Pulses prices pain forcing desperate Centre into loss-making proposition

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Updated: July 4, 2016 9:27:08 AM

The government has taken a call on import of pulses from Mozambique, Malawi and Myanmar. It would be a loss-making proposition

Due to tight supply of tur and urad, there has been a sudden spike in chana dal prices, touching Rs 101/kg in the national capital from Rs 68/kg a year ago. (Reuters)Pulses are not easily obtainable in world market, and are quite distinct from other agro commodities like edible oil, wheat, sugar, corn, etc, which are accessible in plenty internationally with multiplicity of sellers and are trading at future exchanges. (Reuters)

The announcement by the government that a determined drive is launched to source pulses from M3 (Mozambique, Malawi and Myanmar) countries via the government-to-government route—through PSUs—officially confirms that India desperately needs pulses due to continuous decline in its annual output. The severity of shortages, as of now, of about 5 million tonnes (lentils, chickpeas and peas)—though in public domain (output of 17-18 MT versus usage of 23MT)—is officially endorsed and made known worldwide.

The mismatch in the production and consumption will exacerbate in the future and so will the market prices. It is quite queer that what we cannot manage domestically, we are expecting lesser developed nations to do for us, especially in agriculture.

The official ban on chana futures in NCDEX in June 2016, to avoid hyper-speculation, also reinforces the fear of the government of impending scarcity of about 2-2.5 MT of chickpea. The seriousness of the policy-makers to contain pulses inflation through market intervention by acquiring government stocks and to prevent speculative hoarding cannot be doubted. Prudence lies in also quickening the pace of import of yellow peas and chickpeas from Canada, the US, Australia, France, Ukraine, etc, which can be delivered faster locally through distribution channels.

Also Read: Delivering India from soaring pulses prices; ICAR rides to the rescue

Pulses are not easily obtainable in world market, and are quite distinct from other agro commodities like edible oil, wheat, sugar, corn, etc, which are accessible in plenty internationally with multiplicity of sellers and are trading at future exchanges. Thus, competitive values can be assessed.

Some times it is believed that crude-oil-importing PSUs like Indian Oil Corporation and others conclude mega-million-dollar contracts easily and therefore procurement of pulses likewise should not pose a problem. Crude oil is available abundantly at internationally-quoted prices in all oil exchanges—CME (Chicago Mercantile Exchange), DME (Dubai Mercantile Exchange) and ICE (International Commodity Exchange). This lends transparency to contracts, which can be objectively audited. The Metals and Minerals Trading Corporation also concludes annual contracts of iron-ore with Japan, but then there is a basis of assessment by comparing with Australian, Brazilian or South African ore.

Pulses have no such mechanism of spot or futures trade anywhere in the world. The price discovery in M3 countries is totally opaque and may not match for the same type of pulses. Lentil prices may vary in broad spectrum of $400-1,500 landed, depending upon dynamics of market. Since India cannot buy surreptitiously the way China does, our demand and urgency is well-publicised to our disadvantage.

It is a figment of imagination that by considering such government-to-government import deals of pulses, the supply-demand gap could be totally bridged. First, the total surplus available with these three countries may be less than 2 MT and that they have other international buyers too to sell, including Indian private trade. If India insists that the entire extra production be made available to the government, they will demand a steeply hiked price compared to the ruling trading values which will require greater subvention in local market. The cost of acquisition then cannot be readily compared with other origins, and fundamentally the deal gets so structured that loss must be made. Terms of payment may involve advance payment, which entails greater risk if delivery is defaulted.

Unlike India, these M3 countries do not have public sector entities as counter-parties for contracting and implementation. Will then Indian PSUs finalise business with private traders “nominated” by M3 countries? In any case, even if 1 MT is annually imported by the government from M3 countries, it would be a creditable achievement.

Dispatching a delegation initially, doing recce about the sellers and exploring logistic modalities may be fine. But for finalising terms of trade, the leader of the delegation should be vested with authority to conclude contract on the basis of a single bid from each of these countries, which will eventually happen. The current system in the government does not allow flexibility of finalisation of sale without a tender, and requires at least three bids at the same time/day. Any reference for decision-making to an inter-ministerial committee will be counterproductive.

If India wishes to have a government-to-government deal, it will have to modify procedures and rules for such a purchase.

* Counter-parties from M3 countries can be their official undertaking or “nominated private parties”. What has been their past experience of trade in pulses has to be left to the discretion of M3 countries, though the Indian side may have informal evaluation of their capabilities to perform. This will need acceptance from Indian authorities.

* Dispense with the tender system and rely upon “negotiated” price, tonnage, quality, delivery or terms of payment on an annual basis. For this, suitable relaxation is required from a competent authority (permission from such a deviation from India’s bureaucratic system looks improbable).

* Since private parties will also be importing in parallel in small lots—and may be at “cheaper prices”—the price/terms negotiated by PSUs may not be subject to scrutiny by audit/vigilance. This is because for a large tonnage on an annualised basis the price of pulses will be much higher than those negotiated by private players for smaller tonnages and shorter delivery. Will audit not question such a loss to national exchequer?

* Any dispute resolution/litigation in India as per Indian terms may “not” be agreed to by M3 countries. Discretion to this effect needs authorisation.

* The quantum of subsidy for disposal of pulses on government account may be decided well in advance, for quick disposal at discounted prices. If the government dithers or drags on subsidy, landed cargo will remain warehoused and market will remain starved.

* The entire gamut of this operation means buying at high prices and selling at low prices, at a loss depending upon market conditions, by debit to the Consolidated Fund of India. Will that be politically-convenient, though such a loss can be justified for socio-economic reasons?

Without these radical deviations authorised in black and white, the success of government-to-government transactions is highly doubtful. Even if one or two contracts are concluded, they will not be able to withstand scrutiny of integrity by audit and vigilance.

The author is a grains trade expert

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