Thursday, November 26, 2015

Why do prices rise periodically

                                                  K R Sudhaman 

Onion and pulses prices soar periodically in India and that too ahead of elections bringing tears to common man and deny much needed protein for growth to the poor. This happens despite the fact that the production has increased substantially in the country. Onion production has doubled in the last 7-8 years to 190 lakh tonnes. The pulses production might not grown that rapidly but India is the largest production of pulses at 19.5 million tonnes. The country is also the largest importer of pulses at 3.5 million tonnes.

In onion the wastage is around 30-40 lakh tonnes every year. The shortfall during years of crop failure or destruction of standing onion crops due to floods or unseasonal rails is usually not more than 10 lakh tonnes. When this shortfall is not bridged prices skyrocket and political parties take advantage of it. Sometimes shortfall is engineered to manipulate prices. If only the country manages save just 25-30 per cent of the wastage through better cold storage facility, the supply can be regulated preventing any spurt in prices. Unfortunately this does not happen in the country as it prevents traders and political bosses to reap benefit from price manipulations.

In the case of pulses the problem is more complex. India is the only country which consumes huge quantity of pulses as it is perhaps the major source of cheap protein, particularly for vegetarians. Here the problem is there is no incentive for farmers to increase production of pulses unlike in rice and wheat where minimum support prices is increased substantially disproportionate to the increase in input costs. This disincentivise farmers from producing pulses as there is also no proper procurement policy for pulses like in the case of food grains, where the country has stocks, which is three times more the buffer required to meet any contingency at around 60 million tonnes. One of the reasons the BJP lost the recent Bihar assembly elections because of the soaring prices of pulses, which touched Rs 200 a kilo. Rightly government has thought of creating a buffer now for pulses. The agriculture ministry has now decided to create a buffer of 50,000 tonnes of pulses using the market stablisation fund. The new pulses crops start coming into the market from January and government would start creation through imported pulses from that month. Initially it will import 10,000 tonnes. This makes sense as when India imports huge quantity during shortage global prices of pulses soar as it happened recently. The prices of imported pulses, which was around $700 per tonne in August rose to $1900 a tonne in October when India imported huge quantity to meet the shortfall to stablise prices. Another problem with pulses not many countries produce pulses apart from India. It is produced only in Myanmar and certain varieties like chik-pea in Australia and Canada. So imported pulses is not available all that easily.

As a permanent solution India needed to encourage Indian farmers to produce more pulses on a mission mode shifting some of the surplus rice and wheat production to pulse through incentives like higher MSP and so on. Also private Indian businessmen could buy huge quantity of land in Africa, particularly East Africa which is conducive for growing pulses. The quantity produced produced there could brought to India to create much needed buffer bringing about price stability. President Pranab Mukherjee, gave some incentives for increasing pulses production in Eastern India when he was Finance Minister. That did help in marginally increasing pulses production in subsequent years but unfortunately that programme has appraently not been sustained and expanded. There is also scope for increasing yield of pulses in the country as it is usually grown only in arid region. If it is grown irrigated area, the yield automatically increases, but farmers prefers to grow rice and wheat as it ensure assured and remunerative prices. Government should therefore come out with some incentives to farmers to shift to pulses cultivation in some of their irrigated land in the country.

Rating agency Crisil has said in a recent report that there is a clear pattern of a spike in pulses inflation every third year, though this year the peak is higher than the last two peaks, with wholesale price index (WPI)-based inflation already crossing 34 per cent average so far.

It said this year’s spike can be explained by supply side shocks, mainly from deficient monsoon and higher global prices, while various other factors – such as drought and delayed rains, high growth, shift toward protein consumption and demand pushed up by higher rural wages due to NREGA – can explain the previous spikes.
Though pulses is grown in all seasons, rabi and kharif. Its shorter variety is grown during the intermediate season, thereby there is a three crop every year. But in India it is mostly a rabi crop and four states, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh account for 70 per cent of the production. But pulses is grown in most parts of the country in smaller quantity.

Crisil report noted that while food prices were the biggest contributor to the decline in the consumer price inflation (CPI), pulses inflation had seen the sharpest spike in a decade. The CPI and WPI inflation for pulses was 42.2 per cent and 53 per cent, respectively, in October.

This statistics reveals more than what they hide. It is certainly a wake up call for the government to act to deal with this problem, which is not insurmountable. But the question is will the government have the political will as price manipulations benefits traders and political parties to the deteriment of common man. Anyway Narentdra Modi government has made a beginning by deciding to create a buffer of pulses and one only hope it is carried forward to bring about price stability. It would augur well for common man, if onion is tackled on a permanent basis to provide relief to common man.

 (K. R Sudhaman, who has 40 years of experience in journalism in currently Editor, and has been Editor in Press Trust of India, TickerNews and Financial Chronicle)

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