The Telegraph
Tuesday , July 8 , 2014
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- Indian agriculture needs some radical policy reforms

The Bharatiya Janata Party government has been friendly to private industry; the relationship has paid off, as shown by Gujarat’s growth rate and share of industry in GDP — close to a fifth by the last count. India is an underdeveloped country; it lags far behind the industrial world. And in the past two decades, it has lagged far behind China. This is depressing. I had hoped that the rise to prime ministership of Manmohan Singh, who came with a reputation as a liberal reformer, would reverse the trend. But it did not. He appointed incompetent ministers, and exercised little control over them. His years as prime minister were a wasted decade, in which the growth rate of the economy nearly halved. For this reason, I welcomed the change in government.

It, however, gives early reasons for doubt. Ram Vilas Paswan, minister of consumer affairs, food and distribution raised import duty on sugar from 15 to 40 per cent. The first question that should be asked is, who is he to raise import duty? Taxes are entirely in the domain of the finance minister; it is he who should raise or reduce them. Even coalition politics does not make it necessary for him to cede power, for his party has an absolute majority in Parliament. If Aya Ram Gaya Ram Vilas Paswan walks out of the government, it would make not the slightest difference. In fact, it is odd that this famously uninfluential old politician should have got a ministership; there must be some reasons that are not easily discernible.

Next, Jaitley should ask himself whether there is any reason for an import duty on sugar. It is a necessity, especially for sweet-toothed Gujaratis; he is wantonly taxing the common man. And the leading producers of sugar are Maharashtra and Uttar Pradesh, both ruled by parties opposed to the Bharatiya Janata Party; there is no reason for Jaitley to help them. Narendra Modi would want to make India a strong industrial nation like Japan, which he admires. The way to do so is to abolish all import duties. No country can become an industrial leader by protecting its industry and making it less competitive internationally.

One of Jaitley’s biggest worries is inflation in consumer prices; and yet, he condoned it when Paswan pushed up sugar prices by taxing their imports. Either he is not thinking straight, or he is not in control. He should look back to Atal Bihari Vajpayee, under whose prime ministership the government brought down import duties to a negligible level. The BJP has been the liberal party in India. It was under the long decades of Congress rule that India saw the world’s highest import duties and lost the industrial race first to East Asian nations such as Taiwan and Thailand and then to China. Then, finally, it agreed in the Uruguay round to reduction of import duties when it was faced with the loss of the textile market to other developing nations. But it insisted on retaining import duties on agricultural goods. That was a stupid thing to do, for nothing could be more essential to the poor people than foodgrains; a country that cares for its poor should keep grain prices as low as possible. There will always be political parties that want to bribe the wheat farmers of Punjab and rice potentates of Andhra; but there are many more consumers of wheat and rice, even in villages, than farmers. Zero tariffs are good populism. India does not need foodgrain protection. Ten per cent broken parboiled Sarna rice is the cheapest in the world, and India is the price leader in long-grain rice. We could dominate the world market if only we let the prices be determined by the market; we could develop a huge market in the Middle East and Africa.

India is not nearly as competitive in wheat as in rice; but it could become, if price support were given up. There is a great opportunity just now because Ukraine, the principal wheat exporter of Europe, is in political trouble. Punjab will always want price support, and the BJP, being the ally of Akalis, will be under pressure to accede. But price support is not only anti-poor, but anti-national. Modi wants to make India a world leader in agriculture. You do not become a world leader by pricing yourself out of the world market; you become a leader by producing and selling at the lowest cost. If India did that, it will stop producing excessive wheat and rice, and turn to other, more profitable agricultural crops.

What might they be? We are already exporting rice; last year, our exports were 9 million tons, out of a world total of 39 million tons. Just five years ago, we were exporting 2 million tons. Then the southern states, especially Andhra and Tamil Nadu, began to produce big surpluses. They started giving rice at throwaway prices to those whom they called the poor. But there is a limit to what even the poor can eat, and animals find uncooked rice inedible. So, finally, the Central government, for lack of alternatives, opened up rice exports; today we are the world’s biggest rice exporters, accounting for almost a quarter of world exports. No one can match the taste of our Basmati.

Wheat also is not a crop to be dismissed. It is the second most important agricultural product in world trade by weight: 147 million tons was imported across the world in 2011. Its current wholesale price in India is roughly Rs 15 a kilo, which comes to $250 a ton. Its international price starts from $350. So, in theory, it could be exported at a profit. One would have to add costs of transport and insurance, but even then it would find a market abroad.

We are already in the export of soyabeans, the most important agricultural product by value; we produce them, take the oil out of them, and send the meal to China to feed the pigs for which it has a voracious appetite. We are also important exporters of cotton, tea and coffee. We could also take a share of the 50 million ton world market for sugar.

But we could do much better. If we decontrolled foodgrains, we would probably produce much more maize, which is the second most important traded product by weight. If we did not punish smokers so much, we could become exporters of tobacco and tobacco products; cigarettes are the most valuable agricultural product in international trade, worth $25 a kilo. The next most valuable product is cheese; it fetches $5 a kilo. We are the world’s biggest milk producers, and could easily convert it to cheese. Our guar gum sells at Rs 155,000 or $2500 a ton; if fracking takes off, guar gum prices will skyrocket.

When the prime minister talked of India becoming a great agricultural exporter, he had a good idea; but he had better get some economists to do some work on it. Agriculture had been mollycoddled and overregulated for half a century; it will take some radical policy reforms to turn it into the world’s leading exporter.