Somewhere in the crammed streets of commercial north Delhi, where trade plies on hand-pushed carts and traders move around in unglamorous hatchbacks, a middle-aged man eased up when I folded my notebook to indicate that he could speak without the fear of being quoted.
“If this is off the record, let me tell you,” he said, “I am very disturbed with what is happening.”
An influential trader with a network of connections around India, he conducts his business from a small office above his family shop under the watch of Hanuman, Sai Baba and Durga Ma, perched in a row on his table.
A long-time supporter of the Bharatiya Janata Party, he said he worked very hard for the party’s victory in the recent elections.
“We started a whispering campaign: ‘tell your customers to vote for BJP’. I addressed more than 150 meetings from Ladakh to Andamans. In Coimbatore, I addressed a gathering of five lakh traders. Through a translator, I told them it was important to vote for the BJP and its allies. ‘They are on our side,’ I explained. But today when I get a call from Coimbatore, I don’t know what to say…”
What is causing such consternation among the trading community is the way the Modi government has lost no time in adopting the language they became familiar with during the United Progressive Alliance, blaming food inflation on ‘hoarding’ and threatening to take action against traders found guilty of piling up stocks.
“They could have called and taken us into confidence. We could have reduced stocks willingly,” said the trader. “Forget calling us for a pre-Budget consultation, Arun Jaitley asked Delhi government to launch raids against us.”
A slew of raids
Delhi is not dealing with higher food prices than in previous years, or compared to other states. Yet, the city-state is the first to face an anti-hoarding drive since the Modi government took over.
Part of the reason, explained an official, was that with most national TV news channels headquartered in the city, Delhi’s populace holds a disproportionate influence over the national mood. Their complaints against rising food inflation on TV can not only sway prices in mandis throughout the country, but also sentiment towards the government.
In the last two weeks, Delhi government has prosecuted nearly as many traders as in the previous three years.
On June 19, the department of food and civil supplies in Delhi carried out searches at 532 locations accompanied by the police. Cases were registered against 42 people under the Essential Commodities Act and the Legal Metrology Act. On July 1, they followed up with more searches, seizing 12,000 quintals of rice and pulses, and prosecuting 104 people.
The next morning, Delhi’s commissioner of food and civil supplies SS Yadav sat in his office surrounded by TV cameras, speaking emphatically of the raids as evidence of the government’s resolve to crack down on ‘hoarding.’
What the reporters failed to notice was that barring four cases filed against rice and pulse traders, all the other cases were filed against vegetable vendors under the Legal Metrology Act, which penalises those who manipulate their weighing instruments to cheat customers.
Why were such few cases of hoarding found? “Because we have food control orders for only a few food items,” said Yadav.
Essential Commodities Act
Food control orders are issued under the Essential Commodities Act.
Enacted in 1955, the law gave the government powers to regulate the flow of commodities in the economy by mandating licenses for those buying and storing commodities, as well as prescribing stock limits beyond which a commodity could not be held.
In pre-liberalisation India, everything from salt to cement came under the law. Critics assailed it for distorting the market, leaving prices hostage to the whims of bureaucrats, and traders and businessmen at the mercy of bribe-taking inspectors.
In the 1990s, the government started to reduce the scope of the law. From 70 commodities in 1989, the number of commodities listed under the Act came down to seven in 2006: drugs, foodstuffs, fertilisers, cotton yarn, jute, seeds and petroleum.
For these commodities, the government may prescribe stock holding limits by issuing food control orders, depending on its assessment of market conditions.
While the government had lifted food controls in 2002, under fears of shortage, it brought back stock limits for wheat and pulses in 2006, rice, oil and oilseeds in 2008, and sugar in 2009.
Following bumper harvests, it removed the stock limit for wheat in 2009, and for sugar in 2011.
But rice, pulses, oil and oilseeds remain under food control orders valid until November 2014.
In addition, on Wednesday evening, the Modi government announced that it would fix stock limits for potatoes and onions.
The government
With the government chastising private traders for hoarding stocks and driving up prices, many commentators have pointed out that it is the government which is the largest hoarder of food grain in India. Nearly one-third of rice and wheat produced in the country is purchased by the government. A part of it is sold as subsidised rations under the public distribution system. But large stocks remain in warehouses until the government sells it to private food companies – or until they rot.
While some economists believe the government should exit food grain purchase and storage, others point out that barring the United States and the nations of the European Union, nearly every other country is a grain-purchaser.
Even Kaushik Basu, former economic advisor to the government, who has advocated a move away from physical distribution of grains to a system of giving food coupons to the poor, contends in this paper published in Economic and Political Weekly that for a country like India, it is “politically risky to rely entirely on private traders and international trade to iron out excessive price fluctuations.”
The big companies
After the government, the second largest buyer of food grain in India is Cargill, a private food company headquartered in the United States of America. Cargill India, the corporation’s Indian arm, has been buying grains and oilseeds in India since 1998.
A 2013 Outlook Business cover story on the company reports: “The Gurgaon-headquartered Cargill India is not only present in branded edible oils and atta, its institutional sales ensure that there’s a bit of Cargill in almost every bite you take, from baby food to the flour in Parle and Britannia biscuits or the sugar in your cola.”
Cargill is just one of many large food companies buying directly from the Indian farmer.
Small traders say the stocks held by these companies rarely ever come under government scrutiny.
“What is the storage capacity of a small trader compared with the go-downs of large food companies?” asked Pravin Khandelwal, the national secretary-general of the Confederation of All India Traders.
The question is not entirely rhetorical. As a 2012 report by Oxfam noted, “In many cases, it is almost impossible to know for sure the size of the commodity stocks these firms hold – much of that information is a tightly held secret…The existence and control of these physical stocks can have an important impact on grain prices.”
“The market is controlled by them, not us,” said Khandelwal.
“In my 35 years of experience, I have seen that whenever the government implements stock limits,” said Bharath Shah, the Chairman of the Internal Trade Committee of the Federation of Karnataka Chambers of Commerce and Industry, “small and medium enterprises suffer, [and] not the large players who have money power and political power.”
But the food companies have argued in the past that they need to maintain stocks for the manufacture of food products. The Confederation for Indian Industry has lobbied on their behalf, asking for a repeal of the Essential Commodities Act, or at the very least, an exemption for large food companies from stock restrictions.
Cargill India did not respond to queries by Scroll.in. But in 2012, in an interview published in Business Standard, the company’s chairman Siraj Chaudhary said, “We believe that market forces are stronger than one player or players to create distortions in food prices.”
And yet, there are concerns around the world that food markets are being distorted by a few large players who not just control large physical stocks but also speculate on virtual trade, via commodity exchanges. Small traders point out that as the head of the working group on consumer affairs, Narendra Modi had recommended a ban on future trading in essential commodities in 2011. “We request the prime minister to implement his own recommendation,” said Khandelwal.
Market Forces
Far from the modern commodity exchanges, the lanes of Naya Bazaar near Lahori Gate in old Delhi are heavy with the sweat of workers carrying bags of basmati rice on their backs, depositing them in dark and narrow shops covered with idiomatic signage: Chak De India, Chak Le Swaad (Come on, India. Taste this)
An old man dressed in crisp white dhoti-kurta, Om Prakash Jain, sits on his gaddi overseeing the proceedings. Until recently, he was the president of the Delhi Grain Merchants Association.
While he is a long-time member of the Sangh Parivar, he claims to enjoy good relations with Congress politicians, including former Delhi chief minister Sheila Dixit, with whom he had an altercation when the Delhi government sealed some godowns. “I told Sheila, ‘Behan meri, teri Dilli bhooki maregi’. Sister, your Delhi will starve.” The threat worked. The government stopped sealing more go-downs.
And yet, when I asked him about the power of traders to influence prices, he said too much was made of it.
“There is a saying ‘Manda-tezi suraj ki kirano se aati hai’. Natural conditions determine the rise and fall in prices,” he says. “After the new government took charge, Rajnath Singh called for a meeting with election-in-charges for Delhi – I was one of them. On the sidelines of the meeting, I told him ‘By doing hu-hu over hoarding, you will scare traders. They will dump their stocks in the market immediately. This would only create shortages in the future and push up prices. Stop this talk on hoarding and work on increasing the supply of food.’ But they haven’t listened to me…”
More than demand and supply
Economists and officials agree that to curb long-term inflation, India needs to expand the supply of food, particularly protein-rich pulses, fruits, vegetables, and milk. But what is worrying, they say, is that even bumper harvests have not brought down prices – whether of foodgrains or onions.
The Times of India reported that retail prices of onions in Delhi were nearly double the wholesale price.
“We forget that prices are often determined locally,” explained an official at Krishi Bhawan, which houses both the ministry of food and the ministry of agriculture. “If I am a large trader in an area and I withhold stocks from customers in anticipation of getting a better price after a few days, my action can raise the price in the entire area. Overnight, it is not possible for a new trader to enter the area’s market and bring down prices through competition. This is where implementing the Essential Commodities Act can help.”
But the implementation of the law is not the job of the centre, he added, and not many states were using it to crack down on hoarding. This chart on the website of the department of consumer affairs shows the number of raids carried out by various states under the Essential Commodities Act over the last three years. It also gives details on the number of people arrested, prosecuted and convicted, and the value of goods seized. There are wide – and seemingly inexplicable – variations among states.
While Andhra Pradesh carried out 6,765 raids and seized good worth more than 112 million rupees in 2013, it did not prosecute a single person. Himachal Pradesh carried out more than 12,000 raids, but seized goods worth only four lakh.
According to the official, Tamil Nadu is the only state that has shown a consistently good record of action under the Essential Commodities Act. Not only did it prosecute 1,163 people under the law in 2013, it convicted 60.
But a closer look at the conviction orders sent for the centre’s approval, he said, was revealing. “Most of them featured auto-drivers and tempo-loaders convicted for black marketing and not traders penalised for hoarding.”
It seems whether or not the government’s anti-hoarding raids brings down prices, they will end up putting poorer vendors and transporters behind bars.
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“If this is off the record, let me tell you,” he said, “I am very disturbed with what is happening.”
An influential trader with a network of connections around India, he conducts his business from a small office above his family shop under the watch of Hanuman, Sai Baba and Durga Ma, perched in a row on his table.
A long-time supporter of the Bharatiya Janata Party, he said he worked very hard for the party’s victory in the recent elections.
“We started a whispering campaign: ‘tell your customers to vote for BJP’. I addressed more than 150 meetings from Ladakh to Andamans. In Coimbatore, I addressed a gathering of five lakh traders. Through a translator, I told them it was important to vote for the BJP and its allies. ‘They are on our side,’ I explained. But today when I get a call from Coimbatore, I don’t know what to say…”
What is causing such consternation among the trading community is the way the Modi government has lost no time in adopting the language they became familiar with during the United Progressive Alliance, blaming food inflation on ‘hoarding’ and threatening to take action against traders found guilty of piling up stocks.
“They could have called and taken us into confidence. We could have reduced stocks willingly,” said the trader. “Forget calling us for a pre-Budget consultation, Arun Jaitley asked Delhi government to launch raids against us.”
A slew of raids
Delhi is not dealing with higher food prices than in previous years, or compared to other states. Yet, the city-state is the first to face an anti-hoarding drive since the Modi government took over.
Part of the reason, explained an official, was that with most national TV news channels headquartered in the city, Delhi’s populace holds a disproportionate influence over the national mood. Their complaints against rising food inflation on TV can not only sway prices in mandis throughout the country, but also sentiment towards the government.
In the last two weeks, Delhi government has prosecuted nearly as many traders as in the previous three years.
On June 19, the department of food and civil supplies in Delhi carried out searches at 532 locations accompanied by the police. Cases were registered against 42 people under the Essential Commodities Act and the Legal Metrology Act. On July 1, they followed up with more searches, seizing 12,000 quintals of rice and pulses, and prosecuting 104 people.
The next morning, Delhi’s commissioner of food and civil supplies SS Yadav sat in his office surrounded by TV cameras, speaking emphatically of the raids as evidence of the government’s resolve to crack down on ‘hoarding.’
What the reporters failed to notice was that barring four cases filed against rice and pulse traders, all the other cases were filed against vegetable vendors under the Legal Metrology Act, which penalises those who manipulate their weighing instruments to cheat customers.
Why were such few cases of hoarding found? “Because we have food control orders for only a few food items,” said Yadav.
Essential Commodities Act
Food control orders are issued under the Essential Commodities Act.
Enacted in 1955, the law gave the government powers to regulate the flow of commodities in the economy by mandating licenses for those buying and storing commodities, as well as prescribing stock limits beyond which a commodity could not be held.
In pre-liberalisation India, everything from salt to cement came under the law. Critics assailed it for distorting the market, leaving prices hostage to the whims of bureaucrats, and traders and businessmen at the mercy of bribe-taking inspectors.
In the 1990s, the government started to reduce the scope of the law. From 70 commodities in 1989, the number of commodities listed under the Act came down to seven in 2006: drugs, foodstuffs, fertilisers, cotton yarn, jute, seeds and petroleum.
For these commodities, the government may prescribe stock holding limits by issuing food control orders, depending on its assessment of market conditions.
While the government had lifted food controls in 2002, under fears of shortage, it brought back stock limits for wheat and pulses in 2006, rice, oil and oilseeds in 2008, and sugar in 2009.
Following bumper harvests, it removed the stock limit for wheat in 2009, and for sugar in 2011.
But rice, pulses, oil and oilseeds remain under food control orders valid until November 2014.
In addition, on Wednesday evening, the Modi government announced that it would fix stock limits for potatoes and onions.
The government
With the government chastising private traders for hoarding stocks and driving up prices, many commentators have pointed out that it is the government which is the largest hoarder of food grain in India. Nearly one-third of rice and wheat produced in the country is purchased by the government. A part of it is sold as subsidised rations under the public distribution system. But large stocks remain in warehouses until the government sells it to private food companies – or until they rot.
While some economists believe the government should exit food grain purchase and storage, others point out that barring the United States and the nations of the European Union, nearly every other country is a grain-purchaser.
Even Kaushik Basu, former economic advisor to the government, who has advocated a move away from physical distribution of grains to a system of giving food coupons to the poor, contends in this paper published in Economic and Political Weekly that for a country like India, it is “politically risky to rely entirely on private traders and international trade to iron out excessive price fluctuations.”
The big companies
After the government, the second largest buyer of food grain in India is Cargill, a private food company headquartered in the United States of America. Cargill India, the corporation’s Indian arm, has been buying grains and oilseeds in India since 1998.
A 2013 Outlook Business cover story on the company reports: “The Gurgaon-headquartered Cargill India is not only present in branded edible oils and atta, its institutional sales ensure that there’s a bit of Cargill in almost every bite you take, from baby food to the flour in Parle and Britannia biscuits or the sugar in your cola.”
Cargill is just one of many large food companies buying directly from the Indian farmer.
Small traders say the stocks held by these companies rarely ever come under government scrutiny.
“What is the storage capacity of a small trader compared with the go-downs of large food companies?” asked Pravin Khandelwal, the national secretary-general of the Confederation of All India Traders.
The question is not entirely rhetorical. As a 2012 report by Oxfam noted, “In many cases, it is almost impossible to know for sure the size of the commodity stocks these firms hold – much of that information is a tightly held secret…The existence and control of these physical stocks can have an important impact on grain prices.”
“The market is controlled by them, not us,” said Khandelwal.
“In my 35 years of experience, I have seen that whenever the government implements stock limits,” said Bharath Shah, the Chairman of the Internal Trade Committee of the Federation of Karnataka Chambers of Commerce and Industry, “small and medium enterprises suffer, [and] not the large players who have money power and political power.”
But the food companies have argued in the past that they need to maintain stocks for the manufacture of food products. The Confederation for Indian Industry has lobbied on their behalf, asking for a repeal of the Essential Commodities Act, or at the very least, an exemption for large food companies from stock restrictions.
Cargill India did not respond to queries by Scroll.in. But in 2012, in an interview published in Business Standard, the company’s chairman Siraj Chaudhary said, “We believe that market forces are stronger than one player or players to create distortions in food prices.”
And yet, there are concerns around the world that food markets are being distorted by a few large players who not just control large physical stocks but also speculate on virtual trade, via commodity exchanges. Small traders point out that as the head of the working group on consumer affairs, Narendra Modi had recommended a ban on future trading in essential commodities in 2011. “We request the prime minister to implement his own recommendation,” said Khandelwal.
Market Forces
Far from the modern commodity exchanges, the lanes of Naya Bazaar near Lahori Gate in old Delhi are heavy with the sweat of workers carrying bags of basmati rice on their backs, depositing them in dark and narrow shops covered with idiomatic signage: Chak De India, Chak Le Swaad (Come on, India. Taste this)
An old man dressed in crisp white dhoti-kurta, Om Prakash Jain, sits on his gaddi overseeing the proceedings. Until recently, he was the president of the Delhi Grain Merchants Association.
While he is a long-time member of the Sangh Parivar, he claims to enjoy good relations with Congress politicians, including former Delhi chief minister Sheila Dixit, with whom he had an altercation when the Delhi government sealed some godowns. “I told Sheila, ‘Behan meri, teri Dilli bhooki maregi’. Sister, your Delhi will starve.” The threat worked. The government stopped sealing more go-downs.
And yet, when I asked him about the power of traders to influence prices, he said too much was made of it.
“There is a saying ‘Manda-tezi suraj ki kirano se aati hai’. Natural conditions determine the rise and fall in prices,” he says. “After the new government took charge, Rajnath Singh called for a meeting with election-in-charges for Delhi – I was one of them. On the sidelines of the meeting, I told him ‘By doing hu-hu over hoarding, you will scare traders. They will dump their stocks in the market immediately. This would only create shortages in the future and push up prices. Stop this talk on hoarding and work on increasing the supply of food.’ But they haven’t listened to me…”
More than demand and supply
Economists and officials agree that to curb long-term inflation, India needs to expand the supply of food, particularly protein-rich pulses, fruits, vegetables, and milk. But what is worrying, they say, is that even bumper harvests have not brought down prices – whether of foodgrains or onions.
The Times of India reported that retail prices of onions in Delhi were nearly double the wholesale price.
“We forget that prices are often determined locally,” explained an official at Krishi Bhawan, which houses both the ministry of food and the ministry of agriculture. “If I am a large trader in an area and I withhold stocks from customers in anticipation of getting a better price after a few days, my action can raise the price in the entire area. Overnight, it is not possible for a new trader to enter the area’s market and bring down prices through competition. This is where implementing the Essential Commodities Act can help.”
But the implementation of the law is not the job of the centre, he added, and not many states were using it to crack down on hoarding. This chart on the website of the department of consumer affairs shows the number of raids carried out by various states under the Essential Commodities Act over the last three years. It also gives details on the number of people arrested, prosecuted and convicted, and the value of goods seized. There are wide – and seemingly inexplicable – variations among states.
While Andhra Pradesh carried out 6,765 raids and seized good worth more than 112 million rupees in 2013, it did not prosecute a single person. Himachal Pradesh carried out more than 12,000 raids, but seized goods worth only four lakh.
According to the official, Tamil Nadu is the only state that has shown a consistently good record of action under the Essential Commodities Act. Not only did it prosecute 1,163 people under the law in 2013, it convicted 60.
But a closer look at the conviction orders sent for the centre’s approval, he said, was revealing. “Most of them featured auto-drivers and tempo-loaders convicted for black marketing and not traders penalised for hoarding.”
It seems whether or not the government’s anti-hoarding raids brings down prices, they will end up putting poorer vendors and transporters behind bars.
