Inconsistent decisions

Stock-holding limits on pulses will affect govt's reform credentials

After allowing free imports of some varieties of pulses, the government last week imposed stock-holding limits on pulses for millers, wholesalers, retailers, and importers till October 31. The limits have been fixed at 200 tonnes for wholesale traders and importers, and five tonnes for retailers. The stock limit for processors/dal millers has been set at the last three months’ production or 25 per cent of annual installed capacity, whichever is higher. The ill-advised decision, which came after the prices of pulses increased sharply in April and May, surprised traders in several mandis across the country, and some went on a flash strike as they will have to sell the stock above the prescribed limit, which could result in losses. Traders and other stakeholders are also not happy with the government’s decision to lower import duty on edible oil. This shows how decision-making in the government is often focused on short-term outcomes. For instance, the move to impose stock-holding has come a bit late in the day because prices have anyway started to come down. Further, it goes against the Essential Commodities (Amendment) Act — one of the three farm reform laws passed last year, which have been opposed by some farm unions. Arguably, had the Supreme Court not stayed the farm laws, the government would not have been able to impose stock-holding limits.

 

The Centre has justified the limits on the grounds that prices are still higher than last year. A worrying reversal in the government’s stance, as reflected by its statements, is worth highlighting here. For example, last week it noted: “In a consistent effort to crackdown on prices of essential commodities like pulses, the government has issued a landmark order where it has imposed stock limits on pulses applicable to wholesalers, retailers, millers and importers.” This is in sharp contrast to what it had said in September 2020 after the passage of the Bill: “... the freedom to produce, hold, move, distribute and supply will lead to harnessing of economies of scale and attract private sector/foreign direct investment into agriculture sector. It will help drive up investment in cold storages and modernisation of food supply chains.”

 

The government’s decision has not only increased uncertainty in the sector but has also raised questions about its commitment to farm reforms. Businesses will be reluctant to build storage and supply chains if the government is seen to be so inconsistent in its approach. The problem of sharp price volatility cannot be addressed sustainably without large investment. The government, in fact, did well over the last few years to encourage the production of pulses, which resulted in a significant increase in output. But encouraging imports and policy-induced disruption in internal trade could affect output. The comparatively low production of some commodities such as pulses and edible oil also points to fundamental inconsistencies in India’s farm policy, which continues to promote excess production of wheat and rice. This needs to change and the production mix in the agriculture sector should be allowed to shift in line with demand. However, the unexpected reversal of a critical reform measure suggests that necessary changes in the farm sector will not happen in a hurry.