Agricultural exports touched $48.9 billion in 2023-24, registering a 8 per cent decline from $53.2 billion in 2022-23. This is significantly short of the ambitious target of $60 billion set by the Narendra Modi government for 2022. Not only this, the growth momentum in agri-exports during the 10 years of Modi government seems to have lost steam, dropping from an annual average growth rate of 20 per cent during the UPA government (2004-05 to 2013-14) to a meagre 1.9 per cent during 2014-15 to 2023-24.
In absolute terms, while India’s agri-exports surged from $8.7 billion in 2004-05 to a whopping $43.3 billion in 2013-14, a vault jump of almost 500 per cent, they only lurched thereafter, reaching $48.9 billion by 2023-24. This indicates a decline in trade surplus, from a peak of $27.7 billion in 2013-14 to $16 billion in 2023-24. Had the growth momentum of the UPA period been sustained during the NDA period, agricultural exports could have reached the $200 billion mark today. Since agri-exports have strong implications for incomes of the farming community, there is an urgent need to chalk out a new strategy to revive them. This requires a deeper dive into the structure of exports and the reasons behind their sluggish growth during the NDA period.
It is important to note that rice holds the top position in India’s agri-exports basket, valued at $10.4 billion from 16.3 million tonnes (MT). This represents roughly 21 per cent of the total value of agri-exports in 2023-24. Following rice are marine products ($7.3 billion), constituting a 15 per cent share, spices ($4.25 billion) with a 9 per cent share, bovine meat ($3.7 billion) with an 8 per cent share, and sugar ($2.8 billion) accounting for 6 per cent of the total share.
Indian agri-exports are influenced by two main factors: One, how global prices of agri-produce are behaving; and two, how liberal is our agri-export policy. When global prices are on the upswing, India’s agri-exports also surge, as was the case in the UPA period. But when global prices fall, our price-competitiveness also gets blunted, and agri-exports suffer, as was the case in the first five years of the Modi government.
Besides global price dynamics, export restrictions and outright bans on sensitive agricultural commodities like wheat, rice, sugar, and onions lately have significantly impacted agri-exports, driven primarily by the concerns of domestic food inflation. This began with the ban on wheat exports on May 13, 2022, followed by restrictions on sugar exports in June 2022. On July 20, 2023, exports of non-basmati white rice and broken rice were prohibited.
Additionally, on August 25, 2023, a 20 per cent duty was imposed on parboiled non-basmati rice exports, along with minimum export price (MEP) on basmati rice, initially at $1200/tonne, but later reduced to $950/tonne in October 2023. Recently, while the export ban on onions was lifted, it was replaced with a 40 per cent duty, in addition to a MEP of $550/tonne.
Export restrictions on rice offer valuable policy lessons. As India announced its rice export restrictions, the international price of rice surged by approximately 25 per cent, escalating from $494/tonne during April-June 2023 to $620/tonne in January 2024. This helped exporters of basmati rice and parboiled rice get better price realisation. Despite a 27 per cent drop in rice exports from 22.3MT in 2022-23 to 16.3MT in 2023-24, the export value realisation only decreased by 6 per cent, from $11.1 billion to $10.4 billion during the same period.
Here is a policy lesson: In a global market of around 53 MT, if India exports say 22 MT or more rice, it will bring down the global price to Indian levels. Trade theory suggests an optimal export tax to ensure that marginal revenue from additional exports should not fall. Our research indicates India’s optimal rice export quantity should be around 15-16 MT. Beyond this, additional exports will yield diminishing marginal revenues.
In other words, India will have to export more quantity to get the same export revenue. That is not a wise policy. A prudent policy option would be to impose a 15 per cent export duty on common and parboiled rice, alongside lifting the outright export ban.
In the case of rice, which is 65 per cent irrigated, there are also concerns related to depleting groundwater, especially in the Punjab-Haryana belt. Free power and highly subsidised fertilisers are leading to an ecological disaster. It is widely recognised that producing one kilogram of rice requires between 3,000-5,000 litres of water for irrigation. Assuming an average water usage of approximately 4,000 litres per kilogram of rice, with roughly half of this water seeping back to groundwater, exporting 16.3 MT of rice effectively means exporting 32.6 billion cubic meters of water. We must recognise that high subsidies on power and fertilisers confer artificial competitive advantage.
Essentially, true export competitiveness hinges on boosting productivity and achieving more with fewer resources. This goal demands significant investments across agriculture, including research and development, seeds, irrigation, fertilisers and adopting resource-efficient farming practices like precision agriculture, fertigation etc. These strategic investments can drive down per-unit costs, enhance global competitiveness, increase agricultural exports, improve farmers’ profitability, as well as protect the environment.
The case of onion is unique. The government announced opening up its exports just before polling in Maharashtra but put a very high MEP with 40 per cent export duty, making the effective export price of Rs 65/kg. This is when farmers are currently selling onions at Rs 13 to Rs 15/kg in Lasalgaon, not enough to recover their costs. However, they are deprived of the export opportunity that could have lifted their domestic price. All this shows that government policy has a consumer bias, which implicitly discriminates against the farmer. This needs to change if we want to augment farmers’ incomes.
Gulati is Infosys Chair Professor and Juneja is Fellow at ICRIER. Views are personal
