No feel for the pulse

The government has failed to provide the right incentives to farmers

INDIA’S QUEST for self-sufficiency in pulses goes back, at least, to 1990-1991, when pulses were incorporated in the technology mission on oilseeds. In 1992, and 1995-1996, oil palm and maize were added to the mission, which was re-christened the Integrated Scheme on Oilseeds, Pulses, Oil palm and Maize (ISOPOM). In 2007, ISOPOM’S pulses component was merged with the National Food Security Mission. However, despite having such schemes for decades, India has not achieved self-sufficiency in pulses and edible oils (oilseeds).

In the fiscal year (FY) 2016, imports of pulses touched an unprecedented 5.8 million metric tonnes (MMT), against the domestic production of 16.5 MMT. Pulses production peaked in FY14, touching 19.25 MMT, but receded due to droughts in FY 2015 and FY 2016. This speaks of the failure of our strategy to achieve self-sufficiency in pulses.

Pulses attract government attention when inflation crosses the “tolerance limit”, as it did last year. Even in August 2016, retail inflation of pulses was 22 per cent. But in September, as moong started arriving in markets, its wholesale price crashed, in several markets, below its minimum support price (MSP). Such volatility hits both the farmers and consumers. One way of tackling such price volatility is to create a buffer stock of about 2 MMT of pulses, by procuring or importing when prices are low. This has been recommended several times; the latest recommendation has come from Arvind Subramanian’s report on pulses. It is heartening that the Union cabinet had already approved this limit for buffer stocking of pulses.

It may be worth revisiting the recent experience in creating buffer stocks to understand the operational challenges of the move, and how best to deal with them. The government decided to procure pulses in kharif 2015, when market prices were way above their MSPS. The operation was financed through a Price Stabilisation Fund (PSF) of Rs 500 crores created by the GOI. NAFED, SFAC and FCI were nominated as the nodal agencies for procurement, which in turn used state agencies like the Civil Supplies Corporation and State Cooperative Marketing Federation. These agencies do not have the track record, infrastructure and finances, necessary for procurement. They, with the help of state agencies, procured 50,422 tonnes of kharif pulses. Almost a year later, less than 10,000 tonnes have been disposed off. Most state governments have shown no interest in distributing pulses even though most of the subsidy is borne by the Centre, and retail prices have been high during this period. Given the short shelf-life of these pulses, usually less than a year, there is fear that a considerable part of the stocks would lose its quality.

Given this experience, it is easy to fathom the challenge of procuring 2 MMT of pulses for buffer stocking. First, it would require a minimum working capital of Rs 10,000 crore — and not Rs 500 crore, as under PSF. The GOI should either set aside this amount in the budget or allow agencies like FCI to use its line of food credit for procuring pulses. NAFED will have difficulty in borrowing as its accounts have been frozen.

Second, as quality of pulses deteriorates fast, it would need better handling of procured amounts. Subramanian’s suggestion of creating a new agency that runs on public private partnership, may be worth trying, but private agencies cannot wait for years to get their reimbursements from the GOI, which happens routinely with state agencies like the FCI and NAFED. The latter still has an outstanding liability of Rs 1,083 crores on account of losses incurred in the procurement of chana, groundnut, copra and tur.

Third, if the economic cost of pulses (procurement price plus procurement incidentals, processing charges, stocking and distribution costs) to the state agencies is higher than the market prices, the buffer stocking operations of disposing pulses in the open market may end up in “losses” to the GOI; these are not taken very favourably by the Comptroller and Auditor General (CAG) of India. Unless these operations are treated as “subsidy” for price stabilisation operations, officials would be reluctant to run them for fear of CAG’S adverse comments.

Above all, before the government enters the market to procure pulses, will it eliminate export bans and stocking limits on traders, delist pulses from the APMC Act, and review the Essential Commodities Act, 1955, as recommended by Subramanian report? Such restrictions on exports and stocking of pulses, reveal a pro-consumer bias. But with zero duty on imports, the restrictions are anti-farmer and they need to go. There is also a need for an import duty of about 10 per cent on pulses to make sure that the landed costs of imported pulses are not below MSPS. Else, the purpose of raising MSPS will be nullified. Will the GOI keep its promise to farmers to incentivise production of pulses?

Gulati is Infosys Chair Professor at ICRIER and Hussain is former secretary, agriculture GOI, and currently visiting senior fellow, ICRIER