The Hindu Business Line : Return of controls

The sense of desperation and helplessness in the Centre in reining-in runaway price rise in essential commodities such as wheat and pulses is palpable. Measures such as further opening up imports and reducing or eliminating tariffs to augment physical supplies have been resorted to. But the impact on open market prices has been limited, at best. In the futures market too restrictions relating to open position and so on have been imposed. But what does one do if all these steps fail to yield desired result? Get regressive, and go back to the good old days of imposing controls and restrictions on storage, movement, credit access and so on.

The Centre's decision to bring back the old-fashioned yet time-tested negative prescription of a cap on wheat and pulses inventory is nothing but a candid admission that the market is running out of government control. In a deft move that is perhaps tantamount to abdication of direct responsibility, the Centre has restored powers to the States to clamp restrictions under the Essential Commodities Act, 1955, in the process reviving the infamous Inspector Raj that many thought had come to an end. Imposing a stock ceiling presupposes that traders have built large inventories and that now they would de-hoard. Experience should tell us that things do not work that way. First, the basis on which the Centre has concluded large-scale hoarding is unclear. Second, to what extent the latest step will help contain the price rise remains to be seen; traders are not going to have an easy time though.

In times of shortages, speculators enjoy a field day, and profit at the cost of consumers. Admittedly, supplies of wheat and pulses are rather tight. Beyond physical restrictions, it is necessary to ensure that too much money — especially speculative funds — does not chase essential food products that are already in short supply. Also, policymakers must remember that beyond current demand-supply fundamentals, commodity markets move on the basis of anticipated changes in the fundamentals. In other words, the market anticipates that shortages are unlikely to disappear anytime soon. Though the all-India area weighted rainfall is deficient by a mere one per cent as of August 23, important grain-producing regions of Punjab, Haryana, Western Uttar Pradesh and Bihar are facing moisture deficiency of varying degrees. If this does not improve in the next couple of weeks rabi plantings can be impacted.

Beyond all these short-term concerns and precipitate actions, there is the larger question of failure of agriculture-related policies. Someone must assume responsibility for the stagnant wheat output of last six years and a rather poor show this year. Dependence on pulses import has continued for well over 20 years. Who is responsible for the endemic shortage that is becoming more chronic by the season? There is suspicion that these inconvenient questions are being shoved under the carpet even as everyone in New Delhi is busy fire-fighting.

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Cap on wheat, pulses stock

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