4% plus farm output growth new normal; tariff cuts on some farm produce possible under India-US trade deal: Ramesh Chand

New Delhi: A growth of more than 4% in farm output, which now accounts for 18% of the country’s economy, is the new normal, sustaining long-term low food inflation, NITI Aayog member Ramesh Chand said in an interview.

Farm output is expected to have grown at 4.6% in the fiscal year 2025 that ended on 31 March, up from 2.7% in FY24.

Food inflation, which cooled to 3.75% in February from 5.95% in January, is likely to remain below 4%, offering relief to consumers, Chand said.

Chand also said that going by India’s farm output, price of commodities and trade pattern with the US, there is some scope for India to reduce tariffs on some farm products imported from the US, including apple. That could be part of a bilateral trade deal, said Chand.

Tariffs

The reciprocal tariffs the US administration is implementing imply different tariffs on imports from different countries and it goes against the ‘most favoured nation’ (MFN) principle of the World Trade Organisation that warrants a non-discriminatory approach to tariffs, Chand said.

“You can have different tariffs only if you have a bilateral trade agreement. So, our effort should be to go for a bilateral trade deal, which requires time. There is also the need to wait and watch how other nations are dealing with the situation,” said Chand.

According to Chand, when a country has a trade surplus with another nation, it can see to it that the situation remains a win-win, even if it has to yield a bit on certain products.

Chand also said that for Washington apples, for example, even after duty reduction, there would be a price gap in comparison to Indian apples, and hence there is no threat to the domestic sector. India has a 75% import duty on apples.

“On items where we are not able to meet the growing domestic requirement, it makes sense to have a reasonable tariff and let imports come,” Chand said, referring to dry fruits.

Referring to the high import tariffs on certain products of which India is a major producer and exporter, Chand said these redundant tariffs could be lowered under a bilateral trade deal. Chand cited the example of basmati rice and tea in this context.

India is a major producer and exporter of rice, including basmati. Yet a 70% import duty is levied on basmati rice and 80% on some other varieties like brown rice. India imports a very small quantity of rice, but not basmati variety.

Chand also said that India could bring down import duty of 100% on tea under a deal with the US. This levy, which applies to all exporters to India, is mainly aimed at Sri Lanka, a major player in world tea market.

Farm output, food inflation

Chand explained that a growth rate of more than 4% is the new normal for India’s agriculture output.

“I do not consider in the present context that a growth rate of 4% is extraordinary. It is a new normal, in my view. Agriculture must grow more than 4% to help India achieve the goal of Viksit Bharat. Since this is the largest sector accounting for 18% of GDP compared manufacturing sector’s 14% contribution, its growth is very important,” said Chand.

The statistics ministry had in its second advance estimates for FY25 released on 28 February, projected a 4.6% growth for the farm sector, up from 2.7% in FY24.

Chand said that food inflation is expected to remain soft and below 4% if there is no unforeseen shock.

“This is good for consumers because for several months, agriculture prices have been rising faster than non-agriculture items. So, in real terms, agriculture prices between 2011-12 and 2024-25 have increased by 31%. In that situation, a correction was needed because we have witnessed high food inflation for a long time.”

“When volume growth is so good, there is no place for this kind of trend in inflation,” Chand said. Food inflation had touched 10.87% last October but declined subsequently. The figure for February is the lowest since May 2023.

There could be temporary fluctuations in some commodity prices, but for overall food inflation, with the kind of growth India is having, “it looks like that we are now in a phase of low food inflation till kharif,” Chand said.

Besides the strong farm output growth in FY25, inflation is also being driven down by a decline in the global price and improved domestic availability of some commodities like rice, and the weather remaining conducive to crops with no shocks reported this year, Chand said.

Wheat crop is excellent in the field, Chand said. The ministry of agriculture is expecting a bumper wheat crop this year at 115.43 million tonnes in the 2024-25 Rabi season.

“We have still three weeks left, but much of the crops have been harvested. The weather was very normal,” Chand said.

However, there are two areas of concern in two food sub-groups. “One is that vegetable oil prices have started rising internationally and even in India, they are 15-20% higher than that of last year. The second is higher prices of some fruits, for example, citrus.”