Yoginder Alagh: Wheat import sans tariff hits Indian farmers
Reducing import duty on wheat to zero amounts to the Indian tax payers subsidising farmers in richer countries and in denying incentives to our own farmers
We do need a sensible trade policy for agriculture in this very imperfect global trading regime for agricultural commodities. It’s interesting that we import wheat generally just before Rabi sowing begins so that the kisan gets the clear signal that we are interested in pushing down prices for the interest of the urban consumer at the expense of the farmer.
We import wheat from countries which subsidise them. By now direct subsidies are unnecessary, since the imports are from wheat or Commodity Boards which have through time from government funds built up large reserves.
What the Indian farmer does not recognise is that the grain is sold in India at subsidised prices and so policy hits him with a double whammy. Prices fall because of ill-timed imports and a poor country subsidises the farmer in richer ones like Canada, USA or Europe, at the expense of its own.
I have argued earlier that although imports may be needed, the domestic farmer is entitled to get some tariff protection. At least the costs of the more efficient Indian farmer should be covered. Even diehard, trade first, fundamentalist economists will agree with that in the least.
But policy makers are immune to this logic. In the short run a moderate tariff may be imposed on imports to give the kisan an incentive to produce more and ensure supplies. That way we would not subsidise the farmer in rich countries from where we get some imports but a part of it would go home albeit at some cost to the urban consumer. For the medium and long run we must have a well-coordinated production program. But all this needs strategic planning and planning is at a discount.
There is an an urgent need to blend domestic price policy with tariff policy , such that the domestic price of wheat stabilises at required levels and attractive returns to wheat producers are ensured. Import duties instead of being abolished need to be calibrated in response to the demand and supply situation.
“In the short run a moderate tariff may be imposed on imports to give the kisan an incentive to produce more and ensure supplies. That way we would not subsidise the farmer in rich countries from where we get some imports but a part of it would go home albeit at some cost to the urban consumer. For the medium and long run we must have a well-coordinated production program. But all this needs strategic planning and planning is at a discount.”Dr Yoginder K Alagh
MSP with subsidies without tariffs, subsidises farmers in countries exporting to India and not its own farmers and is like a policy of pouring water in a leaking bucket. More generally there has been little coordination between trade policy and agricultural support policy. Ad hoc policy responses have the impact of creating havoc with incentive systems and agricultural growth potential.
India had successfully fought at Doha and the onslaught on the livelihood objective and people like myself, Prof Swaminathan and others were happy. Unfortunately, for us in the last round ending recently, the tenacity with which we held on this subject has been considerably weakened. Trade facilitation discussions are on but the livelihood objective is now merely an add on. Only the future will show whether we are still willing to fight for the right of full meals to the poor and the vulnerable.
Meanwhile events have overtaken these debates. In the recent past ‘Climate Change as a Part of Sustainable Development’ set the stage. The point made is that free trade is helpful in improving efficiency, particularly of energy use and that helps the poor. So, economic reform becomes a precondition of food security.
“What the Indian farmer does not recognise is that the grain is sold in India at subsidised prices and so policy hits him with a double whammy. Prices fall because of ill-timed imports and a poor country subsidises the farmer in richer ones like Canada, USA or Europe, at the expense of its own.”Dr Yoginder K Alagh
At Doha and at Copenhagen, India argued for the livelihood and the poverty removal stand which had originated in Indira Gandhi’s ‘poverty is polluting’ slogan. Preparation for the Climate Change meeting in the outskirts of Central Paris in the Le Bourget complex, was running in the second half of the last year at a feverish pace, even though our country was somewhat laid back, apart from an occasional official brief of an oft-repeated stance from many earlier meetings.
If economic policy does not have a strategic objective then the concept of efficiency could be quite misleading; granting that in an unequal world where the poor and the rich are efficient is to be preferred to an unequal world where they are not. But life is not so simple. Instead of letting imports weaken incentives for our farmers we should develop policy stances where we are able to play a mobilising role as the US attacks the Climate Change agreements arrived at in Paris. Like other big countries like the US and China, we are dependent on fossil fuels but will have to play a strategic bridging role if the US after the present regime change goes back on the need for a cleaner air regime.
Dr Yoginder K Alagh, Chancellor of the Central University of Gujarat, is a noted Indian economist and former Union Minister
Also see a counter view in Hindu Business Line: “Allowing wheat imports at zero duty is a well-informed decision”
- Climate Change
- import duty
- Indian farmers
- Yoginder Alagh
- trade policy