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Govt decision to import key food items raises several questions on timing

Amid record procurement of grains which, according to some estimates, has infused over Rs 150,000 crore into the rural sector during the Covid lockdown, three import decisions taken during the same tenure by the Modi government have come in for severe criticism from most quarters.

These decisions, largely related to import of agriculture goods produced in India, have been criticised for their timing and also for the likely negative impact on farmers, who are facing adverse times due to the lockdown and the subsequent fall in demand.

The decisions to allow import of 500,000 tonnes of maize, 10,000 tonnes of milk powder and lowering of duty on masoor (lentil), all of which have come in quick succession in the last few weeks, have raised serious questions on the reasoning behind the moves.

In the first two cases (maize and milk), the decision to import specified quantities at a lower import duty than usually levied has been prompted by the government’s compulsion to adhere to WTO rules. However, the timing has been widely criticised.

Maize 

Last month, the Centre notified import of 500,000 tonnes of maize at a concessional duty of 15 per cent. The imports were allowed under its WTO obligation. Maize usually attracts an import duty of 50 per cent.

In the notification, the Department of Revenue said it "seeks to prescribe the manner and modalities in respect of WTO (World Trade Organization) committed in-quota tariffs on specified items". However, the timing of the decision has left a lot of experts, farmers and stakeholders bewildered.

The imports have been cleared at a time when maize prices in major growing areas of Bihar are almost 30-40 per cent lower than the 2019-20 minimum support price of Rs 1,760 a quintal and just half the price that the crop was quoting last year.

Maize is selling at Rs 1,100-1,300 a quintal in most markets.Bihar accounts for almost 80 per cent of the 6-7 million tonnes of rabi maize production. 

Farmers this year had planted the crop in big numbers in the rabi season.But first, falling demand from the poultry industry and later the decision to import maize dampened sentiments.

India produces around 28-29 million tonnes of maize a year, of which 6-8 million tonnes come during the rabi season largely from Bihar, while the remaining is grown during the kharif season.

“I simply can’t understand the logic behind the timing and need for this import,” said Vijay Sardana, well-known Techno-Legal Expert for Food, Consumer Products, and Agri-commodities.

He said there was demand for import in January-February when maize prices had shot up to Rs 2,400-2,500 a quintal and the industry was facing immense pressure due to rising input cost leading to distress for small farmers.

“But, now, there is absolutely no justification to allow these imports. This will hurt the poultry industry and also maize farmers in India,” Sardana said.

Maize is mostly consumed as feed by the poultry industry and any movement in its prices has a direct impact on the health of the sector.

Sardana said the process through which this decision was arrived at and the mechanism need to be carefully studied and understood. 

“In today's world timing and logic are vital to inspire investors. Ill-timed and unjustified decisions and opaque decision-making processes hurt the investment climate. Policymakers must appreciate that policy is not just paperwork but impacts investment climates. Such decisions shake the confidence about governance in India,” Sardana said.

Maize is among the most important cereal crops in India and its prices have a large bearing on the well-being of millions of small and marginal farmers, particularly in the poor and deprived regions of the country.

Milk 

The government also recently notified the import of 10,000 tonnes of milk and cream powder at a concessional duty of 15 per cent under the same tariff rate quota scheme of WTO. Milk cream and powder usually attract duty of 30-60 per cent, depending upon the product.

The decision to import at lower duty has come at a time when the country is saddled with excess milk powder stocks of almost 125,000 tonnes converted by cooperatives and companies, from the surplus liquid milk that came into the market during the lockdown period since April.

Liquid milk was in excess as bulk demand from the hotel and restaurant industry virtually came to standstill, leading to steep fall in prices of the commodity putting millions of farmers at a loss.

Just when the lockdown was being lifted and there was some possibility of improvement in bulk demand, the government decided to import.

“I read it twice to believe this notification. Since November 2019, there have been several representations to import Skimmed Milk Powder (SMP) due to steep increase in dairy commodities prices. SMP rates had surpassed Rs 300/kg ($4,000/MT) in December 2019. It was a tough situation at that time as India had no stocks of SMP even after the flush season,” Rahul Kumar, Managing Director of Lactalis India wrote in a recent blogpost.

He said the Ministry of Fisheries, Animal Husbandry & Dairying kept the matter in abeyance and did not allow SMP imports when it needed to stabilise the dairy market and maintain some buffer stocks of SMP/Butter.

Now, when dairy plants are sitting on huge stockpiles of powdered milk and butter due to the Covid-induced crash in demand, the government has decided to add on to the inventories by importing more.

As a result, the already depressed liquid milk prices shed another 15-20 per cent, along with the commodity prices -- this in the lean production season when prices usually tend to be higher as supplies are low.

“Issuing notification for import of SMP at reduced duty clearly shows policymakers sitting in ivory towers have no clue of ground realities. This notification will dampen market sentiments and dairies will not be able to accept extra milk from the system. Milk prices to farmers would collapse again causing irreparable damage to Indian dairying. It is difficult to understand the logic of allowing SMP import now,” Rahul Kumar wrote in his blog.

Masoor (Lentil) 

Last month itself, the Central government lowered the import duty on masoor (lentil) to 10 per cent for three months from the existing 30 per cent.

The step has been apparently taken to cool down masoor dal prices in the retail markets that according to the department of consumer data has risen by Rs 10-20 a kilogram in southern and western India while it has increased by Rs 5-15 a kilogram in other parts of the country.

Masoor is usually harvested in March and April and the crop starts arriving in the market from May onwards. The decision to import came just when  farmers were trying to gain something from slight improvement in prices.

Masoor production in 2019-20 according to the government’s second advance estimate is expected to be 1.39 million tonnes, slightly more than 1.23 million tonnes in 2018-19.

Despite this, prices have risen in the retail markets, compelling the government to allow cheap imports for a limited period. However, here again the timing has come in for question.

“There has been absolutely no impact on retail prices after the decision to import but masoor prices in the international markets have moved by almost $100 per tonne to $650-680/tonne as global traders see a huge opportunity to import to India," Bimal Kothari, vice chairman of India Pulses and Grains Association  (IPGA) told Business Standard.

He said the move has neither benefitted Indian farmers, not consumers, but definitely big international traders.

“This is a step which has been taken without applying any logic and to me is utterly senseless,” Kothari said.

He said last year in 2019-20 when import duty on masoor was 30 per cent, and then too 0.9 million tonnes was imported into the country and this year because of the reduction in duties, imports will go up to 1.0-1.1 million 

tonnes.

“Therefore, to say that duty reduction will lead to substantial jump in imports is wrong,” Kothari said.

Clearly, 

the three import decisions taken in quick succession have raised several questions on intent and timing.
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