Pulses panel suggests new MSP formula, high-gear procurement and end of export ban

Enhancing domestic productivity and production of pulses rapidly and sustainably is the only reliable way of minimising volatility in pulses market and safeguarding the interests of farmers and consumers, a committee headed by the government's chief economic advisor said in its report submitted on Friday.

There need be no serious conflict in the medium run between the interests of these two groups. Short-term actions that apparently benefit consumers end up hurting them because production and availability of pulses decline over time. In turn, better incentives for farmers in the form of higher MSPs (to reflect the true social value of growing pulses compared to other crops) combined with effective procurement offers the best way of increasing domestic availability and preventing price spikes, the committee noted.

The current crisis offers a rare opportunity to show that government intervention, especially procurement, can be effective beyond rice and wheat. It is also a rare opportunity for pulses to get the policy attention it deserves. To this end, especially as prices decline, government procurement must be on war footing, the report pointed out.

The committee appointed by the government to look into ways of curbing the price volatility of pulses has suggested elimination of export ban on pulses and stock limits and increased procurement by authorised agencies.

For prices to stabilise above the minimum support prices of pulses, the committee suggested removal of stock limits on wholesalers and increasing the limits on procurement by the government.

''The worst case scenario for farmers is weak procurement and stock limits which force farmers to sell most of their output at market prices that are well below MSP,'' the committee pointed out.

The committee suggested limited use of trade policy to control domestic prices, which induces price volatility as also delisting of pulses by state governments from their APMCs.

In order to reduce the cost of achieving targets, the committee suggested a review of the Essential Commodities Act, 1955 and the policy on futures trading of agricultural commodities with a view to preserving objectives of procurement as well.

The committee suggested creation of a new institution as a public private partnership (PPP) to compete with and complement existing institutions to procure, stock and dispose pulses. It also proposed starting of preparation to start immediately with the aim of implementation by Rabi 2016.

In order to minimise adverse impact, the committee has suggested encouraging development of GM technologies and grant expeditious approval to indigenously developed new varieties of pulses.

Recommendations on MSP and procurement:

  • Government procurement machinery should be on high gear to ensure the procurement of kharif pulses at this season'sannounced MSP;
  • To ensure effective procurement, a High Level Committee comprising ministers of finance, agriculture, and consumer affairs and principal secretary to PM should be constituted;
  • There should be weekly reporting by procurement agencies on the ground with physical verification of procurement;
  • Build up 2 million tonnes of pulses stock with targets for individual pulses, especially tur (3.5 lakh tonnes) and urad (2 lakh tonnes). These should be built up gradually but opportunistically, buying when prices are low as in the current year;
  • Announce MSP of Rs40/kg for gram for rabi 2016 and MSP of Rs60/kg for both urad and tur for kharif 2017 (adjusted for inflation between 2016-17). Minimum support prices for other pulses should be increased by the same percentage as calculated in this report for tur, urad, and gram;
  • MSP to be increased to Rs70/kg in 2018 when short duration kharif tur is ready for commercialisation. Efforts to be made to give production subsidies to farmers for growing pulses in irrigated areas of about Rs10-15 per kg to be given via DBT;
  • Instruct CACP to comprehensively review its MSP-setting framework to incorporate risk and social externalities along the lines done in this report;

India has been in the grip of a pulses crisis, or rather crises, in the last few years. The proximate problem is two years (2014-15 and 2015-16) of poor pulses production in the wake of weak monsoons, resulting in excess demand and rising imports.

Total supply declined relative to peak production while net imports rose from 0.06 million tonnes in 2000-01 to 5.53 million tonnes in 2015-16.

As a result, consumer price inflation of pulses averaged 25.0 per cent in 2015 and 33.4 per cent in the first seven months of 2016, peaking at 46.1 per cent in November 2015.

But, in recent months, scarcity has ceded to surplus, near-famine to near-feast. High prices in the pre-kharif sowing period and a good monsoon have led to a sharp increase in acreage planted. In anticipation of this positive supply shock (in India and overseas where too supply has surged), prices have started plummeting. The implications for farmers and their livelihoods are dire.

India is the world's largest producer of key pulses, especially tur, accounting for 67.7 per cent of the global total. More to the point, India's imports account for a significant share of the rest of the world's production, about 30 per cent in the case of tur. Consequently, if demand continues to race ahead of domestic supply, it will become increasingly difficult – and expensive – to make up the shortfall from abroad, the committee pointed out.