Imports not enough to cool food prices

The last couple of years witnessed prices of several commodities, including sugar, pulses and edible oils, shooting up. In cases such as edible oil, the government succeeded in bringing prices down or arresting hikes, but for commodities such as pulses, prices just refused to be tamed.

What we saw was that while import calibration can be used as a tool to managing commodity prices, it will work only to a certain extent. For instance, in the case of edible oil, where India is heavily import dependent, prices shot up by 30%- 50% in 2007-end and beginning of 2008. To check rising prices, the Centre abolished Customs duty on crude palm oil and crude soyabean oil from a level of 40-45 % in the Union Budget for 2008-09 .

Import duty on refined oil was also reduced to 7.5%. It immediately resulted in an increase in imports and prices of edible oil dropped moderately. Today edible oil is Rs 15-20 cheaper when compared to prices prevailing before duties were slashed. In the case of pulses, however , despite elimination of import duties, spiralling prices would not come down.

The reason is simple--there is a scarcity of supply of pulses in the world market and India has no option other than importing, even at very high prices, as pulse production has remained stagnant in the country while demand has been rising. India imports pulses from just a handful of sources including Malawi, Kenya and Tanzania where supply has been low all through the past year.

Myanmar, sensing India’s desperation, had hiked prices forcing India to source its pulses from trading-hub Singapore. The country also started importing a new variety of pulse called yellow-pea from Canada available at one-third the prices for the popular moong or arhar. The desperate situation in India shows that merely bringing down import duties cannot help in all situations .

In a case where one’s international supply source is limited and domestic demand is increasing, it just does not pay to accept a situation of stagnant domestic production. The government not only has to think up policy measures to increase production, but also ensure that these deliver results. In case of sugar, the problem was more political than economic.