Jun 9, 2014

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? 


Vaanbhatt said...

Congratulations...for raising valid issues in strong voice...economic interest of farmers must be taken care...we are ready to import garbage without considering it's impact on agriculture and economy...in present era the developed countries enjoy power to reject imports on scientific grounds...India must adopt the same tactic to avoid becoming a dumping yard...economists must do every effort to enhance rural income and employment...for sustainable India...

ybr (alias ybrao a donkey) said...

Dear Sharmaji, U have done a brilliant analyses. Congrats. But why only one comment? If you praise Sachin Tendulkar, you will get a million likes. This is the fad or fate of this country.

Anonymous said...

I remember seeing a documentary where US milk reconstituted from milk powder was introduced into a Latin American country (forgot the name); Shockingly, the US milk was cheaper despite the shipping costs and reconstitution costs. In desperation, local dairy farmers poured 1000s of liters of milk down the street - it was heart rending to see this doodh ki ganga flowing down the dusty street into a giant milk lake. Unforgettable images!

Any person with average intelligence will see that to combat poverty, we need to support local jobs and buy local produce even it costs a bit more because the money saved by buying cheaper imported foods is not enough to dole unemployment wages to people deprived of a livelihood (not to mention to combat the social unrest due to unemployment).