by Vivek Kaul
Source: The Price Policy for Kharif Crops: The Marketing Season for 2016-17, CACP.
Figure 12.4(c): Percentage distribution of the state-wise procurement of rice by the government in 2014-2015.
Source: The Price Policy for Kharif Crops: The Marketing Season for 2016-17, CACP.
As the document titled The Price Policy for Kharif Crops: The Marketing Season for 2016-17 points out:
A perpetual skewedness in the procurement in different states raises the issue of equity, which needs to be addressed urgently to achieve the objective of the price policy (MSPs). For example, there was almost negligible procurement of rice in Assam during [the] trienniumxix ending [in] 2014-15, even though it contributed 4.7 per cent to the total rice production. As regards West Bengal, the procurement share is only 5.3 per cent, though [the] marketed surplus share is 12 per cent. There is low procurement in Bihar, though the marketed surplus share is 6 per cent. In comparison, [from] Punjab [was] procured 24.9 percent of rice, against its marketed surplus share of 13 percent during the corresponding period.
To cut a long story short, farmers in the eastern part of the country are currently being short-changed in the way the procurement policy of the government is being run. In fact, farmers in Assam, Bihar, eastern Uttar Pradesh and West Bengal have small holdings, and they also end up selling their produce at distress prices which are much below the MSP.747 All this clearly tells us that the MSP policy of the government isn’t working well. There are way too many problems with it, and we are not yet done with analysing them all as yet.
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One significant area of impact of the MSP system, as it has evolved over the years, is that India is producing much more rice and wheat than it requires. At the same time, farmers do not have enough incentive to grow other crops, like pulses. As the Shanta Kumar Committee Report points out: “Currently, MSPs are announced for 23 commodities, but… price support [effectively] operates primarily in wheat and rice and that too in selected states. This creates highly skewed incentive structures in favour of wheat and rice. While the country is short of pulses and oilseeds (edible oils), their prices often go below the MSP without any effective price support.”
Take a look at the Figure 12.5(a), which shows the total production of pulses in the country over the past 30 years.
Figure 12.5(a): The total production of pulses (in million tonnes) over the past three decades.
Source: Centre for Monitoring Indian Economy, 2015-2016: Third Advanced Estimates of Agricultural Production.
As is obvious, the total production of pulses has more or less remained flat over the past thirty years. In 1986-1987, India produced 16.3 million tonnes of pulses. In 2015-2016, the total production was at 17.1 million tonnes, as per the third advanced estimate published by the Ministry of Agriculture. Of course, during the three decades the production of pulses did vary on a yearly basis.
Interestingly, the production of pulses crossed 20 million tonnes just once, and that was as far back as 1990-1991, more than a quarter of a century ago. Now take a look at what has happened to the production of rice and wheat during the same period (Figure 12.5(b)).
Figure 12.5(b): The total production of rice and wheat (in million tonnes) over the past three decades.
Source: Centre for Monitoring Indian Economy, 2015-2016: Third Advanced Estimates of Agricultural Production.
Unlike the curve in the pulses chart, both the curves in Figure 12.5(b) are upward sloping. Hence, the production of both rice and wheat has steadily gone up over the past 30 years. In 1986-87, the production of rice was at 60.6 million tonnes. This had jumped to 103.4 million tonnes by 2015-2016. In the case of wheat, the corresponding production has jumped from 44.3 million tonnes to 94 million tonnes.
During the same period, the production of pulses has more or less been flat. While this did not matter much earlier, in recent years, as dietary patterns have changed and are favouring greater protein consumption, the demand for pulses has gone up, as pulses remain a major source of protein. This explains why, over the past few years, the prices of pulses have gone through the roof. This escalation in price has been led by arhar dal (pigeon peas), where the prices have even crossed Rs. 200 per kg. In 2015-2016, the pulses inflation was at 31.9 per cent. And this has been a great cause of public grief as well as resentment all over the country.
The question is: Why has this happened? The best explanation lies in the fact that the main foodgrains, namely rice and wheat, are grown in the most fertile and irrigated areas of the country.748 Let’s take the case of the proportion of crops under irrigated area. In 2011-2012 (the latest figure that is available), the proportion of total foodgrains under irrigation had stood at 49.8 per cent. Hence, half of the area under foodgrain production in India has access to irrigation. In 1986-1987, the figure had stood at 32.7 per cent.749
The trouble with averages is that they never give you the complete picture. How do things look for the different kinds of foodgrains? When it comes to rice, in 2011-2012, 58.7 per cent of the area under production was irrigated. In 1986-1987, the figure had stood at 44.1 per cent.
How do things look for wheat? In 2011-2012, 92.9 per cent of the area under production had access to irrigation. In 1986-1987, the number had stood at 76.3 per cent.750
What this tells us is that almost all of the wheat being produced comes under irrigated areas and so does close to three-fifths of the rice being produced. But when it comes to pulses, in 2011-2012, the area under irrigation was just 16.1 per cent. In 1986-1987, the number had stood at 9.6 per cent.751
One impact of this is that, in a bad monsoon year, the production of pulses falls, and this drives up prices (as can be seen from Table 12.4). This is precisely what has happened over the past few years. In 2014-2015 and 2015-2016, India did not get enough rain, and that led to a fall in the production of pulses, which, in turn, drove up prices.
Table 12.4: Total pulses production (in million tonnes) over the past four years.
Year Total Production
2012-13 18.3
2013-14 19.3
2014-15 17.2
2015-16 17.1
Source: Centre for Monitoring Indian Economy.
As the Economic Survey of 2015-2016 points out: “It is immediately apparent that the production pattern for pulses is very different from other crops. Not only is most of the land dedicated to growing pulses in each state unirrigated, but the national output of pulses comes predominantly from unirrigated land. In contrast, a large share of [the] output in wheat, rice and sugarcane – in Punjab, Haryana and UP – is from irrigated land. In water-scarce Maharashtra, all sugarcane is grown on irrigated land.”
And therein lies the answer to why the production of pulses is almost the same as it was three decades ago. With the government carrying out open procurement of rice and wheat, there is clearly more incentive in sowing rice and wheat, especially on irrigated and fertile land. Big Government is at the heart of the mess that prevails in India’s pulses sector.
Also, the area under production of pulses has barely moved over the past thirty years. In 1986-1987, the area under production of pulses was at 23.2 million hectares. In 2015-2016, it stood at 24.9 million hectares.752
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So what is the way of addressing the shortage of pulses in India? The government has been trying to handle this by importing pulses. Since June 2006, the import duty on pulses continues to be at zero per cent. Before this, it was at 10 per cent. The export of pulses has also been prohibited from time to time since then.753
Take a look at the Figure 12.6. It shows the total amount of pulses that have been imported by India between 2004-2005 and 2014-2015.
Figure 12.6: Quantity of pulses imported (in lakh tonnes) and expenditure for the same (in thousand crores) between 2004-2005 and 2014-2015.
Source: The Price Policy for Kharif Crops: The Marketing Season for 2016-17, CACP.
As can be seen clearly, the quantity of pulses imported has jumped from 1
.34 million tonnes in 2004-2005 to 4.57 million tonnes in 2014-2015. In 2015-2016, the total import of pulses jumped to 5.8 million tonnes.754 This is not a sustainable strategy for the simple reason that India is the single largest producer of pulses as well as the single largest importer in the world.
As The Price Policy for Kharif Crops: The Marketing Season for 2016-17 points out: “India being the largest producer, consumer and importer of pulses in the world, its domestic demand-supply volatility has a high impact on international trade.” While the country produced around 23.9 per cent of the total global production for the period of the three years till 2014, it imported around 30.7 per cent of the total global imports during the period.755
The imports are carried out from a whole host of countries. Take the case of arhar dal. It is imported primarily from Myanmar (46.4 per cent), Tanzania (18.7 per cent), Mozambique (15.4 per cent), Malawi (12.6 per cent) and Sudan (3.4 per cent). Moong (or urad dal) is primarily imported from Myanmar (70.4 per cent), Kenya (7.4 per cent), Australia (6.3 per cent), Tanzania (3.2 per cent) and Uzbekistan (2.6 per cent). 756
Hence, the point is that, if India has to solve this problem of the inadequate supply of pulses, it needs to increase its domestic production of the same. The short-term solution lies in the effective monitoring of the situation on a regular basis. Typically, by the time the government wakes up to the fact that there is a problem because pulses are in short supply and then starts importing, the damage has already been done. An early warning system would help the government.
Nevertheless, most solutions are long term in nature. Economists have called for the government to start acquiring pulses at the MSP as well. While the government does announce the MSP for pulses every year, it does not have the infrastructure to buy them from the farmers. This is primarily because the government has always concentrated on procuring rice and wheat. In 2014-2015, the National Agricultural Cooperative Marketing Federation of India (NAFED), one of the government agencies which are supposed to buy pulses, procured only 306.3 tonnes of assorted pulses, at a price of Rs. 1.9 crore.757
In 2015-2016, the government changed track and decided to start buying pulses at the MSP from the farmers so as to build a buffer stock. This has two aims. One is to offer a fixed price to the farmer and encourage him to cultivate pulses, just as he has been cultivating rice and wheat until now. This would help increase the production of pulses. The second aim is to build a buffer stock of pulses so that, if the prices go up, this stock can be released into the market in the hope of bringing down the prices.
The trouble is that this strategy will create problems in the short term. In 2015-2016, the aim was to buy 50,000 tonnes of pulses from the kharif crop. This operation was carried out through the FCI, NAFED and the Small Farmers Agri-business Consortium (SFAC). During the period, the government bought 45,532 tonnes of arhar dal and 4,892 tonnes of urad dal.758
In the rabi season of 2016-2017, the aim is to buy 1 lakh tonnes of pulses from the farmers. As on July 29, 2016, the government had bought 1,19,472 tonnes of pulses from farmers through various agencies.759
Figure 12.7: The international and domestic prices (in rupees per quintal) of arhar dal (pigeon peas) between April 2012 and June 2016.
Source: Commodity Profile for Pulses, July 2016.
This is a bit of a chicken-and-an-egg story. In the past few years, due to bad monsoons, the overall production of pulses has fallen. In 2015-2016, the production of pulses fell to 17.1 million tonnes, from 19.3 million tonnes in 2013-2014. In this scenario, as the government procures more pulses, the supply in the open market will fall, pushing up prices. Take the case of arhar dal (see Figure 12.7). It is estimated that its consumption varies from anywhere between 3.3 and 4 million tonnes.760 The production of arhar dal in 2015-2016 is estimated to be at 2.6 million tonnes.761 The government buying 45,532 tonnes of arhar dal takes away close to 1.75 per cent of the total production in an already tight market. Not surprisingly, the price of arhar in 2015-2016 went up, as can be seen from Figure 12.7.
What does not help is the fact that very few farmers know that an MSP for pulses exists.762 This is how things will operate, with spurts in the prices of pulses, until enough farmers know about the fact that the government is procuring pulses as well, along with rice and wheat of course. This knowledge will then lead to more farmers cropping pulses and a gradual increase in production in the years to come.
One negative influence of this over the long term could be farmers growing more and more of pulses and not enough of some other crop. This also shows the inability of the government to create conditions where private agricultural markets can thrive.
Having said that, there are many advantages of growing more pulses. They meet the protein requirements of vegetarians in a big way. They need much less water than other crops. On top of that, they are nitrogen fixing, and hence, need a lesser amount of fertilizers as well. This means that an increase in the production of pulses, instead of rice and wheat, could lead to savings on the input subsidy front (irrigation, fertilizers as well as power).763
To cut a long story short, it will not be very easy to sort out the mess that Big Government has created in the pulses sector. Driving up the domestic production of pulses in the years to come will not be a cakewalk. There are too many things going against it.
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Other than buying the rice and wheat that they produce, the government also provides fertilizers at a subsidised price to farmers.
The subsidy is paid to the companies which manufacture and sell urea. Urea is the only controlled fertilizer and is sold at a statutory notified uniform sale price. This is like the rice and wheat sold through the PDS being sold at a central issue price of Rs. 3 per kg and Rs. 2 per kg, respectively. The FCI is compensated for this loss-incurring sale. Similarly, the fertilizer companies need to be compensated for selling urea at a notified uniform sale price. The phosphatic and potassic fertilizers are decontrolled and are sold at indicative Maximum Retail Prices (MRPs).
This subsidy was first introduced in 1977, with the introduction of the retention price scheme for urea, because of the then volatile global prices of natural gas as well as urea. It needs to be mentioned here that the fertilizer subsidies include a subsidy for natural gas, which is an important input in the production of urea.764
In 1979-1980, the fertilizer subsidy had stood at Rs. 526 crore. In 2016-2017, it has been budgeted to be at Rs. 70,000 crore. This gives us a ratio of 133:1. Indeed, that sounds like a huge jump in the fertilizer subsidies since they were first introduced.
How do things look when we look at the fertilizer subsidy as a proportion of the GDP? The fertilizer subsidies in 1979-1980 had stood at 0.46 per cent of the GDP. By 2008-2009, they had jumped up to a whopping 1.44 per cent of the GDP. This happened primarily because of the sale of decontrolled fertilizers (phosphatic and potassic fertilizers) at concessional rates to farmers. In fact, this was the trend seen between 2008-2009 and 2011-2012. In 2008-2009, the total subsidies on the sale of decontrolled fertilizers at concessional rates to farmers had stood at Rs. 48,555 crore and formed a little over half of the total subsidies of Rs. 96,603 crore.765
Since 2008-2009, things have been reined in to some extent. In 2013-2014, the fertilizer subsidies stood at 0.64 per cent of the GDP.
If we look at the fertilizer subsidies for 2014-2015 and 2015-2016 in isolation (the reason for this has been explained earlier in the chapter), the figures stand at 0.57 per cent and 0.53 per cent of the GDP, respectively. So does this mean that Big Government has done a big job of cutting down on its fertilizer subsidies? Not really.
Just like in the case of food subsidies, fertilizer companies continue to remain unpaid for selling urea at a notified price. It is estimated that, as of March 2016, the total amount of money that remained unpaid to fertilizer companies had stood at Rs. 45,000 crore.766 How will things look if this amount is added to the total fertilizer subsidy?
The absolute amount of the fert
ilizer subsidy in 2015-2016 stood at Rs. 72,438 crore. If the unpaid amount is added to it, the ‘real’ fertilizer subsidy jumps to Rs. 1,17,438 crore, or 0.87 per cent of the GDP. So, this tells us very clearly that things have not improved as much as they seem to have if the amount that remains unpaid to the fertilizer companies is taken into account as well.
Nevertheless, India has benefited from the usage of fertilizers over the years. The production of foodgrains has increased manifold since Independence. The total foodgrains produced in 1950-1951 had stood at 50.8 million tonnes, with the yield at 522 kilograms per hectare. By 2013-2014, this had jumped to 265 million tonnes. Due to bad monsoons, the total production fell over the next two years and was at 252 million tonnes and 252.2 million tonnes (4th advanced estimate) in 2014-2015 and 2015-2016, respectively.
So India produces five times the total amount of foodgrains now in comparison to what it did immediately after Independence. Of course, the area under production of foodgrains has also gone up, from 97.3 million hectares in 1950-1951 to 126.04 million hectares in 2013-2014. So the production has gone up many times more in comparison to the increase in area on which the foodgrains are grown. This is primarily because of the increase in the yield of the foodgrains, from 522 kg per hectare in 1950-1951 to 2,101 kg per hectare in 2013-2014.
Much of this increase was because of the usage of high-yielding varieties of seeds along with an increase in the area under irrigation as well as a higher usage of fertilizers. Given this, it is difficult to separate the impact that each of these factors have had on the increase in the production of foodgrains in India. Nevertheless, it is safe to say that the increased usage of fertilizers did help increase the production of foodgrains in India.767
As mentioned earlier, the price of urea has still not been decontrolled. And this goes against the one product-one price paradigm. What does this mean? If one product is sold at two prices, say at a cheaper price to a subsidised group of consumers and at a higher price to consumers who are not eligible for the subsidy, and hence, who pay a higher price, it is likely to be diverted from the subsidised group to the ineligible group.768