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Informist, Thursday, May 7, 2026

 

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--Economist Roy: India must position itself strategically in value chain
--Economist Roy: Trade, value chain no longer disparate but synchronous
--CONTEXT: Economist Devesh Roy's comments in an interview to Informist
--Economist Roy: India must get inputs from cheapest, best quality sources
--Economist Roy: India must be backward integrated in global value chain
--Economist Roy:India must give concessions in trade deals to get concessions
--Economist Roy: Govt can mull production-based subsidy to aid producers
--Economist Roy: See scope to add value in spices, coffee, mango, tea
--Economist Roy: Govt can offer innovation-linked sops to aid research
--Economist Roy: Production-linked sops skewed towards large firms
--Economist Roy: See no foodgrain shortage FY27 despite W Asia war, El Nino
--Economist Roy: Ample rice, wheat stock available to manage supply shock
--Economist Roy: See FY27 fertiliser subsidy higher on high crude oil prices
--Economist Roy: Govt must revoke futures trading ban on 7 farm commodities
--Economist Roy: No evidence of futures trade fuelling food inflation
--Economist Roy: Higher MSP for paddy, wheat crowding out pulses, oilseeds
--Economist Roy: MSP must be reshaped around production, mkt, ecosystem risk
--Economist Roy: MSP essentially a risk-sharing tool, not income support
 

 

By Priyasmita Dutta, Afra Abubacker, and Sagar Sen

 

NEW DELHI - India must participate, and more importantly, strategically position itself as a value-added exporter to integrate into the global value chain to boost its exports, economist Devesh Roy told Informist in an interview. India needs to create a brand identity like many of its peer countries did to differentiate and market itself appropriately, Roy said. 

 

"We are in a very different world now...one of the structural changes in relation to trade is that trade does not really take place in gross terms now...it all takes place through value added," Roy said. "Trade and value chains are no longer disparate. They are really synchronous," Roy, professor of economics at Ashoka University, said. 

 

Over the last year, global trade has seen much ebb and flow, first because of the steep US tariffs and then because of the war in West Asia. While India's total exports have held up so far, they continue to face strong competition from countries such as Vietnam, Bangladesh, and China. India's recent strategy to shield itself from trade disruptions has been to sign free trade agreements, including with its top export destination, the US, to gain preferential market access.  

 

Roy, however, argued that free trade agreements are not enough to secure India's integration into the global value chain. "You have to ask how can you really participate in the global value chains because of these trade agreements, and how you can position yourself? Since even in a global value chain, you are not the only country which is getting a deal, right?" Roy, also a senior research fellow at the International Food Policy Research Institute, asked rhetorically.

 

According to him, the US has signed similar trade deals with countries such as Vietnam or Bangladesh, which compete with India. "And in the global value chains, both Bangladesh and Vietnam are highly backward integrated, which means they get a lot of imported inputs to produce their exports, and that means that their cost of production is that much lower," he said. As a result, Indian exports often lose out to competition. 

 

Roy said India would have to import inputs from the cheapest source but of the best quality, while meeting all the standards. "In today's world, you cannot be a successful exporter unless you are a successful importer because that is the essence of value chains," he said. "You have to compete with really low costs, and that means you have to be backward global value chain integrated."

 

India has relied on many tariff and non-tariff restrictions to protect its domestic producers from cheaper goods being dumped into the country. But this has stunted India's zeal to innovate cost-efficient products that can compete with other cheaper producers.

The absence of lower input costs is one part of the problem; the other is branding. Citing the example of spices, Roy said spices and its derivative products form a huge chunk of India's farm export basket, but is worth only $4 billion a year, while China exports spice-based products worth around $16 billion a year.

 

"India produces all the spices. Chillies from India go to China. They make chilli oil and other derivatives like chilli powder, chilli paste and everything they make, they send to companies in the West," he said. "And then this is the global value chain, right? So, they have a much better understanding of where to position themselves in the value chain." There are many more such examples, including rice, he said. 

 

Roy, who specialises in international trade and agricultural economics, said that one of India's hindrances in securing a top spot in the global value chain is also owing to its "conservative approach" in securing trade deals. "India may have to trade off concessions to get concessions," the economist said. Additionally, India is always trying to be heterodox in its openings - open on the export side, but not open on the import side, he said. "That may not really bode very well for trade prospects."

 

India's conservatism has come through in the course of its various trade negotiations, including with the US, where New Delhi protected its sensitive agriculture and dairy sectors. According to Roy, if India is worried that its producers will not be able to compete with imported goods, the government must help its producers "with targeting principles." The government can help the producers with production-based subsidies, he said, adding that a tariff barrier is not effective since it distorts both production and consumption. 

 

To protect the domestic industry "with tariffs and not allowing imports, then you are forestalling competition, and then you are not going to get efficiency," the economist argued. "We must at least selectively try to be open to competition," he said. 

 

India endeavours to become an export hub, but this requires innovation and research to identify areas with scope for value addition. The economist sees the potential for value addition in spices, coffee, cocoa, mango and tea, which can then be shipped globally. 

 

This innovation can be fuelled by the government through the introduction of an innovation-linked incentive, Roy said, adding that while the government has already introduced production-linked incentives, these favour large firms. "What is their incentive to innovate?" he asked. The mid-segment start-ups need to grow, and while they may lack the scale to avail production-linked incentives, they can avail innovation-linked incentives, he argued. "At least get a mix of that. Production-linked incentive is definitely skewed towards the largest firms."

On asking the agriculture economist what is in store for 2026-27 (Apr-Mar) with the war in West Asia and forecasts of lower rainfall due to El Nino conditions, Roy said he does not see any shortfall in food grain availability. However, he flagged the rising fiscal burden due to higher fertiliser subsidies. "Because of the war, a lot of input costs will be high. So, what you are going to get is more subsidy load," he said. The government aims to spend INR 1.71 trillion on fertiliser subsidies in FY27, but this target was set before the war in West Asia pushed up crude oil prices by more than 50%. 

 

India is likely to have abundant rice and wheat available for the year. As of Apr. 1, rice stocks in the central pool were at 38.6 million tonnes, the highest April opening stock since 1998. Meanwhile, wheat stocks were 85% higher on year at 21.8 million tonnes. Both rice and wheat stocks were nearly three times the buffer requirement for Apr. 1.

 

While the market pegs the wheat crop at around 110 million tonnes, paddy sowing for the upcoming kharif season is yet to begin. India annually consumes about 110 million tonnes of rice and 108 million tonnes of wheat.

 

These food stocks will come in handy in case of a crisis, but they have been built through the government's open-ended procurement policy at minimum support prices, which adds to the food subsidy bill. But such procurements cannot be done away with, Roy said. 

"MSP is a political necessity. All you can do is redesign and repurpose MSP," he said. Roy suggested that MSP should be determined by evaluating the risk in production, marketing, and delivery of ecosystem services. "This will help in ensuring a better crop mix, because higher MSP for paddy and wheat has crowded out pulses and oilseeds," he said, and added that the limited procurement of pulses and oilseeds pushes risk-averse farmers back to paddy and wheat.

 

To strengthen agriculture and farm trade, India needs policy continuity, Roy said, as abrupt export bans or sporadic imports to check prices can hamper domestic production and disrupt trade. He argued that the government should consider revoking the ban on futures trading in seven agricultural commodities, since the decision lacks material evidence. 

 

"There is a perception that futures trade fuels food inflation, but do we have evidence for it? Actually, a lot of these things are just conjecture," Roy said, stressing the need for more research and policy integration. Since 2021, futures trading has been banned for non-basmati paddy, wheat, chana, mustard seed and its derivatives, soybean and its derivatives, crude palm oil, and moong.

 

"When the government is buying crops at MSP, they are essentially absorbing the market risk for farmers. If the government can come up with a mechanism to transfer some of the risks to the futures market, that should be most welcome," Roy said.

 

The government had introduced MSP in the 1960s to encourage farmers to adopt new technologies during the green revolution. The government had offered to take care of the marketing risk, while farmers face the production risk. 

 

"That's why I say that the Indian government is the biggest contract farmer, as the procurement system at MSP is the biggest contract farming system in the world," the economist said. "So, MSP has to be seen as a risk-sharing arrangement, but because of the political economy, it has always been projected as an income support to farmers."  End

 

US$1 = INR 94.25

 

Edited by Avishek Dutta

 

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