Repeating a mistake

Govt controls will raise prices of pulses and oilseeds

The food and consumer affairs ministry has proposed that stockholding limits on pulses and edible oils be retained for another year beyond October. In addition, it wants these curbs extended to rice, too. This is misguided, and will cause more problems than it wants to resolve. Instead of controlling prices, as is intended, these restrictions on trade will instead push them upwards. This is straightforward economic logic; these measures will severely constrain supply. In the shorter run, they will hurt growers of pulses and oilseeds by keeping trade out of the mandis during the post-harvest kharif marketing season that begins from end-October. As it is, these farmers usually don’t even receive the minimum support prices for want of reliable arrangements for the procurement of these commodities. On paper, some apex cooperatives are supposed to lend price support to pulses and oilseeds, but they operate only in a few markets and buy only small quantities. Edging out private trade from the market would, therefore, worsen farmers’ price realisation.

This apart, stockholding caps will also deter importers of pulses and edible oils from sourcing enough stocks from abroad to bridge the wide gap in the domestic output and demand of these items. Should this happen, it would further tighten the market availability of pulses and edible oils. It may be recalled that stock restrictions on several essential items, including staple cereals, pulses and edible oils, imposed in 2007-08, failed to achieve the intended objectives. They did not reduce prices noticeably. Eventually, most were lifted. Refusing to learn the lessons of this experience and re-imposing stockholding curbs on paddy and rice at this stage would be imprudent. If nothing else, it would further bloat the government’s foodgrain stockpiles, which already exceed the space available for their safe upkeep. Most importantly, it would worsen the supply crunch in the foodgrain market, which is already struggling to cope with the shortage of wheat.

Of course, the fear of higher prices of pulses and oilseeds in particular seems well founded. The area on which pulses are being grown is down this year; and the output of oilseeds is set to shrink, despite normal plantings, due to deficient monsoon rainfall in the pulses- and oilseeds-growing areas of the west and the south. However, the answer to higher prices lies in augmenting supplies and not restraining them, as stockholding curbs would. The need, therefore, is to plan for the adequate and timely import of pulses and edible oils. Given that the quantities needed to be imported may exceed three million tonnes in the case of pulses and eight to nine million tonnes of edible oil, this task cannot be left entirely to public-sector agencies. Unrestrained involvement of the private sector in this task is vital. The government must therefore reconsider its retrograde proposal and create a positive policy regime to ensure the comfortable availability of essential items to the consumers and good returns to the producers. A free and competitive market will help hold prices down.