On July 15, the Central government issued a notification reclassifying power tillers (PT) and their components from the “free” to “restricted” category, signaling a clear intention to safeguard the domestic industry. Power tillers, also known as two-wheel tractors (2WTs), are specifically designed for the farming landscape in India, which is predominantly characterized by small and marginal farmers. This shift reflects a heterodox approach, being open on the export side while adopting a closed stance on imports, a strategy with potential long-term unintended consequences. One consequence is the suboptimal mechanization and resultant productivity loss in agriculture. Notably, South Asia, particularly Bangladesh, has witnessed significant gains in productivity due to more advanced mechanization.
Mechanization encompasses a range of activities, including land preparation, threshing, harvesting, storage, and transport. Currently, India’s mechanization coverage stands at approximately 40-45%, significantly lower than the 90% observed in developed countries. To enhance agricultural productivity and farmer incomes, India must strive to reach the mechanization frontier.
The need for mechanization is propelled by the natural course of increasing rural-urban migration, with its impacts extending beyond. According to new trade economics, farmers can succeed in trading or accessing markets only when highly productive, necessitating large-scale and intensive mechanization. Historical examples, such as the growth of villages into cities in West Africa due to ironworking, highlight the transformative power of farm mechanization.
In 2021, the role of trade in agricultural mechanization remains crucial. Comparatively high tariffs on agricultural machinery, along with placement in the restricted trade category, hinder the process of mechanization. High bound tariffs not only discourage dynamic trade but also create uncertainty, disincentivizing domestic machine manufacturers from investing and innovating.
Bangladesh provides a valuable lesson in farm mechanization, resulting from an orthodox opening in the late 1980s. By removing import bans on power tillers and other machinery, and subsequently making power tillers duty-free, Bangladesh experienced a significant increase in mechanization, surpassing India by 2006. Liberal and stable trade policies, complemented by credit support, played a pivotal role. Currently, only specific regions in India, such as Punjab, Haryana, and western UP, exhibit mechanization rates between 70 and 80%, while eastern and southern states lag behind at 35 to 45%. A liberal approach to trade policies, coupled with stability and complementary measures like credit support, can not only increase access and competition but also enable farmers to integrate with global value chains, as envisaged in the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020. The key is to adopt a two-way open approach.