Government should keep to policy end of the business

Tejinder Narang | Updated on January 24, 2018


Interventions distort markets and pricing

Though the Government should restrict its role to policy formulation with periodic assessment of such policies, Indian authorities have dug deep in venturing with business of agri trade.

This is the legacy of outdated baggage of socialist’s regime (of 1960 to 1990) which should have been shed by now but Ministries still call the shots to target the business on a day-to-day basis.

The trade, which manages the market, tries to outsmart the system to ensure that its profits are sustained or incur minimal losses by inflating prices in the bazaar or paying farmers less. It also attempts to circumvent rules or duties by means that may not be legal. If traders fail to succeed, they default on the banks that fund them.

The public is be-fooled by the so called sanguine actions of the Government while nothing changes on the ground. The paradigm “the government has no business to be in business” is denied as a rule than an exception. Nation suffers economically at the cost of political patronage.


This week (July 20), the Agriculture Minister announced higher sowing of pulses (134 per cent higher), oilseeds (up 234 per cent) than last year with probability of much higher output in FY16.

This pronouncement sends bearish signal in the trade especially when the crop is nowhere to be sighted while the sentiment of excess is created. The uncertainty of further progression of rains, pollination, maturity and harvesting still remains. It is for the trade to assess these activities than for the government to announce advance judgement on productivity.

Discrete intention of the agriculture ministry may be to depress the recent inflationary pressures on pulses and oilseed which will be harvested in October/November 2015. Trade will ignore such statements.

The current prices of pulses and oilseeds may therefore remain unchanged but future prices, commencing October for the farmers would take a beating. Thus farmers’ earnings will be badly affected.

Wheat import

In June, the Food Minister announced that the government intends to impose 10 per cent import duty on good quality wheat contracted at cheaper prices from Australia by the millers/trade in South India for customised milling of maida/suji/rava/bakery, etc.

Lower quality of MP crop necessitated this limited import of 0.5-1 million tonnes. So far, the Ministry’s proposal remains non-notified, but should it happen, market price of wheat will surely flare up by 10-15 per cent or ₹2/kg approximate.

It will also create counter party disputes/litigation between Indian buyers and foreign sellers. To compensate for the penalties paid for the defaulted contracts by Indian millers, the losses will be passed on to the consumers. It also tarnishes India’s image as a responsible trader in the global village. WTO’s adverse observations cannot also be ruled out.

Sugarcane pricing

Pricing of sugarcane at SAP/FRP by the State/Centre, unrelated to the market forces of the end product – sugar and by-products – has created a labyrinth of mess with piling up surplus.

Export subsidy is annually promised but not notified timely – thus untimed subsidy remains an authorisation on paper. Market volatility caused by Brazil and Thai sugar supplies can never be comprehended by officials and politicians. Annual financial reports of the millers reflect huge losses. Loans from the banks are either defaulted or stressed or both.

Arrears to farmers of ₹21,000 crore remain unpaid. None is accountable to the loss of resources of water, power, fuel, transportation, etc. How the industry is surviving and banks/government are reconciling with this oddity should be subject of a paper in Harvard Business School.

PSUs imports

Another example: Agriculture Ministry made official assertion to import pulses through PSUs that pushed up international prices by 50-100 per cent on year to year basis with speculative trend.

There are already heavy commitments of the private traders to import pulses which would depress prices in coming months, forcing PSUs to sell at a huge loss beyond the level of anticipated subsidy. Officialdom has no clue of the trading strategies of other market players.

Either the Government should not be in the business and if it wants, then it must learn the “trading” of agri-commodities by giving specialised training to the bureaucracy in assessing supply demand globally and domestically, current trading practices, working of commodity exchanges, shipping and banking practices.

The Government – even though may provide the data – yet should not be in a hurry in making wild statements.

The writer is a commodity analyst. Views are personal.

Published on July 22, 2015

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