India - Puzzling Decisions

Of the several decisions taken by the Cabinet Committee on Economic Affairs (CCEA) concerning the country’s farm economy, the only one that makes sense is the one related to the open market sale of foodgrains from official stocks. Most others are unwarranted, if not positively retrograde. These include extension of the powers given to state governments under the outmoded Essential Commodities Act to continue stock limits on foodgrains, pulses and other key agri-commodities for six more months, beginning September, and the perpetuation of the ban on the export of non-basmati rice. Though rice had earlier been kept out of the stocking curbs (for good reason), for some inexplicable motive this too has now been subjected to such needless curbs. This is regardless of the fact that the country has had a record rice harvest of over 96.43 million tonnes and rice procurement for the Central grain kitty is expected to touch an all-time high of over 28 million tonnes. It is odd that, on the one hand, the government is imposing a variety of controls on rice and wheat while, on the other, it is seeking to prune its own inventories because of excessive stocks.
Another decision that is hard to understand is the extension of the compulsory 100 per cent packaging of foodgrains and sugar in jute bags, for one more year. This pays little or no attention to the fact that the jute industry is finding it hard to meet the full requirement of gunnies for this purpose. In any case, jute is not ideally suited for bagging these products, and certainly not hygroscopic material like sugar.
It seems fairly obvious that getting the Left off its back has not sufficiently emboldened the government to take well-considered decisions that are free from ideological blinkers. What is even harder to understand is why the government does not seem keen to take note of the ground realities. The downturn in commodity prices the world over in recent weeks, and the easing of supply constrains on most though not all commodities because of good domestic production, mean that there can be hardly any incentive for over-stocking (hoarding, in official parlance) by the trade or bulk consumers at this stage. This apart, it is amply clear that the imposition of storage limits on farm goods has had little impact on their prices or the overall rate of inflation. Even the ban on futures trading has proved ineffectual and, hence, unnecessary.
Where the proposed sale of foodgrains in the open market is concerned, the government itself is largely responsible for creating a situation where this has become unavoidable. It is common knowledge that the trade and wheat-based industry were not allowed to buy stocks during the peak, post-harvest wheat marketing season. The government thereby cornered over 95 per cent of the marketed surplus. This sucked the market dry of the stocks required to meet the needs of the vast majority that lacks access to the public distribution system (PDS). Unless the government augments supplies by pumping part of its own grain holding back into the open market, prices will tend to harden despite the record production. The government, therefore, needs to give a fresh look to its agri-commodities policies and strike a balance between the interests of consumers and producers. Improved supplies, and not controls, are needed to cool inflation.