Dependency on farm input imports and subsidies should come down

Chennai: India's food exports have grown rapidly in the past years, leading to a large trade surplus in agricultural products. However, dependency on imports for farm inputs and subsidies has often led to production distortions.

While India has been a net food exporter since the 1980s, productivity gains in the agricultural sector pushed the sector's exports to double-digit percentages of GDP during 2012-15, and agricultural exports are estimated to amount to nearly 10 per cent of GDP in FY23, as per a report by Barclays.

Rice exports alone account for 45 per cent of India's agricultural exports, and India is the largest exporter of rice, accounting for nearly 40 per cent of global rice exports. India has become nearly self-sufficient in terms of food, except oilseeds and fruits. Agricultural products have maintained their share for the past two decades, even with recent restrictions on exports of some products.

The main challenge that the agricultural sector faces is its dependence on subsidies, which also constrain the sector's commercialization. Fiscal subsidies for the farming sector have been the biggest component of subsidies in India's budget for many years. This does not include agricultural outlays by state governments, which provide subsidies for electricity, equipment, seeds, and marketing infrastructure, making the entire agriculture sector significantly dependent on government subsidies. The problem is compounded by the fact that the government subsidizes both producers and consumers and hence distorts the supply and demand sides.

Indian agriculture depends on imports for fertilizers, and to some extent seeds. This exposes agriculture to global price variations — when the Russia-Ukraine conflict broke out, fertilizer costs surged, raising the government's fertilizer subsidies too. These subsidies now account for 47 per cent of total major subsidies provided by the central government.

Domestic production of fertilizers, especially urea, is picking up and this may over time reduce the overall dependence on imports. The potential use of nano fertilizers, a technology that employs micro-nutrients, could reduce fertilizer usage over time and possibly reduce fiscal subsidies.