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Expanding exports of agri – exports

Context

  • Commerce and Industry Ministry is planning to expand exports by increasingagri-exports.

What benefits will it incur?

  • Increasing agri – exports will help increase India’s export basket and would also expand farmers’ incomes and amend farm distress.
  • This objective is achievable, provided there is a paradigm shift in policy-making from being obsessively consumer-oriented toaccording greater priority to farmers’ interests.

Export Highlights

  • During April-August 2017, exports of agricultural and processed food products summed up to US$ 7.26 billion.
  • During the period, export of cereals and animal products accounted for 45.62 per cent of the total exports, followed by livestock products (23.78 per cent), other processed foods (17.92 per cent), fresh fruits and vegetables (7.45 per cent), processed fruits and vegetables (6.25 per cent) and floriculture and seeds (1.15 per cent)
  • The country’s agricultural sector has potential to double farmer income and grow exports to $100 billion by 2022 from the present $36 billion, according to industry experts.
  • Export surplus from the country’s agricultural trade is higher than the corresponding figure achieved by the manufacturing sector.
  • On lines of the ‘Make In India’ campaign, the report urged the government to launch ‘Grow In India’ campaign aiming for substantial gains in agri-exports with a single authority to monitor India’s international agricultural trade-both exports and imports.

Indian Monetary Fund (IMF) update

  • According to the Survey, the IMF’s January update of its World Economic Outlook forecast projecting an increase in global growth from 3.1 per cent in 2016 to 3.4 per cent in 2017, with a corresponding increase in growth for advanced economies from 1.6 per cent to 1.9 per cent, augured well for India’s exports.
  • There are some promising signs of a global rebound in the last two quarters, as per the survey, adding that a strong export recovery would have broader spillover effects to investment.
  • India’s exports declined 1.3 per cent and 15.5 per cent in 2014-15 and 2015-16 respectively mostly due to a fall in global demand.
  • The trend of negative growth was reversed somewhat during 2016-17 (April-December), with exports registering a growth of 0.7 per cent to $ 198.8 billion from $ 197.3 billion in 2015-16 (April-December).
  • Steeper contraction in imports, compared to exports, during the first half of 2016-17 led to a sharp decline in trade deficit.
  • Despite slowing services exports, the decline in merchandise trade deficit helped improve the position of net exports of goods and non-factor services in the national accounts.

What are the challenges?

  • India’s agricultural exports increased at a brisk pace for more than two decades after the economy was opened up in 1991.
  • India’s agricultural trade surplus recorded a more than ten-fold increase between 1991-92 and 2013-14. Three years later, the picture is vastly different.
  • Between 2013-14 and 2016-17, agricultural exports fell by 22% while imports increased by 62%. As a result, the trade surplus has fallen by 70%.

What went wrong?

  • Previous government blamed a fall in international prices and loss of competitiveness due to currency movements for India’s dipping farm export earnings.
  • A report by the Organization for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization on the agricultural outlook, released in July this year, expects a flat to declining trend for primary commodity prices. The situation is particularly dismal for cotton, sugar and rice, which are major components of India’s agricultural export basket.
  • The government pro-consumer bias in India’s farm policy is unfair in putting export restrictions on important food items to prevent inflationary pressures in the domestic economy.
  • The policy deprives farmers of higher prices in the international market and also adds an element of income uncertainty. If the government is going to impose export restrictions when international prices peak, farmers would lose part of the incentive to cultivate exportable crops.

What changes are recommended?

  • The government needs to put in money to push infrastructure if exports have to be increased.
  • Improvement in warehousing infrastructure would also counter inflation concerns due to seasonal factors such as poor monsoon rains.
  • India’s warehousing capacity for perishables is disproportionately concentrated in a few regions. Almost 50% of cold-storage capacity is concentrated in the states of Uttar Pradesh and Punjab.
  • According to a report on warehousing in India by the National Institute of Public Finance and Policy released in September 2015, post-harvest losses of agricultural commodities is estimated to be at about Rs44,000 crore annually.
  • The cobweb effect means that higher cultivation leads to lower prices, which in turn leads to lower cultivation in the next period.
  • The problem of bumper crops leading to a price crash can be taken care of by policies such as minimum support prices.
  • India pursued the cause of legitimizing its procurement-based PDS at the WTO in the past two WTO ministerial conferences.
  • If India has to promote agri-exports, the country’s policymakers must build global value-chains for some important agri-commodities in which the country has a comparative advantage.
  • On the exports front, India is relatively competitive in cereals, especially rice and wheat and maize, and, at times, oilseeds, especially groundnuts and oil meals.
  • The country can also be competitive in groundnut and mustard oil, provided there is an open and stable export policy. India has also been the world’s second largest exporter of cotton.
  • The country has a great potential to export fish and seafood, bovine meat, and fruits, nuts and vegetables. These are the commodities to focus on in order to stimulate agri-exports.
  • Stimulating agri – exports would require infrastructure and institutional support — connecting export houses directly to farmer producer organizations (FPOs), sidestepping the APMC-regulated mandis, removing stocking limits and trading restrictions.
  • Stimulating such exports would also require structural reforms in agriculture.
  • A special package to support value-chains through infrastructural investments (in assaying, grading, packaging and storing facilities), which will also create jobs in rural areas, or assistance in adhering to sanitary and phytosanitary standards would make them more resilient to future price shocks.

Way ahead

  • India needs to adopt an open, stable and reliable export policy.
  • Abrupt export bans, high minimum export prices to restrict exports, or other quantitative restrictions on pulses, edible oils even on vegetables and cereals at times must give way to a policy not contradicting exports.
  • The import policy must be designed such that the landed price of palm oil and yellow pea never goes much below the domestic prices of their nearest rivals, say, soybean oil and chickpea, respectively.
  • Liberalizationof factor markets, especially land-lease markets, would also help in building more efficient and reliable export value-chains.
  • Long land-lease arrangements can facilitate private investments in building export-oriented global value-chains, generating rural non-farm employment and enhancing farmers’ incomes.
  • A farm-to-foreign” strategy, improvingagri-trade surpluses by promoting agri-exports, and most importantly create more jobs and bring prosperity to rural areas can sure be a go ahead.

Organization for Economic Co-operation and Development (OECD)

  • The mission of the Organization for Economic Co-operation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world.
  • The OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems.
  • It works with the governments to understand what drives economic, social and environmental change.
  • The organization measuresproductivity and global flows of trade and investment and analyze and compare data to predict future trends.
  • It set international standards on a wide range of things, from agriculture and tax to the safety of chemicals.
  • It recommends policies designed to improve the quality of people’s lives through the Business and Industry Advisory Committee to the OECD (BIAC) and with labour, through the Trade Union Advisory Committee (TUAC).

The International Monetary Fund (IMF)

  • IMFis an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
  • Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership.

Aims:

  • promote international monetary cooperation;
  • facilitate the expansion and balanced growth of international trade;
  • promote exchange stability;
  • assist in the establishment of a multilateral system of payments; and
  • make resources available (with adequate safeguards) to members experiencing balance of payments difficulties.
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