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Indian Institute of Management Ahmedabad December 26, 2016

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Demand Elasticities for Pulses and
Public Policy Options

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The National Food Security Act (2013) stipulating the provision of subsidised cereals to almost
two-thirds of the population and attaining self-sufficiency in food grains are important public
policy initiatives in recent times in India. Pulses are not included under this Act, but concerns
about self-sufficiency do apply to them. Since pulses are a major source of protein, the options
for public policies regarding them in the short run require estimation of the growth of their
domestic production and consumption. In India, the domestic demand for pulses far exceeds

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domestic supply and of late about 20% of the demand has been met through imports.

This year (2016), however, the monsoon is expected to be marginally above average and
geographically well spread across the country. As a result, there has been a substantial increase
in the area sown for pulses in the kharif season. Even in the rabi season, the area sown for
pulses is expected to be significantly higher. The domestic production of pulses is expected to
increase by an average of almost 32% over the previous year. Under the most optimistic
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scenario, it can increase by 35%, and under the most pessimistic scenario, it can increase by 29%.
Overall agricultural growth is likely to exceed 7% and the personal disposable income in real
terms may grow at 7.8%, consumer price inflation may be 5%, and population growth would be
1.5%. Further, the estimate of the income elasticity of demand for pulses is found to be +0.716
(Kumar et al. 1 2011) implying that pulses are normal goods but are considered as a necessity and
not as a luxury. Similarly, their own price elasticity is estimated to be (-)0.635 implying that
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their demand is price inelastic as is generally expected in the case of necessities.

Policy makers are now debating the following questions:

1. Should we import pulses during this year or do we have enough to export?

2. If we do not want to export or import pulses, by how much would the domestic prices of
pulses change in relative terms and in absolute terms?
No

3. Let the Minimum Support Price (MSP) of pulses be the current equilibrium price. Then,
by how much does it need to be changed if the government wants to create a buffer
stock of about 2% of the domestic production of pulses for future needs?
Do

1 Kumar Praduman, Anjani Kumar, Shinoj P. and S.S. Raju (2011): “Estimation of Demand Elasticity for Food
Commodities in India”, Agricultural Economics Research Review, Vol. 24, Jan-June, pp.1-14.

Prepared by Professor Ravindra H. Dholakia, Indian Institute of Management, Ahmedabad.

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