Why restrictions on stockholding and export of pulses must go...

Last week, Union Commerce Minister Nirmala Sitharaman announced a 5% subsidy on onion exports in the form of transferable duty credit scrips that can be used to pay customs, excise or service tax. On top of it, the Maharashtra government extended a Rs 100 per quintal grant to all farmers who had sold the bulb in the state’s mandis from July 1 to August 31.

Image courtesy : The Indian Express

Compare this to the situation a year ago when onion shipments were subject to a minimum export price (MEP) restriction of $ 700 per tonne. The Centre had even before that, in July 2014, brought onions under the Essential Commodities Act (ECA) for the first time in almost a decade, empowering states to impose stock holding limits and take action against “hoarders”.

The U-turn — from practically banning to incentivising exports and from invoking legislative provisions of a bygone era to giving sops — has been forced by a collapse in onion prices, with average modal rates at Maharashtra’s Lasalgaon market currently at Rs 600-620 per quintal, after scaling a high of Rs 5,700 last year on August 22.

But such a volte face hasn’t been limited to onions. Potatoes were brought under the ECA in July 2014, alongside the imposition of an MEP of $ 450 per tonne. That was when prices of the tuber in Agra were Rs 1,500-1,600 per quintal, and crossing Rs 2,200 by early November. The MEP was removed on February 20, 2015, but prices had already fallen by then to Rs 550 on the back of a bumper crop, and plunged further to Rs 300/quintal in April. This led to farmers planting less the following season and prices climbing again from around June this year. On July 26, the MEP was back — at an even lower level of $ 360 per tonne, or Rs 24/kg. Since exports are not allowed below this rate, farmers and traders have to, then, sell mostly in the domestic market.

There is a clear pattern in all this. Any price increase in farm produce is immediately followed by government action, invariably violating every rule of free trade. In the meantime, farmers themselves respond to higher prices by ramping up production, as they did for potatoes in 2014-15 and for onions in 2015-16. Prices crash as a result, yet the restrictions remain; by the time they go, it’s too late for farmers. The alacrity in imposing controls, and the lack of urgency in withdrawing them, is a reflection of the larger political economy, where the voices of urban consumers carry far more weight than that of rural producers.

We are now probably heading for a similar situation in pulses. 2015-16 saw their prices hitting record highs and the government going all out with measures unprecedented even by 1970s standards. Apart from the usual banning of exports and allowing imports at zero duty, stock limits for ordinary traders under ECA were made applicable to even dal millers, importers and large retailers, whose regular operations require maintenance of sufficient inventories. If this weren’t enough, enforcement agencies, including the Directorate of Revenue Intelligence and the Intelligence Bureau, were made a part of “coordinated action” against any supposed hoarding, black-marketing or cartelisation.

But as before, high prices prompted farmers to sow 13.94 million hectares area this time under kharif pulses, a jump of over 34% compared to last year. The effects of it — and government action — are already visible. Moong (green gram) is now selling in markets such as Gulbarga and Gadag in Karnataka and Kota and Ajmer in Rajasthan at Rs 4,000-4,600 per quintal. This is lower than not only the levels of Rs 5,500-6,000 of two months earlier, but also the Centre’s minimum support price (MSP) of Rs 5,225 per quintal for 2016-17. That it is happening when harvesting has just started in Karnataka and the big crop from Rajasthan is still to arrive in the mandis only shows how much the sentiment has turned.

No less dramatic is the scene in arhar (pigeon-pea), which two months ago was trading at Rs 8,600 per quintal in Gulbarga and is quoting today at about Rs 5,600. That may be above the MSP of Rs 5,050/quintal, but this is a crop harvested only from December. Last year, arhar prices began at Rs 5,000/quintal in January and rose to Rs 7,000 by end-June, before doubling to Rs 14,000-15,000 in mid-October just when the Assembly elections in Bihar were on. Farmers who have planted this time expecting a repeat of rising prices are likely to face disappointment — 2016-17 may well do to pulses what 2015-16 did to onions and 2014-15 to potatoes.

There are three things the Narendra Modi government must immediately do, if the mistakes that were made in onions and potatoes are to be avoided.

First, all stockholding limits and export restrictions on pulses should be lifted right away. With a bumper crop in the offing, farmers can do with more buyers for their produce. That will not happen if there is no freedom to trade, and even normal stocking can be construed as hoarding.

Second, it is time to put a stop to imports, at least on government account. State agencies have so far contracted some 1.8 lakh tonnes of imported pulses, whose value would have already suffered considerable erosion with falling prices.

Third, procurement operations should kick off, especially in moong and urad where arrivals will peak in a month from now. If farmers aren’t going to get even the promised MSPs, they will refrain from planting pulses. A repeat of potatoes, the precursor to a fresh round of inflation, is something the country simply cannot afford in pulses.

But beyond the immediate, there is a need to reflect on the entire approach of subjecting agriculture to rules that do not apply to other industries. Today, we have a regime of MEP and free imports in farm produce, as opposed to MIP (minimum import price) for steel products and anti-dumping duties on everything from caustic soda and purified terephthalic acid to vitrified tiles. The resort to such differential treatment — in the name of “supply management measures” — may have only increased with the formal adoption of an inflation targeting policy based on the consumer price index, in which food items have a combined 45.86% weight.

The brunt of it, unfortunately, is being borne by the farmer.

Written by Harish Damodaran
Courtesy : The Indian Express