Pulses Stock Limit Order Delivers A Rude Surprise

If there is a message in the union government decision of July 2, 2021, to impose a stock limit on pulses, it is this: Our policies are not predictable, so do business at your own risk.

On June 5, 2020, the government issued ‘The Essential Commodities (Amendment) Ordinance, 2020’ which committed the government to not take any action unless the circumstances were “extraordinary”. These circumstances included war, famine, extraordinary price rise, or a grave natural calamity.

The amendment was based on the presumption that the production of food-stuffs is to stay more than the demand in the future. Thus, it was mandated that a decision to impose a stock limit can be taken only if there was a 100% rise in retail prices of perishable food items over the average retail price in the last one year or last five years. For non-perishable foodstuffs, such action could be taken if the price rise was more than 50%.

Even before the Ordinance was enacted into an Act, the government was faced with the trend of price rise and in September 2020, the export of onion was suddenly banned; even though the rise in retail price was nowhere near 50%. However, this action was not taken under the Essential Commodities Ordinance. Similarly, in June 2020, the government reduced import duty on masoor from 30% to 10%. This was done for a period of three months.

In September 2020, Parliament enacted the Essential Commodities (Amendment) Act and it was notified in the official gazette on Sept. 27, 2020. The bill to amend the Act stated that India is now surplus in most agricultural commodities and the farmers are not able to realise fair prices due to lack of investment in warehouses and processing. Regulatory mechanisms prescribed under the Essential Commodities Act, 1955, were pointed out as the reason for such poor investment in marketing infrastructure. Ease of doing business and fear of frequent imposition of statutory controls were also mentioned as the reasons for amendment in the EC Act.

While the farm unions have been opposing these amendments, the business leaders were highly impressed with this liberalisation of the regulatory regime. Businesses had first-hand experience of the frequent misuse of the EC Act, so, they believed that the government genuinely wants to free up the agriculture sector from this fear.

Against this backdrop, the decision of the union government to impose stock limits on pulses, except moong, has come as a rude surprise. We examine it in the light of amendments made in the EC Act in 2020.

Was The Move Warranted?

The data of retail prices on the website of the Department of Consumer Affairs shows that the retail price of chana dal in Delhi at the end of June 2021 was Rs 75 per kilogram while the average retail price in the last year (July 2020 to June 2021) was Rs 74 per kg. The average retail price in the last five years was Rs 82 per kg.

Similarly, the retail price of tur dal in Delhi at the end of June was Rs 113 per kg while the average of last year was Rs 108 per kg. The average retail price in the last five years was Rs 96.5 per kg. Thus, the tur price was only 4.6% higher than the average price of the last 12 months and it was 13% higher as compared to the average of the last five years.

However, if the year-to-year price is compared, it is found that chana dal prices are higher by 15.4% in June 2021 as compared to July 2020. Similarly, tur dal prices are higher by 13.1% in the same period.

The Removal of Licensing Requirements, Stock Limits and Movement Restrictions on Specified Foodstuffs (Amendment) Order, 2021, has empowered the government to enable the states to prescribe stock limits for the notified commodities in specified exigencies. Thus, wholesalers can stock only 200 tonnes of pulses. Moreover, they can stock only up to 100 tonnes of one variety of pulses. The retailers can stock just 5 tonnes.

The order also requires that if the stock is higher than the prescribed limits, the same will have to be declared on the portal of the Department of Consumer Affairs and it will have to be brought below the prescribed stock limits within 30 days.

The country already has a system of registration of warehouses with the Warehousing Development and Regulatory Authority. An electronic negotiable warehousing receipt is issued by the warehouse for the stock kept in such warehouses. If the government makes the registration of warehouses with WDRA mandatory, it can know the private stock automatically without requiring wholesalers/retailers/processors/stockists to declare their stock-holdings. So far, the government has kept the registration with WDRA optional and most warehouses are reluctant to register.

The Fallout

Several APMC mandis have protested against the decision to enable state governments to impose stock limits on pulses. The traders who would have possibly stocked pulses in anticipation of higher prices during the festival season beginning in August 2021 will now have to sell their excess stocks within a month.

What is even more curious is that the union government has chosen not to set any stock limits on edible oils despite a steep hike in prices, though the import duty on crude palm oil was reduced on June 30, 2021, from 35.75% to 30.25%. The duty on refined palm oil has been reduced from 49.5% to 41.25%. The retail price of palm oil in June 2021 is about 49.3% higher than the average retail price in the last five years.

The rationale of excluding edible oils from the stock limits control, despite trade in edible oil import being more organised with large corporates engaged in this trade, is somewhat difficult to comprehend.

All in all, the agricultural trade policy remains unpredictable and even if the Supreme Court upholds the validity of EC (Amendment) Act 2020, its future is not clear. But without policy consistency, stability and predictability, promoting large-scale investment in storage, processing, and marketing would remain a formidable challenge.

For all we know, the Government may accept the demand of agitating farmers to repeal the EC (Amendment) Act 2020.

Siraj Hussain is Visiting Senior Fellow, ICRIER. He retired as Union Agriculture Secretary. Jugal Mohapatra retired as Union Rural Development Secretary.

The views expressed here are those of the authors, and do not necessarily represent the views of BloombergQuint or its editorial team.