Another ill-timed move

The waiver of duty on wheat imports undertaken by private parties, announced by the food and agriculture minister Sharad Pawar even before the finance ministry could issue the notification, is another of the series of mis-timed moves by the government that have contributed to the current wheat crisis. The timing is flawed in every way. International wheat prices have already hardened due to supply constraints, huge purchases by the Indian public sector agencies and other reasons. As such, private importers may not be able to source supplies at costs lower than the ruling domestic prices. The duty-free announcement can also create problems for the public sector agencies whose import tenders are still open, as exporters (sensing more opportunities) may now quote higher prices. Moreover, even if private traders go in for imports, as assumed by the government, it would make matters worse for the country's wheat economy. For, the imported stocks would most likely arrive at a time when wheat sowing would be round the corner and they might, therefore, depress domestic prices, thereby dissuading farmers from boosting wheat production. That would then extend today's wheat scarcity.

The very genesis of the current mess on the wheat front can be traced to the ill-scheduled move to go public about importing huge quantities of wheat on the government's account, just when the domestic crop was ready for harvest. To make matters worse, the announcement of a bonus on the wheat price was delayed till much of the produce had already been disposed of by farmers. The result of these follies was that the wheat-based industry, trade and even speculators made heavy purchases at prices marginally higher than the official support price, leaving little scope for the Food Corporation of the India (FCI) and state-level agencies to procure grains for the Central pool. Consequently, the government's wheat procurement dropped to 9.2 million tonnes, the lowest in several years, making it impossible to adequately replenish dwindled official grain coffers.

The mismanagement of the wheat economy has been apparent in several other ways as well. In July 2004, soon after the government came to power, the Food Corporation of India had wheat stocks of a very comfortable 19 million tonnes. Another 15 million tonnes were procured in 2005. Yet, the total stocks dwindled to a mere 2 million tonnes by January 2006, thanks to liberal disbursals of heavily subsidised grains in the domestic market and allocations for exports. Unnerved by the impending, albeit self-created, crisis, the food ministry did make an attempt to contain the damage by mooting a cut in grain quotas for households above the poverty line, as also higher prices for this category, besides slashing wheat allocations to non-wheat consuming states, but these ideas were not implemented. The government failed also in accurately assessing the likely wheat output, so it could not take timely action. And when reality finally dawned, it created a scarcity psychosis by displaying needless panic. Indeed, the government did not realise that low procurement also meant higher grain availability in the open market. Where then was the need for crisis moves? Indeed, the market has displayed greater maturity than the government, as prices have remained fairly stable despite all these ill-conceived moves. It must now be hoped that the government does not create the conditions that encourage farmers to shun wheat cultivation.