Agri Business

Slapping duty a quick solution, not a lasting one

G Chandrashekhar | Updated on January 09, 2018 Published on November 29, 2017

In a fix: Tremendous uncertainty pervades the grains market as overseas suppliers and Indian importers do not know what will hit them next

Tariff and trade policy changes in respect of pulses and wheat announced by the Union government recently to support the domestic market have sent unsettling ripples across the world grain trade, but done little to stem the domestic price rot.

Starting with the curbs on import of tur/arhar, urad and moong since August (thereby effectively shutting out arrivals from origins such as Myanmar and East Africa), the government recently slapped a 50 per cent Customs duty on yellow pea imports and hiked the levy on imported wheat from 10 per cent to 20 per cent ad valorem.

Also, the Customs duty on various imported oils — palm, soya, rape, sun — has been increased sharply.

Tremendous uncertainty now pervades the grains market as overseas suppliers and Indian importers do not know what will hit them next.

At the same time, the objective of lifting the low domestic prices of pulses, wheat and oilseeds has not been served as anticipated and growers are still left in the lurch.

Clearly, imposing any tariff and trade restriction is at best a short-term fix; more often than not, the government exercises this facile option though with extremely limited impact on the domestic market.

For instance, there is no perceptible improvement in the domestic prices of important pulses (tur/arhar, moong) and oilseeds (soyabean) despite the high tariffs.

All that the duty hike on vegetable oil has achieved is providing windfall gains to importers who had built huge inventories in anticipation of a duty increase.

More importantly, there are structural issues relating to oilseed and pulse crops that continue to be ignored. While tariff and trade policies do exert an impact in the short run, they seem to have been mistakenly accepted by the government as lasting solutions.

No one in the policy-making circles seems to be concerned about addressing the basic issues that stymie the input and the output sides of agriculture.

There is absolute lack of long-term planning to improve the competitiveness of pulses and oilseeds sectors. These two sets of crops are critical for India’s nutrition security.

Meanwhile, long-time suppliers including Canada (largest exporter of pulses to India) and Australia (supplier of wheat and pulses) have begun to lobby hard at high political levels for a review of the present tariff and trade policies.

There could be unintended consequences of harsh policy changes. For instance, Pulse Canada has cautioned that “wrong signals from pulse superpower India could drive farmers in countries like Canada to sharply reduce pulse plantings, setting the stage for a potential shortage of pulses for the 2018-2019 crop year.”

In a representation to their Prime Minister, several Australian grain trade bodies have pointed out that India is a very important market for Australia’s grain and pulse industries, and sought the government’s intervention to ensure that ‘trade can continue without unnecessary interruption.’

To be sure, the total value of Australian pulse and wheat export to India in 2016 exceeded $850 million. Australian wheat exports to India surged to 2.2 million tonnes in 2016-17 making it the country’s second largest wheat export market.

Surely, the policy context in India is complex. There are domestic socio-economic and political compulsions to support, and to be seen as supporting, domestic agriculture and growers. Yet, it is important to recognise that Indian agriculture is fragile and vulnerable.

In a manner of speaking, we are only one bad monsoon away from a farm disaster.

However, policy-makers are busy fire-fighting without a serious attempt to address the structural issues from a long- term perspective.

Also, as this writer has pointed out in the past, within the policy-making circles there is hardly any grasp of the global and domestic market dynamics and no clue about the emerging scenario and associated risks.

Instead of isolated but frequent tariff and trade policy changes, we need long-term stable policies.

The author is a global agri-business and commodities market specialist. Views are personal.

Published on November 29, 2017
This article is closed for comments.
Please Email the Editor