Big push to agri-business

THE EXPORT and Import Policy (Exim Policy) of the new millennium announced last week by the Government gave a major thrust to the agricultural sector, while removing all quantitative restrictions (QRs) as per the World Trade Organisation (WTO) requirements. However, the policy is silent on ways and means to promote quality consciousness among exporters as the Indian export basket remains the same over the decades. Further, it is astonishing to note that the Government and the exporters are still continuing their dependence on a devalued Indian rupee vis-a-vis dollar to make exports more competitive.

For the first time in many years the Exim Policy has focussed on export and export promotion bringing a refreshing change from the usual import liberalisation. The export-friendly policy attempts to create conditions for an accelerated growth rate so as to eventually capture 1 per cent of world trade. In doing so, the Union Commerce and Industry Minister, Murasoli Maran, has laid due emphasis on export of agriculture commodities. Mr. Maran said the new policy was comprehensive in scope as it encompassed the agriculture sector, cottage and handicrafts and small scale sectors, thus taking care of more than 80 per cent of India's population living in rural areas that would also benefit a wide-range of the country's population and give an additional fillip to the country's exports.

The new policy further give a more active role for State governments to participate in the export promotion. Mr. Maran also stated that the policy attempted to forge a lasting partnership amongst the Union Government, State governments, exporters and the people at large. He further underlined that the new policy simplifies the process of exporting to such an extent that even small artisans in India would feel motivated to export.

Roadblocks removed

As the new policy gave thrust to agriculture, an analysis of this sector is able to give an overview of the effectiveness of the policy. The road-blocks to farm exports have all been removed and, in fact, there were more quantitative restrictions on farm exports except onion and jute. Packaging restrictions have been dismantled and even the contract registration procedures have been done away with. However, removal of these procedural restrictions alone is unlikely to lead to more exports.

Realising that Indian farm goods need to be made globally competitive so as to be able to withstand the competition from other exporting countries, the policy has come out with some schemes. Transport assistance is one of the key elements of this new scheme that is likely to improve the competitiveness of Indian agricultural produce. In particular, perishables such as fruits, vegetables, floriculture, poultry and dairy products face enormous infrastructure constraints including cold storage and refrigerated transport. To promote export of these products the policy has proposed a transport subsidy. Given the high cost of fuel and freight cost, transport assistance is sure to lend a competitive edge to Indian produce.

Interestingly exports of fruits and vegetables were going up in the last few years. From $184 million in 1998-99 export earnings on fresh fruits and vegetables increased to $209 million in the following year. In 2000-01 there was a further growth to $248 million. A significant feature of the policy is the thrust on Agri Export Zone (AEZ), under which geographically contiguous area is identified as suitable for cultivation of a single product such as mangoes or grapes or strawberries. Already 20 AEZs have been identified in 15 states for promoting production of horticulture products. It would be some kind of a collaborative effort of the State Government, the Central Government, farmers and entrepreneurs. The idea is to have a focussed approach to production of horticulture products for which delivery of all perquisite services will be assured by the Government. The importance of AEZs will be further enhanced by setting up primary and secondary processing facilities with the objective of producing value added products that meet international standards. State governments have been entrusted with the responsibility to identify agro-climatic zones which are appropriate for specific horticulture or other products. The Central Government will act as a facilitator or catalysts to promote infrastructure.

The Commerce Minister is also planning to extend transport assistance to accelerate export of wheat and rice. At present the country has buffer stock in excess of 50 million tonnes and there is a desperate attempt to liquidate a part of stocks through exports. Because of competitive conditions in the global grains market Indian export efforts so far met with limited success. Last year India exported about four million tonnes of wheat and 2.5 million tonnes of rice. The grant of transport subsidy and the depreciating rupee together will enable Indian wheat to be become more competitive.

Today India's export policy, especially for agriculture commodities is freer than ever before. Freedom to export will however, not automatically translate into export opportunities. To give a push to agriculture export India needs to adjust a couple of imperatives. The first one is quality. Global competitiveness not only relates to costs but also quality. Unfortunately, the exim policy is silent on ways and means to promote quality consciousness among exporters. The second area that needs attention is commercial intelligence relating to domestic and global markets. The flow of information — often information that moves the market — is tardy, insufficient and possibly inaccurate. In disseminating information among all the stake holders in agri-business including farmers and processors, information technology can be effectively utilised.

The exim policy should also have examined ways and means of making India's import power for promoting export. For instance, India is a large importer of food products such as palm oil from Malaysia and Indonesia. The government should specifically look at barter trade exchanging palm oil for Indian rice and wheat. For instance, Indonesia is a major importer of these two cereals. If the AEZs are properly established and managed they can become avenues for corporate investment not only for procuring activity but also for development of related infrastructure such as warehouse and cold chains.

After the presentation of the Exim Policy Mr. Maran is expecting the Reserve Bank of India to act by bring down the rupee vis-à-vis the dollar to ensure price competitiveness of Indian exports compared to other countries.

While the rupee's persistent depreciation had given advantage to the Indian exporters over the years, it has equally given protection to the domestic industries. However, the pursued policy of devaluation of domestic currency has ensured that the basket of India's trade exports remain more or less unchanged for many years, namely primary products with negligible value addition. Moreover, instead of competing in the export market on improved quality it has relied on cheaper prices due to currency devaluations. Besides it has contributed towards growing number of inefficient domestic businesses thriving on protection. Now since the quality restrictions (QRs) are removed and customs tariffs are lowered according to the terms of WTO, these business units are now on the verge of collapse.

One should know that China has managed to be a most dominant player in exports despite its currency being managed at a fixed rate against the dollar. It has attracted huge foreign direct investments (FDIs) and even Japanese businesses are shifting their manufacturing base to China. The value of crude oil at $30 a barrel would translate into Rs. 780 a barrel at 1992 exchange rate of dollar at Rs. 26, whereas today's exchange rate of Rs 48.85 to a dollar would amount to roughly Rs 1,470 a barrel.

It is a misnomer to say that India has even cost advantage against the U.S. let alone China.