Quantitative Restrictions on Imports - Long Term Impacts and Ramifications
By Dr. Bharat Kulkarni
India’s Diplomatic Engagement with Africa as a Supplier of Pulses during troubled times:
The government of India was faced with the challenge of rising prices of pulses in 2014 and 2015 and had to respond to the situation. They undertook a diplomatic route to encourage African governments to promote growing pulses among their farmers. The effort of the Indian government to push African nations to grow more pulses occupied the center-stage of India’s engagement with Africa. During the India Africa Forum Summit in 2015, in Delhi, at the meeting of the trade ministers, the Commerce Minister of India emphatically urged the African nations to grow more pulses. Followed by it was the state visit of the Indian Prime Minister to Mozambique, Tanzania and Kenya in 2016, where the Prime Minister urged the farmers in these countries to grow more pulsesand assured them a market in India.
To formalize this commitment, an agreement was signed with Mozambique to procure pulses. Similar opportunity was offered to Tanzania, though no agreement was signed. Further, the Government of India also worked with the developmental partners in Africa like the ITC-SITA project to promote more pulses to be produced. All in all, Indian Government did not leave any stone unturned to make pulses a preferred crop to produce in Africa.
African governments also responded by engaging with their farmers and the developmental agencies. Even the private sector players stepped up the investments in these value chains. For example, Export Trading Group has invested about USD 13 million in setting up pulses processing plants in Mozambique. The farmers were excited to see the prices offered by India and moved to pulses, giving up crops like maize. The expectation was to make better profits.
However, as the product hit the harvest time, India stunned everyone by imposing quantitative restrictions on pulses like Pigeon Peas, Black Mapte and Green Moong. The pulses market in East Africa hit rock bottom in terms of prices, with hundreds of farmers and their government clueless on how to find the market for pulses.
Impact of the Action of Government of India –The decision of the Government of India to install quantitative restrictions came as a shock to many of these governments and has put them into a very difficult situation. As the farmers are ready with the produce, the markets in India have suddenly evaporated. This has a dual impact on the industry. First, as the governments struggle to get their farmers’ produce to the markets and sustain them financially, the governments find them in a political crisis. Further,the disappearance of the largest buyer and consumer in the world, the prices globally have plummeted making the job of the agencies more difficult.
This is snowballing into a major political challenge for the governments, like for those in Tanzania, Malawi and Mozambique. The Tanzanian minister has already voiced his disappointment at the grain summit in Dar es Salaam in October 2017. The Malawian farmers are pressurizing their government to take Indian government to court. This has, and will continue to have, serious diplomatic ramifications in the course of India’s engagement with African countries. How this will affect the production pattern in the coming years is yet to be seen.
What will be the Future- After burning their hands in the current crop, the farmers in Africa are planning to shun pulses and move to other crops. The supply from Africa will be significantly reduced in next harvest. If the Indian restrictions continue beyond March in 2018, the African farmers will not grow pulses. This will make the global supply shrink.
Further, the prices in the near future are expected to be soft due to higher production and huge carryover stock. As a result, the quantitative restrictions are set to be extended beyond March. However, the disruption caused by this will show impact in the year 2019. The domestic production will normalize and the import requirement will grow back to 4-5 million tons. That time the supply from Africa will be significantly short and will make the prices more volatile. The global prices may shoot up significantly and with 2019 being the election year in India, this may have a damaging impact on the political set up as well.
Besides these direct impacts, the ramifications are more subtle. The political crisis that the African governments have been pushed into has already started to damage the diplomatic relations and the support of 54 countries from Africa that India enjoyed over the years may take a beating. African governments are known for taking a united stand and this may have serious implications on other strategic issues of India’s engagement.