The Commerce Ministry is working on a policy for promoting export of agriculture commodities.
It looks keen to do away with restrictions such as “Minimum Export Price (MEP)” for most of the export goods, except certain sensitive items.
How does MEP work?
MEP involves “fixing a floor price” below which an exporter shall not sell the product to an overseas customer.
Usually imposed on commodities such as “onion and basmati rice”, it hopes to restrict export volumes, curtail domestic prices and enhanc forex earnings.
While the government stipulates a MEP from time to time, in market parleys it is largely seen as an outdated concept as it gets easily circumvented.
The system is duped easily by invoicing at or above MEP for the record but actually pricing and selling the good at prevailing market price.
Depending on the pre-agreed arrangements, the price differential is later adjusted through future transactions or quality claims.
With exporters having mastered this route, MEP has become an ineffective instrument to restrict commodity export or contain domestic price rise.
What is the alternative?
Rather than MEP, imposing an export duty could be an effective alternative, which will augment exchequer revenue and eliminate circumvention.
But it is the Finance Ministry, and not the Commerce Ministry, that will take the decision to impose or vary the rate of duty.
For such action, the Finance Ministry will have to consider all sensitivities relating to export of essential and politically touchy commodities like onion.
Also, it has to closely track market developments so as to be proactive in making ciritical decisions.
What is the larger picture?
For promoting export of agri-commodities, the country should produce ‘genuine export surplus’.
Barring a limited number of commodities such as basmati rice and cotton, there are not many commodities that are in real surplus here.
Hence, Agri export form India has often primarily been a play on currency, where a weaker rupee helps boost exports.
Hence, the Commerce Ministry’s new agri-export push should not be a standalone policy that merely tinkers with certain procedural aspects.
Rather, it must be all encompassing and provide a holistic solutions from farm to ship to enjoy sustained success.
