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No feel for the pulse

The government has failed to provide the right incentives to farmers

Written by Ashok Gulati , Siraj Hussain | Published: September 26, 2016 12:45 am
pulses, buffer stock, pulses pricces, pulses economy, oilseeds economy, indian economy, india news, indian express It may be worth revisiting the recent experience in creating buffer stocks to understand the operational challenges of the move, and how best to deal with them.

India’s quest for self-sufficiency in pulses goes back, at least, to 1990-1991, when pulses were incorporated in the technology mission on oilseeds. In 1992, and 1995-1996, oil palm and maize were added to the mission, which was re-christened the Integrated Scheme on Oilseeds, Pulses, Oil palm and Maize (ISOPOM). In 2007, ISOPOM’s pulses component was merged with the National Food Security Mission. However, despite having such schemes for decades, India has not achieved self-sufficiency in pulses and edible oils (oilseeds).

In the fiscal year (FY) 2016, imports of pulses touched an unprecedented 5.8 million metric tonnes (MMT), against the domestic production of 16.5 MMT. Pulses production peaked in FY14, touching 19.25 MMT, but receded due to droughts in FY 2015 and FY 2016. This speaks of the failure of our strategy to achieve self-sufficiency in pulses.

Pulses attract government attention when inflation crosses the “tolerance limit”, as it did last year. Even in August 2016, retail inflation of pulses was 22 per cent. But in September, as moong started arriving in markets, its wholesale price crashed, in several markets, below its minimum support price (MSP). Such volatility hits both the farmers and consumers. One way of tackling such price volatility is to create a buffer stock of about 2 MMT of pulses, by procuring or importing when prices are low. This has been recommended several times; the latest recommendation has come from Arvind Subramanian’s report on pulses. It is heartening that the Union cabinet had already approved this limit for buffer stocking of pulses.

It may be worth revisiting the recent experience in creating buffer stocks to understand the operational challenges of the move, and how best to deal with them. The government decided to procure pulses in kharif 2015, when market prices were way above their MSPs. The operation was financed through a Price Stabilisation Fund (PSF) of Rs 500 crores created by the GoI. NAFED, SFAC and FCI were nominated as the nodal agencies for procurement, which in turn used state agencies like the Civil Supplies Corporation and State Cooperative Marketing Federation. These agencies do not have the track record, infrastructure and finances, necessary for procurement. They, with the help of state agencies, procured 50,422 tonnes of kharif pulses. Almost a year later, 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 borne by the Centre, and retail prices have been high during this period. Given the short shelf-life of these pulses, usually less than a year, there is fear that a considerable part of the stocks would lose its quality.

Given this experience, it is easy to fathom the challenge of procuring 2 MMT of pulses for buffer stocking. First, it would require a minimum working capital of Rs 10,000 crore — and not Rs 500 crore, as under PSF. The GoI should either set aside this amount in the budget or allow agencies like FCI to use its line of food credit for procuring pulses. NAFED will have difficulty in borrowing as its accounts have been frozen.

Second, as quality of pulses deteriorates fast, it would need better handling of procured amounts. Subramanian’s suggestion of creating a new agency that runs on public private partnership, may be worth trying, but private agencies cannot wait for years to get their reimbursements from the GoI, which happens routinely with state agencies like the FCI and NAFED. The latter still has an outstanding liability of Rs 1,083 crores on account of losses incurred in the procurement of chana, groundnut, copra and tur.

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, the buffer stocking operations of disposing pulses in the open market may end up in “losses” to the GoI; these are not taken very favourably by the Comptroller and Auditor General (CAG) of India. Unless these operations are treated as “subsidy” for price stabilisation operations, officials would be reluctant to run them for fear of CAG’s adverse comments.

Above all, before the government enters the market to procure pulses, will it eliminate export bans and stocking limits on traders, delist pulses from the APMC Act, and review the Essential Commodities Act, 1955, as recommended by Subramanian report? Such restrictions on exports and stocking of pulses, reveal a pro-consumer bias. But with zero duty on imports, the restrictions are anti-farmer and they need to go. There is also a need for an import duty of about 10 per cent on pulses to make sure that the landed costs of imported pulses are not below MSPs. Else, the purpose of raising MSPs will be nullified. Will the GoI keep its promise to farmers to incentivise production of pulses?

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More From Ashok Gulati
  1. M
    Mohammad Shoaib
    Sep 26, 2016 at 6:36 pm
    Either lead, follow or get out of the way. Why is the government in the business of food. Allow private Indian businesses with 100 per cent FDI to create the modern food processing infrastructure in a country of 1.3 billion people. Create robust and transparent regulatory mechanisms to achieve long term price stability. Unless this is done governments of the day will continue to face the wrath of the electorates. Till such time billions of rupees of national wealth will be wasted in subsidies that help neither the producer farmers or hard pressed Indian consumers.
    1. X
      Sep 26, 2016 at 9:18 am
      The indications were there in 2104 itself. But Prof Gulati chose to say Ram Rajya was round the corner. Fortunately he has realized.
      1. S
        Sep 26, 2016 at 7:26 am
        There is hardly been a leave aside policy....any tangible concerted effort to empathetic ally look at the plight of farmers....the government's majority time and focus seemingly has been busy in all matters of self-importance to their leader's international aspirations......UN, US, G7, G20, NSG, ASEAN, SAARC etal........with little to show from any of these for the farmers or the poors
        1. V
          v b
          Sep 26, 2016 at 9:39 am
          Around 60% of India’s land is rainfed. Pulses can be grown on rainfed lands. Moreover pulses are grown as second crop after harvest of paddy even on irrigated lands. Hence there is no dearth of land on which pulses can be grown if only the price is attractive enough. It is growing of surplus output of pulses that may result in prices turning out to be unattractive. Surplus can be avoided if farmers are informed through an Agriculture-related App. when further planting of pulses may result in surplus.
          1. V
            Sep 26, 2016 at 9:13 pm
            What a moronic comment. All of first government should start taxing agriculture as well and then gove freebies to farmers. FYI I am farmer by birth not beggar. Useless people only rely on others.
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