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S. Raghavan and L.M. Philip, Centad
India’s food import bill is just getting bigger from about US $2.6 billion in 2000 to more than $4.9 billion in 2007. This will not be a concern for policymakers, farmers and consumers in normal course of things, but now as the nation is grappling with high food inflation, it is a serious issue. A deeper analysis of the steep increase reveals increased imports of few major items i.e. vegetable oils, wheat and pulses. Profound increase was observed in specific sensitive items such as edible oil, peas and fruits and vegetables since last March posing serious concerns for India’s terms of trade. Wheat imports of about 6 million tonnes valued at around $1.2 billion in 2007 formed the single major chunk of the food items. Swelling import bills, if not managed appropriately will throw India once again open and vulnerable to the ups and downs of international commodity market particularly at this time of global upswing in food grain prices.
Blessed with a bumper production of wheat touching a record high of 78.4 million tonnes up by 3% from last year, India is in a much comfortable position as of now. Procurement by the state-owned Food Corporation of india (FCI) doubled to peak at 22 million tonnes against 11.13 million tonnes last year and stocks at FCI godowns reached 5.5 million tonnes against the norm of 4.5 million tonnes. Recently, the Government approved sale of about 6 million tonnes in the open market (OMSS) to ease the prices especially in the urban pockets and the agriculture minister ruled out wheat imports this year.
However, the situation was grim when India had to import 5.5 million tonnes of wheat in 2006 at $178.75 to $228.94 a tonne. In 2007, 1.8 million tonnes of wheat was imported -- despite 74.82 million tonnes of domestic production -- at prices up to Rs 16,000 per tonne, double the MSP of Rs 8,500 per tonne, which led to a sharp increase in local wheat and wheat flour prices making it dearer for the poor. In the Economic Survey 2006-07, the Government reported that “duty-free wheat imports did not help to check price rise, rather the rising global prices impacted the domestic market in a subtle way”.
India’s billion strong population cannot afford to rely on imports but on the other side it is also highly difficult to shun away mounting import pressures from other producer countries (e.g. wheat from the US), a dilemma usually faced by any high-volume importer like India becoming a hostage who, due to critical national mandates, get its willingness to pay leveraged to the maximum by the opportunistic global suppliers. Hence, a balanced approach for “regulated imports” is required to ensure sufficient stock availability in the open market as well as the PDS to prevent steep price hikes threatening livelihoods of millions especially the urban poor and the landless rural mass.
One of such measures is “season-specific” import duties -- applicable to imports during peak domestic arrivals of food grains -- which can be a wise move to generate revenue from imports that are costly but seem imperative. However, this argument needs to be revisited when international commodity prices are higher than the domestic prices exerting additional cost burden on the importers, which will eventually be passed on to the consumers through higher landing prices plus inland distribution costs. The problem is compounded considering the time lag in arrivals of shipments from different countries coinciding with the peak domestic arrivals as markets in the urban port cities and their peripheries are flooded with the imported higher priced stocks on first priority. Here, intermediaries who usually filter the market price information from reaching the rural hinterland might tend to take advantage of the sudden glut in the market by either reducing uptake of domestic stocks or force the prices down at the farm gate but with no intention of doing so at the consumers end keeping the prices higher enough to make quicker supernormal profits. The situation gets worse when the usual time lag for the local supplies to reach the almost stocked-up markets extends by few more weeks or months due to poor storage, connectivity and transportation infrastructure in the rural areas. Simultaneously, Government procurement also gradually fades out owing to huge imported stockpiles already filling up the godowns pushing the farmers with no choice but forced selling at lower prices, which will affect their ability to invest in purchasing inputs (seeds, fertilisers and credit) for the next cropping season due to lower profits. Hence, there are huge losses at both the consumers’ and producers’ ends.
By administering season-specific duties or cess, imports matching peak harvest periods will be discouraged while enhancing the opportunities for local producers to rake up their quantities in the markets. If imports are to continue, additional revenue is generated, which can be ploughed back to improve the rural infrastructure or giving supports to farmers or any other developmental activities. For successfully administering the season-specific duties, a major overhauling of the present paper-based customs and import documentation systems to make them efficient and transparent is essential. Besides taking up training and capacity building initiatives for the officials on the new systems, use of IT innovations and infrastructure for real time transmission of data help track arrivals at different ports accurately and efficiently for levying duties accordingly.
As a temporary relief, this is just one side of the coin as the other side being enhanced investments in improving productivity of crops and revival of rural infrastructure – processing, storage, transport and communication – to keep the local food system fairly immune to the ebbs and flows of the international markets. These two aspects must go hand in hand to achieve the much-needed food self-reliance for a billion plus mouths along with leveraging monetary benefits from imports pressurised by other producer nations flowing into the country.
September 9, 2008
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