There is a need to dovetail the import tariff policy and MSP policies to address the pulses puzzle. Exports and stocking restrictions also MUST go
Pulses make an interesting and unique commodity group in the Indian agri-food space—India is top-ranked not only for their production and consumption, but also their import. Domestic absorption in recent years (FY13-FY16) has hovered between 21 million metric tons (mmt) and 23 mmt, while domestic production has ranged from 16.4-19.3 mmt. But last year (FY17) seemed like an anomaly that could puzzle any keen observer of this sector. In FY17, India witnessed its highest ever domestic production of pulses—a staggering 22.95 mmt. The record production can plausibly be attributed to a normal monsoon in 2016 after two consecutive years of drought, high market prices of pulses prevailing at the time of kharif sowing last year and steep hikes in the minimum support prices (MSP) for pulses (of up to 9.2% for kharif and 16.2% for rabi pulses) in FY17—all of which significantly drove up kharif acreage in 2016-17, to almost 36% above normal. Production of kharif pulses in 2016-17, resultantly, increased by nearly 70%, and that of total pulses by about 40% over production in 2015-16.
Normally, in a year of such bumper production, imports would be expected to fall significantly and one would assume India to have become self-sufficient in pulses – a dream which started with the Technology Mission on Pulses nearly 27 years ago. However, reality is far from this. India imported a record 6.6 mmt of pulses valued at nearly $4.3 billion at zero-import-duty. As a result, domestic supply of pulses in FY17 shot up to 29.6 mmt, way above a typical consumption of 22-23 mmt. No wonder, this glut in domestic supplies of pulses caused wholesale prices to crash, despite a bold and first-of-its-kind effort by the government to procure around 1.6 mmt of pulses.
To cite a few instances, in February, 2017, tur prices were Rs 3,914/quintal in Akola (Maharashtra) and Rs 3,256/quintal in Hubli (Karnataka), much below the MSP of Rs 5,050/quintal. Similarly, moong prices crashed to Rs 3,000/quintal in Pali and Rs 3,400/quintal in Tonk in Rajasthan (MSP for moong being Rs 5,225/quintal). Urad prices plunged to Rs 3,690/quintal in Harda and Rs 4,000/quintal in Raisen in MP against an MSP of Rs 5,000/quintal. With market prices nose-diving below the MSP, the government’s announcement of MSP for moong at Rs 5,575/quintal for the Kharif Marketing Season 2017-18—which incidentally does not even cover its projected cost of production (C2) of Rs 5,700/quintal)—only goes to show that policymakers are totally divorced from the plight of peasants or are simply anti-farmer. If business-as-usual is going to be the government’s course of action, we may either witness shrinking acreage/production of kharif pulses or yet another price crash this year, which may spur another round of farm-loan waivers. The historic roller coaster of pulse prices is most likely to continue.
What then is the answer to this puzzle of pulses? Foremost is the need to dovetail the import tariff policy and MSP policies. The rule of thumb is that the landed price of imported pulses should not be below the MSP of domestic pulses else the MSP is rendered irrelevant. A peculiar situation arises in the case of yellow peas, which constituted the largest share (3.2 mmt) of total pulses imported in FY17. Its landed price was around Rs 2,550/quintal, while the MSP for chickpea was Rs 3,500/quintal. While the two are not the same, yellow pea is widely used as an adulterant in preparation of ‘besan’. This should have called for a 30-40% import duty on yellow pea, but its imports were pouring in duty-free, hitting Indian farmers adversely. If India really wants to promote domestic production of pulses, and if MSP policy has to play any role, then the landed prices of imported pulses should not be allowed to dip below MSP. Second, if the government really favours free trade as duty-free imports would suggest, why have exports of pulses remained banned for over 10 years? For our farmers to have a level playing field, exports of all pulses must be opened up without any quantity or minimum export price (MEP) restrictions. Exports restrictions are simply anti-farmer policies. Third, pulses should be delisted from the Agricultural Produce Market Committee (APMC) Act so that farmers can sell freely to whosoever they like, enabling better realisation for farmers and compression of the pulses value-chain. Fourth, the relevance of the Essential Commodities Act (ECA), especially its provision for imposing stocking limits, must be critically evaluated and the Act itself amended drastically. Unless private players are reassured that no ad hoc stocking limits will be imposed, no investments in building storage and efficient value-chains are likely to occur, and prices will crash at harvest time hitting farmers adversely. Fifth, it is crucial to give the farmer the right incentives—at least some reasonable margin above the cost of production. Unfortunately, the MSP for moong for Kharif 2017-18 does not even cover this cost, let alone the BJP’s promise of ensuring 50% profit over cost in its election manifesto of 2014. Finally, futures trading should also be allowed in all pulses so that planting and selling decisions of farmers are based on futuristic rather than backward-looking price information. With these policy changes, and a fairly reasonable buffer stock in place, the government can surely manage the pulses sector better, provided there is will and intent to act.
Ashok Gulati & Smriti Verma
Gulati is Infosys Chair professor for agriculture, and Verna is a consultant, ICRIER