How to make India perpetually stand with a begging bowl, ask Ashok Gulati.

Normally I try not to get angry when I read some stupid argument in a newspaper. But this morning I was aghast when I read economist Ashok Gulati suggesting in what appears to be a motivated edit page article in Economic Times (Cut Tariffs, and Food Prices.June 9, 2014 http://bit.ly/1n1pFBX). Why I say motivated is because this is the second time in recent days he has come out with the same suggestion, this time more pronounced. Earlier, he had said the same in the Times of India (How to tame a dragon, TOI May 23, 2014) to reduce import duties on fruits, vegetables and dairy products so as to augment supplies. This is exactly what the European Union is demanding under the ongoing EU-India Free Trade Agreement negotiations. Obviously he is doing it blatantly to use food inflation as a cover for flooding India with cheaper and highly subsidised imports. I am sure the EU must have thanked him quietly for doing a job for them. He does not even care that importing food is like importing unemployment. That makes me wonder whether he actually represent EU/American interests? 

This is not the first time he has made such outlandish suggestions. I remember sometimes back in 1996 when India had imported 1 million tonne of wheat from Australia, Paranjoy Guha Thakurta had invited him and me for a TV discussion on CNBC. He asked whether India could meet its food security needs by importing wheat. You would know my reply. The question was then shifted to Gulati (who then worked with NCAER). The answer he gave was shocking. "If India can import oil, why can't it import wheat."

It doesn't require any economic degree from Harvard or Yale to know that India imports crude oil because it doesn't produce enough. Why should India import wheat when it can produce as much as it needs to meet its domestic demand? But then I have been saying repeatedly that there is no convergence between economic sense and common sense. 

Now look at this argument. "Thus, the roadmap for the government to deal the price rise in meat, milk, vegetables and fruit is clear. First, eliminate the aberrations of higher duties, such as those applying to chicken legs, skimmed milk powder, and fresh apples. Reduce MFN duties, temporarily to start with, on these products by 50%, so that the effective rate is 15%."  This is simply scandalous. What Ashok Gulati is suggesting, and suggesting unashamedly, is nothing but part of a design to destroy Indian agriculture. He has been at it for long, and that is why he has managed to be at some of the influential positions. 

Chicken leg is a waste product in America. We all know that Americans have a preference for chicken breast. So they have been trying since the days of George Bush to export chicken legs at a throwaway price. They had managed to dump chicken legs in the central Asian countries wherein these were called as "Bush' legs" Allowing import of chicken legs would certainly be detrimental to the interests of the poultry industry in India. Similarly, India is the biggest producer of milk in the world. Its milk production has crossed 140 million tonnes this year. At the same time, for big milk traders -- US/Europe/Australia/New Zealand -- who are over laden with milk and milk products are desperately looking for an export market. The moment India reduces the custom duties on milk, we will see a flood of cheaper and highly subsidised milk imports. This will destroy the domestic milk production capacity. 

Earlier too, Punjab had imported milk from Denmark. The landed price of milk in India was about $1400/tonne, which was 16 % less than the domestic cost of production. Not because the cost of production is low in Denmark, but the imported milk was cheaper because of $ 1000/tonne of export subsidy that Denmark was providing to its exporters. Thankfully the imports were stopped after massive street protests by dairy farmers in Punjab. 

I don't understand. Why these economists don't give the same advise to European countries and America. After all, if food imports is such a useful proposition why doesn't US/EU reduce its tariffs to allow unbridled imports from India and other developing countries? This is because food self-sufficiency plays a very significant role in maintaining their economic supremacy. In any case, if Prime Minister Narendra Modi accepts the advice of such stupid economists, India is in for a serious trouble. India will be back to the days of a 'ship-to-mouth' existence when food was coming directly from the ship into the hungry mouths. If this is what is development, I don't know what is a political disaster.  

In any case, Ashok Gulati is one up on the WTO/FTAs. He wants India to go in for autonomous opening up of its huge market, something that US/EU and other developed countries are unwilling to do. This is his recipe for destroying the gains of Green Revolution, and make India stand with a begging bowl for all times to come.  

Additional reading: Is Palm oil the answer to India's edible oil crisis? 
http://devinder-sharma.blogspot.in/2013/01/edible-oil-how-india-destroyed-yellow.html

What a stupid idea, Sir ji. Dehydrated onions is not what Indians need.

Chopping onions, and dehydrating them is not the answer to the price spiral India witnessed recently

Not only far-fetched, it's a stupid idea. I am referring to Ashok Gulati (who happens to be the chairman of the Commission for Agricultural Costs and Prices) article: Onions at Rs 20/Kg? Not so far-fetched (Times of India, Oct 27, 2013,http:// bit.ly/HmuTtG ). The article begins by saying: "If I say that I am ready to supply onions, in an improvised form, at Rs 20 Kg home delivered, and round the year, people may think I have gone crazy or I am dipping into the general exchequer to pull off a massive subsidy scheme for onions. Wrong. I will make a cool profit of 15-20 per cent in this deal, do a great service to consumers and farmers of this country, and perhaps also help our policy makers under tremendous pressure following public outrage sparked by the rising onion prices."  

I know there would many takers among policy makers for this idiotic idea. Anything that is linked to industry, and in this case it is agribusiness industry, is something that the policy makers keenly fall for. I will therefore not be surprised if Ashok Gulati's stupid idea finds favour. Moreover, it does just the opposite of what he is trying to tell us in the beginning. At the end of the article he is seeking appropriate public policy to incentivize the setting up of such plants to create a win win situation. Incentivize means providing land and subsidy support.

Onion prices were at Rs 15/Kg before the recent spike. We all know it wasn't because of any shortfall in production, but because of manipulation and hoarding. After all, this year the production was higher than the total consumption by approximately 27 lakh tonnes. And as Business Standard (Hindi) has estimated, the traders have profiteered by at least Rs 8,000-crore in the past four months. So the challenge is to discipline the trade. 

There is nothing wrong in Jain Irrigation dehydrating onions and exporting it to Japan. That may be what the Japanese prefer, and so Jain Irrigation is meeting their requirement. But the food habits of Indian's is quite different from that of the Japanese. Indians love fresh onions, which as we all know are cooked into various dishes and are also consumed fresh. Moreover, if Jain Irrigation is purchasing 1.5 lakh tonnes of onions, and after dehydrating, exporting it to Japan, I wonder what stops them to supply in the domestic market? If Jain Irrigation can set up a dehydrating plant for export purposes, why cant it do the same for the domestic market? 

But if you have followed the reports/analysis of the Commission for Costs and Prices (CACP) what is very clear is that it has always lobbied for subsidy support for the industry (calling it incentives) while decrying subsidies being given to farmers. I am not in any way surprised at this suggestion. 

Some years back, when Pepsi Foods made a backdoor entry into India, it had come up with the proposal to import tomato varieties suitable for processing. The policy makers were swayed by this idea, technology introduction sells very well in this country. Eventually, Pepsi Foods relied on a tomato variety developed by Indo-American Hybrids, a Bangalore-based firm. No one ever questioned Pepsi as to what happened with their promise of importing improved tomato varieties. Nevertheless, just like the idiotic suggestion of Ashok Gulati, even at that time the company had maintained that by setting up a processing plant to make tomato puree, Pepsi will help provide tomato to the Indian consumers at a cheaper price. 

Well, tomato puree has been in Indian market for quite sometime now. But has it in any way reduced the demand for fresh tomatoes? The answer is: No. So will dehydrated onions, that Ashok Gulati is advocating primarily to seek State subsidies for the industry, reduce the demand for fresh onions? Well, you know the answer. 

Onions can be made available cheaper throughout the year provided the government chops the onion cartels.

By the way, what happened to the claims that organised retail can provide competition to the fruit and vegetable trade that exists in the country? Weren't Reliance Fresh, Big Bazaar, Easy Day, Metro and the likes supposed to eliminate middlemen and thereby provide cheaper vegetables to the consumers? If these retail chains had marketed cheaper onions, I am sure we would have seen long queues before the stored. We didn't see any such rush outside these stores. I remember the CACP has been a strong votary of the organised retail, including FDI in retail. So why did it fail to deliver? Shouldn't CACP be questioning that now, and shouldn't CACP itself be questioned to know whose interests it is working for.

Moreover, how will the processing of onions that provides onions at Rs 20/Kg help the farmers? Who are you misleading, Mr Ashok Gulati?  

Is Palm Oil the Answer to India's Edible Oil Crisis?

Now this is getting too much. The chairman of the Commission for Costs & Prices (CACP) Dr Ashok Gulati has come out with another analysis which, if implemented, will take India from the frying pan into fire. That's what I feel. All through he has been shrieking at the top of his voice for cutting down on import duties on agricultural commodities. His argument has been that cheaper imports will make Indian farmers efficient, which in turn will improve crop productivity thereby increasing exports.

Nothing like that happened.

Writing in The Economic Times, he says in an oped article entitled: Oil palm: Answer to India's edible oil problem (ET. Jan 17, 2013. bit.ly/S5qtKS ) that India's edible oil import bill has crossed Rs 56,295-crore in the oil year, Nov 2011 to October 2012. "The projections of demand and supply of agri-products also shows that the biggest challenge of Indian agriculture will be in producing enough edible oils at globally competitive rates to meet its rising demand." Fair enough.

And then he very conveniently hides the fact that India had achieved near self-sufficiency in oilseeds production in 1993-94, many called it yellow revolution, after which the down slide began. From a near self-sufficiency status to becoming world's second biggest importer of edible oils is because it was after 1993-94 India had began to gradually reduce the import duties. As per WTO obligations, India is allowed to bound its import tariffs on edible oils at 300 per cent (except for soy oil where it has been pegged at 40 per cent, thanks to US pressure). But it was autonomous liberalisation that did the damage. At present, there is zero duty on crude edible oil and 7.5 per cent on refined edible oil. Now with import duties brought down to almost zero, what do you expect to happen?

Imports have been on an upswing. From Rs 14,709-crore in 2006-07, the import bill jumped to Rs 34,677-crore in 2009-10, and has further soared to Rs 56,295-crore in 2011-12.

You will agree that it is because of India's faulty policies that edible oils have turned into a big strain on the state exchequer. Obviously, the current account deficit will grow when imports increase and exports do not match. In fact, still worse, because we allowed cheaper edible oil to be imported, farmers abandoned cultivation of oilseed crops and shifted to other unremunerative crops (oilseeds are mainly grown in the harsh environs of drylands). At the same time, the domestic edible oil processing industry collapsed, in turn implying that it was a lost opportunity to create employment.

Just between 2006 and 2012, a period of six years, India has incurred Rs 2.02 lakh crore on edible oil imports. If India had continued with the oilseed self-sufficiency programme, as initiated by former Prime Minister Rajiv Gandhi, this entire amount would have remained within the country thereby helping farmers and the industry. Here also, people like Ashok Gulati were advising the successive governments on the dire need to open up imports. So first you the damage the country by encouraging imports, and then you try to inflict another bigger damage by campaigning for a crop which is known to be environmentally destructive.

While the Ministry of Agriculture is now contemplating a re-look at the import duties on edible oils (Govt to review import duty structure of edible oils. Business Line. Jan 15, 2013. bit.ly/SCVmrB ), Ashok Gulati is suggesting a shift to palm oil cultivation to meet the domestic demand. His suggestion is that India should bring 2 million hectares under palm cultivation in the next four to five years, for which he even advocates a compensation of Rs 4,000-crore to farmers as opportunity costs. CACP chairman doesn't want the wheat and paddy prices to be raised by even Rs 10/quintal but has no problem if the government was to shell out Rs 4,000-crore to farmers as compensation for palm oil cultivation!

Palm oil cultivation has a terrible socio-economic and environmental fallout (See this WWF report: Palm oil: Environmental impacts. http://wwf.panda.org/what_we_do/footprint/agriculture/palm_oil/environmental_impacts/) Knowing this, I don't think any sensible economist would advocate undertaking massive palm oil plantations, and on top of it provide huge subsidies to make it economically viable.

Meanwhile, the Government today has raised the import duty on crude edible oil from existing zero to 2.5 per cent. Ministry of Agriculture had proposed a hike of 7.5 per cent, which also is very low. To make any appreciable dent in the sense that India returns back to the path of self-sufficiency, the import duties should have been raised by 150 per cent. But then, that's not the intention of this government.