Commodities

Comprehensive review of pulses import duty needed

G. CHANDRASHEKHAR | Updated on August 27, 2020 Published on August 27, 2020

In June, the Finance Ministry singled-out lentils (masoor) for a reduction in customs duty from 30 per cent to 10 per cent ad valorem after the RBI Governor flagged food inflation concerns in May.

The pulses trade deserves absolute transparency in government decision making. Otherwise, speculative forces will continue to win

As we race towards August 31, there is heightened suspense among pulse market participants both in India and abroad. Pulses import into the country is restricted through a quantitative ceiling for specified pulses or with customs duty for certain others.

In June, the Finance Ministry singled-out lentils (masoor) for a reduction in customs duty from 30 percent to 10 percent ad valorem after the RBI Governor flagged food inflation concerns in May. Indeed, he went to the extent of recommending that customs duty on pulses should be reviewed because of a spurt in retail rates. April/May was the peak period of national lockdown with disruptions to the supply chain.

Taking a cue from the RBI statement, the Finance Ministry reduced the rate of import duty on lentils; but restricted the duty concession till August 31. To be fair, in May/June lentil was trading at ₹5,400 a quintal, about 10 percent higher than the minimum support price of ₹4,800.

Other major pulses allowed for import are chickpea (chana) with a customs duty of 60 percent while pigeon pea (tur/arhar), black matpe (urad) and moong are under a quantitative ceiling and subject to government permit.

Even recently, the RBI expressed concern that inflation was rising above its comfort level. Therefore, this writer believes, a comprehensive review of customs duty and quantitative restrictions on various pulses is warranted. Chana prices that were languishing at about ₹4,000 a quintal until three months ago have begun to move higher towards ₹4,600, with a potential to move closer to ₹5,000 in the next 2-3 months.

Distribution of one kilogramme chana free-of-cost every month to about 180 million vulnerable families is now leading to reduction in inventory burden. The scheme that was originally for three months – April to June – has now been extended till November. This welfare scheme will result in distribution of over 1.5 million tonnes of chana.

Upcoming festival season is also going to generate consumption demand, although somewhat muted this year because of the pandemic. Even as pulses acreage in the ongoing kharif season has reached a new high of 13.3 million hectares, report of damage to the standing pulse crop in some regions is doing the rounds. The extent of damage needs verification.

Put together, all these developments point to the potential for pulse prices to rise from the current levels in the coming months. In the event, RBI’s inflation targeting may go for a toss. It is for this reason that the government must conduct a comprehensive review of the pulses market fundamentals and have a price outlook.

Reports from North America suggest 2-3 large cargo vessels are getting loaded with lentil destined for India. The cargo will not arrive before September 1 which means, on current reckoning, the current duty concession will not be available. The situation is fraught with possibilities.

Why is someone taking this big risk in terms of paying higher duty or is it that the importers are sure duty concession will be extended? This is an enigma wrapped in mystery. The pulses trade deserves absolute transparency in government decision making. Otherwise, speculative forces will continue to win.

Customs duty of 60 percent was imposed on chickpea import with effect from March 1, 2018 when the exchange rate was ₹65 to a dollar. Today the rate is ₹75. The rupee has depreciated 15 percent which acts as additional duty. So, there is justification to reduce customs duty on chickpea by 15 percentage points to say 45 percent. It can be brought even lower in order to contain rising prices.

Without doubt, the interests of domestic pulse growers have to be protected; but such protection need not necessarily conflict with India staying in the global value chain. Adequate efforts to boost domestic consumption and export are equally necessary.

(The writer is a policy commentator and agribusiness specialist. Views are personal)

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Published on August 27, 2020
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