Stock-ing worries: It's lower than buffer norms

ECONOMIC SURVEY 2006-07

Lower wheat supply behind the decline in foodgrain reserves.

The Economic Survey pointed to the foodgrain stocks that stood lower than the buffer stock norms, due to increased offtake under Targeted Public Distribution System (TPDS) and other public welfare schemes.

This was in sharp contrast to the excess stocks that the country witnessed in 2001-02 and 2002-03.

The foodgrain stocks stood at 18.8 million tonnes as on January 1, 2006, lower by 13.36 per cent to previous year's 21.7 million tonnes; lower by 6 per cent to the buffer stock norm of 20 million tonnes.

The main reason behind the decline in stocks was the lower stock of wheat, the Survey said. However, coarse grain procurement was higher at 1.14 million tonnes in 2005-06 as against 0.8 million tonnes in 2004-05.

In April 2006, wheat stocks fell to a low of 2 million tonnes against a buffer stock norm of 4 million tonnes. Due to poor procurement of wheat "" 9.23 million tonnes against 14.79 million tonnes the previous year "" the actual foodgrain stocks also fell short of buffer norms.

Consequently, 5.5 million tonnes wheat was imported at zero duty through the State Trading Corporation (STC) at an average rate of $205.31 per tonne. Of the contracted imports, 4.5 million tonnes arrived by January 2007. In addition, private traders imported about one million tonnes of wheat.

In stark contrast to the wheat scenario, adequate domestic availability was estimated in sugar with a supply of 22.7 million tonnes, as against estimated consumption of 19 million tonnes, said the Survey.

Adequate consumption stocks in foodgrain had been ensured through handsome procurement of rice and imports of wheat, claimed the Survey. Government's timely decision in importing wheat checked the deficit and augmented domestic supply of foodgrains, pre-empting major negative impact on food security for the nation.

However, the Survey maintained that the pressure on inflation shall continue in the current year, owing to a mismatch in the supply and demand for some primary articles and higher international prices.

Factors like buoyant growth in the Gross Domestic Product (GDP), growth in reserve money, the multiplier effect of increase in broad money and credit growth, had also exerted pressure on the demand side.

Duty reduction in essential commodities and the monetary measures by the Reserve Bank of India (RBI) would soften inflation, the Survey said.

However, unless the supply side constraints "" especially in food items "" are removed, the inflationary pressure will not be tamed.