Mr Pawar's controls

Time to end export bans, stock limits, curbs on futures

Agriculture Minister Sharad Pawar let it be known during his first meeting with journalists after assuming office anew, that the curbs and controls on the export and internal marketing of key farm commodities would not be lifted soon; this has naturally dismayed both traders and farmers. The statement from Mr Pawar comes as a surprise because agricultural markets are in balance and the government has no baggage in the form of Left support to carry around. Measures like the ban on the export of wheat and rice, suspension of futures trading in several agricultural commodities and stock limits on private trade, were imposed by the previous government when double-digit inflation was causing concern, when commodity prices were surging, and when pressure from the Left parties meant that the government had to be seen to be doing something. The market circumstances today are wholly different from what existed a year ago, and there is no perceptible need for persisting with the restrictive policies introduced last year.

 

In any case, these policies have not benefited consumers because food inflation has continued to remain high (in excess of 8 per cent) even though overall inflation has come down to less than 1 per cent. This, oddly enough, is despite the fact that the official food reserves have once again got bloated, thanks chiefly to the government acquiring a virtual monopoly over grain purchases in the major food surplus states. This has meant an avoidable fiscal burden, for carrying huge inventories, thereby pushing up the food subsidy to beyond Rs 50,000 crore. The ban on the export of wheat and non-basmati rice, and the restraints imposed on the export of basmati rice by fixing an unduly high minimum export price, has helped rivals like Pakistan to expand their share of export markets.

The suspension of futures trading in several important farm commodities, which Mr Pawar is unwilling to reconsider just yet, is another case in point where a policy intervention has achieved little. The ban was imposed two years ago because of the suspicion that futures trading had led to a sharp price rise. It is of course possible that surplus liquidity can flow into commodities markets and send prices soaring when speculative purchases are made (as has happened in recent weeks with petroleum crude), but the Abhijit Sen committee went into this question and came to the conclusion that there was no linkage between the price spurt of the time and futures trading. That spot prices are not overly influenced by prices in the futures market has been revalidated by the case of wheat, where the recent resumption of futures trading has not affected prices in the spot markets.

In view of all this, policies governing the farm sector need thorough review from the point of view of improving their effectiveness and re-orienting for the future. Growth in agricultural production cannot be sustained merely through populist measures like the bank loan waiver. Farmers will grow more if they are assured of a market, which a more liberal set of policies should facilitate, by taking the place of today’s controls and curbs.