The Hindu Business Line : Pulses import by PSUs needs regulation

Mumbai, Aug 4From July 25, the country has had excellent precipitation, especially covering moisture-stressed areas of Central, Southern and Western region, bringing much-needed relief to planted crops and in turn, growers.

Yet, there is no warrant for complacency as the picture is far from rosy.

Pulses, especially, are at considerable risk of a sharp upswing in prices in the wake of non-too-encouraging crop prospects.

Major pulses (arhar/tur, urad, moong) have lost considerable acreage this season. It is unlikely that any fresh planting of pulses will take place now; area expansion, if any, will be marginal.

Low yields

While the normal acreage for kharif pulses is over 100 lakh hectares, 2008 may see planted acreage of maximum 70-lakh hectares under various pulses. This shrinkage is rather drastic.

Additionally, yields of pulses are notoriously low at about 500-600 kg a hectare. Therefore, it would be imprudent to expect kharif 2008 pulses output to be anywhere near the target of 50-lakh tonnes.

Indeed, pulses output could fall considerably short and may be limited to 40-42 lakh tonnes at best. According to the Ministry of Agriculture, in 2007 kharif pulses production was a record 64.5 lakh tonnes.

In other words, the setback means a loss of 12-14 lakh tonnes in the ensuing harvest season. Without doubt, the price situation for pulses is turning potentially explosive.

The festival demand that is set to begin from mid-August would expand consumption requirement manifold. Will consumers be able to buy pulses at affordable rates? Can the Government do anything?

Gathering stress

In some sense, the situation is beyond the control of the Union Government. There is little that New Delhi can do to quickly augment supplies or control prices.

Most of the administrative measures like storage control have failed to deliver results.

Yet, a step or two well within the Centre’s purview can mitigate the gathering stress; and it relates to the role of public sector undertakings that import and sell pulses. Government agencies such as STC, MMTC, PEC and NAFED have been authorised to import and market pulses with the objective of augmenting supplies and reining in prices.

But, far from helping meet these objectives, their business activities actually fan inflationary pressures.

There is strong case for policy makers to closely monitor the import programme, inventory levels and marketing of pulses by these parastatals. How do these agencies operate?

First of all, they make grandiose announcements about their intentions to buy from the international market. This itself alerts overseas suppliers and pushes prices up. In a market where export/import trade is limited to about four million tonnes and India itself accounts for nearly 60 per cent of business, purchases have to be made quietly and steadily so as not to unduly disturb market sentiment.

The Government parastatals function like any other private trader, looking for abnormal profits.

Instead of steadily importing and regularly selling in the open market, the agencies actually build inventory, starve the market and consumers of this essential food product, and encourage a price rise.

Enforcing guidelines

They have reportedly made enormous profits in their pulses trade. Indeed, strict regulation is necessary for State agencies engaged in pulses import and marketing. The Government must issue and enforce guidelines covering import programme, inventory levels (with upper limit) and timeline for marketing.

This measure will exert a salutary effect on availability and prices. Another aspect that needs a thorough review is the manner of marketing. At present, sale of pulses in the open market effectively precludes small traders.

It is unclear whether it is by design or by accident, but some agencies fix the purchase quantity for traders at a high level of say 200 tonnes.

Buying 200 tonnes would require about Rs 70 lakh, an amount beyond the reach of small traders. By default, imported pulses are mopped up by large traders with high levels of liquidity.

This concentration often results in constricted availability in the open market and consequent effect on prices.

There is no reason why State agencies should not sell imported pulses in small lots of say even 10 tonnes (one lorry load) to a large number of small traders.

This will prevent concentration, encourage wider dispersal of the cargo and rein in prices.

The National Spot Exchange, which is expected to provide an effective platform for physical trade, can also be utilised by State agencies to make intervention in the market.

In the international market, pulses are unlikely to turn cheaper. Output in the US is slated to decline, while Canada may witness a small increase.

Monitoring closely

Overall, global prices are expected to stay at heightened levels, given the general buoyancy in commodity prices and high energy costs. India may have to import an additional quantity of at least 10 lakh tonnes of various pulses during 2008-09 (over and above the normal 25 lakh tonnes) if it hopes to keep open market prices under check.

This assumes that the rabi crop (planting in November and harvest in February/March) will be normal and would not face any threat. With elections round the corner, the Government will have to strain every nerve and take every possible step to make essential food products affordable for the masses.

New Delhi must begin to closely monitor the agricultural situation in general, and pulses in particular, in order to be able to act in time.