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Saturday, 06 September 2014 00:00
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Agriculture competitive without subsidies

The fact that India’s agriculture exports have grown the fastest in the world in the last decade is of course related to the low base, but there can be little doubt that India is fast emerging as a player to reckon with. Indeed, had it not been for the government’s on-off policy on agriculture exports, India could have done even better—had enough wheat been released for exports some months ago when world prices were very high, India could have even earned precious foreign exchange. A paper by Ashok Gulati, Anwarul Hoda and Surbhi Jain last year had detailed analysis of India’s competitiveness and, even in wheat, India is quite competitive whereas the edge is very high in the case of rice. Imagine how this would be multiplied if India was to adopt modern farm practices and increase its productivity to global levels. One thing that needs to be kept in mind, of course, is that most people tend to think of Indian farmers as backward and not market-oriented, but nothing could be farther from the truth. When Gujarat farmers realised the benefit of Bt cotton, they took to it en masse and India quickly emerged as a big global supplier of cotton. Similarly, when hybrid maize promised similar returns, farmers took to it equally quickly and yields rose around a third in the 2000s and that is why India’s exports are doing so well.

What is worrying, and that is what the government needs to work on, is a recent report by the agriculture division of the USFDA—this is the report that points out India’s farm exports rose 21.3% per annum in the last decade versus Indonesia’s 17.6%, Brazil’s 14.9%, the EU’s 10.1% and the US’ 9.2%. The report says that one of the drivers of India’s exports has been government support, particularly for wheat and rice. That, in turn, cites earlier reports that conclude India’s farm support has been steady at between 25% and 30% of agricultural GDP. This is worrying because what the US FDA seems to have done is to take all government spending in rural areas—on irrigation and flood control or MGNREGA or even FCI procurement, for instance—and assumed that this is farm support. In actual fact, this is the wrong way to calculate support. For one, given irrigation does not distort trade, it is not even clear why such expenditure should be included—it is true this is not a WTO report, but it shapes perception of India being a trade-distorter and so needs to be corrected. Indeed, while FCI’s selling of grain at below its ‘economic cost’ is considered a trade subsidy, this is also exaggerated since this builds in FCI’s inefficiencies—if FCI’s costs of procurement are higher than those of private traders, surely all its costs cannot be included as genuine costs? A study by Gulati-Hoda, in contrast, puts Indian subsidies at around 10% of agriculture output. Instead of refusing to provide official data on its subsidies, as India has done for the last decade, it needs to make this public and encourage more discussion/studies on this. Agriculture is one of India’s most promising exports, and it is not subsidised by as much as is made out.



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