Making India Atmanirbhar in oilseeds

G Chandrashekhar | Updated on May 21, 2021

Oilseeds For self sufficiency   -  SRINATH M

A creative non-tariff based policy will boost oilseeds output. It will also counter the US, the EU’s objections in WTO

Several commodity exporting countries that are either suppliers to, or competitors, to India in the international market have made the World Trade Organisation (WTO) an arena to spar with India. The idea seemingly is to pressure India into continuing to be a major destination market for their supplies or to blunt India’s competitive edge in export.

Agricultural commodities in question include pulses and vegetable oils that India imports in sizeable quantities and sugar that India has been exporting in recent years

In January, during India’s Trade Policy Review meeting, the US and the EU flagged certain trade-related issues including increase in import duties. They also raised certain questions about India’s agricultural support programmes such as the minimum support price for various crops.

At the last WTO Committee on Agriculture meeting on March 29-30, member-countries questioned India on various issues including continued restrictions on pulses import, wheat stockpiling, short-term crop loans, export subsidies for skimmed milk powder and export ban on onions.

The latest attack is on India’s ambitious plan to step up domestic oilseeds output so as to reduce dependence on vegetable oil imports which cost roughly $10 billion (about ₹75,000 crore) in foreign exchange annually for bringing in 13-14 million tonnes of palm, soybean and sunflower oils.

WTO member-countries are questioning India mainly regarding incentives to oilseed growers to boost output. Two points are worth considering. One, they have no business to question, so long as the incentives are well within the permissible limits. Second, there indeed are ways India can boost domestic oilseeds output even without direct financial incentives or monetary support to growers.

How can we boost domestic oilseed output without direct support? Indian policymakers have to get a little creative in doing this. Admittedly, raising the Customs duty on vegetable oil imports is a facile option. It has hardly had any positive impact on domestic oilseeds production in the last 25 years. So, it is not an effective policy instrument.

Instead of the tariff route, India should look at the trade policy. It is well known that more often than not, vegetable oil imports are excessive and speculatively driven. Building large inventory of low-priced imported oils within the country depresses domestic oilseeds prices and discourages oilseed growers. This has been going on for two decades and must be stopped.

As a first step, a system of contract registration and monitoring of imports should be introduced. We already have the system for commodities such as steel and copper. It can be extended to vegetable oils. The government must mandate that all vegetable oil import contracts must be registered with a designated authority.

Contract details will provide the policymakers critical information such as quantity contracted for, type of oil, origin, price and expected arrival time. This information should become the basis for intervention, if any, needed. Today, the government lacks commercial intelligence and is clueless about forward inbound shipments.

Cut importers’ credit period

The second suggestion relates to imposition of restriction on the ‘credit period’ enjoyed by importers. Overseas suppliers grant 90 to 150 days credit to Indian importers; but the cargo reaches Indian shores in about 10 days (palm oil) or 30 days (soft oils). The Indian importer sells the material immediately and enjoys liquidity for several months during which he indulges in rampant speculation and over-trading before he is required to remit payment. This is leading to a never-ending import cycle.

Many vegoil importers are actually in an ‘import debt-trap’. To prevent this dangerous debt-trap, the credit period for vegoil import should be restricted to maximum 30 days for palm oil and 45 days for soft oils. This will automatically discourage excessive imports, over-trading and speculation.

Import contract registration and strict monitoring of import together with restricted credit period will infuse a much needed discipline in the import trade. Reducing speculative and excessive imports of vegetable oil will immediately have a salutary effect on domestic oilseed prices. This is sure to encourage growers to plant more, improve agronomic practices and realise higher yields.

Our oilseed production has got trapped at 31-32 million tonnes. We need to break this stagnation and aim to increase the output by at least two million tonnes a year, if not more. Surely, achieving Atmanirbhar or self-sufficiency is a challenge; but we can become substantially self-reliant over the next five years or so.

Through creative policy intervention, the government can help boost oilseeds production without any major financial outlay. Price is the best incentive for the grower to stay motivated; and this non-monetary, non-tariff policy initiative (import monitoring and regulation) cannot be faulted by our overseas trading partners.

The author is a policy commentator and agribusiness specialist. Views expressed are personal

Published on May 21, 2021

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