Centre scraps wheat tender

Fears of private traders bagging the orders force New Delhi's hand.

The government has decided to scrap a plan to purchase wheat through a series of small domestic tenders in different parts of the country, fearing that private traders may corner most of the orders.

The decision was taken last Friday at a meeting of the Empowered Group of Ministers (EGoM) on wheat, headed by External Affairs Minister Pranab Mukherjee.

On June 22, the EGoM had decided to augment its buffer stock of wheat, which is used to feed the public distribution system and for market intervention to cool prices. The plan was to purchase wheat from different consuming centres of the country through small domestic tenders.

Suppliers, both local farmers as well as corporate traders, would have been allowed to offer domestic or imported wheat, with delivery being taken at Food Corporation of India godowns at a cost less than the prevailing procurement prices of wheat in Punjab, plus taxes, levies, freight, storage and interest.

Explaining the background to drop the domestic procurement plan (for which no quantities had been fixed), government officials told Business Standard the reversal followed Agriculture Minister Sharad Pawar's meeting with Prime Minister Manmohan Singh on the matter on 4 July.

Pawar had asked Singh for the decision to be rolled back, as he feared traders would corner the entire benefits of the government's procurement drive.

Pawar also argued that domestic procurement at this stage would have led to an increase in open market prices, leading to an inflationary spiral, which the government would have found difficult to control.

"The move would not benefit our farmers, who had by then already sold off their surplus wheat to traders. One question in the government, which exists even today, is how it would have dealt with offers from corporate traders to sell wheat at above the minimum support price (Rs 850 per quintal, including the Rs 100 bonus)," the officials added.

Subsequently, Singh directed the EGoM decision be kept in abeyance, which was taken on record by the ministers at last week's meeting. The ministers are expected to meet again in around three weeks.

In addition, the EGoM decided to extend the ban on export of wheat and wheat products from December this year to March 31, 2009, or till further orders. Simultaneously, the group also decided to continue allowing duty-free private imports of wheat till further orders.

Simultaneously, duty-free imports of wheat flour would be allowed till March 31, 2008, with both steps augmenting domestic availability and controlling prices.

In another decision, STC Ltd, a public sector trading company, has been authorised to buy up to 4 million tonnes of wheat through separate tenders for quantities not exceeding 500,000 tonnes. However, government officials said this was an enabling proposal and it was likely that the actual procurement through this route would be lower.

The ministers also proposed to start a dialogue with Australia for purchase of wheat on a "government-to-government" basis. Australia is a leading producer of soft wheat, with the latest production forecast for the year at 21 million tonnes and prices prevailing around $ 296 per tonne.

Although expensive compared to US wheat, Australian soft wheat is particularly suited for Indian household usage.

ON THE ANVIL

Ban on export of wheat and wheat products extended from December this year to March 31, 2009

Duty-free private imports of wheat to continue till further orders

Proposal to start a dialogue with Australia for purchase of wheat on a "government-to-government" basis