Why Centre has opted to hold ‘algorithm-based’ lottery for tur, moong import quotas

Why Centre has opted to hold ‘algorithm-based’ lottery for tur, moong import quotas

by admin- Wednesday, March 31st, 2021 07:45:04 AM

‘DGFT is changing methodology since the old system failed to yield desired results’
A decision by the Directorate-General of Foreign Trade (DGFT) to go for an algorithm-based lottery system to allocate import quota for tur (pigeon pea) and moong (green gram) in the next financial year has left the trade “surprised”.

In a notification issued on March 19, permitting imports of four lakh tonnes (lt) of pigeon pea and 1.5 lt of green gram for the next fiscal, the DGFT said imports will be allocated “equally to pre-determined numbers of applicants through an algorithm-based lottery system, as per procedure to be notified.”
The total import of pulses during 2021-22 fiscal is projected to be over 11.5 lakh tonnes. This includes the permission given to import four lt of urad (black matpe) too.

The imports are being made despite the Ministry of Agriculture and Farmers’ Welfare second advance estimates projecting production of pulses at 244.2 lt for 2020-21 crop year ending June. This crop year’s production is higher than last year’s 230.3 lt.

The Indian Pulses and Grains Association (IPGA) has welcomed the DGFT move to opt for the algorithm-based lottery system, saying the association came up with the suggestion.

While the jury is out on the new method proposed by the DGFT, trade experts wonder if the “algorithm-based lottery” was not a way of promoting gambling. “Shouldn’t we call this State-sponsored gambling?” an expert, who did not wish to be identified, asked.

Normally, imports are allowed on an actual user basis which means an importer should actually make use of the shipments into the country for his/her own use as raw material or feedstocks.

This is based on a 2104 Telangana High Court interim order passed by a single judge that only actual users be allowed to import maize (corn).

A slew of petitions is pending before the High Court since 2014 with a group of importers opposing the actual-user condition and another section, including farmers, arguing that only actual users be allowed to import.

In this context, the DFGT decision to include traders too to apply for import permits has drawn criticism.

The All-India Dal Mills Association has opposed this provision saying “it is not fair”.

“Traders import and stock, whereas millers import, process and sell them. There is a wide difference between the way each of them operates,” Suresh Agarwal, the Mills Association Chairman, told BusinessLine recently.

“All these bring the focus back to the lottery system. The algorithm will be based on software. What will be the criteria of the software? How will it select the criteria?” the expert asked.

However, others explain the reason why the DGFT has come up with these decisions. Traders are being allowed to apply for import quota now only. Earlier, they had applied in the pretext of millers. This led to the quota licences being traded at a hefty premium.

“Finally, these importers ended up on the defaulters’ list of the DGFT,” said a policy analyst on condition of anonymity.

Also, the earlier quota system did not work well in containing inflation and a controlled market.

“This was since the DGFT issued quota to, say, 1,500 importers with each getting to ship in 150 or 200 tonnes. However, these importers would queue before 7-8 Singapore-based trading firms,” said the analyst.

These firms determined the price of the pulses, resulting in higher prices for imports in the past. Hence, the new methodology the DGFT has come up with could change the dynamics of the trade itself.

On the other hand, there is also a danger of consignments of urad and peas that had been held at the ports for over a year-and-a-half of entering the country in the garb of re-exports.

About 2.5 lakh tonnes of urad and peas consignments from destinations such as Ukraine and Singapore were not permitted by barred by the Government.

This resulted in importers approaching the Supreme Court, where the Centre has now said it has no objections to their re-exports.

“What is the guarantee that these consignments will not be exported to Special Economic Zones(SEZs) and from there re-directed into the Indian domestic market,” the analysts asked, adding that they were valued at Rs 300 crore.

More importantly, if importers bring in these held up consignments that are re-exported to SEZs, it would amount to round-tripping.

Experts feel that a new system introduced by the DGFT for paperless applications to get import permits from last week could be critical to the algorithm.

They said that the Centre should opt for an algorithm based on deep learning and rating of traders and importers rather than basing it on luck.

A pulses importer in Mumbai said the DGFT’s new move could widen the number of traders importing pulses and could result in small competitions among them.

Another pulses importer in Chennai said that the new system without the actual user conditions offers equal opportunities to all.

“Traders will now get an opportunity to import but finally, they have to approach the mills to process. Maybe, the mills will have to settle for a lower margin,” he said.

The importer sees domestic production increasing to such an extent as to eliminate the need to import. “Our production could increase to levels that will rule out imports, provided the climate does not play truant,” he said.

The import decision has come at a time when the prices of pulses have increased to a five-year high on lower crop and steady demand.

The crop is 20 per cent lower this year against the anticipated production of 43-44 lt due to pest attacks and excess rains.

According to the Ministry’s of Agriculture’s second advance estimate, tur production is projected at 38.8 lt this season compared with 38.9 lt the previous season. Gram (chana) production is estimated at 116.2 lt (110.8 lt), while urad output is likely to be 24.5 lt (20.8 lt). Moong production has been pegged at 26.2 lt (25.1 lt).

The Centre decided to import pulses as domestic prices have surged on production not matching expectations and steady demand. Production this season has not met the target set by the Ministry of Agriculture as excess rains and floodings of the field affected the yield.

As a result, modal prices or the rate at which most trades take place in tur in agricultural markets in Maharashtra and Karnataka are ruling ₹400-600 a quintal higher than the minimum support price of ₹6,000 fixed by the Centre this season.

Urad modal prices in Tamil Nadu, a major growing region, are currently about ₹1,000 a quintal higher than the MSP of ₹6,000.

Chana prices, too, are almost ₹3,000 a quintal higher than the MSP of ₹5,100 a quintal in Madhya Pradesh.

Moong prices are, however, sharply lower around ₹5,000 a quintal in key growing States such as Madhya Pradesh and Maharashtra compared with the MSP of ₹7,196.

News Updates