The Hindu Business Line : Avoidable burden

The Centre’s decision to import nearly 8 lakh tonnes of wheat at an astronomical $390 (about Rs16,000) a tonne, almost twice the procurement price paid to farmers in India, has drawn sharp negative reactions from some quarters. Even within the government, there are differences of opinion over the desirability of imports. It is unclear whether the objection is to wheat imports per se or to the price at which the latest purchase has been made. Either way, imports are an avoidable drain on foreign exchange and an added burden on a bloated food subsidy. Unfortunately, the country’s entry into the market coincided with a largely unforeseen sharp spike in the global wheat market, caused mainly by production uncertainties because of weather aberrations and tightening supplies. Rising ocean freight rates too contributed to higher landed cost.

While a price increase was inevitable given the changing market fundamentals, wheat futures prices in the world’s leading exchanges have moved up sharply — disproportionate to the fundamentals — largely because of long positions held by speculative funds. India has little control over international commodity market dynamics. But portents for a bull-run in the domestic market are ominous. Demand continues to rise relentlessly. Inadequate procurement through the Food Corporation of India (11 million tonnes versus a target of 15 mt) despite the sharp hike in procurement price and estimated large harvest (75 mt, up 6 mt from last year) has brought little respite from high open market rates (over Rs 10,000 a tonne). Consumers are worse off, and the poor are hit the hardest. By purchasing at a high price, the government has sent a strong signal to the market about its intention to play an interventionist role and augment supplies. It has earned political wrath in the bargain.

In this awkward position, the government may be forced to go slow on additional imports. A call can be taken 4-6 weeks from now, when the global wheat situation becomes clearer. A critical factor will be domestic production prospects. After the southwest monsoon tapers off, an assessment of soil moisture conditions in principal wheat-growing regions (Punjab, Haryana, West Uttar Pradesh, Madhya Pradesh) by mid-October should give a reasonably good indication of planting conditions. But it will take more than a bumper crop of 75 mt to prevent domestic prices from rising or make imports unnecessary. There are also serious reservations about the Agriculture Ministry’s crop estimate. Despite the estimated output of over 210 million tonnes of foodgrains, we are short of wheat, coarse cereals and pulses. Rice, the only exception, may soon go the wheat way, if production enhancement programmes are not implemented with due seriousness. The Ministry of Agriculture has its task cut out for it.

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