Making India Atmanirbhar in Oilseeds
Several commodity-exporting countries that are either suppliers or competitors of India in the international market have made the World Trade Organization (WTO) a battle arena with India. The idea apparently is to put pressure on India to continue to be a major destination market for its supplies or to blunt India’s competitive advantage in exports.
The agricultural products in question include legumes and vegetable oils which India imports in significant quantities and sugar which India has exported in recent years.
In January, at India’s trade policy review meeting, the US and the EU pointed out some trade-related issues, including increased import tariffs. They also raised some questions regarding India’s agricultural support programs, such as the minimum support price for various crops.
At the last meeting of the WTO Agriculture Committee on March 29-30, member countries questioned India on a variety of issues, including maintaining import restrictions on pulses, storing wheat , short-term loans for crops, export subsidies for skimmed milk powder and the export ban on onions.
The latest attack is on India’s ambitious plan to increase domestic oilseed production to reduce reliance on vegetable oil imports which cost around $ 10 billion (around ₹ 75,000 crore) in foreign exchange per year for the production of 13 to 14 million tonnes of palm and soybeans. and sunflower oils.
The main concerns of WTO member countries are India when it comes to the incentives offered to oilseed producers to boost production. Two points deserve to be considered. First, they have no problem questioning, as long as the incentives are well within allowable limits. Second, there are indeed ways for India to boost domestic oilseed production even without direct financial incentives or monetary support to producers.
How can we increase domestic oilseed production without direct support? Indian policymakers need to be a little creative to do this. Certainly, increasing tariffs on vegetable oil imports is an easy option. It has had virtually no positive impact on domestic oilseed production over the past 25 years. It is therefore not an effective political instrument.
Instead of the tariff route, India should look at trade policy. It is well known that more often than not, imports of vegetable oil are excessive and motivated by speculation. Building up a large inventory of low-priced imported oils in the country lowers domestic oilseed prices and discourages oilseed producers. This has been going on for two decades and must be stopped.
As a first step, a system of contract registration and import control should be put in place. We already have the system for raw materials like steel and copper. It can be extended to vegetable oils. The government should require that all vegetable oil import contracts be registered with a designated authority.
Contract details will provide decision makers with essential information such as quantity under contract, type of oil, origin, price and estimated time of arrival. This information should become the basis for intervention, where appropriate. Today the government lacks business intelligence and has no idea of inbound shipments.
Reduce the importer’s credit period
The second suggestion concerns the imposition of a restriction on the “credit period” enjoyed by importers. Foreign suppliers provide 90-150 day credit to Indian importers; but the cargo reaches the Indian coasts in about 10 days (palm oil) or 30 days (soft oils). The Indian importer sells the equipment immediately and enjoys liquidity for several months during which it engages in rampant speculation and over-exploitation before being forced to make payment. This leads to an endless import cycle.
Many vegoil importers are in fact in the “import debt trap”. To avoid this dangerous debt trap, the credit period for importing vegoil should be limited to a maximum of 30 days for palm oil and 45 days for soft oils. This will automatically discourage excessive imports, over-exploitation and speculation.
Registration of import contracts and strict monitoring of imports as well as a limited credit period will instill much needed discipline in the import trade. Reducing speculative and excessive imports of vegetable oil will immediately have a salutary effect on domestic oilseed prices. This will certainly encourage growers to plant more, improve agronomic practices and achieve higher yields.
Our oilseed production has been trapped between 31 and 32 million tonnes. We must end this stagnation and aim to increase production by at least two million tonnes per year, if not more. Certainly, achieving Atmanirbhar or self-sufficiency is a challenge; but we can become substantially self-sufficient in the next five years or so.
Through creative policy intervention, the government can help stimulate oilseed production without any major financial investment. The price is the best incentive for the producer to stay motivated; and this initiative of non-monetary and non-tariff policy (surveillance and regulation of imports) cannot be criticized by our trading partners abroad.
The author is a political commentator and an agribusiness specialist. Opinions expressed are personal