Why We Are Eating Our Foreign Exchange

[00:00:02]Nothing but the truth. Hello, I'm Raj Chengappa of India Today and your host for Nothing But the Truth.

[00:00:10]This is my weekly x-ray of key issues that matter to you without holding back on the truth. There is an everyday miracle we rarely stopped to think about.

[00:00:21]It arrives at our table with such regularity that it almost looks mundane.

[00:00:27]A roti, a bowl of rice, some dal, vegetables cooked in oil, perhaps a pickle on the side.

[00:00:35]It is the Indian thali, familiar, comforting, and deeply local.

[00:00:42]But here is the uncomfortable truth that apparently Indian thali is also a global supply chain on a plate.

[00:00:53]And I bet many of us didn't know it.

[00:00:56]The cooking oil may have come from Indonesia. The cooking oil that we use from Indonesia, Malaysia, Argentina, or Brazil. The dal that we eat may include masoor from Canada or Ethiopia, urad dal from Myanmar, channa from Australia, or arhar dal from Mozambique.

[00:01:18]And the fertilizer that fed the crops, our crops, may have depended on gas, ammonia, or sulfur from the Gulf countries, which is known as West Asia.

[00:01:31]So when war breaks out in the Gulf or when freight costs rise or when LNG or liquefied natural gas prices shoot up, the shock is not confined to oil tankers and shipping lanes. It travels straight into the Indian kitchen, the farmer's field, the government's subsidy bill, and the country's depleting foreign exchange reserves.

[00:01:57]That is the Iran war has exposed a deeper national vulnerability.

[00:02:04]India is not just importing fuel, it is importing a growing part of its food security.

[00:02:14]So, in this episode of Nothing But the Truth, we will focus on why we are eating our foreign exchange, different way to put it, and why is India, the decades of talking about self-reliance, is still so dependent on imports of fertilizers, pulses, and edible oils.

[00:02:34]And, of course, what must we do now to achieve true food self-sufficiency?

[00:02:42]>> [music] >> The numbers are stark. India's combined farm import bill, fertilizers and raw materials, edible oils and pulses, all the daily stuff that we use, is expected to touch between 52 and 56 billion dollars this fiscal year.

[00:03:01]Keep that number in mind, because when you convert that to Indian rupees, that is roughly rupees 5 to 5.3 lakh crore rupees.

[00:03:10]And of that, fertilizer and raw material imports alone could rise to 28 to 30 billion dollars.

[00:03:17]Together, these three farm-linked imports, which I talked about, the fertilizers, uh the pulses, and edible oil, could could account for more than 5% of India's total import bill of 900 billion dollars.

[00:03:32]Now, this is not a small leakage.

[00:03:35]It is, as economists say, a structural uh drain in our foreign exchange.

[00:03:42]And it is happening at a time when India's external account uh is already under pressure.

[00:03:49]Foreign exchange reserves, which stood at a healthy or a record 728 billion dollars at the end of February just 5 months or 4 months ago had fallen to about 682 billion dollars by the first week of June. Meanwhile, the rupee too has been depreciating though now it's stabilizing after the recent MOU signing between Israel and sorry Iran and the US.

[00:04:15]And in April though once the war broke out India recorded a balance of payment deficit of 6.6 billion dollars. Now the combined burden of imports, subsidies and support measures amounts to as much as 2% of India's GDP.

[00:04:32]That's the cost, that's the expense, that's how large it has become for a nation that believed that it had self-sufficiency in food.

[00:04:43]Now recall that Prime Minister Narendra Modi captured one part of this anxiety recently when he appealed to households, all of us, to reduce edible oil consumption by 10% and he called it a patriotic contribution.

[00:04:59]But while individual restraint may help, certainly it'll bring down the amount of foreign exchange that we are spending on food, the larger truth is this.

[00:05:09]Household cutbacks cannot solve what decades of policy distortion created.

[00:05:16]Let's be clear, the crisis is not only about shortages.

[00:05:19]It is about dependence.

[00:05:22]Pulses affect protein security, our protein security, and of course impacts food inflation.

[00:05:28]Edible oils, the cooking oils that we use affect household budgets and the current account deficit as we've seen, and fertilizers affect crop cost, sowing confidence and increases the subsidy burden.

[00:05:43]In all three India has been trying to protect consumers through imports and farmers through missions, procurements, and subsidies, but these two goals often collide. The real danger is that India's outsourced price stability in critical food and farm commodities to unstable global markets, and that is not a good thing.

[00:06:07]The first and most immediate vulnerability is fertilizer. So, let's deal with this subject a little more in depth.

[00:06:14]Uh a lot of us are not farmers, so we may not understand the intricacies of why this is so important uh for our productivity in agriculture, but fertilizer is the hidden engine of India's food security.

[00:06:26]Now, to put it very simply, every harvest removes nutrients from the soil.

[00:06:32]Fertilizers put them back and make the soil fertile again.

[00:06:37]Urea, the most commonly used uh fertilizer, supplies nitrogen for leaf growth and biomass. Diammonium uh phosphate or DAP supplies phosphorus for healthy roots.

[00:06:51]The muriates of potash strengthen crops uh against stress.

[00:06:56]And the combination of these fertilizers, called NPKs, provide a more uh mixed balanced of nitrogen, phosphorus, potassium, and sulfur. These are the key ingredients that make up our fertilizer mix. But, unfortunately, Indian fertilizer uh use is badly skewed. Urea accounts for 56% of fertilizer use because it is simply very cheap as compared to the others.

[00:07:24]It's familiar to the farmers and gives this quick visual satisfaction of greening of the crops.

[00:07:31]NPKs, the multiple mix of fertilizers, accounts for around 23%. Remember, I told you 56% is urea use, too high for a country uh and which can really harm the soil.

[00:07:44]NPKs is the next one with 23% diammonium phosphate is 17% and the potash MOP as it's called barely 4%. So, we know what the mix is there.

[00:07:59]This is not balanced nutrition.

[00:08:02]It is policy induced overfeeding of urea to the detriment of the soil and of course the farmers and the nation.

[00:08:13]The economic cost of all this is enormous and I'm just giving you a figures. I don't want to load you too much with it, but just to give you a sense of what all this adds up to because we rarely study this subject in depth. We're quite content to have our thalis at home, not worry about why food prices go up or how crops are grown, what is the kind of imbalances that have happened. But let's look at some figures. In 2024-25, let's call it in 2025, that's last year, India needed 64 million tons of the four main fertilizers that I talked about. Now, domestic production met about 70% of the demand.

[00:08:53]The rest and that is 30% is nearly 16 million tons and this had to be imported at a cost of more than 10 billion dollars.

[00:09:03]But a lot of things are masked and the exposures even deeper than the import figures suggest.

[00:09:12]More than 60% of India's urea imports, nearly 80% of its ammonia and sulfur and about 86% of the LNG feeding Indian fertilizer plants originate in the Gulf or in the Gulf countries.

[00:09:28]The same supply chain also crosses other geopolitical fault lines including Russia, Ukraine and China and if there's trouble there, we get impacted.

[00:09:39]So, if you see when the Iran war erupted, India quite rightly moved quickly to secure supplies.

[00:09:47]Now, for farmers, the good news is that the sowing season has not been jeopardized.

[00:09:53]There is no immediate fertilizer shortage on the ground.

[00:09:56]And for them, the prices of fertilizers have not gone up. A 45 kg bag of urea still costs the farmer 242 rupees. Keep that figure in mind.

[00:10:10]Because that apparent stability hides a massive, a really massive fiscal distortion.

[00:10:16]The true cost of that bag is around 2,420 rupees.

[00:10:23]Or 10 times more than the selling price for farmers. 10 times more. A bag of urea is sold to the farmer at 242 rupees. It actually costs the government to procure that 2,420 rupees.

[00:10:40]Now, the government absorbs over 90% of the cost.

[00:10:44]And therefore, uh the fertilizer subsidy, which we rarely watch, uh is budgeted at rupees 1.7 1 lakh crore for the this current financial year.

[00:10:58]And because of the war, this could double if the global prices remain high. And that's likely to be despite the fact that there is some settlement that has happened. A window has opened after Iran and US signed uh their MOU recently. So, this is the heart of the fertilizer conundrum.

[00:11:18]India cannot suddenly expose farmers to global prices.

[00:11:21]But it also cannot keep pretending that artificially cheap urea is sustainable.

[00:11:27]That's the great contradiction. We are spending uh 2,420 rupees for a bag of urea and when the farmer gets it, it's 242, highly subsidized, someone has to pay for it, and that happens during the budget, that happens because all of us are taxpayers, and that is something that we now need to think carefully about. We are all for farmers, and they require the support they get, but we need to worry now about sustainability.

[00:11:56]So, the way out has three parts.

[00:11:58]First, obviously, we need to produce more at home, but not just by counting factory output.

[00:12:07]Domestic urea production has, in fact, improved. It has been aided by new capacity, but urea production itself depends heavily on natural gas.

[00:12:19]Now, natural gas accounts for nearly 90% of the production cost of urea, and guess what?

[00:12:25]Only about a quarter of that gas is domestically procured.

[00:12:30]The rest of that, 75% of that, is imported, and self-reliance in urea also requires cheaper and more secure feedstock, modernized plants, and serious exploration of alternatives to natural gas, such as coal gasification-based urea, and that the government has started including in very old projects like the Talcher fertilizer plant in Odisha. So, that's one big thing we need to do is to indigenize that, but while indigenizing that, we will still be purchasing liquefied natural gas, because that is the gas that creates the products sort of all the chemicals required for fertilizers, and unless we are able to then find alternative ways of generating that urea, as I've mentioned coal gasification, we'll continue to import a lot, and the burden will go up.

[00:13:24]Second, we need to diversify our supplies, and that became very, very clear that India cannot afford overdependence on the Gulf and China. It must continue to widen its supplier base of fertilizers to countries like Russia, Morocco, Australia, Indonesia, Malaysia, a whole host of them, including Egypt and even Togo.

[00:13:46]So, diversify. First, produce more at home. Second, diversify. And third, and most important, reduce wasteful use.

[00:13:56]I told you that urea is being overused because it's cheap, and that is creating a lot of problems.

[00:14:04]Uh the Modi government has launched the PM PRANAM scheme, which rewards states for reducing chemical fertilizer use and promoting organic and biofertilizers.

[00:14:15]And this is a step in the right direction, but has not yet gathered enough momentum, and it needs to do that.

[00:14:24]Of course, there is one more critical and possibly a real deeper reform, and that is direct cash transfer of fertilizer subsidy to farmers. You know, today subsidies are hidden in the price of fertilizer, especially urea. I talked about that. And that encourages overused, diversion, and non-farm misuse. Some of them sell these because the prices of fertilizers elsewhere, neighboring countries, could be much, much higher. And so, if we the farmers is getting at 242 per per bag of urea, 45 kg bag of urea, they could be smuggled across. So, there are a lot of such problems that's there, and we need to plug uh the hidden subsidies that are going in. A better system would uh be, of course, to gradually raise urea prices while compensating farmers directly.

[00:15:20]So, you put the subsidy directly into uh their banks and say okay you buy the amount of urea you use we are giving it to you at a certain price and gradually raise the price so there's a market parity that is happening but of course this must be done very carefully small farmers cannot be forced to buy fertilizers at market rates and wait for delayed cash transfers just think about that the farmer goes needs fertilizers urgently goes and buys it and by the time the cash transfers happen he's already in debt that's something that the government needs to work out tenants and sharecroppers cannot be excluded because look this is a very complex process of who should be getting the subsidy who's the real owner who's the tiller who's all the title holder of these properties and that's going to be a problem that the government has to deal with and of course the most important thing the transition from getting subsidized bags of that kind and getting the subsidy directly to buy them must be trusted by farmers and that surveys have shown that farmers might have bank accounts 96% of them have bank accounts but only 25% when one survey was done by the NITI Aayog wanted the subsidies to be deposited in their banks for them to purchase fertilizers they were very the rest were happy and wanted to continue with the system of the government subsidizing the fertilizer and them picking it up now this is why the reform is both economically urgent but politically difficult of course the Modi government has to bite the bullet soon or we would see in the next crisis that happens a return to some of these big issues that we had so prepare this is a lesson learned and we must do it now let's deal with the second big vulnerability which is pulses the dals that we all eat every day across India and here is the paradox I bet you didn't know this as well.

[00:17:20]Uh that India is the world's largest producer of pulses, but it is also the world's largest importer of pulses.

[00:17:30]You may ask why.

[00:17:32]It is because India's food policy is still shaped by the green revolution that of course happened in the 1970s, almost 50 years ago.

[00:17:41]Now, because of the revolution, which was to ensure basic cereal security of rice and wheat, they continued to get assured procurement, these crops predictable minimum support price or MSP as it's known, and of course backed fully by the state that not only picked up their produce, but also paid on time and ensured a full market system that ensures that. Unfortunately, pulses do not have that system, and as a result, millions of farmers continue to grow rice and wheat because they know the crop will be bought, that's cash in hand, and therefore rice and wheat cover over a third of India's cultivable land and generate huge, really huge grain surpluses.

[00:18:25]Just think about it. India has enough cereal stocks for exports.

[00:18:29]It has a welfare distribution to 800 million million people, and even has enough for ethanol diversion, the latest sustainable energy movement that is happening in the country. So, we grow enormous amount of grain, rice and wheat, and we call it the grain addiction. And that's largely because the government ensures that they get a minimum support price, it backs them on all other accounts, and this was done at one time to ensure self-reliance in cereals.

[00:18:59]Now, that has overplayed its hand. But when it comes to protein security, and that's what dals give us, we are far more vulnerable. Ironically, and this is again a very interesting point, India was more than 90% self-sufficient in pulses in the 1980s. That position unfortunately today is eroded.

[00:19:21]Duty-free imports of tur, urad, masoor, and yellow peas meet 15 to 20% of India's needs. Think about that.

[00:19:30]We're importing close to 20% of our dal needs. At a At one time we were self-sufficient. Now we're doing that.

[00:19:37]And if you look at how the imports of pulses rose, uh take a look at 2021, it was around 2.5 million tons. Today, uh 2025, let's put it, it has moved to a record 7.3 million tons.

[00:19:53]Right? That's the amount of imports we're doing. Now the import bill jumped from around rupees 11,900 crore to more than rupees 46,000 crore in the same period. Four times more we are spending on importing pulses.

[00:20:10]Meanwhile, domestic production has remained nearly stagnant. There are several reasons, of course, for it.

[00:20:15]Pulses lost acreage to rice and wheat, as I'd mentioned earlier. Research investment favored cereals. So, cereals had better productivity because a lot more research was getting into it. Seed systems in pulses remain weak.

[00:20:30]Pulse yields grew uh far more slowly when compared to say rice uh cereals. Uh there there was over If you look at over four decades, rice and wheat productivity uh tripled, whereas pulses have really not moved in that fashion. And the seed chain often breaks between There's a lot of research going on about pulses. Let's be clear about that. And there are a whole lot of new varieties of breeder seeds being pushed.

[00:20:56]Uh but unfortunately, there is a gap uh between the certified commercial seed and it's a more of an institutional problem, just not a crop problem. It's an institutionalized failure because a lot of it depends on the state, and the states is where the chain breaks.

[00:21:16]They're not able to translate it as they did with rice and wheat. The Modi government has uh of course launched the new mission for Atmanirbharata of uh in pulses uh and put an outlay of a substantial outlay of rupees uh 11,440 crore, and the aim of that uh program is to raise production to 35 million tons by 2030.

[00:21:42]It promises 100% state procurement of tur, uh arhar, urad, and masoor dals at an MSP for 4 years.

[00:21:50]Nearly 20 million farmers are expected to benefit. So, that's good news.

[00:21:55]But, India has had pulse missions before.

[00:21:58]Many failed because they focused on area and productivity without fixing incentives for farmers to do so.

[00:22:07]This time the mission must not be treated uh must be treated not just as a crop scheme, but as a protein security mission, exactly the way in the 1970s we called for a cereal security mission to ensure that we stop importing wheat from the US.

[00:22:26]So, the other big issue is the yield gap must be closed.

[00:22:31]India's pulse yield is around uh 925 kg per hectare.

[00:22:36]It needs to be raised by 20% more, something like 1,150 uh per kg per hectare. That's the kind of yield you require. This can be done through better seeds, of course, climate uh resilient varieties, pest management, extension support, and district-level action plans. Then, of course, so one is increase the productivity of pulses.

[00:22:58]Second is that the MSP, which we have for rice and wheat, must become credible for pulses.

[00:23:05]Farmers, mind you, will not shift meaningfully into pulses unless they believe procurement will actually happen.

[00:23:13]Now, if you look at the way the state built cereal security by rewarding rice and wheat, it must now build nutritional security by rewarding pulses.

[00:23:23]And a third part of this of expanding how much pulses we uh produce domestically is that we could have an intelligent expansion called intercropping pulses between sugarcane and cotton rows in states such as Uttar Pradesh and Maharashtra. And this could unlock billions of hectares of land and add significant production without impacting farmers who will continue to grow their traditional crops that they have. Uh this is what crop planning in India needs. It needs to be local, flexible, and suited to agro-climatic realities.

[00:23:57]And then we would see a huge uh raise in the productivity of pulses, and we could reduce our import. So, I've dealt with fertilizers, I've dealt with pulses.

[00:24:09]And these are things we use every day without thinking too much.

[00:24:13]And let's look at the third major vulnerability in our food security, and that's again something we use every day, cooking oil or edible oil.

[00:24:22]This is perhaps the most visible pressure on the household budget.

[00:24:27]Uh if you ask any household as if or ask anybody running it, they know that the price of edible oil has been going up.

[00:24:34]And if you look at it uh just some numbers, India cultivates about 30.5 million hectares under oilseeds and produces around 43 million tons of raw oilseeds. When crushed, that yields a roughly uh 13 million tons of edible oil or cooking oil.

[00:24:54]And this is the figure you should watch out for. India's demand is around 29 million tons and rising.

[00:25:02]That means that 56% or more than half of India's cooking oil requirements is imported. 56% of it is imported despite all the efforts since independence, we are importing enormous amounts. This is a staggering dependence. It is also one of the India's uh one of India's costliest import items.

[00:25:26]Why is demand rising? Because incomes are rising, diets are changing, processed food consumption is expanding, and restaurants and food businesses are multiplying. So, India's cooking oil needs have multiplied. The import basket has also shifted.

[00:25:43]Palm oil share, traditionally 55 to 60% because it's much cheaper than the other oils, slipped recently as palm oil prices rose.

[00:25:53]Refiners turned to soft oils. Soybean oil imports from Argentina and Brazil surged. Sunflower oil came largely from Russia and Ukraine, and you know there was trouble there. Continues to be trouble with the war over there, and that has impacted our sunflower oil uh uh production and imports of it. The country may import about 16.7 million tons of edible oil this year.

[00:26:17]The import tab is, of course, on course to rise sharply. Let's also give credit where it is due. India has not ignored this crisis.

[00:26:26]It has raised MSPs for mustard, soybean, sunflower, and groundnut oil. It has launched missions and seed programs. It has used tariff changes and viability gap support. Oil production in the country has increased. It is aided by acreage expansion and improved varieties.

[00:26:46]But, here again, the central contradiction remains.

[00:26:51]Cheap imports have acted as a silent inflation cushion for consumers, while domestic oil seed farmers have never received the kind of reliable procurement support that made wheat and rice successful.

[00:27:05]There is, of course, the national mission on edible oils, and this is an important push. First, we had the mission for oil palm, which was launched in 2021 that seeks to expand palm cultivation in the Northeast, Andaman and Nicobar Islands, and in parts of Andhra Pradesh and Kerala.

[00:27:21]Another mission on oil seeds launched in 2024 targets a near doubling of raw crop output. Together, the missions aim to raise domestic edible oil production to around 25 million tons by 2030-31.

[00:27:34]This would meet about 72% of projected demand. We'd still be importing, after all that, another 28% of our requirements. But, in trying to make it domestically, let's be a very, very clear that there are hard trade-offs. Take oil palm, which is extremely productive.

[00:27:54]One hectare can yield 4 to 5 tons of palm oil, far more than other oil seeds.

[00:28:00]But, oil palm is water-intensive and environmentally very sensitive.

[00:28:06]If expanded recklessly in high rainfall forest regions, India risks repeating the ecological mistakes seen in Indonesia and Malaysia, which are among the largest growing countries of palm oil.

[00:28:19]It also has a 4-to-5-year gestation period, which deters small farmers from adopting it.

[00:28:26]The wider oil seed challenge is equally serious.

[00:28:29]India yields remain far below those achieved by countries like United States and Brazil, and that is something, as I'd mentioned even in pulses, that our productivity per acreage or per acre is much, much lower when we look at pulses, when we look at oil seeds. And so, the problems, of course, are very familiar. Weak seed quality, inadequate technology, poor market linkages, and unstable policy signals.

[00:29:00]And when custom duties are raised to protect farmers, retail prices rise.

[00:29:05]When duties are cut to protect consumers, farmers lose confidence. The tactical balancing is unavoidable, but it cannot substitute for long-term policy framework.

[00:29:17]And remember, this is the constant contradiction that happens.

[00:29:21]If the government wants to control the prices for the consumer, and that is a large large reason for what is happening, because it's politically sensitive, they then uh create subsidies because they don't want to impact the farmers. And the fact is that that becomes uh uh let's say a vicious cycle which leads to poor productivity, leads to neglect of pulses, leads to neglect of oil seeds, to the benefit of uh wheat and rice, but there also that addiction has become dangerous. And obviously, we have to diversify not just into pulses, not just into edible oil, but also into horticulture products, whether fruits and vegetables.

[00:30:02]Uh so, what then is the larger lesson?

[00:30:05]India's procurement state was built for rice and wheat. It delivered grain security because the state created the plumbing. It assured prices, procurement centers, storage, distribution, and political commitment.

[00:30:18]And therefore, as we have the kind of self-sufficiency in grain, uh which is rice and wheat, but the crops India now imports heavily, pulses that I talked about, oil seeds, edible oil seeds, and fertilizers, uh the all the farm inputs, never ever received the same architecture.

[00:30:40]That must change. The Iran war may pass or you're fortunate to have some sort of an agreement.

[00:30:47]The Strait of Hormuz may reopen fully.

[00:30:50]Tankers may sail again.

[00:30:52]Prices may cool.

[00:30:55]But, if India treats this merely as a temporary shock, it will miss the larger warning.

[00:31:03]And that is why on Nothing But the Truth, the issue is not just what India eats. It is how much foreign exchange India is eating with it. Do read the latest issue of India Today that has an in-depth cover story on the subject written by my colleagues.

[00:31:20]Thank you for being with me in this episode of Nothing But the Truth. I look forward to having you with me next week.

[00:31:30]Nothing But the Truth.