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Decline in India’s Agricultural Trade Highlights Need for Balanced Policy

Context:

Recently, data from the Department of Commerce revealed that India’s agricultural exports decreased by 8.2% in 2023-24, mainly due to government restrictions on various commodities. At the same time, agricultural imports fell by 7.9% due to lower edible oil prices. These trends highlight the necessity for a balanced agriculture export-import policy to stabilize the agricultural sector, ensuring both domestic availability and market growth.

Relevance:

GS III: Agriculture

Dimensions of the Article:

  1. Current State of Indian Agricultural Exports and Imports
  2. Key Factors Influencing India’s Agricultural Exports and Imports
  3. Agricultural Export Policy

Current State of Indian Agricultural Exports and Imports

Agricultural Exports:
  • Decline in Exports: India’s agricultural exports fell by 8.2% in the fiscal year 2023-24, totaling USD 48.82 billion, down from USD 53.15 billion in 2022-23.
  • Sugar Exports: Banned from October 2023, reducing exports to USD 2.82 billion from USD 5.77 billion the previous year.
  • Rice Exports: Ban on all white non-basmati rice exports from July 2023 due to domestic availability and food inflation concerns. Only parboiled grain shipments are allowed with a 20% duty, leading to a decline in non-basmati exports from USD 6.36 billion to USD 4.57 billion.
  • Wheat Exports: Stopped in May 2022, falling to USD 56.74 million in 2023-24 from USD 2.12 billion in 2021-22.
  • Onion Exports: Ban lifted in May 2024, with a floor price of USD 550 per tonne and a 40% duty. Exports fell to 17.08 lakh tonnes (USD 467.83 million) from 25.25 lakh tonnes (USD 561.38 million).
  • Growth in Other Commodities: Basmati rice exports reached USD 5.84 billion. Spices exports crossed the USD 4 billion mark. Marine products, castor oil, and other cereals (mainly maize) also saw growth.
Agricultural Imports:
  • Decline in Imports: India’s agricultural imports dropped by 7.9% in 2023-24, due to global market conditions and domestic demand.
  • Edible Oils: Major factor in the decline. Imports of vegetable fats were USD 20 billion in 2022-23, influenced by the Russia-Ukraine war. In 2023-24, the FAO vegetable oil sub-index eased to 123.4 points, reducing the import bill below USD 15 billion.
  • Pulses: Imports nearly doubled to USD 3.75 billion, the highest since 2015-16 and 2016-17 levels, showing continued dependence on foreign sources to meet domestic demand.
Analysis:
  • Export Restrictions: Measures like bans on sugar and rice exports were taken to ensure domestic availability and control food inflation, but they significantly impacted overall export figures.
  • Import Dependence: The reliance on imports for essential commodities like edible oils and pulses indicates a need to boost domestic production to reduce vulnerability to global market fluctuations.
  • Policy Implications: Effective management of trade policies, enhancing domestic production capabilities, and strategic export-import regulations are crucial to balancing domestic needs and international trade dynamics

Key Factors Influencing India’s Agricultural Exports and Imports:

Export Restrictions:

  • Government-imposed curbs on rice, wheat, sugar, and onion exports due to concerns over domestic availability and food inflation.
  • These restrictions significantly declined the exports of these commodities.

Global Price Movements:

  • The UN FAO food price index (base: 2014-16=100) tracks global agri-commodity prices.
  • FAO food price index dropped from an average of 119.1 points in 2013-14 to 96.5 points between 2013-14 and 2019-20, reflecting a global price crash.
  • Post-COVID-19 and the Russia-Ukraine war, the index soared to 140.8 points in 2022-23.
  • In 2023-24, the average FAO index eased to 121.6 points, leading to a decline in India’s edible oil import bill.

Government Policies:

  • Low or zero import duties on pulses and edible oils contradict the goal of boosting domestic production.
  • This policy favors imports over domestic cultivation, potentially discouraging crop diversification and undermining long-term agricultural development.

Agricultural Export Policy:

About:

  • An agricultural export policy comprises government rules, actions, and encouragements aimed at regulating and boosting agricultural goods exports.
  • The policy includes export subsidies, tariff reductions, quality standards, market access agreements, financial incentives, and trade promotion initiatives.
India’s Agriculture Export Policy, 2018:
  • Implemented to leverage India’s agricultural export potential, establish India as a leading force in global agriculture, and increase farmers’ incomes.
  • Objective: Doubling agricultural exports from USD 30+ billion to over USD 60 billion by 2022.
  • Focus on promoting ethnic, organic, traditional, and non-traditional agri-products exports.
  • Establish a monitoring framework for implementation.
Elements:
  • Strategic: Policy measures, infrastructure, logistics, and supporting a holistic approach to boost exports with greater state government involvement.
  • Operational: Focus on clusters, promoting value-added exports, marketing and promoting “Brand India,” attracting private investments, and establishing a strong quality regime and research & development.
Challenges to the Agri-Export Policy:
  • Frequent changes in export policies disrupt market stability and long-term trade relationships.
  • Reduced import duties on pulses and low tariffs on edible oils aim to ensure consumer affordability but conflict with promoting domestic crop diversification.
  • Populist measures during election seasons undermine fiscal discipline and agricultural sector financial health.
  • Insufficient investment in agricultural R&D, currently around 0.5% of agricultural GDP, needs to be increased for substantial growth.
  • Ensuring consistent quality and compliance with international sanitary and phytosanitary standards is challenging due to pests and diseases.
  • Competition in pricing and quality and exchange rate fluctuations influence the competitiveness of Indian agricultural exports.

-Source: Indian Express


June 2024
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