Market Rates Will Apply On Desubsidised Pulses Import.

Policymakers have withdrawn the four-year-old scheme of 15% subsidy on cif value on import of pulses and peas made by central PSUs - STC , MMTC , PEC and Nafed - from 2011-12. This is a creditable step from long-term perspective of keeping international import prices in check, lowering market distortion and attaining higher domestic production. Realisation has dawned that macromanagement of supply and demand cannot be done by micromanagement of subsidisation.

With the intention of fighting inflationary pressure on pulses in 2007-08, a decision of 15% subsidy on imports via PSUs was implemented. PSUs were mandated to import 1.5 million metric tonnes (mmt), which is half the country's total import demand of pulses, chickpeas and yellow peas. This formula worked well for a year as it depressed market prices in the short term.

The government did achieve its objective. This emboldened Krishi Bhavan in 2008-09 to introduce another huge discounting scheme of 10 per kg (10,000 per mt, or $220 per mt) to state governments for PDS up to 0.4 mmt annually, if pulse imports are routed through central PSUs. This meant subsidy range of 25-50% for pulse complex - including chickpeas and yellow peas - as wholesale prices then ranged around 20-40 per kg.

Tendering abnormally flares up prices, especially when a commodity like pulses is scarce in the market. When international suppliers perceived perpetual continuation of these two subsidy formats via a long chain of PSUs tenders calling for bulk purchases, import prices from Myanmar, Canada and Africa doubled or tripled.

Pigeon Peas/Black Matpe values in raw form crossed $1,000 cif, up from $400 cif, while yellow peas jumped to $540 cif from $270-300 cif in 2008-09, even though PSUs' average annual imports during the last four years were 0.5-0.6 mmt against mandate of 1.5 mmt per annum.

International players reaped price bonanza while local traders lacked initiative to import directly due to fear of discounted domestic values. Private trade was rendered substantially subservient to PSUs' imports and additional shipments were curbed. Domestic produce also aligned itself to high costs of imports. This nullified intended benefit of subsidisation to consumers during the last two years, though some limited gain could have accrued for imports made for states like Tamil Nadu and Andhra Pradesh under 10 per kg scheme.

When the first format of 15% discounting stands terminated in April 2011, private players will be free to import peas and pulses on negotiated basis, without being disturbed by knee-jerk price spikes of tenders. Local traders are also quick to dispose of commodity while in transit or high seas, depending on their speculative ideas of supply-demand and by offering reasonable credit to retailers.

This enables distribution and retail channels to work faster than the government entities that are rule-bound to dispose of commodities by time-consuming highest-bid basis through a tender and prepayment procedures. PSUs incur substantial carrying cost, for instance, when local market price being lower and disposal viability not attainable even with 15% reduction and/or quality impairment due to extended storage leading to slow offtake. 'Highest bids' have to account for these 'extras' for disposal.

When domestic parity is elusive through imports, private trade seeks local supplies that are advantageous to farmers. If India has to mitigate its dependence on costly imports, local output of pulses including chickpeas has to go up rapidly. That is feasible if producers and processors ( dal mills) get adequate profits, implying local prices rise to a level inducing farmers to grow more and consumers resort to demand rationing. Then, price rise and volatility within India and abroad too will be checked.

The demand for pulses is going up at a rate of 7% per annum while supply side is trailing at 1% per annum. Budget 2011 recognises this alarming trend and laid-out schemes for boosting domestic production to dilute import intensity in future. The second format of 10 per kg pulses discount scheme for state governments also needs to be shelved - sooner the better as the leakages in the market distort market dynamics and militate against the interests of farmers.

Source : economictimes.indiatimes.com