Restrictions improve grain management

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In the wake of the recent spike in food prices, the limited policy responses have actually accentuated price volatility. Soaring prices now threaten to push a large segment of the population back below the poverty line in India. A combination of structural and adverse cyclical forces has put food prices on an upward trajectory and given the present circumstances, it looks as if the upward spiral will not end soon.

A liberal trading environment, with traders having complete freedom to take advantage of ever-increasing demand and scarcity, would lead to severe consequences. In this context, the recent decision by the central government to extend the scope of quantity restrictions on the trade of major cereals like wheat and pulses, and the addition of paddy to that list, is a push for government control over open markets to arrest rising prices.

The decision to extend by another eight months to April 2009 the power of state governments to fix stock limits of wheat and pulses that traders can hold seems appropriate, even though industry sources claim that the restrictions are meant to facilitate meeting the government’s paddy procurement targets. On February 2, the Centre had issued a notification for a storage control order under the Essential Commodities Act (ECA), 1955, fixing the limits of storage for wheat and pulses. The central order was valid for six months. But no restriction was placed on inter-state movement, neither was licensing introduced.

The ECA is a major piece of legislation from which most of the restrictions on movement and storage on private traders emanate. In 2002-03, the government attempted to remove the controls on farm produce that emanate from the ECA. By this order, any dealer could freely buy, stock, sell, transport, distribute, dispose, acquire, use or consume any quantity of wheat, paddy/rice. In addition, issue of any control order by the states under the delegated powers for regulating by licenses, permits or otherwise, the storage, transport, distribution, etc of the specified commodities would require prior concurrence of the central government.