The Government should allow private trade to lift FCI’s stock of wheat rather than route the grain only through PSUs.

The Government will begin the new financial year from April 1 with its wheat stocks at around 23 million tonnes (mt) – more than thrice the required minimum buffer and strategic reserve of 7 mt for that date. Worse, this is even before the new crop starts arriving in the mandis. The current weather conditions, especially an extended winter, indicate it would be yet another bumper one. That, together with the higher minimum support price (MSP) payable this time, may result in an all-time-high official procurement of 42 mt, going by the Food Corporation of India’s (FCI) projections. It raises the possibility, then, of public wheat stocks crossing 60 mt – plus another 33-34 mt rice – by July 1. Clearly, this isn’t sustainable. Not just in terms of the food subsidy costs that it implies, but also from the perspective of finding quality space to store the above grain.

Making way for the freshly harvested crop cannot be done simply by offloading the existing surplus inventories cheap or even distributing them free, as some would advocate. For all its noble intentions, this strategy risks the grain coming back into FCI godowns rather than being consumed – the attractive MSP making it a real possibility. A more sensible option is to export the surplus wheat out of the country, without it in any way compromising the requirements of the public distribution system. But it has to be done fast, keeping in view the arrivals of the new crop from April and also before wheat prices decline globally with harvesting commencing in Russia, Ukraine and Kazakhstan from end-July. Right now, Indian wheat is fetching over $ 300 or Rs 16,000 a tonne at the port of shipping, which is above the MSP of Rs 13,500. FCI could well offer grain from its godowns for exports at the MSP or, alternately, supply at the port after adding transport cost by rail (about Rs 1,500 from Punjab/Haryana). It leaves enough margins for the exporter. There is, thus, ample scope for the private trade to supplement the role of public sector agencies as is the case now.

By offering wheat at no less than the MSP, the Government will be able to ensure it is not procured again. It can further insist on prior submission of irrevocable letters of credit/firm export orders by the buyer, only to make sure that the grain is intended for shipping out and not for sale locally. Making available wheat from FCI stocks for export purposes to anybody at a fixed MSP-or-above rate is far more efficient than the current system of routing exports only through public sector undertakings. These agencies now invite price bids through tenders that are opened after some three weeks. The fixed offer price mechanism could save valuable time and, thereby, FCI’s own carrying cost. It is also transparent, being open to anyone wanting to export directly. Moreover, the Government could discontinue the programme whenever its stocks have depleted below a certain comfort level. We are far from that today.

(This article was published on February 11, 2013)
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