Food ministry seeks to hike wheat, rice prices

The food ministry is likely to shortly approach the Union Cabinet for a 40-50 paise per kg increase in the central issue prices of wheat and rice sold through fair price or ration shops, a senior government official has said.

An increase in prices will bring them in line with the economic cost of handling the grains, he said. In order to project a pro-poor image and apparently bowing to pressure from its Left allies, the government late last year deferred an increase in central issue prices of wheat and rice sold under the public distribution system (PDS).

When the matter was again taken up during high-level government discussions, the ministry was asked to put forth its proposals after the budget session of Parliament.

The government did not want to touch the politically sensitive issue when Parliament was in session, the official said. The budget session of Parliament concluded May 13.

However, the matter has now assumed urgency in the wake of lower wheat procurement this April-March rabi marketing season. Marginally higher ration shop prices may reduce offtake which will ease pressure on stocks.

Wheat procurement in the current season up to May 12 has registered a 6.5 per cent decline to 14.4 million tonne from 15.4 million tonne a year ago.

The government's wheat stocks are estimated at 15.7 million tonne as on May 1, down 17.4% from a year ago. "The current central issue prices for wheat and rice under the targeted public distribution system are valid till June 30. We will again finalise our proposals and approach the cabinet for their (prices) hike due to rise in procurement and other costs," the official said.

The government currently sells wheat to families above and below the poverty line (APL and BPL) at Rs 6.10 and Rs 4.15 per kilogram, respectively, through PDS.

Both common and grade 'A' rice is sold at Rs 5.65 per kg to the BPL families. The corresponding prices for APL families are Rs 7.95 and Rs 8.30 per kg. According to an earlier Cabinet decision, central issue prices of foodgrains for APL and BPL families should not be less than 70 per cent and 50 per cent, respectively, of the economic cost borne by the government in handling them. Since the economic cost of handling grains has risen over the years, central issue prices of wheat and rice for APL and BPL families are currently around 60 per cent and 45 per cent, respectively, necessitating an increase of up to 40-50 paise per kg, he said.

Sources said with the rise in inflation, hike in minimum support prices of wheat and rice and increase in transportation and storage costs, the overall economic cost for handling these grains has risen.

Food subsidy increased to Rs 25,160 crore in 2003-04 (April-March) from Rs 17,494 crore in 2001-02 and Rs 24,180 crore in 2002-03. Food subsidy is estimated at Rs 25,800 crore in 2004-05 while budgetary projections for 2005-06 peg it at Rs 26,200 crore.

Central issue prices can be changed to suit stock levels. For three months in 2002-03, prices of wheat and rice sold to APL families were cut by Re1 per kg to encourage higher offtake and reduce burgeoning foodgrain stocks.

The total economic cost for rice procurement had increased to Rs 12.62 per kg in 2004-05 according to budgetary estimates against Rs 12.53 in revised estimates of 2003-04 and Rs 11.83 in 2002-03.

Similarly, the economic cost of wheat rose to Rs 9.52 per kg in 2004-05 from Rs 9.24 in 2003-04 and Rs 9.14 in 2002-03.

Since ration shop prices have not been increased for long, consumer subsidy is rising, the official said.

Consumer subsidy on rice sold under PDS has risen to Rs 4.32 per kg and Rs 6.97 for APL and BPL families, respectively, in 2004-05 from Rs 3.65 and Rs 6.39, respectively, in 2001-02. Correspondingly, the subsidy on wheat has increased to Rs 3.14 per kg and Rs 5.09 from Rs 2.57 and Rs 4.56.