Traders, politicians benefit from high prices

Onion and pulses prices periodically soar in India and that too ahead of elections. The rise in prices often brings tears to the common man and denies much-needed protein 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 production of pulses might not have grown as rapidly, but India produces the largest amount 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 such a shortfall is not bridged, prices skyrocket and political parties take advantage of it. Sometimes the shortfall is engineered to manipulate prices. If the country manages to save just 25-30 percent of the wastage through better cold storage facilities, it can prevent the spurt in prices. Unfortunately, this does not happen as it prevents traders and political bosses from reaping the benefits of price manipulations.

In the case of pulses, the problem is more complex. India is the only country which consumes a huge quantity of pulses, since they are perhaps a 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 price is increased substantially disproportionate to the increase in input costs. Such a policy disincentivise farmers from producing pulses as a proper procurement policy for pulses does not exist like in the case of food grains, where the country holds stocks that are three times more than the buffer required to meet any contingency at around 60 million tonnes. 

One of the reasons why the BJP lost the recent Bihar assembly elections is because of the soaring prices of pulses that touched Rs 200 per kg. Rightly, the government has now thought of creating a buffer now for pulses. The agriculture ministry has decided to create a buffer of 50,000 tonnes of pulses using the market stabilisation fund. The new crop start coming into the market from January and government would create the buffer initially through imported pulses. It will start in January with the import of 10,000 tonnes. 

This makes sense as when India imports huge quantity during a 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 stabilise prices. Another problem with pulses is not many countries produce pulses apart from India. It is produced only in Myanmar and certain varieties like chickpea in Australia and Canada. Therefore, imported pulses are not available that easily.

As a permanent solution, India needs to encourage Indian farmers to produce more pulses on a mission mode shifting some of the surplus rice and wheat production to pulses through incentives like higher MSP and so on. Also, private Indian businessmen could buy a huge quantity of land in Africa, particularly East Africa which is conducive for growing pulses. The quantity produced there could be brought to India to create a 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 apparently not been sustained and expanded. 

There is also scope for increasing the yield of pulses in the country as it is usually grown only in the arid region. If it is grown in irrigated area, the yield automatically increases, but farmers prefer to grow rice and wheat as they ensure remunerative prices. The government should, therefore, come out with some incentives to farmers to shift to pulses cultivation in irrigated land as well.

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 percent 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, the shift toward protein consumption and demand pushed up by higher rural wages due to NREGA – can explain the previous spikes.

However, pulses are grown in all seasons, Rabi and Kharif. The shorter variety is grown during the intermediate season and 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 percent of the production. But pulses are grown in most parts of the country in smaller quantity.

The 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.

These statistics reveal more than what they hide. It is certainly a wake-up call for the government to act. But the question is will the government possess the political will as price manipulations benefit traders and political parties to the detriment of common man. Anyway, the Narendra Modi government has made a start by deciding to create a buffer of pulses and one only hopes it is carried forward to bring about price stability. It would augur well for the common man if onion problem too is tackled on a permanent basis.