The recent proposal by the US president Donald Trump to impose reciprocal tariff to counter foreign trade barriers on US goods has unsettled emerging markets, including India. India is one of the major contributors to the trade deficit in US and imposes significantly higher tariffs than the US, particularly for agriculture commodities. However, despite the substantial trade surplus India enjoys, the country has always been under scrutiny for its competitiveness in the export market.
India has remained consistently a net exporter of agricultural products since economic reforms began in 1991. In 2024, India’s exports in agricultural goods amounted to USD 48,1 Billion[1] and imports in agricultural goods amounted to USD 27.3 Billion[2]. Government of India, introduced a comprehensive Agriculture Export Policy with the vision of -“Harness export potential of Indian agriculture, through suitable policy instruments, to make India a global power in agriculture, and raise farmers’ income.” One of the objectives of India’s Agricultural Export Policy is to double agricultural exports from present USD 35+ billion to USD 60+ billion by 2022 and reach USD 100 billion in the next few years thereafter, with a stable trade policy regime.
However, the growth in agricultural exports has been far from adequate. To achieve target of 60 billion, annual growth in the next 2 years required is about 12 percent far above the current growth rate. Moreover, the relative importance of agricultural exports within the economy has also seen a significant downturn. For instance, agricultural exports accounted for 44 percent of total exports in 1960 decreased to 15.5 percent in 1988 and then 11 percent in 2024.
One of the key reasons why agricultural export failed to translate growth in farm income is its inability to diversify agricultural export market from primary agricultural commodities to high valued processed food. About 20 percent of our agricultural export is rice while high valued commodities, like, fruits or processed fruits accounts for mere 3-4 percent of total agricultural exports. Poor storage capacities, highly competitive fruits markets, phytosanitary requirements etc., have limited the export of fruits or any other high valued commodities. For similar reasons, diversification of agriculture export market is also limited to only developing countries or so-called “Global South” which are by themselves subject to various economic risks. For instance, in 1990, India’s major agricultural export partners were Soviet Union, United States, United Kingdom, Saudi Arabia and Japan. In 2024, India’s major agricultural-export destinations were Vietnam, United States, UAE, Bangladesh, Iran, Saudi Arabia, China, Indonesia and Malaysia. In addition, competition in agriculture exports market is also increasing as many developing countries moving towards favorable agricultural trade policy.
Average annual growth in export during 2003 to 2010 was around 16 percent which was similar to the growth attained just after the economic reforms of 1991. The key pillars of economic reforms were liberalization, privatization and globalization which is expected to bring more competition in the agriculture sector. Further, focus on increasing productivity has also led to higher growth in export during this period. However, post 2010, growth in agricultural export slowed and during the period 2011 to 2024, average annual growth in export was around 6 percent.
Decomposition analysis of export growth suggests that with globalization and trade liberalization, India received some initial gains. During 2003 to 2010, agriculture sector was growing to be competitive and therefore, significantly contributed to the growth in share of agriculture export. However, it could not sustain long and during 2011 to 2024, agriculture sector became less competitive and failed to diversify its market and therefore lost market share.
Clearly strong protectionist approach may not necessarily support agriculture export growth. The full impact of globalization and economic reforms is possible when we produce agro commodities which are globally competitive. Standardization and quality of produce will be the key to enhance competitiveness in agriculture sector. To ensure sustained long-term export growth, India must transition from tariff-based protectionism to productivity-driven competitiveness. In this rapidly evolving global trade environment, and ensuring resilience and growth in agriculture, the key requirements of the sector are the following: (i) Increased investment in agricultural research and development (R&D) to enhance yields and competitiveness, and (ii) strengthening agricultural value chains to boost exports and (iii) rationalizing tariff imposition.
