Agricultural Exports Decline in India

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Context

• India’s agricultural exports witnessed a notable decline of 8.2% in the fiscal year concluding on March 31, 2024.
• This downturn can be attributed to restrictive shipment measures imposed on various commodities, spanning cereals, sugar, and onions.

Statistical Data

• The total value of agricultural exports amounted to $48.82 billion during the 2023-24 period.
• This figure represents a decrease from the record high of $53.15 billion recorded in 2022-23, as well as the $50.24 billion recorded in the previous fiscal year, as per data from the Department of Commerce.

Historical Context

• Agricultural exports experienced a downturn, falling from $43.25 billion in 2013-14 to $35.60 billion in 2019-20.
• This decline coincided with a simultaneous increase in imports, rising from $15.53 billion to $21.86 billion over the same period.

Global Commodity Market Dynamics

• The decline in India's agricultural exports was largely influenced by a crash in global agri-commodity prices.
• The UN Food and Agriculture Organization’s (FAO) food price index (base: 2014-16=100) dropped from an average of 119.1 to 96.5 points between 2013-14 and 2019-20.
• Low international prices eroded the cost competitiveness of India's exports while exposing it to heightened vulnerability from imports.
• However, the global price recovery following the Covid-19 pandemic and Russia’s invasion of Ukraine saw a significant upturn.
• The FAO index surged to 140.8 in 2022-23, resulting in India's agricultural exports and imports reaching all-time highs.
• Despite this, exports dropped in the fiscal year just concluded, showcasing the volatile nature of global agricultural markets.

Drivers of Exports

Sugar and Non-Basmati Rice

• Table 1 illustrates that the decline in exports was primarily led by sugar and non-basmati rice.

Sugar Export Restrictions

• The government-imposed restrictions preventing sugar exports during the current production year from October 2023.
• Consequently, sugar exports were valued at only $2.82 billion in 2023-24, significantly lower than the peaks of $5.77 billion and $4.60 billion in previous fiscal years.

Non-Basmati Rice Export Restrictions

• Concerns over domestic availability and food inflation led to a ban on exports of all white non-basmati rice since July 2023.
• Currently, only parboiled grain shipments within the non-basmati segment are permitted, subject to a 20% duty.
• These restrictions caused overall non-basmati exports to decrease from a record high of $6.36 billion in 2022-23 to $4.57 billion in 2023-24.

Wheat and Onion Export Restrictions

• Export restrictions on wheat were implemented in May 2022, resulting in a drastic decline in value to $56.74 million in 2023-24, after reaching an all-time high of $2.12 billion in 2021-22.
• On May 4, just before the third phase of the Lok Sabha polls, the Centre lifted the ban on onion exports. However, a floor price of $550 per tonne and a 40% duty were imposed.
• Despite these measures, onion exports only amounted to 17.08 lakh tonnes ($467.83 million) during April-February 2023-24, compared to 25.25 lakh tonnes ($561.38 million) in the entire fiscal year of 2022-23.

Other Export Items

• Most major agricultural export items, excluding marine products, castor oil, and other cereals (primarily maize), have shown growth.
• Basmati rice exports reached $5.84 billion in 2023-24, surpassing the previous high achieved in 2013-14.
• Spices exports exceeded the $4 billion mark for the first time.
• However, exports of buffalo meat, oil meals, and raw cotton, although increased from the previous fiscal year, remained below their respective historical peaks.

Drivers of Imports

Edible Oils

• Table 2 highlights that the 7.9% decline in overall agricultural imports during 2023-24 was primarily driven by a significant reduction in imports of edible oils.
• In 2022-23, India's imports of vegetable fats exceeded $20 billion, particularly following the Russia-Ukraine war, during which the FAO index and the vegetable oil sub-index averaged 140.8 points and 168.5 points, respectively.
• However, in 2023-24, the average FAO index eased to 121.6 points, and the vegetable oil sub-index to 123.4 points, resulting in lower global prices.
• Consequently, the import bill for vegetable oils decreased to below $15 billion during the last fiscal year.

Pulses

• Despite the reduction in spending on cooking oil imports, the import of pulses nearly doubled to $3.75 billion in 2023-24.
• This marked the highest level since the fiscal years 2015-16 and 2016-17 when imports stood at $3.90 billion and $4.24 billion, respectively.

Policy Takeaways

Stability and Predictability

• Farmers and agricultural traders, akin to all business operators, prioritize policy stability and predictability.
• Sudden bans or restrictions on agricultural exports, even extending to products like de-oiled rice bran, typically favor consumer interests over those of producers.
• Such actions, especially when implemented overnight as seen with wheat exports, can inflict significant damage. Establishing export markets requires time and effort.
• Economists often advocate for a more predictable and rules-based policy framework, suggesting the introduction of temporary tariffs instead of outright bans or quantitative restrictions.

Import Policies

• The Modi government has eliminated or reduced import duties on various pulses and edible oils.
• However, these low or zero tariffs contradict the government's objective of promoting crop diversification, particularly away from water-intensive crops like rice, wheat, and sugarcane.

Future directions

• Post-election, there may be a need for a more rationalized export-import policy.
• This policy should strike a balance between the interests of producers and consumers while aligning with both short-term and long-term goals for the agricultural sector.

SOURCE: THE INDIAN EXPRESS