Bad cure for a racing pulse

Scapegoating ‘hoarders’ and ‘speculators’ for the spike in dal prices might have been effective in the 1960s. But today, it is only evidence of a rather sloppy conceptual policy framework.

Written by Ashok Gulati , Shweta Saini | Published:October 23, 2015 12:48 am

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The pulse rate of a normal and healthy human body hovers between 60 and 100 beats per minute. There can be problems if it goes any higher — and a serious threat to life over 200 beats per minute. An analogy can be drawn with the present situation of the prices of pulses in India. Retail prices of all major pulses have crossed Rs 100/ kg. In the case of tur/ arhar (pigeon pea), they have crossed the double-century mark of Rs 200/ kg in several places. The continuation of such price-rise would sound the death knell for any political party in power. Evidently, the present government’s mission to bring down food inflation has faced a severe blow.

The government has, in fact, tried to use a number of tools to tame the price-spike. It constituted a committee, invoked the Essential Commodities Act against traders and stockists (hoarders), imposed stocking limits on dal mills, large retailers, warehouses, etc, imported 7,000 tonnes of tur dal, banned exports, reduced the import duty to zero, and suspended futures and forwards trading.

The result: Tur prices in markets like Rajkot, Bangalore, Puducherry and Chennai have touched Rs 200/ kg (and even higher) — an annual increase of 100, 163, 147 and 141 per cent, respectively. Urad is following the lead closely. There isn’t much relief in sight. Some respite, though, is foreseeable by mid-November, when the new crop will hit the markets.

In retrospect, these ineffective policy measures appear to be knee-jerk reactions more than calibrated responses of policymakers. Scapegoating “hoarders” and “speculators” might have been effective in the 1960s. But in today’s times, it is only evidence of a rather sloppy conceptual framework of policymakers.

Who in the government is accountable for the present situation in pulses? Alarm bells rang out in early September about pulse production falling by more than two million tonnes (about 11 per cent) in 2014-15 over 2013-14. The effect of the 2015 drought on the major pulse-growing states — Maharashtra, Karnataka and Madhya Pradesh — meant that future supply pressures were near-certain. While traders had their ears to the ground, the complacency of government officials has resulted in the present situation. The time to act was then. Now, the economic damage to poor consumers and political harm to the government in power have been done. Interestingly, the
bureaucracy, which should be accountable for tracking production and prices, and ensuring smooth inter-/ intra-year supplies, goes scot-free.

But what went wrong? We discuss next, three basic issues/ questions. First, who is a hoarder? Let us remember that in any situation in which harvesting is concentrated in a one- to three-month window, though consumption is spread through the year, there is a need for someone to store the stock to smoothen supplies. Is this not why the government is encouraging the creation of warehouses and cold storages? Now, when the government imposes stocking limits, legitimate stockists become “hoarders” overnight. Forcing them to offload stocks will certainly bring immediate relief to the markets, but what will happen to supply in subsequent months is anyone’s guess. Additionally, this strategy also discourages further investments in warehouses/ cold storages by private stockists, inflicting deep damage to the system. In the absence of stockists, market prices of, say, pulses in the months immediately after harvest would collapse, discouraging farmers from growing them in the subsequent season. Surely the country can’t afford to have farmers take such a decision.

Second, by suspending futures and forwards markets, the government has simply shot the messenger. Forwards and futures markets are supposed to give signals about likely future prices, and if harnessed well, they can actually help the government take preemptive measures. But by shooting them down, the government has, in fact, shot itself in the foot. Now, the government is in a dark room, with no clue about existing stocks or the prices likely in the coming months. If the government feels that some traders are colluding and rigging the market, let Sebi and the Competition Commission look into it.

Third, the government’s decision to import 7,000 tonnes of tur (5,000 tonnes earlier, and 2,000 tonnes now) to tame prices, shows the sheer naivety of officials. In a country where the consumption of tur hovers between 3.3 to four million tonnes, aiming to control rising prices by importing 7,000 tonnes exposes the government’s ignorance in pulse price management.

So, what are the potential solutions now? First, the government should create a buffer stock of around two to three million tonnes from domestic production and/ or imports, and release it whenever pulse prices spike. Given that domestic consumption of pulses is around 23 million tonnes, this level of stocking is the minimum that is needed to stabilise prices. Second, the government needs to create a crop-neutral incentive structure for farmers, which is at present skewed in favour of rice, wheat and sugarcane. Much of the subsidies on fertilisers, power, and irrigation go to these crops. These subsidies amount to more than Rs 10,000/ hectare. If the same amount were given to pulse growers, they would be incentivised to produce more. Third, diversify and enhance the pulse basket. While yellow pea and lupins can be imported from Canada and Australia, respectively, we need to use soya flour, along with rice, wheat and other pulse flours, and re-constitute these into pulses. We are surplus in soya, and soya flour has a very high protein content — more than 40 per cent compared to 20-25 per cent for most other pulses. Technology to do this exists and can be tailored to Indian tastes. Innovations like this and incentives to produce more pulses are the way to go.

For the time being, markets will find a solution as people switch from dal to murgi, wherever they can, as chicken is cheaper than tur dal! The proverb, “ghar ki murgi dal barabar”, rings true.

Gulati is Infosys chair professor for agriculture and Saini is a consultant at Icrier.

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