Will a pro-farmer trade policy help BJP electorally?

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New Delhi: Ahead of the crucial Gujarat assembly elections, the centre last week raised import duties on a range of edible oils, in a bid to support growers who are bearing losses due to plunging domestic prices.

On 17 November, India, the largest importer of edible oils globally, raised import duties on crude palm oil from 15% to 30% and that of refined soybean oil from 25% to 40%. While the duty on crude soybean oil was raised from 17.5% to 30%, import duty on refined soybean oil was raised from 20% to 35%.

The hike in import duties on edible oil is the highest in a decade—in a bid to encourage farmers at home—and comes ahead of the Gujarat assembly elections in December. For the ruling Bharatiya Janata Party (BJP), retaining Gujarat, which it has ruled for over two decades, is crucial as results in the state can set the mood for the general elections in 2019.

Gujarat is a major producer of groundnut contributing about 40% to India’s total production of the oilseed.

In September, the Gujarat government had announced it will procure groundnuts at Rs4,500 per quintal as local prices plunged to Rs3,000 per quintal. In October, the state government also announced a bonus of Rs500 per quintal on public procurement of cotton, over and above the centre’s announcement of minimum support price (MSP) of Rs4,020 per quintal.

The hike in import tax is also likely to benefit growers of soybean and the largest producing state of Madhya Pradesh, where assembly elections are likely by the end of next year.

Beyond the hike in import duty on pulses, the government has also freed up exports of all varieties of pulses as a surge in domestic supply pulled down prices way below the MSPs announced by the government.

Free export of pulses will provide an alternative market for farmers at remunerative prices and help exporters regain markets, the centre said on 16 November, following cabinet approval to allow exports. Earlier in November, the government also hiked the import duty on yellow peas to 50% to support domestic growers of pulses like chanaurad and moong beans.

Do these duty revisions signal a policy shift to help farmers at the cost of higher prices for consumers?

“Of late there is a shift from consumer centric policies to keep (food) inflation low which caused significant farm distress in the past two years,” said Ashok Gulati, agriculture chair professor at Delhi-based Indian Council for Research on International Economic Relations.

“This also signifies that at a political level BJP has realised that the reality is far from what they promised farmers… with prices of pulses and oilseed at historical lows compared to support prices they are hoping that the reversal in trade policies will help them in elections,” Gulati added.