The Hindu Business Line : ‘Remove clamps on wheat purchases’

The country has more than enough quantum of buffer stock and the Centre should be in a position to influence open market prices by following sound intervention policies.

G. Chandrashekhar

Mumbai, May 19

There may be a smug feeling within the Government over wheat procurement touching 200 lakh tonnes; but an immediate review of related policies is called for. The Centre has succeeded in meeting and indeed far exceeding its initial procurement target of 150 lakh tonnes for the current season; but this has been made possible by pursuing highly restrictive policies.

With a comfortable inventory level, it is time the anti-farmer and anti-consumer measures are withdrawn right away. Without doubt, large procurement has been the result of measures that throttled any attempts of the private trade to purchase wheat this season.

The restrictive measures included friendly persuasion of large corporates to stay away, lowering of stock ceiling for giving declaration of inventory build up, and worse, the Indian Railways not allotting rakes to the private sector for movement of wheat from producing regions to consuming centres.

Counter-productive

Continuing with these restrictive measures could prove counter-productive. They have already kept wheat prices on leash artificially. Admittedly, the Government has raised the procurement price to an all time attractive high of Rs 10,000 a tonne; but given a free hand, the private sector could have bought wheat at slightly higher prices too.

The private sector has been rather wary of making large purchases for fear of any sudden official reprisal. With the Essential Commodities Act dangling like the Sword of Damocles, no one wants to take a chance.

Worse, disallowing rakes for movement by rail has built a financial disincentive as road transport is expensive. Inadequate movement of newly harvested wheat to different parts of the country is hurting large industrial consumers like the flour mills.

In particular, the southern parts of the country are worst hit by these restrictive practices. Flour mills in the southern States are starved of raw material.

Speaking to Business Line, an industry leader regretted the clamps on wheat marketing and expressed apprehension that the restrictions were outliving their utility. “The Government’s procurement objective has been achieved; so, the private sector should immediately be allowed a free hand in wheat purchases and movement,” he asserted. Another anguished flour miller regretted that the southern region was being unfairly denied access to new crop wheat harvested in the North.

It is perhaps time the Government stopped procuring wheat. With an opening stock of close to 40 lakh tonnes and fresh purchases of 200 lakh tonnes, the country has more than enough quantum of buffer stock. With this, New Delhi should be in a position to influence open market prices by following sound intervention policies.

Carrying cost

The ‘cost of carry’ is something to be reckoned with. Storage and interest costs may well add up to about Rs 2,500 a tonne a year. This represents 25 per cent of the procurement price. In other words, the cost of wheat with the Government will be pushed by about a quarter by this time next year. This will, in turn, have consequential impact on food subsidy which is sure to balloon to record levels in fiscal 2008-09.

With international wheat market set to cool following forecast of a rebound in global wheat production, the country may eventually find itself carrying excessive inventory unrelated to market fundamentals and incurring enormous carrying costs, at least a part of which is avoidable. But when elections are round the corner, who cares?

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