Rural Economy Reaps Rich Gains From War : Daily Current Affairs

Relevance: GS-3: Indian Economy, mobilization of resources, changes in industrial policy and their effects on industrial growth.

Key Phrases: Country’s Rural Economy, Rabi Crops, Minimum Support Price, Global Markets, High price, global exporters, wheat export market, India’s global share, Poorer quality, Domestic prices, Shipping Costs, Transportation Infrastructure.

Why in News?

The Russia-Ukraine war has given an opportunity for India to step up wheat exports, benefitting our farmers.

Context:

The Russian invasion of Ukraine has presented an opportunity for the country’s rural economy. There could be a silver lining for India with an upsurge in rural sentiments as harvesting of rabi crops is in full swing and prices are at an all-time high, higher than the Minimum Support Price( MSP) in domestic open markets as well as in global markets.
The MSP of wheat is ₹2,015 per quintal whereas the trading price in the open market is in the range of ₹2,200 to ₹2,300 per quintal.
In April, the prices of wheat in open market are up by 17 per cent, mustard by 30 per cent, barley by 67 per cent and soybean up by 36 per cent, in comparison to April 2021. Mustard, the second most important rabi crop in India has seen a 30 per cent higher sowing in FY22 versus FY21 and will be the second-largest contributor to farm income this year. It is broadly estimated by brokerage firms that due to the Ukraine-Russia conflict the high prices of commodities in domestic and global markets may infuse an extra ₹31,000 crore income into the rural economy from rabi crops.

Why there is High price of crop in India?

Ukraine is among the largest global exporters of wheat with a share of 12 per cent. Ukraine’s exports of sunflower form 47 per cent, barley 17 per cent, rapeseed 20 per cent and maize 14 per cent of global exports. Russia also has a strong presence with global exports of sunflower 25 per cent, wheat 18 per cent and 14 per cent in barley.
In the case of maize, Ukraine accounts for 13 per cent of the global trade, with half its export consignments moving towards the lucrative European Union market. “A ban on Russian flights to Europe and the US also means opportunities for Indian exporters of processed food, nuts, fruit juices, confectionery, pulse and cereal preparations,” according to an analysis by the Agricultural and Processed Food Products Export Development Authority (APEDA), an agency under the Union Ministry of Commerce and Industry.
There is a huge scope for increasing wheat export in the current scenario. Export orders of 35 lakh tonnes have been received for the months April to July. The prolonged conflict is an opportunity for India to garner a share in the global market by exporting quality wheat (like how we did with Basmati rice) so that Indian wheat remains in demand even after the crisis.
We must not explore a new market for temporary gains coming out of the Russia-Ukraine crisis. Instead, we must forge a long-term relationship with each of the key markets.
After China, India is the world’s second-largest producer of wheat about 1,008 lakh tonnes in 2020-21, contributing around 15 per cent of the world’s total production while a major chunk of it goes towards maintaining food stocks for strategic domestic consumption. At present, the warehouses overflowing with more than 230 lakh tonnes of wheat stocks against a buffer norm of 70 lakh tonnes and the new crop will start reaching in a week.

Why India’s share in global wheat export is low?

Despite holding 400 lakh tonnes of wheat stock in 2016, India hardly exported any of it. In 2016, India’s global share was just 0.14 per cent and has increased to 0.54 per cent in 2020; even today, it’s less than 1 per cent, and had exported about 78.50 lakh tonnes in 2021-22, 21.55 lakh tonnes in 2020-21 and only two lakh tonnes in 2019-20.
The reasons are:
- A major chunk of Wheat produce goes towards maintaining food stocks for strategic domestic consumption.
- Poorer quality of the grain.
- The price in the domestic market is much above international prices.
- High rate of taxation here is another deterrent like taxation system of Punjab is discouraging as exporters have to pay 8.5 per cent levies.
- Domestic prices are set by the government through its procurement policy while global prices are usually lower, often rendering exports non-viable.
- Exports have picked up, but shipping costs are rising and shipping routes are changing.

Challenges for Punjab and Haryana

Gujarat and Madhya Pradesh are exporting wheat since last year to the South-Asian neighbouring countries, but export from other wheat-producing States, especially Punjab and Haryana, will be challenging because of the absence of requisite transportation infrastructure, higher cost of transport to seaports in the western region, and higher levies on grain purchase.
While Madhya Pradesh government has waived mandi fee and other levies aggregating 3.5 per cent on grain purchases, in a bid to boost wheat export, Punjab has not made any announcement to boost exports. The high rate of taxation here is another deterrent. The taxation system of Punjab is discouraging as exporters have to pay 8.5 per cent levies, more than any other State.
Given the skyrocketing price of wheat in the global market, the world is banking on India to supply wheat. This will help exporters, as well as farmers, make a quick buck.
Between now and July, no fresh wheat arrival is expected from anywhere in the world except India. Though Ukraine and Russia wheat crop will mature in August and September, no one knows the extent of damage in the wheat fields, godowns and ports of the war-ravaged Ukraine. Australian wheat, which competes with Indian wheat, will arrive only in November thus wheat growing States in India' must be ready to export.

Way Forward:

It is unlikely that India will make a bid to capture every market vacated by Russia and Ukraine this year. Earlier in March, Ukraine had banned the export of wheat, oats, millet, sugar, cattle and cattle byproducts, mainly to ensure that the nation, wrecked by Russian missiles, has enough stock to feed its population as the country’s supply chains are getting disrupted.
If we go by the 2020-21 numbers, the lion’s share of Russian and Ukrainian wheat was exported to nations such as Egypt, Indonesia, Turkey, Nigeria, Italy and Bangladesh. India must focus on these nations. Setting up a special task force on agri-exports with representatives from the Commerce Ministry, FCI and States procurement agencies, railways, shipping, ports and exporters will boost the country’s rural economy in a big way.

Source: The Hindu BL

Mains Question:

Q. “The Russia-Ukraine war has given an opportunity for India to step up wheat exports, benefitting our farmers”. Critically examine the statement.