CEA-led panel suggests ways to stabilise pulses in long run

After grappling with volatility in prices of pulses for over a few years now, a government-constituted panel led by chief economic advisor (CEA) Arvind Subramanian on Friday released its report which made a host of suggestions for structural and market changes to boost the supply of pulses and check wild swings in their market rates.

The panel's major recommendations include premium and incentive-based minimum support price (MSP), procurement of the scarce commodity by government on a "war-footing" to create a buffer stock of two million tonnes, delisting of pulses from Agriculture Produce Marketing Committee (APMC), promotion of genetically modified (GM) technologies and others.

The report titled 'Incentivising Pulses Production Through Minimum Support Price (MSP) and Related Policies', calls on the government to immediately announce higher MSP of gram (chana) to Rs 4,000 a quintal for rabi 2016 and Rs 6,000 a quintal for urad and tur for kharif season 2017.

The panel further advises the government to offer a subsidy of Rs10-15 per kilogram on the production of pulses, which would be done through direct benefit transfer (DBT). It also feels that removal of ban on exports and stock limits on the commodity would go a long way in improving its production.

It recommends an MSP of Rs 60 per kg for tur and urad and Rs 40 per kg for gram. The market retail prices (MRP) of pulses, particularly tur, had soared to around Rs 200 per kg early this year due to a sharp drop in the supply of the commodity in the market caused by two successive years of a weak monsoon. A lot of the demand for pulses in the domestic market during this period was met through imports.

Scorching prices of pulses and vegetables have kept the food inflation index high in the consumer price index (CPI), which had shot above the comfort level (5%) at over 6% in July this year.

However, in the recent past, its prices have eased in anticipation of good kharif crop due to better monsoons this year. Correspondingly, global production of pulses has also improved in the current year.

The CEA said it was to address this kind of volatility in the agricultural sector that it has come out with the report. He expects the demand-supply mismatch to rise in coming years.

According to him, currently, the rate of supply for pulses was 3% per year. This, he said, should be increased to 8% to avoid demand-supply imbalance.

"We need to boost domestic production and productivity in pulses as a way of addressing all the challenges (shortage and soaring prices) we have seen and as a way of boosting farmer income over time," said the finance ministry bureaucrat.

Pulses are mostly produced in the western parts of India and largely consumed in southern India. He said prices of pulses or any other crop should be based on returns and incentives of location-specific competing crops.
"We need to give price premium to overcome the greater risk associated with the cultivation of pulses," said Subramanian.

D K Srivastava, chief economic advisor, EY India said suggestions given by the panel were "welcome" in the light of the pulse-related inflation, which has been high for the last 3-4 years.

"So, there is a structural issue and this issue needs to be dealt with in terms of improving domestic supply, in that sense giving incentives to the farmers and making it relate to competing crop is a very useful suggestion," he said.

Srivastava said the committee has addressed the issue from two sides; one through suggesting changes for creating better market conditions and second by giving incentives to farmers for pulses cultivation which is highly risk-prone.

"The market related changes are necessary so that the farmers and traders can adjusts quickly to market conditions. The idea of incentives to farmers for pulses, which suffers from high risk, in terms of difference in MSP that is supplemented by some kind of risk insurance is a welcome one and should prove to be effective," said the EY economist.

He does not expect the subsidy on pulses to be a major burden on the government exchequer. In fact, he feels it may be favourable for the government finances with reduced imports.

"The subsidy is a small amount and the volume involved is also small, so it may not be a very significant burden on the government. It may turn out to be better if the supply situation improved and the government does not have to resort to emergency imports. When they (government) import at sudden notice they do not have any control on import prices but if they can plan it better, they can get a better price," he said.

According to him the two-million-tonne buffer stock would help the government to reduce both chronic and short-term shortages in pulses.

"It's a tough target (two million tonnes) but in terms of strategy for improving both domestic supply and also augmenting buffer through imports, it should be manageable," said Srivastava.