com/blog/mid-year-review

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.

https://amp.scroll.in/article/876929/what-will-mumbais-coastal-road-actually-look-like-an-eyesore-say-these-architectural-projections

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.

https://indianexpress.com/article/opinion/columns/reservation-vinod-kambli-dalits-varun-grover-6501257/lite/

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.

https://events.withgoogle.com/summercamp2020/#content

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.

https://www.quantamagazine.org/how-godels-incompleteness-theorems-work-20200714

Daaru in times of the lockdown

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:

  1. 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!)
  2. I have only glanced through the two links I am sharing here, but hope to read them in more detail later. The first is an exercise in calculating the price elasticity of demand for households in India, and the second is a collation of a lot of studies done on the topic, but it deserves its own separate point…
  3. … 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.
  4. 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.
  5. 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 🙂

 

India: Links for 21st October, 2019

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.

 

  1. “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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  2. “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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  3. “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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  4. … and the Livemint on the same topic.
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  5. “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.