Taming Dal Prices: A Big Challenge Facing The Government

Barely had the government started heaving a sigh of relief over the softening prices of dal, when it is faced with another headache – the growing difference between wholesale and retail prices. Not only is the fall in retail prices lower than that in wholesale prices, but the gap is increasing, with markups crossing 20 percent and even touching 50 percent in some cases.

The fall in wholesale prices is posing another challenge – if farmers do not get handsome prices for the crop that is just coming into the market, that could see lower acreage in the near future, which could see demand-supply mismatches leading to price increases once again.

Dal prices have, without a doubt, started cooling, thanks to higher imports and procurement, as well as some action against hoarders bringing more stocks into the market. The wholesale prices of the five major dals – arhar, urad, chana, moong and masoor – are lower than they were a month earlier, the decline being in the range of one percent to nine percent, daily price monitor reports put out by the department of consumer affairs shows. But arhar, urad and chana prices continue to be higher than last year – chana by as much as 59 percent. It’s a similar picture in the case of retail prices.

There are indications that prices may further cool down in the near future (though with a lag) as more supplies come in. The area under pulses has increased, spurred by attractive procurement price hikes of between seven percent and nine percent in the case of moong, urad and arhar. According to a note by India Ratings, as of 19 August, the area under pulses was 39.38 percent higher than the normal area (average of the last five fiscal years). Acreage under arhar alone, the note said, was 46.61 percent higher. With a normal monsoon this year, production has also been good.

What is setting alarm bells off in the government is the way retail prices are moving. In the case of arhar, while wholesale prices fell 9.3 percent between 29 July and 29 August, retail prices fell 8.3 percent.

Going by the all-India daily average prices, on the face of it, the difference between wholesale and retail prices is not huge enough to lose sleep over, ranging between six percent and eight percent in the case of arhar, urad and chana. But the difference seems to be increasing even as prices are falling.

Take arhar. On 29 July, the difference between wholesale and retail prices (Rs 128.6 a kg and Rs 137.6 a kg respectively) was 6.9 percent. On 29 August, the difference increased to 8.1 percent, even as wholesale prices fell to Rs 116.61 a kg and retail prices to 126.15 a kg.

The picture becomes a bit more disquieting when one looks at a more disaggregated picture of prices in the four metros.

The wholesale-retail difference of arhar in Mumbai was 2.7 percent on 29 July but soared to 39.2 percent on 29 August. In the case of Delhi, this difference increased from 24.5 percent to 38.6 percent over the same period and in Chennai from 30 percent to 51 percent. In Kolkata, the difference increased from 6.45 percent to nine percent.

In Mumbai, Chennai and Kolkata, the wholesale-retail price difference in the case of chana also increased – from 11.2 percent to 16.8 percent, 20 percent to 30.5 percent and 6.3 percent to 7.5 percent respectively. This, when both wholesale and retail prices of chana fell in all these cities between 29 July and 29 August (but retail prices remained static in Kolkata).

In the case of urad, the wholesale-retail price difference fell by half in Mumbai (from 55.5 percent to 26.8 percent) and slightly in Chennai (from 26.9 percent to 21.6 percent), while it went up only marginally in Delhi and Kolkata. The retail markups even in the case of the relatively cheaper moong and masoor are in the 17-44 percent and 11-35 percent respectively in these four metros.

In the charged political environment, this is not something any government can remain quiet about. But what can the central government do on its own, barring facilitating more imports? Precious little. It can only prod the states to act.

Are states really interested in fighting price rise when the blame is on the central government which is bearing all the flak? In early August, the centre had 1,75,572 million tonnes (MT) of pulses as buffer stock. Of this, close to 29,000 MT had been allocated to 11 states. But as of 11 August, only 6682 MT had been lifted by five states (Chhattisgarh, Maharashtra, Andhra Pradesh, Tamil Nadu and Telangana).

So now the centre is pushing the states to increase policing. At a meeting of principal secretaries of food, civil supplies and consumer affairs of states on 19 August, one of the points emphasised was the drafting of a pricing policy under the Essential Commodities Act by states, which would fix the variation between farmgate and wholesale prices as well as between wholesale and retail prices. The idea is to cap retail markups at 10 percent in the four metros, 7 percent in state capitals and 5 percent in other towns.

States are also being encouraged to set up a separate policing agency for the Essential Commodities Act. Tamil Nadu’s Civil Supplies CID is being showcased as an example. So is Maharashtra’s proposed Pulses Price Control Act, which plans to fix the maximum price of dals. But traders in the state have already warned that far from checking prices, the law could only see trade being diverted to other states.

The issue of protecting farmers is also tricky. As the first supplies are coming into the market – moong from Karnataka, for example – there is concern that farmers may not get a good price for their produce. This was the main focus of a review at the Prime Minister’s Office on Tuesday and in an inter-ministerial committee on Wednesday. The Food Corporation of India (FCI) and NAFED have been told to step up procurement, taking mobile vans to the farm gate if necessary and give wide publicity to the procurement price. But could that lead to a different set of problems? Time alone will tell.

Clearly, taming dal prices is going to be as difficult as cooking some dals.