I had immense respect and continue to have immense respect for Professor Ashok Gulati after he did a thorough research on the fiscal and agricultural implications of the Food Security Act in India in 2013.
He has been quite critical of the present government’s agricultural policies. His level of criticism has been rising. He had written two pieces recently on the rising prices of pulses. He faults the government for knee-jerk reactions – raiding hoarders, banning commodities futures and forwards, importing small quantities, failing to build up buffer stocks and also not incentivising production of pulses over grains, etc. Most of the criticism is well directed. However, there are some areas where he protests too much.
To an extent, agriculture falls under State governments. IT is a concurrent subject. So, States have to provide reliefs to farmers. Second, he also note that most of the policies have been in place since 1960. Clearly, bureaucracy has provided continuity. Hence, these policies – to the extent that they are backward looking – stem from bureaucratic resistance to new thinking and playing by the old rule book. He correctly points the finger at this problem here:
Interestingly, the bureaucracy, which should be accountable for tracking production and prices, and ensuring smooth inter-/ intra-year supplies, goes scot-free. [Link]
He is right that, to an extent, the signal value of prices from futures markets is lost when they are banned. I am not in favour of banning these markets too. But, it should be clear to him that, over time, they will lose their signal value and noise would increase, as speculators could amplify price movements disproportionately.
Raids on hoarders need not be mutually exclusive to building buffer stock. The government can do both. His disappointment appears to stem from the fact that the government did not wake up and build buffer stock after the production shortfall in 2014-15. The government has announced now that it would build a buffer stock of around 500,000 tonnes of pulses. It seems to fall short of what he thinks is the desirable level by about 5 to 6 times.
While, for the most part, he is right to insist that the government take some measures that are within its remit, two back-to-back monsoon failures inevitably lead to higher prices. The Union Government should, in fact, allow farmers to benefit from rising prices. That is when the supply next year would increase. The price signal should not be suppressed in the spot market. People can substitute for a while.