The Hindu Business Line : Irrational initiatives

The Government is known to do the rational thing but only after exploring other possibilities. And, now, with spiralling prices of essential food items and inflation angering its political allies, New Delhi has reacted with a series of initiatives which can best be described as both knee jerk and half-hearted. Some decisions are not practical and some others are even regressive. The decision of the Cabinet Committee on Prices to allow actual users to import wheat duty-free, place sugar imports under tariff rate quota, and ban export of pulses exposes its lack of commercial intelligence and research, as also its laidback style of taking preventive action. Its decision is most unlikely to make any sustained impact on open market prices.

Given the strong international prices of sugar, allowing imports under tariff rate quota (at a lower rate of duty) may not ensure the arrival of enough volumes to contain prices. It is the same government that was until recently crowing about large sugar production and encouraging exports. The only silver-lining is that sugar production next season, beginning October, is expected to be substantially higher. Take pulses. Banning exports would make little difference to the market prices of major pulses such as gram (chana) and black matpe (urad) because export is largely of lentils (masoor). On the wheat front, the Government has tripped at every stage — output forecasting, procurement, bonus payment and floating import tenders. Lower crop size and tightening supplies were evident since early this year. Instead of working through the governmental monolith State Trading Corporation of India, imports ought to have been put under Open General Licence several months ago. Now, imports have been liberalised. But why should only actual users be allowed duty-free imports? Many of the roller flour mills and other users are small and medium enterprises without adequate expertise in importing, and their individual import requirement may also not be large. It means they will be forced to operate through some governmental agency.

The policymakers have failed to zero-in on the precise reasons for price rise. Wheat and pulses output has stagnated for years. Precious little has been done to increase production and productivity. Besides the mismatch between domestic demand and production, too much money has been allowed to chase essential commodities. Liberalising commodity markets without strengthening the production base is a recipe for disaster. Over the past year or so, speculative forces have been ruling the market and prices have moved far above what fundamental demand-supply would dictate. This aspect of the commodity market dynamics has been completely overlooked by policymakers. For bringing some sanity into the commodity market and ensuring that prices do not hurt consumer interests, it is necessary to discourage rampant speculation.