From plate to plough: The arhar challenge

The incentive structure, currently skewed in favour of rice and wheat, needs to become crop-neutral

Written by Ashok Gulati , Smriti Verma | Published: August 1, 2016 12:06 am
pulses, dal, dal prices, pulses prices, arhar dal prices, tur dal prices, pulses export ban, msps, pulses regularised prices, pulses stock limits, government pulses price policy, india news, latest news, indian express column The Centre has also directed the states to impose strict stocking limits on pulses, and to raid hoarders breaching that limit. (Source: Illustration by CR Sasikumar)

High prices of pulses are upsetting the food budget of many poor families. Soaring retail prices of dals — urad at Rs170/kg, tur/arhar at Rs160/kg, gram/chickpea at Rs 127/kg, moong at Rs 111/kg and masoor at Rs 100/kg — have made dal a luxury for the dal-bhaat and dal-roti eating population. But not very long ago, wholesale prices of gram, arhar and urad stood below their minimum support prices (MSP). Inflation in pulses was minus 14 per cent in August 2013. It started rising in the latter half of 2014, crossed the double-digit mark in January 2015 and soared to 58 per cent in November 2015. Though inflation has declined somewhat, it still stood strong at 26 per cent in June 2016.

Politically, this high rate of inflation in pulses is damaging. When the monsoon session of Parliament started in July, the Congress held a major demonstration against the Modi sarkar for its failure to rein in prices of pulses. One may recall that tur prices had become a rallying point against the NDA in the Bihar elections. Given that elections to the Punjab, Uttar Pradesh and Gujarat assemblies are approaching, the government cannot afford to be complacent. It has swung into action by setting up an expert committee under the chief economic advisor. Any rational approach would suggest carrying out a thorough diagnosis of what led to this price surge, and based on that, potential solutions.

Back-to-back droughts in 2014 and 2015 reduced production of pulses from 19.25 million metric tonnes (MMT) in 2013-14 to 17.06 MMT in 2015-2016. With demand remaining somewhat sticky, imports of pulses increased from about 3.4 MMT in fiscal year (FY) 2013-2014 to 5.8 MMT in FY 2015-2016. But if imports made up for the decline in domestic production since 2013-2014, why did prices increase so precipitously? The answer lies largely in global markets.

Take, for example, the case of chickpea. Its domestic production dropped from 9.53 MMT in 2013-2014 to 7.48 MMT in 2015-2016. Traders, however, put the production estimate at around 6 MMT in 2015-2016. This put a lot of pressure for imports of chickpea. But in Australia, one of the largest exporters of chickpea, production dropped by 31 per cent, and in the US by 21 per cent, in 2014-15. With global supplies shrinking, and Indian demand rising, the global chickpea prices have shot up — from Rs 2,800 per quintal in June 2014 to Rs 7,000 per quintal in June 2016. This set the domestic prices of chickpea soaring during FY 2015-2016, with inflation still at 33 per cent in June 2016. Fresh supplies are expected from Russia in August-September, from Australia in November-December and from domestic markets from March 2017. The story is repeated in the case of prices of other pulses. However, with the monsoon likely to be above normal this year, there is a possibility that supply pressures on tur, urad and moong will ease from October-November onwards.

What has been the government’s response? To curb the surging prices of pulses, the government has tried to augment supplies by keeping imports duty-free. Lately, the government has also signed a long-term contract with Mozambique for import of 1,00,000 tonnes of tur and other pulses; it aims to double the volume of the imports by 2020-2021. Indian teams are also scouting for possible government-to-government (G2G) imports from Myanmar and many African countries. However, export of all pulses (except kabuli chana and organic pulses up to 10,000 tonnes/year) have been prohibited. One may ask,why should there be an export ban when imports are open at zero duty? High international prices can also provide incentives to growers of pulses to increase production if exports are kept open.

The government is also inching towards a much-desired buffer stock policy for pulses: It has decided to raise buffer stock of pulses from 1.5 lakh tonnes to 8 lakh tonnes; recently it has also proposed to raise the buffer to 20 lakh tonnes. Though a bit late, this is a step in the right direction. Remember, price stabilisation comes at some cost — creating and maintaining buffer stocks equivalent to at least 10 per cent of production is critical to averting price surges.

The Centre has also directed the states to impose strict stocking limits on pulses, and to raid hoarders breaching that limit. Futures and forward trading in all pulses (except squaring up of position in running contracts in chana) has been suspended. These measures are regressive and futile, and remind one of the controlled and rent-seeking economy of the 1960s. They also expose the hollowness in the understanding in policymaking circles about the market economy.

A bonus of Rs 425/quintal on MSP of kharif pulses — arhar, moong and urad — has been announced to incentivise production. But the MSPs are still far below their respective wholesale prices. There is need for a crop-neutral incentive structure, which is currently tilted heavily in favour of rice and wheat. The input subsidies on fertilisers, power, water, and agri-credit, consumed by wheat and rice in Punjab, for example, exceed Rs 10,000/ha. If pulses have to be given similar incentives through bonuses, that would amount to a minimum of Rs 1,000/quintal. Only then will there be a level-playing field for cultivators of all crops.

The Centre has also urged the states to de-list pulses from the APMC act and abolish local taxes on them. It would be good if the NDA-ruled states can set an example in this respect. Dal reconstituted from soya flour can be promoted to fill the protein deficit of the poor. Lastly, the government should recognise the huge failure of the technology mission on oilseeds, pulses and maize, which has been in operation since the mid-1980s, and dismantle it.

 

Gulati is Infosys Chair professor for agriculture and Verma a consultant at ICRIER

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