The Hindu Business Line : No brave comments on wheat imports, please

PROSPECTS of wheat imports by India, once again, became the matter of speculation last week. Interestingly, the Minister for Agriculture, Mr Sharad Pawar, in New Delhi, and Ms Radha Singh, Agriculture Secretary, on her visit to Kuala Lumpur, ruled out any such move in quick succession.

It is unclear what prompted these two senior functionaries of the Government to send a bullish signal to the market by asserting that the country had sufficient stocks and that there is no plan to import.

The whole world knows that the country's recently concluded wheat harvest was well below the target of 78 million tonnes and the admitted position of the Government itself is that production was 72 mt, unchanged from last year.

The opening stock position and consumption requirements, including allocation for welfare programmes, are all common knowledge.

It is not that there is a shortage; but there is no doubt that supplies are tight this season. A tightly balanced market is always vulnerable to supply disruptions and role of speculative funds.

Players in the grain market - both within the country and outside - look for price signals based on demand-supply fundamentals. The market has already emitted the signals.

Importantly, commodity markets, by their very nature, move not only on the basis of current demand-supply fundamentals, but also on the basis of expected changes in future. There are several factors to cause changes.

Higher economic growth resulting in higher incomes will push up demand for wheat.

The political compulsions of the Government can also not be lost sight of.

Major States such as Bihar, Uttar Pradesh and Tamil Nadu will get into the election mode over the next few months. There will be pressure on the Centre to ensure comfortable availability of essential food items and consumer-friendly prices.

By denying any possibility of import, the functionaries may be unintentionally feeding the greed of speculators.

On the other hand, by talking about the possibility of imports or suggesting that the import option is open, the Government would be sending a strong signal to the market, especially to those holding large inventory in anticipation of a further rise in price, that their anticipated price action may not materialise.

As the harvest and procurement concluded only a few weeks ago, it is early to expect a strengthening of prices. There is strong possibility of a price movement happening sometime in October. An upward price movement from the current levels will depend on the deficiency or otherwise of the southwest monsoon at the time of its withdrawal, especially in the major wheat belt and conditions for planting.

Unlike in 2004, if the kharif season ends with overall rainfall not in the negative territory, it would create ideal conditions for planting of winter crops, including wheat.

In the absence of fresh leads, wheat prices are expected to remain stable to firm over the next 8-10 weeks. Favourable moisture conditions for rabi planting would rein in a strident price rise in wheat. However, if the soil moisture conditions are less than satisfactory, by October the market could begin to firm up.

If open market prices exceed Rs 900 a quintal and sustain at that level for a few weeks, the Government would find itself under intense pressure to bring prices down and augment supplies. State elections and political pressures relating thereto have also to be factored in.

Of course, the Government has the option to cut down on wheat supplies for welfare schemes and compensate a part of the grain component with cash.

A satisfactory harvest of paddy in September and procurement of rice too would reduce the anxiety on the wheat front. But the impact of these measures would be limited.

It remains to be seen how things play out over the next several months. But it would be unfortunate if policymakers take the market for granted and make claims that may subsequently turn out to be hollow. Brave statements about wheat imports are not warranted at this point of time.

The Government has accepted futures trading in commodities as an inevitable part of economic liberalisation. With it comes a certain speculation and flow of funds that are sure to impact prices.

High prices do affect consumer interest. The question is whether even a part of the price rise has flowed to the primary producer, the farmer.

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