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Saturday, Jul 06, 2002

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Data on farm goods trade a cause for concern

G. Chandrashekhar

The provisional disaggregated data of export and import for 2001-02, particularly relating to agricultural and related commodities, make interesting reading. These data should set the policy makers in New Delhi thinking. They should spur the Centre and State Governments to make Indian goods globally competitive.

MUMBAI, July 5

IN fiscal 2001-02, trade deficit widened to about $7.5 billion, from around $5.9 billion in the previous year following a modest growth of 2.23 per cent in imports and a 1.17 per cent negative growth in exports.

The provisional disaggregated data of export and import for 2001-02, particularly relating to agricultural and related commodities, make interesting reading. These data should set the policy makers in New Delhi thinking. They should spur not only the Centre, but also various State governments and the exporting community into exploring ways and means of making Indian goods globally competitive.

Agriculture and allied products as a group have shown a redeeming 4.24 per cent growth; but a closer examination of the disaggregated data shows a fall in export earnings in many of the traditional commodities.

No doubt, because of economic slowdown and cyclical changes, global markets for soft commodities were bearish last year with prices of several produce reaching recent lows. While it provides a partial justification for the level of performance, whether we could have done anything to improve the performance is a question that needs to be asked. The value of export realisation on plantation crops (tea, coffee), spices and meat & meat preparations was lower by anything between 10 and 20 per cent as compared with the previous year. Processed foods as also poultry and dairy products exports increased, while pulses export declined by a third.

Wheat and sugar were the two bulk commodities that provided the silver lining. Both showed a significant improvement in exports. Earnings on wheat exports were $279 million ($91 million previous year) and on sugar & molasses $374 million ($111 million).

It must, however, be conceded that the impressive increase in exports was primarily the result of subsidies and concessions provided by the Government to liquidate excess stocks. Under normal domestic costs and international prices, these two products would not have been competitive at all.

Global market conditions for a number of soft commodities including foodgrains, sugar, coffee and others are expected to be more consumer-friendly than producer-friendly in the current year. Even the rupee may not come to the rescue of exporters as it is showing signs of gaining against the weakening dollar.

To maintain the level of export performance and indeed, improve upon it, there will be no alternative but to continue to subsidise exports of bulk commodities as wheat, rice and sugar. Export efforts must become more aggressive. The Government must seriously explore counter-trade possibilities with the country's major trading partners.

For instance, wheat, rice and sugar swap for palm oil should be considered. Indian Government can even dangle the carrot of lower duty on palm oil in case of counter-trade transaction. Indonesia, for instance, is a major importer of wheat and rice. It is also the world's second largest exporter of palm oil. India should explore a special, mutually beneficial trade relationship with Indonesia.

On the import front too, there are some developments that cause concern. Edible oils, the second largest import item after petroleum products, increased by 3.77 per cent or $50 million during fiscal 2001-02 to $1,358 million. The import value would have been much higher; but fortunately for the country global vegetable oil market ruled rather weak almost until the end of last fiscal. There has been an extraordinary increase of over 500 per cent in the value of pulses import which recorded $662 million ($109 million previous year). No doubt, there is a chronic shortage of pulses in the country and imports have become a regular feature. Pulses output reached a recent low of 10.7 million tonnes in 2000-01, down from 13.4 m.t. in the previous year. In 2001-02, output rebounded to 13.5 m.t.

But the level of imports — close to 20 lakh tonnes worth Rs 2,800 crore — surely calls for some investigation. Such an unprecedented rise cannot be termed a normal trade phenomenon and nothing in the country has provoked a massive increase in consumption demand for pulses. In 1999-2000, pulses imports were 2.5 lakh tonnes valued at Rs 355 crore and in 2000-01 imports totalled 3.5 lakh tonnes worth Rs 494 crore.

There has been a strident rise in the import of two other commodities — spices and cotton — that deserves closer attention. Cotton raw and waste imports showed 66 per cent growth to $430 million ($259 million), while spices imports were up 88 per cent to $105 million ($56 million). Tea imports too increased 54 per cent to $14 million during the year.

Modest growth of 5.4 per cent in GDP during 2001-02 and a significant contribution from the agriculture sector (5.7 per cent growth) mean more incomes in the hands of people and more demand for consumer products. Of late imports have become an easy option for meeting expanded consumer demand, rather than attempts to raise domestic production. India is a major producer of cotton, edible oils and pulses. Large imports of these commodities can be reduced if attempts are made to augment domestic production and quality. Dismantling of trade restrictions has made import a facile option; but it is a potentially dangerous and risky option over time.

Also, agricultural production and export subsidies have become an integral part of global agri-business. Major exporting countries such as the US are hiking their spending on farm exports. India will not only find its products becoming uncompetitive in the export markets, its imports will continue to expand relentlessly because of highly subsidised exports from other origins. Import and export data provide clear indication of the relative strengths and weaknesses. The Ministry of Agriculture and the Ministry of Commerce, together with State Governments, must evolve long-term plan for promoting farm exports and for reducing imports of items that are produced domestically on a significant scale.

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