India's Economic & Foreign Policy on Slippery Ground

Edible oil and Fuel oil will keep India's Economic and Foreign Policy on Slippery Ground 

India will spend USD 40 billion every year on import of edible oils

By 

Vijay Sardana

Edible oils form an essential part of the modern diet. These oils play a vital role as an energy source, and provide the diet with many beneficial micronutrients. Like any other essential commodities, the main drivers to determine the demand of oilseeds and edible oils, are population and income.

Demand Side Analysis for Oilseeds and Edible Oils in India:

Projected Population of India in 2025

According to the Report of the Technical Group on Population Projections constituted by the National Commission on Population, Government of India, the population of India is expected to increase to 1400 million by 2025 at the rate of 1.2 percent annually. As a consequence, the density of population will increase from 313 to 426 persons per square kilometer.

Projected Per-capita Income of India in 2025

According to the Chairman of Prime Minister’s Economic Advisory Council (PMEAC), It has been estimated if we grow at 9 per cent per annum, India’s per capita GDP will increase from the current level of $ 1,600 to $ 8,000-10,000 by 2025. It looks more on optimistic side, with this growth; India will become part of the middle income group of countries when it achieves $ 8000-$ 10,000 per capita income. In order to plan the commodities requirements let me take a conservative estimate growth rate of 5% and per capita income will be around USD 3,000 per year.

Projected demand of edible oils and oilseeds by 2025:

According to an FAO study, food energy requirements for South Asian population will be about 2700 Calories / caput / day in the year 2025.

In terms of edible oil demand, it is estimated that it will be about 17 kg per capita per year. It means, India will need about 23.8 million tons of edible oils by 2025. It means with an average yield of about 30% oil from oilseeds, we will need about 80 million tons of oilseeds. If yield is less we will need more seeds.

Supply Side Analysis for Oilseeds and Edible Oils in India:

With the projected demand of about 80 million tons of oilseeds to produce about 23.8 million tons of edible oils, India will need two vital natural resources i.e. water and land.

Land Availability for cultivation

According to Minister of Agriculture, India will have about 0.12 ha. per capita land for cultivation by 2025. Net sown area is 140.02 m ha and it remains unchanged for last two decades. Total Arable land is about 182.47 m ha which is about 55% of India’s reporting area and about 11% of world’s arable land, out of this only one third of cultivated land is irrigated and producing 55% of food grains

About 78.17 m ha (2010) of arable land is rainfed contributing to 45% of Agricultural production including oilseeds. At the same time we have about 120 million ha. is degraded lands.

With the current productivity levels of 1.10 tons per hectare, we will need about 73 million hectare of land to produce 80 million tons of oilseeds. This is about 52% of the total agriculture land in India. Currently about 55% of agriculture land is already used to cultivate food gains i.e. cereals. It means with existing level of productivity and competing use of agriculture land, it is impossible to meet demand of oilseeds and edible oils by domestic production.

At present about 18 million ha. is used for production of oilseeds in India. It means we must develop an action plan to produce 4.5 tons per hectare per year to meet our demand for oil from domestic sources by 2025.

Water Requirement and availability:

According to Minister of Agriculture, India will have about 1700 m3 of water per person and 84% of this water will be used for irrigation purpose. This is at stress level.

According to ICAR, Water availability for agriculture is estimated to go down by up to 12 per cent from the current level by 2025 from current level. In other words, farmers, in fact, will require 25 per cent more water in 2025 than what they are consuming currently to produce food for feeding the domestic population. By 2025, the water requirement for irrigation will be 790 billion cubic meter.

India will remain net importer of edible oils:

With best of the efforts and resources India will be not be able to produce more than 60 million tons of oilseeds. This will be short of about 20 million tons of oilseeds. If we take the global average in oil seed production, we will not be able to produce more than 40 million tons of oilseeds, which is half of the requirement of oilseeds required to meet domestic demand.

In terms of edible oil, India will always need about 12 to 13 million tons of imported edible oil every year in the year 2025 onwards. It means with current rate of exchange rate India will spend about USD 18 to 20 billion every year in import of edible oils. If we take the inflation at the rate of 6% per year and exchange rate unchanged, India will need about USD 40 billion to meet the short fall of 12 to 13 million tons of edible oils.

For some reason if we are not able to improve our productivity from 1.10 tons ha to 2.00 tons per hectare, the import bill will increase.

What is the way forward to minimize import dependency for edible oils?

With growing gap between demand and domestic supplies, it is important for government of India to come out with a time bound action plan to minimize the dependency on imported edible oils. The growing dependency on imported oil will put pressure on current account deficit and food security of the country.

Oilseeds vital for nutrition security of India:

Oilseeds are not only important source of edible oils but also very vital and important source of protein for animal nutrition as well as human nutrition. Edible oil imports, if not managed properly, will have serious adverse implications on the domestic oilseed sector. This needs a very serious and calibrated policy intervention because over dependency on imports will hurt the local oilseed production. Any adverse impact on domestic oilseed production will increase dependency on imported edible oils but will also affect the supply of oil meal or oil cakes for livestock feed industry and protein source for human and animal nutrition.

Challenges in achieving productivity targets:

Based on the global experience average yield of oilseeds in the world is about 2 tons per hectare and the best possible average is yield is 3.5 tons per ha in few countries.  Considering the global experience, It means, on an average, we will be able to produce about 36 million tons to at the best about 60 million tons of oil seeds per year. In order to meet the production target, we must adopt agro-climatic condition based production policy to include soil health policy to support proper seed technology adoption, irrigation facilities and required agri-inputs and extension services.

High yielding Oilseed Technology: India needs world class seed technology which can give quantum jump to the oilseed production. India must establish a program to produce high yielding varieties with the help of modern technologies like nanotechnology and nutrigenomics. Success parameters of such seed technology programs must be linked to the best in class in the world.  Only research program where technology is designed to deliver best in the class output should be supported by tax payers’ money. In order to achieve this even if global collaboration or partnerships are required, we should encourage this. In case new set of rules and policies are required, it should be done on priority basis to keeping national interest as priority.

Minimize Cost of Production: Edible oils will always remain essential components of basic human diet world over. Policies must be designed to encourage which should minimize the cost of production and processing of edible oils. In order to ensure this, if existing laws needs to be reviews and amended, it should be done on priority, so that corrective actions can start on time and country can save time and money.

Transaction cost and time needs to be minimized: On one side we have serious issues of ensuring food security on the other hand we have various laws which are adding unproductive cost and time lag in achieving food security for the country. It is high time we should review laws like Agriculture Produce Marketing Committee Act, various acts related to seeds and agro-chemicals, agriculture research and approval processes, etc. 

I am fully aware that various vested interests will object to any modifications in the existing regulatory and policy framework but in the national interest we should ignore these objections and move towards reforms which can ensure timely delivery and transparency in decision making process.

Besides improving food security of India, improvement in oil seeds and edible oil sector, will help in generating employment in rural India, provide animal nutrition security which is extremely vital for national food security and also save part of USD 40 billion valuable foreign exchange to manage current account deficit. This will also help India in reducing international pressures on its economic and foreign policies. 

National Food security is precondition for any sovereign economic and foreign policy. Considering food and fuel shortage in India, India's economic policy and foreign policy will remain under foreign pressure. 

What is your opinion? What is the way forward?

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