Govt stalls key liberalisation proposals
Mutton biriyani and policy liberalisation have a lot in common: both lack pungency and tang without the taste of onions. That's what the government found out over the last several weeks of high food inflation and prices. Unravelling onion prices have forced a jittery government to quietly resort to, if not a mid course correction, at least a policy calibration in the food and fertiliser sectors, not withstanding a "downtrend" from the high food inflation of 18.3% some weeks ago.
The calibration has compelled the government to recant or at least stall a number of key proposals leaning towards economic liberalisation including putting off a much vaunted proposal to decontrol pricing and marketing in the sugar space, open up free (OGL) exports for the commodity after many months on the back of estimated high production for 2010-11, free or atleast hike the price of the country's only controlled, therefore cheapest and most used fertiliser urea and to decanalise its imports. Seeral of the proposals, including a crucial one on allowing FDI in retail, now lie in the jurisdiction of EGoMs and GoMs besides secretarial panels, allowing for a prolonged and politically more convenient process of decision taking.
Last week, food minister Sharad Pawar , thus far an aggressively prime mover of the sugar decontrol proposal, dropped a bombshell by announcing that it may not go through since some sugar states were themselves opposed to freeing the sector from controls. He pegged farm sector growth in 2010-11 at a low 3.5%.
"Political compulsions rather than constructive long term cnncern on food security and prices or economic rationale are likely to decide the pace and shape of these proposals for some time now. I expect that these decisions are likely to be stalled atleast until March/April when the winter markeign season begins, if not upto mid year, when several state elections including W Bengal and Tamil Nadu, where soaring food and fuel prices besides sugar are key issues." a agri sector expert who served as both food and agriculture secretary some years ago, emphasized.
He contends, besides, that in the era of high weather unpredictability and climate change, the time has long passed for short term, cliched and uni-dimensional responses such as aggressive anti-hoarding drives against traders. According to both eminent agri economist Prof Swaminathan and Prof Jayati Ghosh, speculative hoarding is only possible if crop shortage allows it play, imapcted by adverse clmate, disease or other reasons and holistic solutions in the sector are imperative instead of piece-meal, symbolic responses.. "The last five years have seen sharp fluctuations in weather from Australia to Brazil to other countries, impacting crop output and quality heavily.
In a heavily monsoon reliant country, we need to prepare much better to face eventualities or face possibiltieis of high imports. The One Size Fits All mentality has to be jettisioned where farm commodities are concerned. We need commodity-focussed long term, investment-friendly storage, buffer policies and highly senstiive price and production monitoring systems in place tailored for individual agri commodities.We urgently need an expert super structure that will monitor on a daily basis, say, 100 key rice and wheat districts, so that decision on inputs and exports/imports etc can be taken in the shrotest possible time in order to derive the optimum advantage of the prevailing situation to meet demand pushes and supply pressures. The existing system is too slow and tedious and unequal to the urgency."
That urgency is still missing from the government's comprehension despite the Farmers' Commission suggesting many months ago that the several agro climatic zones be identified, monitored and nurtured to boost production and productivity to meet increasing consumption and factor in climate change impact into the food sector. Far from coming up with viable longer term solutions including cold storage infrastructure to a problem in the non cereals space that is clearly here to stay, the last EGoM on food prices did not even consider soaring prices in onions, milk, eggs, vegetables and fruits.
A week later, when criticism over veggie pricee exploded, panicky key ministers met under the aegis of the PM to ban exports selectively for sugar (allowed 3lt of ALS exports but not 5lt of OGL exports) and extend the non basmati rice export ban, even question recently opened futures trade in commodities such as sugar, desptie stark evidence that both spot and futures prices were sliding and that retail pries had shot up to record prices in January 2009, in the thick of the futures trade ban.
Points out Karan Chanana who heads Amira Foods , referring to the panel under chief economist Kaushik Basu set up by the PM to come up with quick responses to food sector price and production problems, "Minister Pawar is well clued into the sugar sector. That allowed him to take stock of the fact that in over two decades, this is the first time that global availibility is tight and prices high and since India's sugar output estimaes are high, this is the best time to export. We need that sort of awared, dynamic decison makng for individual commoditeis in the food sector.
Having an economist like Mr Basu at the helm of decision making, let's hope, will lead to such decisions both in the short and longer term on exprots, production, prices." For several months since the government banned the exports of non basmati rice, Amira, like other rice exporters, have been using their overseas arms to soruce rice from Viet Nam and other countries to sell to other buyers such as Iran, Saudi Arabia, just in order to remain in the export business and make their presence felt and retain export credibility in the global market despite the erratic Here Now, Gone Tomorrow government policies.
Analysts are not so optimistic, however, insisting that the emerging era of marked climate change and sharp voalitility in agri commodity prices can only be tackled by those highly sensitive to teh sector and to nuance sof commodity movements countrywide and globally and capable of taking swift and responsive decisions. . High price volatilities engendered by climate change impact can only be tackled sensibly by sound buffer and cold storage policies adn exponentially hiking processing scales and volumes. For instance, if it were predicted some weeks ago that tomato prices could shoot up to rs 60/kg, ample cold storage could have allowed heavy processing and puree would've been cheaper than fresh tomatoes but insulated agaisnt acute supply shortage.
Heightening political worries on the sensitive food issue for the government is the fact that the FAO has projected that 2011 will be one of high food prices and tight supply globally. Two years ago, several agri economists and analysts worldwide blamed India for boosting rice prices to phenomenal levels at the global level against a backdrop of production shortage, triggering off a chain reaction among key exporters such as Thailand and Viet Nam.
"We have to meet export commitments already made but Internal food price concerns are highly senstivie politically and these compulsions bar all parties in our country from exporting food and agri commodiites cheap and importing expensively. That make it all the more imperative for governments, both at the Cetnre and the State, to keep decision making in these sectors elastic and highly responsive to price volatilities at the doemstic and the global level," points out Pune based commodity sector analyst Madan Diwan who was part some years ago of the Sharad Joshi panel on agriculture sector reforms.
Analysts maintain that while food price index has not reached the peaks of 2008, it is nonetheless very high and that wheat and edible oil prices were hotting up unusually in the global space. Ironically, it could also be a time when India is siting on a bumper 82mt wheat production, but with nowhere to store it despite the governmetn's pushing out a huge quantitity into the open market through the OMSS.
Does that mean that, in a system of constant elections, an imperative decision as opening up the food and fertiliser sectors at a time of high price volatility could continue to be held hostage to political compulsions? Not necessarily, say experts. Politically acceptable doses of calibration in policy decisions could be the order or the day. "On fertilsier subsidy, for instance, the FM is under intense pressure to cut the subsidy bill. So, the government is likely to not go into free urea pricing for the time being, or even putting urea under the NBS (this will spell gradual freeing of prices) but opt for the present to symbolically pass on just a fraction of price hike to the farmer.
Anything more than that in the prevailing political climate is difficult because the government has to consider the impact of higher urea prices on farmers. The CACP would factor it, besides higher diesel prices, into input prices and MSP for crops will have to go up, impacting on food prices once again."
Contends Diwan "The MEP is a great instrument to calibrate exports in times of suspected shortage, witout actually resorting to an export ban, which would send out very serious and negative signals to the gloabal and local market. The latter could trigger off hoarding and impact prices instantly."
Yet the government, which is sitting on huge stocks of foodgrains currently, is unwilling to use just the MEP as a export calibrating tool as in the case of non-basmati rice although it has used it for basmati rice exports. Without sufficient buffer, infact, analysts expect that this March, the Centre will find itself in a terrible soup over where to store the new crop. "Storage will be real killer," they assert