International trade article

"Under the new central scheme Price Stabilisation Fund (PSF), the government has started importing pulses after a gap of two years to boost domestic supply and check retail prices of pulses that have sky-rocketed beyond Rs 150 per kg.

          

In a statement the government said: "In order to ensure retail distribution to the consumers, it was decided to import 5,000 tonnes of tur dal and 5,000 tonnes of urad dal by MMTC. The first consignment of imported Dal would be reaching Mumbai by September 5."

            

The government said it has taken several measures to increase availability and control the price of essential commodities, especially pulses and onions. States have been empowered to impose stock limits on pulses, export of all pulses is banned except Kabuli Chana, organic pulses and lintels to the tune of 10,000 tonnes and there is zero duty on import of pulses, it added.

India imports about four million tonnes of pulses largely through private trade." Yet as we read, the private stakeholders have raised the prices so high that most people aren't able to buy them any more. Yet the are considered essential commodities that should be available for everyone.

As India can't produce sufficient amount of pulses themselves, the government has stepped in "to reimburse Rs 113.40 crore of losses on pulses imported between 2006-2011 by NAFED, PEC, STC and MMTC, apart from losses incurred in the sale of pulses up to six months after closure of the scheme". Therefore this will enable PSUs to be financially sound to intensify trading activities to cool down prices of essential commodities.

When we read we see that there is zero duty on import of pulses, therefore it will cost less to import pulses and lower amount they are sold for. If the government supplies a great amount to the market that is way below the price at the moment. Private suppliers will have to decrease their prices as well in order to still be in the business, and the zero duty on imports gives them more incentive to do so. 

As we see from the graph, when supply is increased in a market it causes a shift of the supply line to the right, resulting in a new equilibrium price and quantity. In this case we don't know yet how much the prices have changed as they are only starting the imports. Yet we can see that when supply is increased the prices fall. With the price falling people demand more. Therefore the new equilibrium point will be at Q2, P2. Price will be lower therefore more will be demanded.

http://economictimes.indiatimes.com/news/economy/foreign-trade/governement-to-pay-agencies-rs-113-40-crore-for-losses-on-pulses-import/articleshow/48772248.cms