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India’s agriculture trade policy has a pro-consumer bias: study

LiveMint logoLiveMint 18-07-2017 Sayantan Bera

New Delhi: India’s trade policy in agriculture has a pro-consumer bias which implicitly taxes farmers by placing export restrictions on different crops, said a joint study released by The World Bank and Delhi-based Indian Council for Research on International Economic Relations (ICRIER) on Tuesday.

Following an analysis of how domestic prices deviate from international prices, the study found that in most years policy makers used restrictive trade policies to keep domestic prices low. “This showed the pro-consumer bias in the policy complex,” the study observed.

“This means that policies more than often harm the farmers’ interests, whose scope of getting higher returns globally are curbed,” it said, adding, “any possibility of price hikes in agriculture in general and food in particular led policy makers to restrict trade.”

Titled ‘Price Distortions in Indian Agriculture’, the study analysed domestic and international prices of 15 commodities for a decade between 2004-05 to 2013-14. The analysis showed that domestic prices were on an average 72% of the time below export parity prices, implying farmers would gain significantly from exports.

Only 11% of the time domestic prices were above import parity prices, the study found.

“Out trade policies are inadvertently anti-farmer with a consumer bias,” said Ashok Gulati, agriculture chair professor at ICRIER, while introducing the research. “What we need is to ban the export bans.”

The findings assume significance at a time when Indian farmers have been protesting in several states demanding better prices for their crops and loan waivers to tide over losses in farming. In pulses, for instance, prices plunged following a record harvest in 2016-17 and due to export restrictions.

“Indian farmers are not getting access to global markets and the government tries to redress this via higher support prices. This is an implicit tax on farmers,” said Shweta Saini, who co-authored the report with Ashok Gulati. “On an average onions were 44% cheaper than international prices (during the study period) but due to export restrictions by the government to protect consumer interest farmer could not get a better price. The same happened with potatoes and non-basmati rice.”

The study recommended a host of policy reforms such as phasing out the built-in consumer bias, create space for private players to have access to integrated markets, and using income transfers to protect both poor consumers and small farmers. It also suggested creating a predictable and stable trade policy.

“At times wrong production estimates, for instance for wheat, led to restrictions on exports or imposition of stock limits (on traders),” said Siraj Hussain, a former secretary at the agriculture ministry. “We also need a faster policy response system. Ministry proposals on trade policies sometimes takes months for the government to approve, by which time the ground situation changes.”

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