Mumbai, March 27 During its five-year rule, the UPA government launched a number of fancy schemes such as National Food Security Mission, in addition to pursuing ongoing programmes for various crops. Augmenting domestic output and reducing dependence on imports were the avowed objective.
From 198 million tonnes (mt) in 2004-05, output of foodgrains (rice, wheat, coarse cereals and pulses) has increased to 230 mt in 2008-09. Yet, output growth has been tardy and often precarious. Foodgrains management and trade policies have become more vulnerable to output and price changes.
For instance, our import dependence on pulses has increased in recent years. We imported wheat in two out of the last four years, while export of wheat and rice (non-basmati) is banned for over a year now.
Currently, the country is facing an anomalous situation.
High buffer stocks
Buffer stocks of wheat and rice with the Government-owned Food Corporation of India (FCI) are already at unconscionably high levels. As against the minimum stock norm of 4 mt as of April 1, the FCI will nurse 14 mt of wheat stocks, that is more than three times higher.
Rice stocks are reported to be in excess of 20 mt.
These stocks involve huge carrying costs – storage, interest, insurance – plus the possibility of quality deterioration and pilferage. The estimated cost of carrying wheat is Rs 2,400 a tonne a year. Every month of storage will push the notional value of wheat up by Rs 200, making the goods uncompetitive in the market.
Now, harvest of new wheat crop, estimated at close to 78 mt, has begun.
FCI will have to start buying at the procurement price of Rs 1,080 a quintal. If one were to add local taxes – as high as 11 per cent in Punjab – the cost will be close to Rs 1,200 a quintal. Cost of transportation to the consuming centres will be extra.
The FCI is likely to procure 18-20 mt of wheat this season which would take the total wheat inventory to over 30 mt by June. How would the new government deal with such excessive stocks whose costs are way above the market price?
Exports unviable
Even if exports were opened up, Indian wheat would be uncompetitive in terms of price. In other words, without a subsidy, exports may not be feasible.
Also, monsoon season — June-September — may prevent large-scale shipments out of the country.
Logically, the stocks should be liquidated in the domestic market, but the market cannot absorb the full cost. Open market sales of wheat would necessarily require a subsidy. One is not sure if the subsidised wheat will actually reach the intended beneficiaries.
Official laxity
The food subsidy burden, already spinning out of control, will balloon further to unsustainable levels.
The country is set to pay a huge price for the ineptitude of policymakers.
The country’s foodgrains management is in a shambles. There is no one accountable for the mess and for the huge costs incurred on wasteful storage of precious grains that should have found their way into the kitchens of poor homes long ago.
Business Line had argued even by early February this year that export restrictions should be relaxed. For the current lame duck government and even for the new one to come in by June, the options are limited. Some administrative measures may help ease the pressure though.
Action required
First, restriction on private sector procurement should be lifted forthwith. It is unclear what is holding up a decision on this.
To be sure, there is no reason for the private trade to rush in to procure wheat because the trade knows the Government would incur all the carrying costs on its behalf in any case, and will be forced to sell the procured goods at lower prices a few months later.
Second, a part of the FCI procurement should be strategically moved to port towns such as Kandla and Mundra. This will ease storage pressures in producing centres of Punjab. If export opportunities develop, port-based stocks can be shipped out.
All in all, there is no escape from huge costs that will have to be incurred in procurement and warehousing of wheat; but the country can ill-afford such luxury resulting from official laxity and apathy.
Surely, the country deserves practical and progressive food management policy that is at once flexible and financially sound.
Source : Business Line