No point hiking pulses' MSP if there's no procurement
Given the wide gap between domestic production and consumption and the sustained surge in inflation in pulses—this rose from 12.4% in April 2015 to a whopping 46.1% in November, before settling to a still-high 34% in April 2016—you would think the government has done well to hike the minimum support price (MSP) for pulses by 8-9%. Chances are, however, this will have little impact. The Congress party’s campaign, that the UPA was more farmer-friendly since it raised MSPs by far more, though, is not the point since the relative inflation in agricultural inputs also matters, as do global farm prices. What is important is that the MSP strategy is ineffective unless accompanied by a solid procurement or exports strategy. While irrigation takes care of the weather risk farmers face—pulses, sadly, are grown in areas with the least irrigation—procurement and exports take care of the price risk.
Which is why, in crops like wheat and rice where 30-40% of the crop is procured by FCI—this also sets a floor to the purchase price for private traders—and are grown in mainly irrigated areas, production has grown from a mere 66 million tonnes in 1970 to around 200 million tonnes today. In the case of oilseeds, due to the vibrant export market for soyameal, production rose from 10 million tonnes to around 28-30 million tonnes. And, in sugarcane, where mills have to buy all that farmers produce, production rose from 126 million tonnes to 350 million tonnes. In the case of pulses, however, apart from chickpea, virtually no exports are allowed which means farmers don’t get to benefit from international prices or markets. While the shortage means that domestic prices also rise dramatically, they tend to collapse during the harvest period which is what really matters for farmers and there is a lot of variation across sub-markets—which is why a serious procurement policy is critical. Even in the case of cotton when the vibrant exports market collapsed in 2014-15, the government stepped in and procured nearly a fourth of the crop.
Since procurement levels in pulses need to be raised to at least 20% as compared to under 1% right now, either FCI has to procure more or state governments have to be paid to do this—it was based on this that, within a few years, states like Madhya Pradesh and Chhattisgarh set up impressive procurement operations for cereals. This can be replicated if the Centre is to make the funds available before the harvest. That, in fact, was a central theme of the Shanta Kumar report on restructuring FCI—to spread procurement to states other than Punjab and Haryana and to crops other than wheat and rice—but the government appears to have junked the report. So much for its pro-farmer policies.