Late last week, the Union government announced a massive increase in the minimum support price (MSP) for pulses for the kharif season this year. It is doubtful if any beneficial effects, in terms of higher availability of pulses and a dampening on their prices, will come about from this step.
The increases are substantial and range from Rs380 to Rs700 per quintal, with the maximum being for (pigeon pea) at Rs700 per quintal. This is Rs200 more than what the Commission for Agricultural Costs and Prices had recommended.
While the government’s reasons are understandable, they are unlikely to make a dent in the supply situation: It is too late for this year’s kharif season as farmers are likely to have made their planting and acreage decisions by now.
At this stage, a higher MSP will only fuel inflation and do little in terms of higher output. The government does not purchase pulses in an open-ended fashion as it does with foodgrains such as wheat and rice in the north-western region of the country. It only intervenes in the market when prices fall below a certain threshold and farmers are forced to go for a fire sale.
This is unlikely to happen as demand for pulses has galloped and so have prices in the past one year. For example, in May-end, prices of pulses were higher by 32% compared with the same period last year. This is much lower than what prevailed at the beginning of January (when prices had risen by 48% compared with January 2009), but in terms of higher prices serving as an incentive for more area being devoted to pulses by farmers, it certainly is a very powerful signal. Purely in terms of price signalling then, the government intervention was not required at this stage.
There is no denying the fact that pulses production is a big story of failure in India. Area under pulses cultivation has only increased by 0.01% per annum from 1967-68 to 2008-09. In comparison, rice, wheat, sugar cane and oilseed cultivation has galloped far ahead of pulses. Production and yield increases, too, present a dismal picture. The reasons for this state of affairs are, however, complicated and increases in MSP alone are unlikely to boost production. And in an inflationary milieu, government intervention has to be careful and smart.
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