The agriculture sector is still the most important to India’s economy. As a source of livelihood, agriculture remains the largest sector of the Indian economy, employing 42 percent of the total workforce and contributing 14-17% to gross domestic product (GDP). International Agri-trade(import export) is growing steadily. In Financial Year 2020-21, Agri Exports contributed to 10.24% of India’s total exports. During the last fiscal year, India’s agricultural exports grew by 19.92% crossing $50 billion for the first time. It is even more remarkable because it is on top of the 17.66% growth (at $41.87 billion) achieved in FY2020-21. Imports, too, have scaled to an all-time high of $32.4 billion, leaving a trade surplus of $17.85 billion.
In this article, we will explore the trends and opportunities for India in the Agricultural import export trade.
- Factors Driving the Import Export Boom
- Efforts from the Government to Promote Exports
- Bumper Produce
- Post-pandemic Liquidity Injection
- Challenges Facing Agricultural Import Export in FY23
- The Solution is Here
Factors Driving the Import Export Boom
In 2019, India broke into the top 10 list of agricultural produce exporters with a sizable share in the export of rice, cotton, soya beans and meat, according to World Trade Organization (WTO). Most of the increase has come from rice (specifically non-basmati), sugar and wheat, whose exports have broken all previous records. FY22 was a particularly noteworthy year for rice and wheat commodities. Here are the factors that contributed to the boom:
Efforts from the Government to Promote Exports
Commenting on the record-breaking numbers, the Ministry of Commerce & Industry said, “this achievement is the result of sustained efforts on the part of the Department of Commerce and its various export promotion agencies like APEDA, MPEDA, and various commodity boards. The Department has made special efforts to engage State Governments and district administrations in promoting agriculture exports.”
In a report released in early 2021, titled “Reforms to promote Agri exports” the ministry said that the government’s consistent and concerted endeavours to usher in reforms to boost agricultural exports have been highly fruitful.”
The area under cultivation in the ongoing rabi season(winter-sown crops) has expanded for the third year. The record growth is driven by oilseeds. The government has sought to increase the domestic output of oilseeds to cut expensive imports. The official data shows the third Covid wave has had little to no impact on the farm sector.
The Department of Commerce has made efforts to ensure that the farmers benefit from exports, by providing export market linkage directly to farmers and FPOs. To provide a 24X7 Online visibility digital platform in the form of a portal and mobile application, “Farmer Connect” has been set up to provide a platform for farmers, FPOs/FPCs, and cooperatives to interact with exporters.
This new approach resulted in agriculture exports taking place from previously unexplored areas, like Varanasi (fresh vegetables, mangoes), Ananthpur (banana), Nagpur (orange), Lucknow (mango), Theni (banana), Solapur (pomegranate), Krishna & Chittoor (mango), etc. Andhra Pradesh government also launched the ‘Happy Banana’ train, an exclusive train with reefer containers to transport bananas from Anantapur to JNPT, Mumbai.
Post-pandemic Liquidity Injection
With the lifting of Covid-induced lockdowns and the after-effects of the big liquidity injections by the central banks post the pandemic, the last two years have witnessed a boom in global agri-commodity prices, positively impacting the import export revenues.
The Russian-Ukraine crisis has adversely impacted the international agri-commodity markets, with the FAO food price index leaping to a new high of 159.3 points in March. Going by past trends, this should be good news for India’s farm exports. The warring nations are known as breadbaskets, and the void left by their violent engagement presents an opportunity for Indian exporters to fulfil the demand for wheat and even maize, at least partly.
Challenges Facing Agricultural Import Export in FY23
Following the severe heat wave, there have been reports suggesting significant yield losses, particularly for the wheat crop. With government procurement set to more than half from last year’s 43.3 MT, the projections of wheat exports topping 10 MT may not easily materialize. The performance of monsoon will be detrimental to agri-exports. Other challenges that Indian import export traders are facing are:
India’s major ports have a serious congestion problem. The problem cannot be simply ruled to high container volumes, as the ports are found infrastructurally lacking when compared to important ports of other large countries. Issues such as container and equipment shortages, outdated navigational aids, lack of technical expertise, and poor port maintenance – are just as much to blame.
Additionally, lack of road connectivity from farms to main roads, congestion on the roads, and an outdated rail network exacerbate the slow shipment movement. Thus, in the perishable category, India will remain laggard in the import export trade until adequate infrastructure is developed.
Low Credit Access
The lack of access to trade finance and export credit has obstructed the growth of Agri-exports for a long time. Even though they account for close to half of India’s total exports, the MSMEs (Micro, Small, and Medium Enterprises) face the problem of securing finance for their import export business. For instance, in 2018, Chinese export credit agencies extended credit to the tune of $39.1 billion while Indian agencies handed out $7.6 billion in funds.
The factors standing in the way of exporters and trade finance are:
- High Cost of Finance
Banks and lenders must comply with various financial security rules such as Know Your Customer (KYC), Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT). The cost they incur is passed on to their customers, making trade finance expensive for MSME import export traders.
- High Collateral
An Indian exporter must provide large collateral to avail credit, which might be impossible for MSMEs. Banks are also hesitant to lend to MSME import export traders, viewing them as a credit risk.
- Complex Procedures
The application procedures are often complicated and require heavy documentation, which is discouraging for exporters seeking Trade Finance. The small import export traders may not be able to afford the fee of consultants, too.
- Lack of Information
Sometimes, simple ignorance of the availability of export credit schemes and products is the reason that import export traders do not take credit.
Exporting, by nature, is a sector that comes with the aspects of dealing with unfamiliar buyers in foreign lands, which have different trade laws and practices. And numerous documents.
But, the procedures in India are especially time-consuming and paperwork-intensive than in other large countries.
For example, for import export of Food and pharmaceutical items, furnishing of health and safety certificates is essential. Certification authorities at Indian ports are also not available 24*7 or on all seven days of the week.
Recently, the number of mandatory documents required for exports in India has been reduced to three – the Bill of Lading, Commercial Invoice /Packing List, and Shipping Bill.
With a policy of encouraging local industries, the Indian government keeps a high import duty. Importing commodities to India is particularly expensive because of these high import duty rates. Rates in India are higher than in most developed and emerging economies.
While this measure is important to keep a check on the trade deficit, it has led to protestations from countries that export to India and also from Indian exporters who depend upon imported inputs and raw materials for their manufacturing.
These are the trade barriers impacting Indian exporters:
- High Import Duties
A 2019 US government report cites agricultural products, which attract an average duty rate of 113.5 percent. According to the World Trade Organisation, India’s Most Favoured Nation (MFN) applied import duty rate is the highest of any major economy. For exporters that process imported commodities, since they pay a high price for imported inputs, they are forced to mark up their final products. Thus making import export an expensive trade.
- Tariff Inconsistency
Apart from high tariffs, Indian exporters who import their inputs must keep up with rate adjustments and tariff escalations that happen almost every year when the national Budget is presented.
- Non-tariff Barriers
Regulatory compliances such as safety and quality standards and certifications, packaging, labelling, and testing requirements add to an import export trader’s cost and time. There are also some ‘restricted goods’ and items that can be exported through State Trading Enterprises only.
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