There are no free lunches in this business: Arvind Subramanian

Interview with Chief Economic Advisor

Chief Economic Advisor Arvind Subramanian’s report on incentivising pulses production through MSPs (minimum support price) lays down a broad road map to make India self-sufficient in this critical protein crop and, more importantly, reduce the price volatility associated with the crop once and for all. In an interview, Subramanian said protection of farmers’ interest should be paramount and there could be no trade-off between that and consumers’ interests. He also said the Centre would have to shell out money if it was serious about solving the pulses crisis. Edited excerpts:

Your report on pulses advocates removing all stock-holding limits, export curbs, etc. But the government has gone ahead and extended the stock-holding limits for one more year. How do you view this contradiction?

A very important thing that I learnt while preparing this report is that at every point in time, there is this an apparent conflict between the consumers’ interest and farmers’ interest. The argument made by policymakers of striking a balance between consumers’ interest and producers’ interest is a very short-term thing and there is no trade-off really between them, because if you hurt farmers this time, it will come back and bite the consumers next time.

Another important message from the report is that at times when we have to go for this trade-off to keep food prices down, we tend to use very blunt instruments like export ban, futures ban, stock limits …. I mean, can we have more graduated responses?

And, the last point that I want to make is that if you are able to procure pulses at MSP then it is okay. But if you aren’t, then we have to take steps to prevent market prices from a falling MSP. Quick review all the bans and export curbs are part of that.

Stock limits have been extended for a year days after you recommended against it. How do you view this?

Well, this a permissive provision and can be changed at any point of time.

Your report also talks about giving 17-20 per cent rise in MSP of pulses, while the maximum increase so far has been less than 10 per cent. How will you then control inflation?

We have strongly recommended in our report that going forward, the Commission for Agricultural Costs & Prices should include social costs of growing a crop into its recommendations. I was shocked that something around Rs 20 a kg is the social cost of growing paddy relative to pulses. The second part of the question on price response and inflation is that it is true that you got such a bumper output in pulses because prices were at elevated levels. The trick is to have a price where you get desired output response but no spike in retail prices. A MSP of Rs 70 a kg for rabi gram in 2017 recommended by us is exactly the same rate.

So this social cost should be applicable for other crops as well, say, maize or oilseeds?

In principle, we should do it for all crops except cereals, but what we have done in this report is calculate cost relative to pulses. In future, we should do it crop by crop.

The nominal expenditure that the Centre envisages for managing the proposed 2 million tonnes of buffer stock is a huge Rs 18,500 crore. Who pays for this?

First on procurement, if we really want to bring up pulses to the levels of cereals, etc, procurement has to be good. And, if you notice, this season, the pulses procurement machinery is being ramped up, so it will be a test case as to whether we can effectively procure pulses from farmers. But it might not be sufficient to match the full requirement. That is where our recommendations on needing a new institution come into relevance. It should have a government holding at less than 49 per cent so that it has freedom and flexibility of its own, but not at the expense of existing institutions. Also, pulses deteriorate more rapidly for which you need nimble procurement, better storage facilities and regular buying & selling, as there is no public distribution system. Whatever there are excess stocks, that needs to be released.

You talked about an agency in public-private partnership (PPP) mode. But the kind of examples we have in the Food Corporation of India (FCI) and other institutions are the ones where we have a huge backlog of funds. The same can happen here also?

We had an example of PPP in procurement in paddy through NCML, which collapsed as FCI stopped paying money. Going forward, if the government is serious about pulses, which I believe they are, I think the money will come. Also, 2 million tonnes won’t be bought in one-year, plus there are no free lunches in this business. In the medium term, the money has to come from budgetary support.