Govt exposes its poor pulses-price management strategy with raids on traders, paltry imports
The pulse rate for a normal, healthy human hovers between 60-100 per minute. The body faces problems if it goes any higher. If it exceeds 200, chances are high that it will kill the person. The scene presented by pulses at the moment are a fitting analogy of this. Retail prices of all major pulses have crossed R100/kg mark. In case of tur/arhar (pigeon pea), it has even crossed R200/kg in several places. If the situation continues, it can prove to be the death knell for any party in power. Evidently, the present government’s mission to bring down food inflation has faced a severe blow.
The government, in fact, tried all possible tools to tame the price spike. It constituted a Committee, invoked the Essential Commodities Act on traders and stockists (hoarders), imposed stocking limits on dal mills, large retailers, warehouses, etc, imported 7,000 tonnes of tur, banned exports, reduced import duty to zero and suspended future and forward trading.
The result? Tur prices in markets like Rajkot, Bengaluru, Puducherry, Chennai have touched (and in some case have shot past) R200/kg, implying an annual increase of 100%, 163%, 147% and 141%, respectively. Urad is following tur’s lead closely. There is no sight of respite. Some relief, though, is foreseeable only by mid-November with the new crop hitting the markets.
In retrospect, these ineffective policy measures appear more to be knee-jerk reactions than calibrated responses of policymakers. Making a scapegoat of ‘hoarders’ and ‘speculators’ could have been effective in the 1960s, but in today’s times, it only point at the rather sloppy conceptual framework the policymakers follow.
Who in the government, if we may ask, is accountable for the present situation in pulses? Alarms were raised in early-September about pulses’ production falling by more than 2 million tonnes (about 11%) in FY15 over FY14. With the 2015-drought drying up the major pulses- growing states—Maharashtra, Karnataka and Madhya Pradesh—future supply pressures were near-certain. While the traders had their ears to the ground, the government officials’ complacency on the issue brought the country to its present situation. The time to act was then as now the damage—economic, for the poor consumer, and political, for the government—has been done. Interestingly, the bureaucracy, that should be accountable for tracking production and prices and ensuring smooth inter-/intra-year supplies, goes scot-free!
But what went wrong? We discuss three basic issues/questions in this regard. First, who is a hoarder? Let us remember that in any situation where harvest is concentrated in 1-3 months while consumption is spread throughout the year, there is an inevitable need for someone to store the stock to smoothen supplies. Is this not the reason why the government is encouraging creation of warehouses and cold storages? Now, when a government imposes stocking limits, legitimate stockists become ‘hoarders’, overnight. Offloading their stocks will certainly offer immediate relief to markets, but what will happen to supply in the subsequent months is anyone’s guess. Additionally, the strategy also discourages further investments in warehouses/cold storages by private stockists, thus dealing a deeper damage to the system. In absence of stockists for, say, pulses, market prices in the post-harvest months would collapse in wake of the glut, thus discouraging the pulses farmer from growing the crop in the subsequent season. This farmer decision is surely what the country can’t afford.
Second, by suspending futures and forward markets, government has shot down the price messenger! Forwards and futures are supposed to give advance signals about the likely future prices, and if harnessed well, they can actually help the government take preemptive measures. But by shooting them down, the government actually shoots its own foot. And now they are in a dark room, with no clue about existing stocks or likely prices to rule in coming months. If the government feels that some traders are colluding and rigging the market, let Sebi and Competition Commission of India look into that.
Third, the government’s decision to import 7,000 tonnes (earlier 5,000 tonnes and now added 2,000 tonnes more) of tur to tame its prices, indicates to government officials’ sheer naiveté. In a country where the consumption of tur hovers between 3.3-4 million tonnes, aiming to control rising prices by importing 7,000 tonnes exposes the government’s total ignorance on the pulses-price management front.
So, what could be potential solutions now? First, the government should create a buffer stock of around 2-3 million tonnes from domestic production and/or imports, and release it whenever pulses’ prices spike. Given that consumption of pulses is around 23 million tonnes, this level of stocking under government control is the minimum that is needed to stabilise prices. Second, the government needs to create crop-neutral incentive structures for farmers, which at present are skewed in favour of rice, wheat, and sugarcane. Much of the subsidies on fertilisers, power, and irrigation go to these crops. On per hectare basis, these subsidies amount to more than R10,000/ha. If the same amount is given to pulses-growers, they will be incentivised to produce more pulses. Third, diversify and enhance the pulses basket. While yellow pea and lupins can be imported from Canada and Australia, respectively, we need to use soya flour along with rice, wheat or other pulses flour, to re-constitute these into pulses. We are surplus in soya, and soya flour has much higher protein (more than 40%, compared to 20-25% in most pulses). Technology to do this exists, and can be used to develop products for the Indian palate. Innovations, like this, and incentives to produce more pulses, is the way to go forward. For the time being, markets will find a solution as people would switch from dal to murgi, wherever they can, as murgi is cheaper than tur dal! “Ghar ki murgi dal barabar” has come true for the first time.
Gulati is Infosys Chair professor for agriculture, and Saini is a consultant, ICRIER