A softer approach on commodities this time even as shortages loom globally

Unlike in the past, the Centre isn't restricting movement within the economy, but has only imposed export curbs. Consequently, there is no rush to use the Essential Commodities Act

There is a difference in the way in which controls are being imposed on commodities in the country this time, in order to deal with the impending global crunch. Unlike the previous episodes, such as the ones in 2011 or 2014 or even somewhat in 2018, this time the central government is not restricting movement within the economy, but has only imposed curbs on exports. Consequently there is no rush to use the Essential Commodities Act.  

Also, the price action is far more nuanced. This week the government, for instance, removed import duty on raw materials for steel while increasing the export duty on iron ore and pig iron. EEPC India Chairman Mahesh Desai said the lower import duties would cut costs for the domestic steel industry while downstream uses of steel would benefit from the higher export barriers.

The numbers facing such price actions could change, but till mid May, the Centre has imposed some sort of trade controls on six commodities. On the seventh commodity, coal, there is no price control but an informal rationing system that prioritises supplies to power plants at the cost of supplies to cement, paper and other manufacturers. Of the six there is a ban on wheat exports through the open market, and duty on steel and iron ore exports. There is also speculation about some export bans on others, such as cotton. Domestically, controls are in play only on retail prices of petrol and diesel and on power sold at the electricity markets. 

Still, it is not a small list. This is understandable, given the huge supply chain shocks in the global commodity markets. India is not an outlier. Germany has begun rationing supplies of natural gas. Further afield in Europe, Turkey has stopped exports of butter, beef, lamb, goats, maize and vegetable oils, according to a New York Times report. In Asia, Indonesia has stopped exporting palm oil. Some or the other forms of price controls are coming down all over the world. 

Some other countries, like neighbouring Sri Lanka, to some extent Pakistan and of course, war-torn Ukraine and Russia, are not able to buy food stocks. 

In India, the balancing act on pricing is most evident in the non-deployment of the Essential Commodities Act. In 2014, for instance, control orders remained switched on for edible oils, rice, onions and potatoes under this law. Earlier in 2011, other than these commodities, paddy, pulses and sugar also made it to this list.

In this episode, the government has so far not rung in any control over the domestic movement of any of the goods. The controls, like the latest one on steel and iron ore (finance ministry has imposed up to 50 per cent duty on exports of iron ore and 15 per cent on a few steel intermediaries) has only clipped exports, not domestic movement. In fact, the emphasis is to encourage the trade in goods across the country freely after two years of intermittent shutdowns in various time periods, due to Covid lockdowns. 

To ensure domestic prices do not go off kilter, the government is closely peering into the price data collected by the department of consumer affairs. The Price Monitoring Division of this department measures daily price movements for 22 commodities, particularly across the four metros and Ranchi. So far the data (up to May 24) does not show any sharp regional variation, except to some extent, for Chennai. 

This is important as it will tell an anxious Centre if the ban on exports has had a salutary effect on the price levels. The daily report for all these commodities (see table for May 23, 2022) shows the highest prices were reserved for mostly Port Blair and the North Eastern states—possibly the impact of transport cost. In fact there were some surprises. A reflection of how these logistical challenges play out is visible in the case of sunflower oil, which recorded its highest price at Rohtas in Bihar, while the minimum price for the same commodity was in Jamshedpur in the adjacent state of Jharkhand. 

The new entrant in the list of items whose price is being controlled is that of electricity. As coal constraints led to black outs in some states in April, the Central Electricity Regulatory Commission has made an ill advised move to put a price cap of Rs 12 per unit at the energy markets. It was meant to shield the almost uniformly badly run state electricity distribution companies from having to pay a higher price for their misdeeds. But it has had the opposite effect. 

Coal prices have shot up in the international markets to over $200 per metric tonne while the heat wave in India has raised demand for electricity. In such an environment, coal-based power plants were quite likely to raise the price of electricity they generate, passing through the higher price. If the discoms cannot pay, the generating companies would have diverted their supply to the exchanges, forcing the same buyers to buy at even higher prices. This is market discipline, but the CERC move has aggravated the problem. Volumes of trade in the exchanges have declined in April. Prashant Jain, joint managing director and chief executive officer of JSW Energy told Moneycontrol the government’s decision to cap the price of power in the short-term market will discourage power producers from generating electricity. 

Table: Commodities under price action

Item	Action taken
Electricity	Cap of Rs 12 per unit on exchange traded prices
Steel	Export control
Wheat	Export control
POL	Price control
Iron ore	Export duties
Pig iron	Export duties
Coal	Allocation to sectors controlled
Sugar	Export control

Source: PIB

Table: Status of daily retail prices as on May 23, 2022 

Commodity	Price (Rs/kg)	Centre	Price (Rs/kg)	Centre
Rice	57	Vijaypur	19	Azamgarh
Wheat	47	Kasargod	17	Malda
Atta (Wheat)	59	Port Blair	22	Purulia
	59	Mayabunder	.	,
Gram Dal	130	Haldwani	55	Waghai
Tur/Arhar Dal	130	Amritsar	70	Jagdalpur
	130	Aizawl	.	.
Urad dal8	143	Ernakulam	73	Rewa
Moong dal	128	Kozhikode	80	Bodeli
Masoor dal	130	Aizawl	68	Hoshangabad
Sugar	53	Aizawl	35	Ahmedabad
Milk	80	Dimapur	32	Mangalore
Groundnut oil (packed)	247	Srinagar	150	Ujjain
Mustard oil (packed)	270	Ramanathpuram	150	Jabalpur
Vanaspati (packed)	211	Port Blair	92	Surat
Soya oil (packed)	209	Sahibganj	105	Bodeli
Sunflower oil (packed)	260	Rohtas (Sasaram)	139	Surat
Palm oil (packed)	188	Port Blair	89	Jamshedpur (East Singbhum)
	188	Warangal	.	.
Gur	120	Aizwal	34	Dharni
Tea loose	547	Gangtok	123	Aizawl
Salt pack (iodised)	29	Ludhiana	8	Dharni
	29	Bathinda	.	.
Potato	50	Port Blair	8	Samastipur
Onion	60	Sohra	9	Sagar
	60	Aizawl	.	.
Tomato	115	Port Blair	9	Purulia

Prices as on May 23, 2022; Source: Department of Consumer Affairs (Price Monitoring Division)

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