Why Indian farmers suffer as the government continues to fight inflation?

Govt's aggressive fight against inflation has come despite expectations of a bumper monsoon in 2024

A few days ago the government of India once again announced a series of measures to tame inflation. It included slashing of the import duties on chana, extension of zero-duty regime on yellow peas and a hefty tax on export of onions.

The export of onions was allowed after much persuasion as the ban imposed sometimein the middle of last year was starting to hit the farmers hard, which the government could ill-afford in an election season.
 

The decision on chana and other pulses has come on the back of similar decisions for edible oils announced sometime back when imports at zero duty had been allowed till March 2025.

Apart from the two (chana and yellow peas), imports of most other pulses namely tur and urad have also been allowed at nil-duty till March 2025.

These decisions taken over the last several months show that while the domestic production of pulses and oilseeds continues to fluctuate due to various factors, weather being prime among them, the Central government does not expect their prices to come down soon in the near term.

The aggressive fight against inflation has come despite expectations of a bumper monsoon in 2024.

The state-run IMD has for the first time predicted ‘above normal’ rains in its first forecast in almost a decade. This clearly shows that monsoon in 2024 is expected to be good which should aid in the bumper kharif harvest.

Agriculture production would be good if the kharif harvest is good and rains leave adequate soil moisture for the subsequent rabi sowing.

Already, NITI Aayog member and eminent agriculture economist Ramesh Chand in a recent interview hoped that farm sector growth in FY25 could be around 6 per cent boosted by a strong monsoon and a low base.

Therefore, it is surprising that the government has decided to continue with its hyperinflation management stance even when there is no indication whatsoever that the monsoon, which is a major factor in agriculture supplies, is not expected to be good.

Some experts said all these aggressive measures to boost domestic supplies are limited to elections and much of the decisions could be reversed once the polls get over in June.

While such long-term policy decisions on imports and exports does help in establishing a stable trade regime, easier imports and tough exports do have an impact on the farmers.

An assessment by the Organisation for Economic Cooperation and Development (OECD) showed that in 2022, Indian farmers were implicitly taxed $169 billion due to export bans, duties or permits on several commodities like wheat and rice, to stabilise prices for consumers.

It also found that due to these bans and export curbs, the overall Market Price Support (MPS) for several commodities went into negative, thereby hurting the farmers.

MPS as per OECD is defined as the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers arising from policy measures.

Agriculture economist Ashok Gulati, in a recent article in Indian Express said that annual average growth rate of Indian exports in value terms has dropped from 20 per cent during the UPA regime (2004-05 to 2013-14) to just 1.9 per cent in the NDA regime (from 2014-15 to 2023-24).

Though, global commodity prices and the boom in them do have a role to play in the growth, restrictive policies and repeated bans and curbs have also slowed export growth.

If export curbs are bad, cheap imports are equally problematic for farmers as it pulls down prices.

This year, mustard seed prices in the rabi season have rarely crossed the MSP of Rs 5,650 per quintal in major markets while in the case of chana which is the largest pulses grown in the country, the situation was drastically different. 

Chana market prices have remained well above the MSP though most experts predicted a bumper harvest. Prices have also moved up on talk that the government will purchase chana from farmers if there is any weakness in prices.

Wheat prices are also trending higher than MSP.

India first started importing edible oils in a big way in the 1990s.

And, since then as per trade sources in the last 20 years (1990-91 to 2020-21), imports have risen by over 160 per cent in volume terms while in value terms it has risen from Rs 7,000 crore to almost Rs 117,000 cores in 2020-21.

In 2022-23, India imported its highest ever volume of edible oils at almost 16.46 million tonnes, valued at almost Rs 140,000 crore.

Before the 2021-22 edible oil marketing year, India imported edible oils worth around Rs 157,000 crore which was 117,000 crores in 2020-21.

Between 2017-18 and 2022-23, the value of India’s edible oil imports has risen from around Rs 66,942 crore to almost Rs 138,000 crore, a rise of over 106 per cent in almost five years.

At present on average India imports around 14-15 million tonnes of edible oils, of which almost 63-65 per cent is palm oil.

Of this, 8.5-9.5 million tonnes of palm oil of which 45-50 per cent comes from Indonesia and the remaining from neighbouring Malaysia. The remaining is imported soy oil and sunflower oil.

Going forward, as per an assessment made by the Solvent Extractors Association(SEA), by 2025-26 (November to October), India’s reliance on imported edible oils will continue to remain at around 12-13 million tonnes per annum if the current trajectory in domestic oilseeds production and growth continues.

Similarly, in pulses, data shows that between 2016 and 2023, average annual production of all pulses combined in India has risen from around 16-18 million tonnes to almost 22-25 million tonnes.

In 2020-21 and 2021-22 total pulses production in the country was even better at almost 25.46 million tonnes and 27.32 million tonnes respectively.

The production jump has come on the back of several factors such as robust demand, strong policy initiatives, new seeds and most importantly creation of an annual buffer stock of almost 2 million tonnes that has given some sort of assurance to farmers to opt for the crop even at the risk of prices dropping sharply.

Senior officials said that not only did the annual production of pulses jump but India’s reliance on imports over the years has also come down from almost 4-6 million tonnes annually to just around 2.5-3 million tonnes.

However, in FY24, India imported around 3.5 million tonnes of pulses which would be highest since 2017-18.

A combination of factors that include low kharif production due to uneven monsoon and missionary zeal to keep prices under check in an election year has ensured that imports zoomed.

Going forward too, a demand-supply projection done by NITI Aayog shows that unless drastic measures are taken, both edible oils and pulses imports are likely to stay for the next two decades (that is till 2047-48).

The report of a working group on demand and supply projections in agriculture showed that under a business as usual (BAU) scenario by 2047-48, India’s pulses production will rise to around 47 million tonnes from the 2019-20 levels of around 23 million tonnes while demand will grow to almost 49 million tonnes, leaving a gap of almost two million tonnes.

“Their present production (of pulses) is insufficient to meet the demand. This gap may remain in future in the absence of yield improvements and acreage allocation to them,” the report said.

Similarly, for edible oils, too, the report showed that by 2047-48 demand is projected to rise to around 31 million tonnes from the 2019-20 level of 22 million tonnes while production of edible oils was estimated to grow to around 24 million tonnes from around 12 million tonnes in 2019-20.

Thus, leaving a gap of around seven million between demand and supply.

Therefore, unless there is strong effort to boost production and productivity along with adequate remuneration for farmers, self-sufficiency will remain a tall order. And, Indian farmers and exports will continue to remain under pressure.