Case for decentralisation of price stabilisation

Food inflation has been instrumental in containing overall inflation. The rate of Consumer Food Price Inflation (CFPI, monthly, y-o-y) has breached the 4% mark only in two out of the past 24 months. This may well be attributed to bumper production of pulses and efforts of the government through implementation of schemes [Price Stabilisation Fund (PSF) and Price Support Scheme (PSS)] towards creation of buffer stock of pulses ensuring maintained availability.

Coupled with a steady rise in per capita income, the stage is set for greater orientation towards consumption of pulses which shall also be a qualitative improvement in the diet. The 4th advance estimate (2017-18) has pegged pulses production at a record 25.23 million MT.

Recent initiatives of the government including MSP hike backed by the recently announced umbrella scheme Pradhan Mantri Annadata Aay Sanrakshan Abhiyan is also a shot in the arm in enhancing rural incomes. Thus, the macro variables being favourable, the time couldn’t be better in investing our time, energy and financial resources to our long-term goal and vision.

Elementary economics has taught us that price is majorly the consequence of interplay between demand and supply, amongst other things. An elementary probe into the correlation between production of pulses and its prices reveals a statistic of –(0.8) which strongly reaffirms that price is much influenced at the supply side as the demand more or less is increasing at a steady (and predictable) pace. Thus, the liberty is being taken to say that price fluctuations are largely the impact of production fluctuations.

Price stabilisation essentially entails curbing price volatility, also arising due to seasonality of market arrivals, in addition to production fluctuations. Hence, for stabilising prices the supply side needs to be addressed and from this stems the case of decentralisation of price stabilisation efforts.

The benefits of stable prices are two-fold, to say the least; first, ensuring certainty in sowing decisions; second, containing inflation. Farmers thus benefit in the capacity of growers as well as consumers. Moreover, a decentralised approach may be more suited considering the size and distribution of agricultural lands in the country.

Stabilising domestic production levels will also imply less frequent recourse to tariff/non-tariff measures resulting in stability in EXIM policies. This also augurs well for greater clarity in the context of international cooperation for pulses production as it will be appreciated that such agreements involve long-term commitments between nations.

The report on incentivising pulses
production through minimum support price and related policies by Arvind Subramanian has comprehensively diagnosed the pulses scenario in India and incorporated elements of risk (prices, acreage, production and yield) and externalities (water and fertilizer use; replenishment or otherwise of soil nutrients, etc.) in
determination of MSP.

Such a general equilibrium approach will certainly go a long way in ensuring harmony of production with farmers’ incentives, consumer preferences and environmental factors. Ensuring stable production will also reduce dependence on imports.

Agriculture, being a state subject, major pulse producing states of Maharashtra, Madhya Pradesh, Andhra Pradesh, Karnataka, Rajasthan need to assume the pioneering role of leading in agriculture reforms and innovations. Structural transformation of the economy will mean fewer hands feeding greater population and hence, inevitably, necessitates an improvement in productivity, given natural resource constraints.

Decentralising price stabilising efforts at micro level (farmer level) will ensure that a larger share of the benefits arising thereof accrue to the farmer. These encompass spatial and temporal dimensions including access to markets, finance (timely and at a reasonable cost), infrastructure (suitable warehousing) which shall provide relief, albeit to a limited extent, from perishability as a binding constraint.

Role of agriculture extension, warehousing, access to formal sources of credit and community participation is well documented and can only be re-emphasised. Add to these the role of agricultural universities in engaging in R&D to improve yields given the prevailing and anticipated environmental conditions and financial constrains at micro and macro level. Innovations such as e-Negotiable Warehouse Receipts (e-NWRs) and e-National Agriculture Market (e-NAM) will certainly lead to much better price discovery by enhancing efficiency in linkage of surplus units with deficient units and by increasing the degree of competition. 517 Mandis across 15 states/UTs are live on e-NAM as on March 12, 2018 as against 250 mandis across 10 states in September 2016.

Moreover, real estate services firm JLL has estimated that close to Rs 45,000 crore would be invested in creating storage facilities across India between 2018 and 2020 of which cold storage, agro-storage, and container storage will account for one-fourth of such investments. These will have strong forward and backward linkages, boosting economic activity and employment.

Price movements are often loosely characterised as zero-sum games, i.e., a reduction in price benefits the consumer but harms the farmer and vice-versa. Decentralisation of price stabilisation will be a step towards a positive-sum game by reducing the bargaining power and dependence on the functionaries (the intermediaries) without compromising on the function leaving lesser room for artificial hoarding/speculative activities. Also, relieving the exchequer of stock liability and carrying costs. Thus, reinforcing Minimum Government, Maximum Governance!

(The writers are Assistant Director and Junior Statistical Officer, Department of Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, respectively)

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Case for decentralisation of price stabilisation

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