Explained: Why the Centre is acting on rise in price of edible oils

With just months left for the elections in five states, including the all-important state of Uttar Pradesh, it is no wonder the central government has started taking measures to control prices through various measures.

Food inflation especially in staples like pulses and edible oil is the last thing any political party wants in the run up to a crucial election. With just months left for the elections in five states, including the all-important state of Uttar Pradesh, it is no wonder the central government has started taking measures to control prices through various measures. Also the uncertainty of kharif harvest due to a not so well distributed monsoon have made the government jittery about uncontrolled inflation in the days to come.

What steps have the government taken?

On Thursday, Manisha Sensarma, economic adviser of the Ministry of Public Distribution Food and Consumer Affairs, issued a letter to the chief secretaries of all the states and union territories directing their attention to the spurt in price of edible oil and oilseeds. “The undersigned has been directed to say the Essential Commodities Act 1955 is aimed at ensuring adequate availability of the scheduled essential commodities at fair prices to the common people. Recently despite reduction in import duty, a sudden spurt in prices Edible oils/oilseeds has been observed which may be due to alleged hoarding of it by the stock holders,”the letter read.

Accordingly the government has asked for declaration of stocks held by traders, millers, stockists etc which would be verified by the state government. Also they have been asked to monitor prices of edible oil and oilseeds on a weekly basis.

This would be the second intervention by the central government in controling the prices of edible oil. Earlier in August, import duty of crude soya bean and sunflower oil as well as refined sunflower and soya bean oil was reduced. The present duty on crude soya bean and sunflower oil is now 30.25 per cent which earlier was 38.50 per cent. Also duty on refined oil was reduced from 49.50 to 41.25 per cent.

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The reason for this step can be found in the 20-30 per cent year-on-year rise in prices of edible oil. Thus, fuelled by a global trend, prices of all edible oils have seen significant increase across the country. The average retail price of groundnut oil, which a year back was Rs 150.50/liter, has now gone up to Rs 177.91. Similar increase has been noticed in soya oil (Rs 104.27 to Rs 151.43) mustard oil (Rs 126.17 to Rs 172.55) and palm oil (Rs 94.18 to Rs 132.46). Even Vanaspati (hydrogenated vegetable oil which is sold as an economical substitute for ghee or butter) has seen a hike in price from Rs 94.18 to Rs 132.46 per liter.

Why the interventions when a new harvest is just round the corner?

Two main reasons can be attributed to the decision so close to the start of the kharif harvest which is expected to start next month onwards. As the letter states, the central government has taken this step with an eye on price increase in the edible oils. Ahead of the state polls including that of Uttar Pradesh, food inflation is the last thing any government wants to face.

What the letter does not spell out is the jitters faced by policy makers about the surety of harvest due to the uneven spread of monsoons. As of Friday, the country has received 720.7 mm of rainfall as against the normal 777.3 mm it should receive- an overall shortfall of 7 per cent. Revival of monsoons over the last few days has brought relief to farmers but the uneven spread of rainfall has already taken its toll on the crops. The long dry spell which started from July and extended till the end of August has seen crops facing maximum moisture stress during the crucial vegetative growth phase.

In their recent crop status and health report, the Indore-based Soyabean Processors Association of India (SOPA) has indicated crop over 12.830 per cent of the total sown 115.513 lakh hectare (lh) sown area is in poor condition. In Madhya Pradesh, the largest soya bean growing area of the country, crop over 8.741 lh of the total 51.068 lh area is in poor condition. Similarly, of the total 8.537 lh of soyabean sown in Rajasthan crop over 3.623 lh is in poor condition.

Bimal Kothari, vice-chairman of India Pulses and Grains Association (IPGA), pointed out to the lull in monsoon activities in August. “Though the Kharif crop has been sown little more than the last year the actual output will be known only during the harvest time. If the crops face heavy rainfall activity during harvest period, we may see some damage to urad and moong crop. Rajasthan has seen a dry spell in the month of August hence we may see a drastic reduction of moong production in the state. However, everything will be clear by end of September,” he explained.

Where else has the government stepped in to control prices?

Earlier this year spike in prices of dal had seen government going all out in the pulses sector. It started with early announcement of import quotas in March and then doing away with the license requirement for imports in May. On May 14, the Ministry of Food, Public Distribution and Consumer Affairs asked millers, stockists and traders to declare the stock with them and directed the state governments to verify the same. When all the above steps failed to have desired effect, on July 2, the Central government imposed stock limit on processors and traders which made excess holding a crime.
Ironically, imposition of stock limits come almost a year after the Narendra Modi led government amended the Essential Commodities Act, 1955 to delink oilseeds, pulses, onions etc from the Act and thus freeing them from stock limit imposition. However, since the Supreme Court has stayed the implementation of the Acts in January, the Central government has taken refuge in the Act and imposed stock limits to control prices.

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