Policymakers and consumers can rejoice in the light of the latest price data. Food inflation in particular has witnessed significant moderation. In May 2015, food prices were up by only 2.3 per cent at wholesale and 5 per cent at retail levels over May last year. The increases in minimum support prices for the current season are also within 5 per cent for most commodities (paddy MSP at 3.7 per cent). This surely brings relief to policymakers combating close to double-digit food inflation just a year ago.
However, this should not lead to complacency on the food price front, as prices of essential commodities like pulses have increased by a whopping 23 per cent over the same period. Some pulses, especially urad and tur, increased by 30 per cent.
There have also been reports that the retail prices of urad and tur in select cities have increased by more than 50 per cent. All this has happened while India imported 4.6 million metric tonnes (MMT) of pulses in 2014-15 (FY15), up by 27 per cent over the previous year.
Dal-bhaat or dal-roti is considered to be a poor man’s diet. But dal today seems to have become a luxury that only the better-off can afford. It is an important source of protein for vegetarians and is slipping away from the hands of the poor. Fearing that prices of pulses can flare-up further, the government has announced its intention to increase imports. The problem is that urad and tur have limited international markets, and India sources it primarily from Myanmar, Tanzania, etc. The supplies in those countries cannot increase quickly, and thus prices are bound to rise. As a result, our pulse import bill, which was already $2.8 billion in FY15, up 33 per cent from FY14, is likely to go up even more.
Pulses in India are grown on about 25 million hectares (mha) of land, largely rain-fed, with only 16 per cent under irrigation. Production hovers between 18-20 MMT. Pulses need much less water and are nitrogen fixing, so they do not need much chemical fertiliser. They can thus help save on large input subsidies (power, irrigation and fertiliser), much of which are normally cornered by rice, wheat and sugarcane, as these crops have high irrigation cover and higher fertiliser consumption.
What is the story about rice (bhaat)? May WPI for rice is down by 1.8 per cent. Interestingly, even in a drought like FY15, India exported 12 MMT of rice worth $7.8 billion. In the last three years, India has consistently exported more than 10 MMT of rice, becoming the world’s top exporter. Of the 12 MMT of rice exported in FY15, 3.7 MMT was basmati and the remaining 8.3 MMT, non-basmati. In terms of value, basmati accounted for 57 per cent of total rice export earnings. India produced 101 MMT of rice from about 43 mha, almost 60 per cent of which is irrigated.
The key point in the case of rice is that it needs high doses of water for irrigation, roughly 3,000-5,000 litres per kg of rice, depending on where it is being grown. The father of Pusa basmati, V.P. Singh, tells us that Pusa-1509 consumes about one-third less water than non-basmati, and that the consumptive use of water in rice is much less, just 12-15 per cent. But 30-40 per cent of irrigation water is lost through evaporation and roughly half goes back to groundwater with much higher nitrate content, polluting potable water. This percolated water has to be lifted time and again through highly subsidised power.
The point to consider from the policy perspective is that part of the export competitiveness of rice (10-15 per cent) comes from these large subsidies. Also, there is a government system of procurement of paddy/ rice, which reduces risk for rice farmers. Pulses, by contrast, neither have any such government system of procurement, nor benefit from large input subsidies. Most are banned/ restricted from exports, and imports are allowed at zero duty, while rice imports attract 70 per cent duty. This seems to be a comedy of errors.
What is the policy correction needed so rice and pulses get equal and fair treatment in terms of incentives to farmers? Crop-neutral incentive structures are the need of the hour. At present, incentives are skewed in favour of rice, wheat and sugarcane, and consequently, the nation is overloaded with their stocks. Policies need to be tweaked to bring incentives for pulses at par with, say, rice. To do this, first, the rice import duty needs to be slashed to 5-10 per cent, if not zero, so that the rice trade is truly open at both ends. Second, direct buying of pulses from farmer groups needs to be encouraged by private-sector organised industry/ retail groups, or by a wing within the FCI, and through warehouse receipt systems. This is to give farmers a higher share of the consumer’s rupee as an incentive to produce more pulses. Third, although good technology will increase yields of pulses in due course, in the short to medium run, bringing more pulses’ area under irrigation can help stabilise their yields at a reasonably satisfactory level. For this to happen, policy must reward those ready to shift to pulses, especially in the Punjab-Haryana belt, where the water table is fast depleting. High-end technology, such as digitised land records, satellite/ drone images of changing cropping patterns and Aadhaar-linked accounts, can be used to ensure that these rewards go only to those who grow pulses.
Only if one can be bold and put in place innovative policies to create a crop-neutral incentive structure will pulse production in India increase. Can the Narendra Modi government create a level playing field for dal-bhaat through crop-neutral incentive structures? The payoff will be high, both economically and politically.
Co-written by Shweta Saini. Gulati is Infosys Chair Professor for Agriculture and Saini is a consultant at Icrier.