Table of Contents
THE CONTEXT: The Reserve Bank of India (RBI) has played a pivotal role in maintaining consumer price inflation within its target range of 4±2 percent, contributing significantly to India’s financial stability and economic growth. The collaborative efforts between the RBI and the government, particularly in implementing monetary and trade policies, have been instrumental in achieving a balance between high GDP growth and inflation control, despite challenges in the agricultural sector.
ISSUES:
- Decline in Agricultural Imports: India’s agricultural imports have seen a notable decrease of 8% in 2023-24, shifting from an average annual growth rate of 14% during the UPA government to 9% during the Narendra Modi government’s tenure. This raises questions about India’s move towards self-reliance in agriculture.
- Significant Drop in Edible Oil Imports: The value of edible oil imports plummeted by 28.5% in a single year, primarily due to increased palm oil prices internationally. This significant reduction in import values despite stable import quantities highlights the impact of global market fluctuations on India’s import bill.
- Pulses Import Policy and MSP Integration: The sudden doubling of pulses imports in 2023-24 to $3.7 billion and the resultant inflation in pulses prices underscore the need for a rational trade policy that aligns with the domestic Minimum Support Price (MSP) policy. The article suggests a more calibrated approach to import duty adjustments and emphasizes ensuring that landed prices do not undercut MSPs.
- Impact on Farmers: The liberalization of pulse imports at zero import duty, intended to tame consumer prices, may adversely affect farmers by depressing domestic prices below MSP. This highlights a consumer bias in trade policy and raises concerns about the sustainability of farmers’ livelihoods and their motivation to produce.
- Policy Recommendations for Edible Oils and Oilseeds: To support the domestic production of oilseeds and achieve self-sufficiency in edible oils, recommendations ensure that the landed price of imported edible oils does not fall below the domestic MSP of oilseeds. This approach is crucial for initiatives like the National Edible Oil Mission-Oil Palm (NEOM-OP).
- Integration of Trade Policy with MSP Policy: There is a need for a coherent integration of trade policy and MSP policy, particularly for crops like pulses and oilseeds that are less water—and fertilizer-intensive. This integration is essential for balancing farmers’ interests with environmental sustainability and achieving self-sufficiency in crucial agricultural commodities.
THE WAY FORWARD:
- Dynamic Import Duty Structure: Implement a dynamic import duty structure for pulses and edible oils that adjusts based on domestic production levels and market prices. This structure should ensure that import duties are reduced when domestic production is insufficient to meet demand, thereby preventing price spikes. Conversely, when domestic production is abundant, import duties should increase to protect local farmers from cheap imports. This approach requires close monitoring of domestic and international market prices and production levels.
- Strategic Buffer Stock Management: Expand and strategically manage buffer stocks for pulses and edible oils through agencies like NAFED. This involves procuring these commodities at MSP when domestic prices are low and releasing them into the market when prices are high. This ensures price stability and provides a safety net for farmers. The government could use advanced analytics and forecasting models to accurately predict market demand and supply, ensuring efficient stock management.
- Promotion of Crop Diversification: Encourage crop diversification towards less water-intensive and fertilizer-dependent crops like pulses and oilseeds. This can be achieved through targeted subsidies, technical support, and awareness campaigns about the benefits of diversification for farmers and the environment. Additionally, research and development should be intensified to improve seed varieties and farming practices that increase the yield of these crops.
- Enhanced Support for Edible Oil Production: To reduce dependency on edible oil imports, particularly palm oil, the government should intensify support for the National Edible Oil Mission-Oil Palm (NEOM-OP) and other initiatives aimed at increasing domestic production of traditional oilseeds like mustard, groundnuts, and soybeans. This includes providing farmers with financial incentives, technical assistance, and infrastructure support. Given the land constraints, innovative approaches such as vertical farming and using marginal lands should be explored.
- Trade Policy Coordination with MSP Policy: Ensure that trade policy is closely coordinated with MSP policy, particularly for sensitive commodities like pulses and edible oils. This involves setting import duties and quotas so that the landed price of imports does not undercut the MSP, thereby protecting farmers’ incomes. This coordination requires a multi-stakeholder approach involving the Ministry of Agriculture, the Ministry of Commerce, and other relevant bodies to align policies effectively.
THE CONCLUSION:
India’s approach to integrating trade policy with minimum support price (MSP) policy highlights the complexities of managing inflation while supporting domestic agriculture. The recent adjustments in import policies, particularly for pulses and edible oils, reflect a strategic move towards stabilizing prices and ensuring farmer welfare. However, the journey towards self-reliance in agriculture, especially in edible fats, underscores the need for a nuanced policy framework that aligns trade liberalization with domestic agricultural support, ensuring the sustainability of the economy and the environment.
UPSC PAST YEAR QUESTION:
Q.1 What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income trap? 2018
Q.2 What are the direct and indirect subsidies provided to the farm sector in India? Discuss the issues the World Trade Organization (WTO) raised about agricultural subsidies. 2023
MAINS PRACTICE QUESTION:
Q.1 Examine the impact of India’s agricultural import policies on domestic agriculture, mainly focusing on pulses and edible oils. Discuss how these policies align with the Minimum Support Price (MSP) policy and suggest measures to ensure the welfare of farmers while maintaining consumer price stability.
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