If the govt is serious about increasing domestic production, it must impose a 10% import-duty and relax export norms
India’s quest for self-sufficiency in pulses goes back to at least 1990-91, when pulses were incorporated in the ongoing Technology Mission on Oilseeds. Later in 1992, and 1995-96, oil palm and maize were also added, and it became the Integrated Scheme on Oilseeds, Pulses, Oil palm and Maize (ISOPOM). In 2007, pulses component of ISOPOM was merged with National Food Security Mission. However, despite decades of these schemes being in operation, except for maize, India has not achieved self-sufficiency either in pulses or in edible oils (oilseeds).
India has remained a net importer of pulses for a long time, and in FY16, imports touched an unprecedented high of 5.8 million metric tonnes (mmt), as against domestic production of 16.5 mmt. Pulses production peaked in FY14 touching 19.25 mmt, but thereafter receded in the wake of back-to-back droughts in FY15 and FY16. This clearly speaks of the inherent weakness and failure of our strategy to achieve self-sufficiency in pulses.
Pulses attract government attention typically when their inflation crosses the ‘tolerance limits’, as it did last year.
Even in August 2016, pulses retail inflation was 22% (y-o-y). But in September, as moong started arriving in the markets, its wholesale price crashed below its minimum support price (MSP) in several markets. This huge volatility, between wholesale and retail prices, hits both farmers and consumers adversely. And one of the ways to tackle this price volatility is to create a buffer stock of pulses of about 2 mmt, by procuring or importing when prices are low, and releasing them when prices rise. This has been recommended many number of times earlier to government of India (GoI), but the latest instance is via chief economic advisor Arvind Subramanian’s report on pulses. It is heartening to see that the Cabinet had already approved this limit for buffer-stocking of pulses.
While the concept and quantity of buffer-stocking is fine, it may be worth revisiting the recent experience in this regard to have an idea of the operational challenges it poses, and how best to deal with them.
Perhaps, for the first time in decades, the government decided to procure pulses in kharif 2015, when market prices were way above MSPs of pulses. This operation was financed through the Price Stabilization Fund (PSF) of R500 crore created by the Union government. NAFED, SFAC and FCI were nominated as the nodal agencies for procurement, which in turn used state agencies like Civil Supplies Corporation, State Cooperative Marketing Federation, etc, which do not have much of a track-record or the requisite infrastructure and finances for procurement.
The three agencies, with the help of state agencies, procured 50,422 tonnes of kharif pulses. And till now, almost a year after, less than 10,000 tonnes have been disposed off. Most state governments have shown no interest in distributing pulses even though most of the subsidy is being borne by Union government, and retail prices have been ruling high during this period. Given the short shelf-life of these pulses—normally less than a year—there is a genuine fear that quite a bit of these stocks may get damaged in terms of quality.
Given this short, but not very efficient, experience in procuring and disposing off pulses in kharif 2015-16 season, it is easy to fathom the magnitude of challenge it will pose when India procures 2 mmt of pulses for its buffer-stocking operations. In brief, these are as follows:
First, it would require a working capital of minimum R10,000 crore, and not the R500 crore with PSF. Either the Union government should set aside this amount in the budget or allow agencies like FCI to use its line of food credit for procuring pulses too. NAFED will have difficulty in borrowing as its accounts had been frozen due to some earlier cases of NPAs resulting from losses in trading of metals.
Second, as pulses’ quality deteriorates fast, better handling of procured amounts is needed. Subramanian’s suggestion of creating a new agency through the PPP mode, may be worth a try, but private agencies cannot wait for years to get their reimbursements from the government, which happens routinely with state agencies like FCI, NAFED, etc. At present, NAFED has still an outstanding liability of R1,083 crore on account of losses incurred in procurement of chana, groundnut, copra and tur, etc, in earlier years.
Third, if the economic cost of pulses (procurement price plus procurement incidentals, processing charges, stocking and distribution costs) to the state agencies is higher than the market prices prevailing, the buffer-stocking operations of disposing them in open market may end up in losses to the government, which are not taken very favorably by the Comptroller and Auditor General (CAG) of India. Unless these are clearly and transparently treated as subsidy for price stabilisation operations, government officials would be reluctant to run such a scheme for fear of CAG’s adverse comments.
But above all, before the government really enters the market to procure pulses, will it eliminate export bans and stocking limits on traders, delist pulses from APMC Act, and review the Essential Commodities Act, 1955, as recommended by Subramanian report?
It must be realised that all such restrictions on exports and stocking of pulses reveal a pro-consumer bias in policies. When imports are free at zero import duty, such restrictions essentially are anti-farmer. If the government wants to create a positive incentive environment for farmers to grow pulses, not only do such restrictions need to go, but also there needs to be an import duty of about 10% on pulses to make sure that the landed costs of imported pulses are not below MSPs. Else, the whole exercise of raising MSPs will be nullified. Will GoI bite the bullet and keep its promise to farmers to incentivise production of pulses? Only time will tell.
Ashok Gulati is Infosys chair professor at ICRIER and Siraj Hussain is former secretary of agriculture, GoI, and
currently visiting senior fellow, ICRIER