Rural wage growth has fallen to a 14-month-low of 4.9 per cent in October, confirming a declining trend visible since the second half of 2017. This is a reflection of agrarian distress arising from the crash in farm produce prices. Indeed, Labour Bureau data shows the drop in all-India average annual wage growth to be even sharper for agricultural occupations — from 8.1 per cent in July to 4.7 per cent in October. It is obvious that farmers, faced with low crop realisations, have sought to protect whatever little margins that are left by transferring some of their burden to agricultural labourers. A not-so-good and well-distributed monsoon, unlike in 2016, has also led to lower plantings this time. That has, in turn, reduced the demand for farm labour, putting further pressure on wages.
The agrarian distress problem is partly an outcome of depressed global prices for most farm commodities — be it cereals, pulses, edible oil, cotton or milk powder. This has rendered agri-exports from the country relatively uncompetitive, while also exposing farmers to the threat of increased imports. But domestic policy is equally to blame. The Narendra Modi government has been more hawkish on inflation than its predecessor. While that may not by itself be bad, the urge to keep food prices in check has often extended to imposing restrictions on exports as well as domestic trade and stockholding, even while allowing imports of most agri products at very low or even nil duty. Only in the last six months or so have these curbs been gradually withdrawn along with measured tariff hikes on imports. One hopes this dismantling of controls harking back to the licence raj era is permanent. The Modi government would do well to signal this in the upcoming Union Budget. Farmers, like other businessmen, are entitled to a stable and predictable trade policy regime.
But the current crisis in rural India is not just about agriculture. According to the National Sample Survey Office, only 57.8 per cent of rural Indian households in 2012-13 were “agricultural”. Moreover, even in their case, 40.2 per cent of income on an average was from non-farm sources. In fact, the dip in all-India average rural wage growth for non-agricultural occupations between July and October worked out lower — from 5.7 per cent to 5.1 per cent. Non-farm employment in rural areas today is largely in informal and unorganised enterprises, which are likely to have taken a hit after demonetisation and introduction of the GST. Addressing the transitional problems of this sector — which acts as an “employment sink” for the rural masses — is as important as fixing issues specific to agriculture.
Increase in agri-exports will not only increase the country’s export basket, but also augment farmers’ incomes and ameliorate farm distress. There should be a paradigm shift in policy-making from being obsessively consumer-oriented to according greater priority to farmers’ interests.
Agri-exports:
In general, both agri-exports and imports have increased substantially since 2004-05. Agri-trade increased from $14 billion to $59.2 billion between 2004-05 and 2016-17. As a share of the agri-GDP, the contribution of this trade increased from 11.1 per cent in 2004-05 to 16.7 per cent in 2016-17 after peaking at 19.6 percent in 2012-13, reflecting the increasing integration of Indian agriculture with global markets.
The tumbling agri-trade surplus was the result of falling exports and rising imports. Agri-exports, after peaking at $42.9 billion in 2013-14 fell to $33.7 billion in 2016-17, while imports kept rising — from $17.5 billion in 2013-14 to $25.5 billion by 2016-17. Agri-exports suffered primarily due to the significant fall in exports of cereals (especially wheat and maize), cotton, oilseeds and, to some extent, bovine meet. This, in turn, was largely due to a steep fall in global prices and restrictive export policies.
India has to promote agri-exports, the country’s policymakers must build global value-chains for some important agri-commodities in which the country has a comparative advantage. Estimates show that India is export competitive in almost 70 per cent of agricultural commodities, non-tradable (that is our prices are between import parity and export parity prices) in about 10-15 per cent commodities, and import competitive in the remaining 15-20 per cent commodities. On the exports front, India is relatively competitive in cereals, especially rice and wheat and maize, and, at times, oilseeds, especially groundnuts and oil meals. The country can also be competitive in groundnut and mustard oil, provided there is an open and stable export policy. India has also been the world’s second largest exporter of cotton.
The country has a great potential to export fish and seafood, bovine meat, and fruits, nuts and vegetables. These are the commodities to focus on in order to stimulate agri-exports. This would require infrastructure and institutional support — connecting export houses directly to farmer producer organisations (FPOs), sidestepping the APMC-regulated mandis, removing stocking limits and trading restrictions.
Stimulating such exports would also require structural reforms in agriculture. When global prices dip suddenly by 25-30 per cent — for example, between 2013-16 — domestic exporters face problems. Export-oriented value-chains may need support in such times. A special package to support value-chains through infrastructural investments (in assaying, grading, packaging and storing facilities), which will also create jobs in rural areas, or assistance in adhering to sanitary and phytosanitary standards would make them more resilient to future price shocks.
Second, India needs to adopt an open, stable and reliable export policy. Abrupt export bans, high minimum export prices to restrict exports, or other quantitative restrictions on pulses, edible oils — even on vegetables and cereals at times — must give way to a policy that does not put any fetters on exports.
Third, on the imports front, India loses out most in the edible oils sector, especially palm and soybean oil. Palm oil is used to adulterate several other oils for the domestic market. Similarly, among pulses, primarily yellow pea is used as an adulterant in besan (chickpea flour). The import policy must, therefore, be designed such that the landed price of palm oil and yellow pea never goes much below the domestic prices of their nearest rivals, say, soybean oil and chickpea, respectively.
Last, liberalisation of factor markets, especially land-lease markets, would also help in building more efficient and reliable export value-chains. Over-regulated land-lease markets have kept landholdings small and forced informal tenancies to flourish rendering them incapable of mobilising large-scale capital. Long land-lease arrangements can facilitate private investments in building export-oriented global value-chains, generating rural non-farm employment and enhancing farmers’ incomes.
It is time for the commerce and industry minister to steer a “farm-to-foreign” strategy, improve agri-trade surpluses by promoting agri-exports, and most importantly create more jobs and bring prosperity to rural areas.
