Upbeat on wheat

The agriculture ministry has raised its estimate of this year's wheat crop, to 73.7 million tonnes from the earlier projection of 72.5 million tonnes (which compares with the last year's actual output of 69 million tonnes). This hike in the forecast was only to be expected, considering the substantial expansion in the area under wheat this year and the favourable weather that has prevailed during most of the growing season. What is baffling is why the government is still shy of projecting the full production upside, as the actual harvest size may turn out to be even bigger than what is now being indicated. The game was inadvertently given away by an agriculture ministry official when he pointed out, while releasing the latest data, that the estimates provided by wheat-growing states add up to a much higher figure than the Centre's conservative assessment. One reason for caution could be last year's fiasco, when the agriculture ministry erred in assessing the crop size in the early part of the season and had to scale down its estimates considerably. What followed was a series of ill-conceived government interventions, some of which boomeranged and kept prices high for much longer than might otherwise have been the case. This time too, while the wheat scenario harvest looks promising, the government is queering the pitch by putting out needlessly modest production numbers and thus keeping the scarcity psychosis going. Its premature announcement of the intended import of up to 3 million tonnes of wheat was another flawed move, because it is unlikely that imports will be needed.

While attention is naturally focused on the domestic wheat outlook, what should be noted is that the rebound in wheat output is not confined to India. As against the earlier assessment that there would be a global shortage of wheat this year, and therefore high international prices, the current indications point to a significant production upswing in the major wheat-exporting countries. This is bound to bring down international wheat prices, which had touched the decade's highest levels last year on India's entry as a major buyer.

The projected downturn in global prices has favourable implications for India, as it will virtually rule out the possibility of any export of wheat, thus ensuring comfortable year-round availability in the domestic market. Besides, should any contingency arise on the wheat front, however unlikely such a scenario may be, imports will be there as an option. The emerging domestic and global wheat scenario, combined with the rising interest rates, should also help ensure that the wheat-based industry and trade does not lock up its funds in mopping up wheat in excess of genuine business requirements. This will help ensure adequate government procurement for the public distribution system and the various welfare schemes.

Given this overall scenario, the time may have come for the government to reverse some of its recent pronouncements, when it had feared a mini-crisis in wheat. For instance, it could reverse the curbs on forward trading in wheat so that advance price signals are available. Going a step further, the government should also allow options trading to enable wheat farmers to take advantage of the off-season firming up of prices while hedging their price-related risks.