Context

On July 15, the Centre issued a notification moving power tillers (PT) and their components from the “free” to “restricted” category indicating a clear intent to provide protection to the domestic industry.

How heterodox opening policies affects farming

Heterodox opening policies, being open on the export side while being closed on the import side, have long-term unintended consequences.

• Productivity loss: One impact of heterodox policies is subpar mechanisation and productivity loss in agriculture.
• India’s mechanisation coverage is around 40-45 per cent, compared to 90 per cent in developed countries.
• At present, only Punjab, Haryana and western UP have mechanisation rates between 70 and 80 per cent whereas in eastern and southern states it is between 35 and 45 per cent, with even smaller coverage in North-Eastern states.
• Comparatively high tariffs on agricultural machinery, placement under restricted trade hits the cog in the wheel of mechanisation.
• Uncertainty and lower trade: A shift to restricted category and frequently changing tariffs engenders uncertainty and lowers trade.
• Disincentivise innovation: Such policies also disincentivises domestic machine manufacturers to invest and innovate — the perils of protection.

What India can learn from Bangladesh on farm mechanisation

• Starting lower, Bangladesh overtook India in mechanisation by 2006.
• A perfect example of orthodox opening in the late 1980s, Bangladesh removed import bans on Power Tiller and other machinery like diesel engines.
• By 1995, PT were made duty free and credit support was provided for purchases.
• Studies have credited PT in increasing the rice yield in Bangladeh, which grew 2.1 per cent annually from 1990, compared to 1.6 per cent between 1960 and 1989.

Way forward

If productivity in agriculture and incomes of farmers were to go up significantly, Indian agriculture must hit the mechanisation frontier.

• Liberal and Stable trade policies: Liberal and stable trade policies will increase access, competition will expand varieties and bring down the prices.
• New trade economics teaches us that farmers would be successful in trading or accessing markets only when highly productive, which beckons large scale and intensive mechanisation.
• Credit support: Bangladesh also shows the role of complementary policies such as credit support.
• Once the farmers achieve sufficiently high productivity, they can access markets and even integrate with global value chains (GVC) if allowed by policy as intended in the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.

Conclusion

Liberal trade in machinery presents an opportunity to access distant and international markets. The key is to be both ways open.

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