Markets can spring surprises and there is no room for complacency in fixing macro policies before it is too late
In 1986, US President Ronald Reagan had famously remarked: “The nine most terrifying words in the English language are: I’m from the government and I’m here to help.” These words can be rightly applied in the context of Indian agricultural trade policies, which were configured in the mid-1960s—in the age of the Ambassador car—with updates that are anachronism in recent times. Be it cooling prices of onions or pulses due to inherent shortages or ever-increasing intensity of import of edible oil or having dynamic and consistent export/import framework, the government is clueless and helpless in an integrated global environment. It might make the right noises of some efforts but the “work done”, which equals “efforts” multiplied by “results attained”, is virtually zero.
Except for focusing on the issues of over-procurement and poor disposal of wheat and rice (current stocks of 55 million tonnes versus the buffer of 41 million tonnes in July) in an arbitrary manner, policy-makers have peripheral and reactive approach for other crops such as oilseeds, pulses, sugarcane, corn, vegetables, etc. How the government, including that of various states, has wrecked sugar trade is unspeakable. The so-called “help” extended in announcing unimplemented export subsidy on sugar is an open book. Farmers’ arrears of Rs 10,000 crore or so for sugarcane are another painful matter.
Further, the government is not a guardian angel for bringing down market prices of onions and pulses because it is not a trader in the market. PSUs such as Nafed and MMTC, which are extended arms of the government for official intervention, are now dormant entities—stuck with earlier losses and adverse CAG observations of past transactions. Beyond this limited domain of non-deliverable action, policy-makers cannot think out-of-the-box solutions except for the defunct anti-hoarding measures. Retail inflation in pulses stood at 23% in July 2015 and is rising for seven consecutive months.
In addition, PSUs are unable to operate effectively in a structured environment as the present day purchase/sales contracts will be examined post facto by probing agencies with magnifying glass and eyeballs raised.
How can a PSU tender for import of 10,000 metric tonnes of pulses help the consumers? And even if these tenders are repeated a dozen times, mitigating shortfall of approximately 4 million tonnes of pulses to restore balance in the market is an illogical proposition. On the contrary, it has side-effects of abnormal escalation in international values of pulses constrained by limited supplies. The cure to rising prices is high prices—when consumers compress their demand and private buyers defer buying for moderation in market.
Likewise, the production of oilseeds is stagnant. It is easier to blame recurring unknown phenomenon of weather or monsoon than to tackle the production by known means for attaining higher yields per hectare. Newer technologies for higher yield of oilseeds are not encouraged by the policy-makers. States such as Madhya Pradesh and Rajasthan, which are prominent oilseed producers, are incentivising wheat-paddy cultivation. The only logical decision taken by the Modi government is to abandon the levy system of rice that increased availability of the grain in the market in preference to the dead stocks with FCI/state governments. However, states such as Telangana and Chhattisgarh are trying to revive it at the state level at their cost.
Agro-commodity futures are as good or bad as stock markets with high and low spikes, which cannot be handled by bureaucratic formats. India lacks definitive preparedness both in export and imports. Except rice, whose exports too are tapering down, none of the other commodities (sugar, wheat, corn, oil meals) have price parities in export—especially when the competition in currency depreciation is fierce, with other rival origins such as the eurozone, Brazil, Argentina, Russia and Ukraine. This will lead to domestic surpluses, loss of export markets and lower realisation for farmers. WPI food inflation of less than minus 1% as on July 1, 2015, represents stocks built up in the country due to absence of exports.
If, in the future, India has to undertake any bulk imports of, say, edible oil or any major commodity on government account, we are ill-prepared to handle such imports both due to procedural wrangles and demoralisation in major PSUs, even though the government may fund them directly for nominated imports. Many a time, deviations may be required to be agreed upon from the tender conditions. The level of decision-making may have to be raised to the minister or the PMO level, which was within the purview of the Board or the CMD in the last decade. During periods of high volatility—which is bound to occur when India is a major importer—favourable price levels are missed because of “procedures” which are to be complied with. Making references to “committee of secretaries” or the Cabinet for commodity purchases can be counterproductive. It is high time to set systems right.
We may have lower food inflation, but in dollar terms we are a high priced nation in agri-commodities. Exports are not seen as compulsion these days because crude prices have crashed to $40 a barrel from a high of $100-plus in the preceding year. Do we want to live with this trend of declining exports?
Markets can spring surprises and, therefore, there is no room for complacency in fixing macro policies before it is too late. The necessity is to have clarity of policies for affirmative action at the right time by the stakeholders than for the government to start thinking what to do in the times of emergencies. Otherwise, the famous quote of President Regan will prevail.
The author is a grains trade expert