Import Dependency Of Commodity Supply A Cause For Concern.

India is an important consumer of commodities, ranking fifth in overall energy use, and third largest consumer of coal. In agriculture, it has a much greater presence by being the largest consumer of sugar and tea and the second largest consumer of wheat, rice, palm oil and cotton. India has sharply increased its edible oil consumption. However, India's commodity consumption has grown at a slower rates than China. The import dependency of commodity supply remains a cause of concern.

Using indicators, like the country concentration, import dependence and supply risks for high economic importance commodities, it is apparent that not only the price but also physical availability and counter party suppliers are some of the potential areas of concerns. Country concentration risks for agricultural products and energy resources are relatively high in India. The entity concentration risk (dependence on a few companies for sourcing) is growing as well. Other counties like Korea too are dependent on four trading companies for its import of grains. China inspite of its huge international political clout is dependent on only three companies, like Vale, BHP and Rio, for its iron ore imports.

While China had been acquiring rights of commodities (through acquisition of mines and farm lands) around the world to mitigate concentration risk in sourcing, the Indian acquisition in the natural resources have not followed any commodity-based structured approach. Barring a few private sector acquisitions, the investments in commodity resource pooling have been very insignificant compared to projected surge in demand. On the other hand, negotiated price settlement has been the order of the day in China but in India driven by the fear of CVC and RTI -the same has been sacrificed in favour of global tendering . This has resulted in India often having failed to get favourable prices. Unfortunately, the PSU trading houses & Oil PSUs have been relegated to mere channelising agency as sales facilitator rather than vehicles for strategic sourcing. China's overseas investments in natural resources assets had focused on oil and minerals.

The price of food commodities such as rice, wheat and soyabeans had surged in 2008. Thereafter, state owned China Investment Corporation's (CIC) purchase of an $856m stake in Noble Group (the commodities trading company ) is the clearest indication that Beijing wants to secure agricultural commodities supplies. Since then, countries including Saudi Arabia and South Korea have invested in overseas farm plots to increase their food security. India has also an import dependent model for Energy (Coal from Indonesia & Crude from West Asia). India's low self-sufficiency rates for pulses (imported from Burma & Canada) and edible oil (imported from Indonesia, Malaysia and Argentina) can do little to blunt the commodity pressure.

In fact, the nation's already fragile self-sufficiency in food and grains is likely to decline steadily with the new food security bill despite its good intentions . While there is nothing wrong in being an import dependent commodity consuming nation but subjecting the economy to import mismanagement, whims & fancies of savvier suppliers and arm-twisting by countries (recent coal policy of Indonesia) is a matter of growing concern. Failure of the government in economic diplomacy as well as failure to leverage India's position as a large consuming nation will be paid by millions of domestic consumers. Government in the past had remained mute spectators with long term policy starvation often reactively resorting to non- sustainable price control mechanism.

Source : economictimes.indiatimes.com