Faced with volatile international prices of essential commodities like edible oil, pulses and wheat, which impacts domestic prices and inflation, the government is working out policy changes to moderate price fluctuations during both upswing and downswing and maintain a balance between the interests of the producer, consumer and the exporter.

This would be done through a careful calibration of import tariffs and the minimum support price (MSP) depending upon which way global prices move.

As a general rule, the Planning Commission has said there should be no ban on exports, instead additional charges should be levied on exports to ease domestic prices.

For downward movements in the global prices beyond a certain level, import tariffs would be adjusted automatically to stabilise the CIF (cost, insurance, freight) prices.

In case of a sharp rise in international prices, the commission has said tariffs should be lowered and a bonus offered on the MSP before the marketing season begins to ensure adequate supplies of items supplied through the public distribution system (PDS).

Once announced, there should be no change in the MSP. In case there is a change in price for a longer period of time, the Commission for Agricultural Costs and Prices (CACP) should revise the MSP for the next year, the commission has said in the 11th Plan document.

Furthermore, the commission has said an increase in import tariffs in periods of low international prices must be accompanied by a simultaneous upward revision of duty drawback rates to ensure that exporters are not hurt. This is essential in case of items like cotton because absence of such adjustments would hit the competitiveness of the textile and garment exporters.

The policies so far have not been consistent regarding maintaining a balance between import duties and the MSP in line with the international prices.

For instance, the government reacted to the recent increase in wheat prices in a manner that farmers failed to benefit fully from the higher prices because efforts were made to protect the consumers by importing wheat for PDS that were undertaken at implicitly subsidised rates.