Agro Perspectiva

India. Government must tax sugar, rice exports

07.06.2010 11:54 "Agro Perspectiva" (Kyiv) — The government needs to discourage exports of water guzzlers like sugar and rice through an «environmental tax,» to conserve the scarce natural resources for other crops, a senior policy adviser said on Friday. India has doubled spending on water resources to $50 billion in the five years to March 2012, but irrigation remains a major challenge with depleting ground water levels. Farm output is still largely reliant on the June-September monsoon rains. «We should not be actually exporting the thing too much, simply because that is equivalent to exporting water … An environmental tax on exports would actually save water,» Abhijit Sen, the member in charge of agriculture in India’s Planning Commission, said in an interview. «Rice and sugar are hugely water intensive crops, and if we actually start pushing those crops out, it will be at the cost of production of everything else.» India currently forbids the export of most varities of rice and of wheat to help tame high domestic food inflation. There have been calls to review these bans. Sen said they could be removed if the monsoons were were normal, as predicted by the weather office. But traders should not expect subsidies, often granted by the government to make up for the difference between high domestic prices and low global prices, he said. «There is no case to subsidise any exports, it should be entirely market driven.» On sugar, where the government will next week consider re-imposing a tax on imports to protect domestic millers, Sen said India needed to discourage last year’s level of imports. Graphic: India’s projected food supply and demand India turned an importer of the sweetener last year, as domestic production fell 44 percent, but is seen flipping to a surplus this year. Global sugar prices have since tumbled from a 29-month peak hit in February. «We should be taking into account in our trade policy, in our tariff policy, the fact world sugar prices have collapsed. We shouldn’t be encouraging the sort of imports we saw last year.» Sen said. The worst monsoons in nearly four decades last year cut summer farm output and ratcheted up domestic food prices. Despite a better showing in the winter and government measures to improve supply, food inflation is still over an annual 16 percent. «I really think this is one area in which things are not quite working out as we had hoped.» Sen said. «(But) if the monsoon is as the Met office is saying it will be, I am amply confident that by around November we should actually see food price inflation in the 5–6 percent range.» Experts say there is more to blame beyond the monsoons, such as inadequate infrastructure. For instance, some 40 percent of fresh produce in the country of over 1.2 billion people, is wasted due to inadequate supply chains and lack of cold storage. The poor farm output also forced India to import more of food last year, making it a key driver of global prices. Analysts have said rising incomes and structural problems could make the nation a major importer within five years. «From here were going to actually see lower imports, not more,» Sen said, describing last year’s levels as an aberration. For the next two fiscal years, domestic farm output would grow in the range of 5–6 percent each year, outpacing demand growth of around 4 percent, he said. «I don’t think we are, by any stretch of imagination, moving into a situation where India will keep importing more. That scenario is simply not true.»