Report on Incentivising Production of Pulses

Ministry of Finance has released a report on ‘Incentivising Pulses Production through Minimum Support Price (MSP) and related policies’ submitted by the Chief Economic Advisor Arvind Subramanian.

Background

The UN General Assembly has declared the year 2016 to be the International Year of Pulses. India has been suffering from the mismatch between demand and supply in the wake of monsoons in 2014 and 2015. This has led to increase in the prices of pulses resulting in higher inflation which has constrained the purchasing power all over the country. However, in the current Kharif season there has been a sharp increase in the domestic production coupled with a global surge in the production of pulses. This has resulted in the decline of prices that has ultimately affected the farmers’ income. To address the policy issues concerning volatility in acreage, production and prices in pulses, the government has constituted a committee under the head of Chief Economic Advisor Arvind Subramanian to have a relook on the policies to incentivize the cultivation of pulses such as the Minimum Support Prices (MSP).

Already there exists a number of comprehensive studies and reports on the production of pulses like The Report of Expert Group on Pulses, 2012 and National Academy of Agricultural Sciences report on Towards Pulses Self-Sufficiency in India, 2016.

Production of pulses has seen a growth from 11 million tonnes in 2002-03 to 19.3 million tonnes in 2013-14. At the same time the imports too increased from 0.06 million tonnes (2000-01) to 5.53 million tonnes (2015-16). So, in order to meet the shortfall and ensure sufficient supply, production of pulses has to grow at 8% per year. But the current growth is only 3%.

The current report has focused primarily on few issues of present and medium term importance with an objective of offering a set of clear and actionable recommendations. It has not addressed the other issues in the pulses markets such as seeds, extension and other support services, farmer producer organizations (FPOs), supply chain development and research and development etc.

Key recommendations of the report

MSP and Procurement

• The report has suggested the establishment of a High Level Committee comprising of Ministers of Finance, Agriculture, and Consumer Affairs as well as the Principal Secretary to PM.
• Commission for Agricultural Costs and Prices should be asked to comprehensively review its MSP setting framework in order to incorporate risk and other social externalities.
• Gradual building up of 2 million tons of pulses stock with targets for individual pulses like tur ((3.5 lakh tonnes) and urad (2 lakh tonnes).
• Production subsidies have to be given to farmers to incentivize growing of pulses in the irrigated areas in the rate of about Rs. 10-15 per kg through Direct Benefit Transfer (DBT).
• MSP of Rs.40/kg for gram (rabi 2016) and Rs. 60/kg for urad and tur for Kharif (2017) has to be offered. MSP for other pulses has to be increased by the same percent. Similarly, MSP has to be increased to Rs. 70/kg in 2018 when short term Kharif tur is ready for commercialization.

Encourage states to delist pulses from their APMCs

The report has called for a complete review of Essential Commodities Act (ECA), 1955 and futures trading of agricultural commodities. But at the same time it has also advocated to find a more effective and less costly instruments to achieve the same objectives. The Essential Commodities Act controls the supply and distribution of agricultural produces.

The report has called for reviewing the following factors in the (ECA) act:

• The ECA act discourages agricultural marketing firms by asking the producers to sell their produce only in state-owned mandis. This has severely affected the competitiveness and efficiency of the sector.
• Due to the imposition of stock limits, the private players are not able to purchase stocks in order to stabilize the prices of commodities.

Institutions for procurement-stocking-disposal

For the purpose of procuring, stocking and disposing pulses, a new institution is recommended to be created in a Public Private Partnership (PPP) mode.

Announce clear rules for disposal of stocks

• In order to increase the procurement of pulses, the report recommends allocating an additional Rs 10,000 crore to procurement agencies such as Food Corporation of India, and state co-operatives and other similar agencies.
• Weekly report on procurement operations has to be sent to the central government. Monitoring and physical verification of procurement has to be done through visual images.

Minimizing Adverse Impacts

Encourage development of GM technologies and granting of faster approval to indigenously developed new varieties of pulses.

Other Price Management Policies

• Export ban on pulses and stock limits has to be eliminated in order to prevent a decline in prices of pulses.
• The use of trade policy to adjust and control domestic prices of pulses which results in the volatility of prices has to be avoided.

Discussion and Way forward

Rapid and sustainable enhancement of domestic production of pulses is the only reliable way to minimize the price volatility in pulses market and safeguard the interests of farmers and consumers. Government’s procurement has to effectively go beyond rice and wheat.  Farmers’ has to be given better incentives in the form of higher MSPs. Additionally; following an effective procurement policy will increase the domestic availability and stabilize the price of the pulses. Government should procure pulses on war footing whenever its prices decline.