Implications of India’s rising Agri exports

India’s export business has been among the worst hit by the ongoing pandemic. In the first four months of the current financial year, namely, from April to July, merchandise exports have fallen by over 30% over the corresponding period in 2019. But amidst this gloom, there is cheer in officialdom that exports of agricultural commodities have increased.

In July, several agricultural commodities, especially of food grains and oils, showed a spurt in exports. As compared to the levels in July 2019, exports of non-basmati rice rose by 48%, other cereals by 205% and oil seeds by nearly 33%. If we go back to the figures of the first quarter, namely April to June, for which further details are available, the trends in exports of food grains and oils become somewhat clearer. During this period, exports of several food grains increased significantly over the corresponding period in 2019.

Non-basmati rice exports increased by over 56%, wheat by 130%, and pulses by nearly 28%. Contributing to these trends are two factors; one, increase in supplies due to record food grains production, and two, deregulation of agricultural markets effected by the promulgation of three ordinances. The amendment of the Essential Commodities Act effectively deregulated the market for food grains, among others. 

The two other ordinances, the Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 and The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 were introduced, according to the government, to scout for new markets, boost exports and double farm incomes.

Although the implications of these ordinances have been discussed threadbare, the ramifications of the emphasis on export-orientation of Indian agriculture have not been considered. This is a fundamental shift, for over the past five decades, agricultural policies have focused on the realisation of two critical objectives: food security, at the household level and for the country as a whole, and protection of rural livelihoods. 

The significance of this policy orientation of agriculture was realised even more during the country’s tryst with economic liberalisation from the early 1990s, which overlapped with India joining the World Trade Organization (WTO).

One of the most contentious issues in the WTO has been the liberalisation of the global market for agricultural commodities, an agenda supported by the US and the EU. India’s stance in this regard was effectively articulated by the then Commerce Minister, Pranab Mukherjee, who argued in the 1994 Ministerial Meeting which launched the WTO that the Government of India was “firmly committed to protecting the interests of our farmers who constitute the country’s life-line and to the objective of ensuring food security for our people”.

By adopting this stance, the government was able to impose high tariffs on commodities that are vital for protecting domestic food security and rural livelihoods, and which continue till date. If such high tariffs had not been imposed, global agri-business could have easily swamped India’s markets by exporting subsidised products from both the US and the EU, as they did in many other developing countries. 

In the subsequent negotiations held for furthering the trade liberalisation agenda in the WTO, India, along with a group of developing countries (the G-33), strongly articulated the view that food security, rural livelihoods and rural development were the primary objectives of agriculture in developing countries. The G-33 argued that additional policy instruments must be agreed to by the WTO members for furthering these objectives.

This position became the effective counter to the pressures brought by the US, the EU and other agricultural exporters for unbridled opening up of agricultural markets. India maintained its longstanding policy focus on agriculture while negotiating bilateral free trade agreements (FTAs). This enabled the government to protect domestic markets from imports despite engaging with agricultural exporters like Thailand, Malaysia and Vietnam. Several ongoing FTA negotiations have not progressed simply because India has remained steadfast in protecting its domestic agricultural market, especially its small farmers from import competition.

The implications of the change in agricultural policies being ushered in by the government are not difficult to fathom. In India’s bilateral FTA engagements as well as in the WTO, partner countries are unlikely to accept New Delhi’s export-oriented stance, while its own market remains largely protected behind high tariffs. But before comprehensively opening India’s market to imports, the government must have a plan in place to sustain domestic food security and also protect the livelihoods of the almost 60% of the workforce that is directly or indirectly dependent on agriculture.