I have been asked this question umpteen number of times. For the past three months I have repeatedly asserted that the price rise in food commodities has nothing to do with supply constaints. Then why are the prices of pulses for instance sky rocketing? I have been often asked by the media.
My answer has been simple and straight. It is because of massive hoarding, black market and speculation by the trade. I had always been pleading for a crackdown against the trade which is holding the country to ransom. I don't know why the government took refuge behind the economic parlance of markets driven by sentiments and in this case the delayed monsoon was the sentiment that the markets exploited. This is completely a flawed assumption, an euphemism that economists use to justify speculation and hoarding.
Take the case of pulses. Prices of arhar dal have hit the roof. Prices of other pulses too have sky rocketed. And the impression we carry is that there was a shortfall in production, and of course many would link the fall in production with the delayed monsoons. Let us try to understand what went wrong with pulses. Compared to 2008, the market prices of pulses have increased by 52 per cent in Chennai to 89 per cent in Delhi. I am sure you would agree that such a stupendous rise in prices of pulses should be a reflection of the slump in production.
No, it is not true. There was hardly any difference in the production of pulses. In 2008, pulses production was 14.76 million tonnes. In 2009, it fell to 14.66 million tonnes, a drop of 0.1 million tonnes. In other words, production of pulses had remained almost static. The other arguement is that demand has outstripped its production. Some economists have projected the demand (I don't know what is the basis) to be around 17 million tonnes. Interestingly, it gives me an impression that suddenly in 2009 people had started consuming more of pulses. After all, if the demand was growing, 2008 should have also been a bad year as far as the prices are concerned.
Even if you buy this arguement, we are told that India has imported 2.5 million tonnes of pulses this year. Add this to the production figures, and you arrive at a figure of 17.16 million tonnes of pulses available in the market. Which means we have made up for that gap between demand and supply. Then please tell me why are the prices going up? Some will say that the imports were at a higher price. But still the import quantity is only a fraction of the total (and still much of it is held up at the ports) not significant to make an impact on retail prices.
Before we talk of the main cause behind the price rise, let me share with you one of reasons for the rise in price of arhar dal which has somehow gone unnoticed. At the time of processing arhar dal, the processor takes out to outer coating (chilka) of lentil to be used as cattle feed. This year, the demand for cattle feed was depressed because of the easy availability of foodgrains. The processing industry therefore passed on their loss (around Rs 20 a kg) to the retail. The retail added their own profit margin to exploit the gullible consumer.
Well, to the question why are the prices shooting up, the anwer is simple. The trade has been holding up the supplies, wanting to exploit the sentiment. And the government has been simply turning a blind eye. It is only after three months of hammering and driving home this point that I find the government has finally woken up the real threat. It has been talking in tough terms against hoarders now. Some State governments have swung into action. And look at the results. In just a few days of a crackdown against hoarders throughout the state, Madhya Pradesh has been able to recover sugar worth Rs 10,000 crores. Just in Malanpur and Bhind godowns, 14,364 quintals of sugar beyond the permissible limit was seized. Raids have been widespread, and are still continuing. In three days time, the State has found 34,000 quintal of sugar kept illegally. Market price of sugar has come down by Rs 3 a kg just in two days time.
In Punjab, the State has raided the premises of 559 traders in the past two days and yet have not found any excess stocking. But if the newspaper reports are to be believed, the raids are merely a public relation exercise. The government agencies are deliberately trying not to look at the places where the excess stocks are lying. In Haryana, the government evoked the Haryana Prevention of Hoarding and Maintainance of Quality Order 1977 on Aug 12. The next three days were holidays, good enough for the traders to move the stocks out of the state limits. Most of these illegal stocks are kept at places around the state borders. The idea being that if one State government becomes hyperactive, the stocks can be conveniently moved across the border.
Many State governments have now swung into action. As a result, the price of sugar in the wholesale market has come down by Rs 140 per quintal. In Maharashtra and Rajasthan, the prices of pulses has come down by Rs 250 to Rs 400 per quintal. And let me assure you, if the government becomes really tough against the trade there is no reason why your monthly budget should go beyond your limits.