April 28, 2021
Aggarwal Impex’s founder believes the algorithm-based allocation of import quotas for pulses could mark the beginning of a more transparent system.
India’s recent decision to implement an algorithm-based system to allocate import quotas for some pulses could be the start of a more transparent and equitable system, says Sangeeta Aggarwal, founder of Aggarwal Impex.
“I think it is a good thing to begin with as more people will get a share of the quota and it will eliminate the black market in import permits. It also gives equal opportunity to everybody in the trade,” she said.
Last month, India’s Directorate General of Foreign Trade announced it would allow the import of 400,000 MT of pigeon peas and 150,000 MT of green gram to a pre-determined number of applicants through an algorithm-based lottery system—a shift from the policy that allowed only actual users to import pulses under quotas.
While some millers fear that it could lead to a stockpiling of goods by traders, Ms. Sangeeta believes the new system will ensure sufficient supplies and price stability year-round.
Ms. Sangeeta is a first-generation woman entrepreneur in a male dominated commodity trade. A chartered accountant by profession, she is one of the very few women in India involved in the international commodity trade.
“I did a lot of research before starting the business. Although I had no experience in the field, my education and soft skills helped me to sustain and grow in the business.”
She is critical of the government policy of providing unending protection to farmers by way of higher Minimum Support Prices (MSP).
“The policy should be aimed at making our famers internationally competitive by helping them to reduce the cost of production and improve yields so as to increase their income,” she says.
In this Trade Talk interview with the GPC, Ms. Sangeeta said that after India restricted pulse imports, some of the producing countries found new markets for their pulses, resulting in a change in the pattern of the global pulses trade.
Ms. Sangeeta: I think it is a good thing to begin with. The algorithm-based system will enable more people, including traders, to import. This would be a fair and more transparent method. The DGFT plan, as announced, is to allow a pre-determined number of applicants to import. Earlier, only actual users (millers and processors) were allowed to import these pulses, which led to a black market in import permits. It was said that traders were buying the permits at a huge premium. An algorithm-based system is expected to eliminate this and give equal opportunity to all market players.
Ms. Sangeeta: That’s not correct. Traders know the market sentiment better and have the financial capability to act as a buffer and eliminate unusual spikes and falls in prices. It is not just one or two large corporate traders that are allowed to import. When more people import and licenses are issued for smaller volumes per applicant, there is not much scope for stockpiling or price manipulation. Even international sellers will not be able to dictate terms. In fact, the new system will help ensure price stability and transparency.
Before, only millers were allowed to import. Since most millers in India are very small and risk averse-- traditionally they have been working on a back-to-back basis-- they prefer to sell their license to traders or sell the finished products immediately. This creates artificial selling pressure and leads to a fall in prices.
Also, before licenses were issued for a short period that did not give importers enough time to plan their buying. But the new licenses will be valid up to March 2022, which will allow importers to buy more sensibly and help maintain price stability.
Ms. Sangeeta: The government regulates imports of a commodity to ensure its domestic prices and availability. But this cannot be a long term solution. The problem comes when such policies are enforced without giving market players enough advance notice. Such ad-hoc and sudden decisions hurt both domestic as well as international traders. We should have a policy in force for at least a year to enable everybody involved in the supply chain to manage their business efficiently. Many local traders and overseas suppliers went bankrupt following the 2017 policy restricting pulses imports. International traders plan their business based on country-specific demand and supply. Sudden changes affect them.
Ms. Sangeeta: As I mentioned, some suppliers suffered losses. Naturally, they were upset with the sudden policy changes and started looking for other markets. They have found new markets and new uses for their products. Following the restriction, delegations of trade bodies from many countries came to India to meet with the government and discuss gaining access to the Indian market. International traders look for consistency in our Exim policy.
Ms. Sangeeta: As mentioned earlier, pulses exporters to India were forced to find alternative markets. While the global production of lentils, peas and desi chickpeas increased, carryover stock decreased, indicating that exporters have found new markets.
Some exporting countries changed their strategy. India depends largely on Myanmar to supply moong, black matpe and pigeon peas. Myanmar is now encouraging its farmers to grow more moong, for which there is strong global demand, and reduce production of pigeon peas and black matpe, thus reducing its dependence on the Indian market. Countries like China, Bangladesh, Pakistan, Nepal and even Sri Lanka have increased their imports of pulses by more than three to four times over the past few years and India is no longer as important an export destination.
I believe we are only one bad crop away from a food disaster and I suspect that our crop damage this year due to heavy rains around harvest time may create food inflation.
Ms. Sangeeta: For years the government has been supporting farmers through MSPs, which is linked to input costs. MSPs for many crops are hiked almost every year. I don’t think this is the right policy. The government should focus on making Indian farmers internationally competitive. This could be done by equipping them with modern technology and better agricultural practices. Small farmers should be encouraged to enter into cooperative farming, and they should be given financial support by way of low-interest credit. This will enable them to increase their yields and bring down the cost of production. Once the cost of production is lowered, they can find markets for their crops in India or abroad. At the end of the day, what is important is to ensure that consumes receive goods at reasonable prices, whether locally produced or imported.
Ms. Sangeeta: Yes, it is very important, but at what cost? If our pulses production is increasing because of higher MSPs, how long can that be sustained? We need to develop a sustainable model—a model that brings down the cost of production. Small farmers seldom receive the benefit of MSPs because of the way it is being implemented. I am not against supporting farmers. We should empower them with modern technology so that they can produce more at less cost. We should strike a balance. No doubt, farmers should receive remunerative prices for their crops. At the same time, consumers should also receive goods at reasonable prices.
Ms. Sangeeta: The situation is alarming in Mumbai as in many other cities in the country. The government has imposed many restrictions on the movement of people to reduce the spread of the virus. There could be delays in the movement of goods. The cost of transportation has also increased substantially due to a shortage of labor, and this has caused inflation. At the ports, too, there are delays in the handling of cargo due to restrictions. We need to ensure labor availability and higher efficiency at ports; otherwise, it will reverse whatever we have achieved in the past few months.
Currently there is no shortage of essential commodities. I hope the situation will improve in the next two to three months.
Ms. Sangeeta: I started my career as a chartered accountant. After my marriage, I quit my job. I wanted to start something on my own. A friend of mine suggested this business, pointing out that India is the largest importer of pulses. I did a lot of research before starting my business. Yes, it was very tough given the fact that this is a 24x7 job since we work with so many origins and the business is run and controlled by people who have been in the business for generations.
Yes, in the commodities business, there are not many women. I may be one of the very few first-generation women entrepreneurs in the international commodity trade in the country.
Ms. Sangeeta: The company was started in 2003. We import and export several agri-commodities such as cereals, pulses, sugar and spices. My education and soft skills and analytical ability helped me to earn the trust of many buyers and shippers globally. We believe in honesty and transparency. We are active in the Indian Subcontinent and in Middle East markets. We have the pulse of the market. We collect global market information through our associates, who have helped us grow our business.
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Disclaimer: The opinions or views expressed in this publication are those of the authors or quoted persons. They do not purport to reflect the opinions or views of the Global Pulse Confederation or its members.
