The Hindu Business Line : Panic stations

Far from being reassuring, the government’s utterly defensive posture actually sends a negative signal to the market about the fate of the wheat crop.

Food inflation is a phenomenon that economic ministries have rarely been able to address with unhurried detachment and sober responses, but now that the issue has mounted the political centre-stage as well, the government’s policy responses seem to betray an element of panic that is clearly unwarranted at this stage. Wheat is a classic case in point. Notwithstanding a series of trade-restricting decisions — a ban on exports, the imposition of storage limits, i nformal ‘advice’ to the private trade to keep off Punjab and Haryana, continued delisting of wheat from futures trading and so on — a sense of uncertainty still dogs New Delhi.

Krishi Bhawan is desperate to meet its wheat procurement target of 15 million tonnes, even as the Agriculture Ministry continues to stand by its output estimate of 75 million tonnes. As a mater of abundant caution, the government has begun to purchase wheat in the international market at an exorbitant price using the ‘call option’ route. The latest to join the fight against inflation is the Minister for Railways, Mr Lalu Prasad, who informed the Rajya Sabha recently that the private trade will not be allotted railway rakes for movement of wheat. May be it is Mr Prasad’s way of contributing his mite to the ongoing fire-fighting; but is he aware of the implications? The decision is patently both anti-farmer and anti-consumer. After all, out of the estimated 75 million tonnes of wheat production, government purchases would be merely a fifth or 15 million tonnes. The large balance of nearly 60 million tonnes will have to be moved out of the producing regions to consumers across the length and breadth of the country.

Movement by rail is least expensive and least polluting. If prevented from using the rail route, the trade will have to fall back on road transport which is both expensive and polluting. Higher transportation costs will push open market wheat prices higher and hurt consumers especially in areas far away from the producing regions. The inflation objective would stand defeated. On the other hand, farm gate prices in Punjab and Haryana run the risk of falling below the procurement price of Rs 1,000 a quintal if the private sector is kept out of the market. This is absolutely unjustified and unacceptable. Why should growers not get market-determined prices?

On his part, the Commerce Minister recently asserted that the government would not hesitate to prevent the private trade from buying wheat in order to facilitate FCI meet its target. These and similar coercive assertions do not help anyone, neither growers nor consumers. Far from being reassuring, the government’s utterly defensive posture actually sends a negative signal to the market about the fate of the crop. If the crop size is indeed 75 million tonnes, panic is unwarranted.

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