Ajit Ranade: India must formulate a strategy to boost agricultural exports

Never mind that applying selective tariffs violates the Most Favoured Nation (MFN) rules of the World Trade Organization (WTO). If someone raises an objection, WTO’s dispute resolution mechanism is expected to deal with it. But that mechanism is broken partly because the US has blocked appointments to its appellate body. If pushed further, it is not inconceivable that the US may decide to walk out of the WTO, just like it withdrew from the World Health Organization. 

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How are countries to navigate this uncharted territory in global trade wherein the world’s biggest importer is using its leverage to bend or break rules? These countries are not taking it lying down.

Canada and China have slapped retaliatory tariffs. Ottawa says it will replace Californian tomatoes with Italian ones. China has imposed tariffs of 10-15% on US chicken, wheat, corn, soya, sorghum, dairy products and beef. These protectionist measures violate WTO rules. 

But here is another twist. 

China has also applied retaliatory tariffs on Canada’s rapeseed oil, aquatic products and pork in response to Canada’s levies on Chinese electric vehicles, steel and aluminium. This seems like an all-out trade and tariff war. But there are signs that the US may walk back, rethink and recalibrate. Or maybe not. We are in uncharted territory.

India has decided to pursue a Bilateral Trade Agreement (BTA) with the US, its biggest trade partner, and the only one with which India enjoys a large trade surplus. Trump has said that India has agreed to reduce tariffs “way down" after the visit of commerce minister Piyush Goyal to Washington. How this plays out and what BTA deal is hammered out remain to be seen. India, for its part, wants to hasten a deal without jeopardizing its large trade volume and export opportunity.

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Tariff reduction under the alibi of Trump pressure is overdue in India, since tariffs have drifted up by 4-5 percentage points from 2015. This protectionist drift was probably caused by the misguided notion that it would help our manufacturing sector under the ‘Make in India’ initiative or act as a carrot for the sectors granted production-linked incentives (PLIs). 

This won’t work because modern manufacturing is a complex web of global value chains that cut across national boundaries. India’s exports tend to be import-intensive, such as those of smartphones, pharmaceuticals, gems and jewellery and petroleum products. Lowering protectionist barriers will help importers of input components for export goods. Lower tariffs also spur competitiveness in the global arena.

Agricultural products offer us a large untapped potential for exports. India is the largest producer of milk, but our share in dairy product exports is barely 0.25%. Despite a 6,000km coastline, our share in fisheries and marine exports is about 4%. India has the world’s largest population of cattle (300 million) and livestock (536 million), but our share in meat and poultry exports is far from commensurate with the potential. 

We have a great opportunity to increase the production of cotton, soybean and pulses, if only genetically modified versions are allowed to be grown. The ‘white’ revolution of a surge in cotton production in Gujarat that started more than two decades ago was based initially on illicit or pirated varieties of BT cotton. But even as recently as last week, farmers in Vidarbha were demanding access to herbicide-tolerant BT cotton to protect the crop from pest attacks. 

Our adoption of genetically modified (GM) food and crops has been painfully slow, much to the detriment of productivity and exports. Even in South Asia, all countries except India use GM products. Recently, Pakistan’s import of GMO soybean helped its feedstock industry recover, to the benefit of its meat and poultry production. 

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Ironically, while India does not permit the production or import of GM corn, imports of ethanol containing GM corn are allowed. The same is true of imported edible oil, on which India has huge dependency. A report by the Centre for Science and Environment said that Indians were unknowingly consuming GM food because these came as ingredients in imports. GM Brinjal, potato and mustard are prohibited in India, but most countries allow it. 

India’s policy on GM crops is hurting farm productivity and exports. This is on top of many other shackles, such as frequent bans and barriers, minimum export price restrictions, bars on forward markets and variety of price controls that have an anti-farmer bias. 

To compensate farmers, there has been a proliferation of subsidy schemes for fertilizer, seeds, credit, water and now also direct cash transfers. The heavy hand of large-scale wheat and rice procurement and the debate on minimum support prices have not moved the needle on productivity and exports. Tiny Netherlands, with a landmass 1.3% of India’s, has agricultural exports three times that of India’s in dollar terms.

Our agri-exports can go up multiple times, and the country can become self-sufficient in pulses and edible oils only with proactive policies and an unshackling of farms. Trump’s insistence on lower duties will pose no threat if India’s agricultural exports make headway into America and Europe.

The author is a Pune-based economist.