Little action despite 11 months of 20%+ inflation
Given how consumer inflation in pulses has been over 10% for 15 months now, and over 20% for 11 months, it is unfortunate that the government’s response continues to be the cliched action-against-hoarders, importing-more-pulses and, most recently, banning futures in chana. Apart from looking like yet another re-run of a bad Bollywood movie, none are going to work since they don’t deal with the root of the problem of poor supply. More than two years ago, the Commission for Agriculture Costs and Prices recommended a 2 million tonne pulses buffer, but after a mere 50,000 tonnes last year, the government is looking at 1.5 lakh tones—given demand of 25-26 million tonnes, this is unlikely to make much of a difference to runaway prices. This target has now been raised to 8 lakh tonnes, but if the procurement is going to take place in a supply-constrained situation—as now—this will only raise prices further.
Though local production has been 5-6 million tonnes less than demand for several years, there has been little attempt by successive governments to either increase local supplies or get into long-term contracts with producer countries like Myanmar, Tanzania, Australia or Canada. Given productivity levels are higher in irrigated areas, had the government raised the minimum support price (MSP) for various pulses and combined this with higher procurement—that is the only way to ensure farmers get a higher price since these collapse around harvest time—production would most certainly have gone up significantly. Over decades, however, governments have chosen to focus on wheat, rice and sugarcane where, in one way or another, there is an assured market for surplus production—in the case of cotton, since exports were allowed and there is a vibrant global market, this provided the incentive for farmers. If the government failed to ensure there was enough of a price incentive, the nationalised agriculture R&D system failed miserably in terms of providing higher-yielding varieties though there has been a ‘technology mission’ for pulses since 1991.
When local production is low and there isn’t much of a global market either of the type there is for commodities like wheat, the only way to ensure foreign supplies is through long-term contracts—after all, if the price is right, a Myanmar or a Tanzania will grow more tur dal. But instead of using markets—both global and local—sensibly, the government has gone and banned even futures in chana on the mistaken belief that even well-regulated markets cause prices to rise—if prices are spiraling in the futures market, it is because there is a supply crisis and the rains have been delayed. Were options allowed, even in a situation where there is little procurement from FCI-type bodies, farmers can look at an assured price and then take a call on growing more pulses—indeed, the Shanta Kumar committee had recommended lower buffer stocks for wheat and rice with options as a way to guarantee stocks while reducing government costs. Since options are expensive, as in the case of crop insurance, the government should be picking up a large share of the farmers’ costs of buying them—this still works out cheaper than FCI-type procurement. In other words, apart from a physical MSP-cum-procurement solution, there is a market solution that works all over the world, but the government has done little on the first and rejected the second in keeping with its poor faith in market-based solutions.