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Friday, July 20, 2018

‘Govt must step in to check pulse price volatility’

According to a Crisil study, inflation in pulses, as measured by the Wholesale Price Index (WPI), shot up every 2-3 years in a cyclical pattern.

By: ENS Economic Bureau | Mumbai | Published: September 12, 2017 1:54:24 am
https://indianexpress.com/article/india/delhi-metro-briefly-runs-with-one-gate-open-4839236/ “This is the cobweb phenomenon at work, wherein production responds to prices with a lag, causing a recurring cycle of rise and fall in output and prices,” it said.

Inflation in pulses has shown a phenomenal swing of 8,100 basis points in the latest cycle which began in 2013, indicating that the government needs to step in to check the huge volatility, said a report.

According to a Crisil study, inflation in pulses, as measured by the Wholesale Price Index (WPI), shot up every 2-3 years in a cyclical pattern. “Since fiscal 2006 and up to the first four months of fiscal 2018, there have been four such cycles where the trend rate of inflation averaged 12.2 per cent with peaks 40 per cent above the zero level and troughs 25 per cent below,” it said.

Dharmakirti Joshi, chief economist, CRISIL, said: “The latest cycle, which began in fiscal 2013, has not only witnessed the steepest peak (49 per cent in November 2015) and fall (-32.6 per cent in July 2017), or a swing of 8,100 basis points, but also broad-based price fluctuations (across different types of pulses) compared with the previous cycles, when inflation was driven by one type.”

“This is the cobweb phenomenon at work, wherein production responds to prices with a lag, causing a recurring cycle of rise and fall in output and prices,” it said.

According to the Crisil study, an analysis of the correlation between production and one-year lagged WPI inflation data for the past 12 years shows price cycles are triggered by both positive (excess production) and negative (under production) supply shocks. That’s because farmers decide on sowing based on prices in the previous season, and over- or under-produce, which sets off price cyclicality, it said.

“Profit margins of all pulses except gram declined an average 30 per cent in agriculture year 2016-17, because of high production and restrictions on exports and private stockholding. So much so, during this cycle, prices of most pulses have fallen the most in the past 6 years,” Crisil said.

The fall in domestic consumption demand caused by demonetisation may have further contributed to skidding prices, it said. Despite an increase in minimum support price, and government procurement, wholesale prices of all pulses except gram declined sharply, while input costs continued to grow. But prices of gram (chickpeas), which has a high share of 40-45 per cent in overall pulses production and more than 60 per cent in exports, bucked the trend, and shot up in the last six years while price rise in most others slowed.

“That’s because, unlike other pulses, there is no restriction on exports of gram, so profitability remained higher for gram farmers as the international market was ready to absorb the excess domestic supply,” it said. “The pronounced cyclical patterns in pulses hurt both producers and consumers. It is time the government initiated steps to smoothen prices through a mix of effective MSP dispensation, open trade policy and well-functioning markets. Simultaneously, the crop needs to be de-risked by increasing the irrigation buffer.”

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