India is the world's largest agricultural producer and the agricultural exports form an important part of its economy. India exports a wide variety of agricultural products including grains, fruits, vegetables, spices, tea, coffee and cotton amongst other products. Agriculture is still the backbone of the Indian economy.
As per the latest data available from the Ministry of Agriculture and Farmers Welfare, Government of India, agriculture and allied sectors directly or indirectly contribute to about 55 percent of the country's employment.
The contribution of agriculture to India's Gross Domestic Product (GDP) in 2021 is 20.2 percent. In 2022-23, India achieved a record performance in the export sector. However, since then restrictions on rice, wheat, sugar and onion have had a major impact on India's agricultural exports in the current financial year.
Due to the export ban imposed on several commodities ranging from cereals, sugar and onions, India's agricultural exports in the financial year ended on March 31, 2024 have declined by as much as 8.2 percent.
As per the Commerce Department data, agricultural exports were valued at $48.82 billion in 2023-24, down from $53.15 billion in 2022-23. It was $50.24 billion in the year before that. There has been a continuous decline in the export sector in the last two years. According to the statistics, it is clear that there was a decline in the export sector even during the initial period of the Modi government. In 2013-14, the export value was 43.25 billion dollars. After five years i.e. in 2019-20, it fell to $35.60 billion. However, the imports a. Imports went from $15.53 billion to $21.86 billion in the first five years of the Modi government. But improvement in global prices following the Covid-19 pandemic and Russia's invasion of Ukraine resulted in India's agricultural exports as well as imports reaching an all-time high in 2022-23.
The government has not allowed export of sugar from the country in the current production year since October 2023. Exports of all white rice (non-basmati) have been banned since July 2023 due to domestic availability and food inflation concerns. At present, only parboiled grain is allowed to be shipped in the non-basmati segment, but even that is subject to 20 percent export duty. These restrictions have reduced total non-basmati exports from a record $6.36 billion in 2022-23 to $4.57 billion in 2023-24.
Wheat and onion are two such crops that have once again been hit by the export ban due to domestic shortages and rising prices. Three days before the third phase of the Lok Sabha elections, i.e. on May 4, the Government of India lifted the export ban on onions with a rider that onions priced below 550 dollars per ton cannot be exported.
Besides, a 40 percent export duty is also imposed. So, this has also affected the export of onions. Agriculture experts say that ambiguity in the export policy is the reason for all this uncertainty. The government launched a comprehensive agricultural export policy in December 2018 with the aim of harnessing the export potential of Indian agriculture through appropriate policy instruments, making India a global power in agriculture and increasing farmers' incomes. While achieving this objective, the policy also prioritizes stabilizing domestic food prices and increasing employment opportunities in the agricultural sector. During election season, subsidies such as food subsidy for consumers and fertilizer subsidy for farmers increase.
Many states announce loan waivers and provide free electricity to farmers. Though such announcements are politically popular, they have a negative impact on the country's overall fiscal discipline and the economic health of the agricultural sector. Same goes for imports. The Modi government has removed import duties on most pulses including arhar (pigeon pea), udid (black gram), masoor (red lentil), yellow/white peas and chana earlier this month and continued 5.5 percent duties on crude palm, soybeans and sunflower oil.
Removal of import duties is in fact inconsistent with the government's own objective of promoting crop diversification. Crops like rice, wheat and sugarcane require more water, while pulses and oilseeds require less water. But if there is huge import of pulses and oilseeds due to removal of import duty, who will produce these crops in the country? This question may arise in the future.
Hence, the government that takes over after the elections will have to come up with a more rational export-import policy, balancing the interests of producers and consumers as well as short- and long-term goals for the agriculture sector. Long-term sustainability of agriculture, environmental responsibility and welfare of farmers must be prioritized as India's role in global agricultural trade becomes increasingly important.