Has the government bungled procurement?

DEBATE

Apart from the issue of cancelling a lower-priced bid while accepting a higher-priced one, increasing procurement prices needs to be examined.

ALOK SINHA,
CMD, Food Corporation of India

Thanks to the higher MSP, banning futures and stopping exports, we procured 115 lakh tonnes this year, up a fourth over last year

We are fully satisfied with the wheat procurement operations. The central government, on its part, took many measures to ensure adequate procurement of wheat in 2007-08. It raised the minimum support price (MSP) of wheat from Rs 650 to Rs 750 per quintal and doubled the bonus from Rs 50 to Rs 100 on a quintal, thereby taking the purchase price from last year's Rs 700 to a record Rs 850 per quintal, an increase of about 21 per cent. This was the highest ever increase in the MSP over a period of just one year. At that point, everyone, including economists and sections of the trade, welcomed the price and anticipated a high procurement.

The government banned futures trading in wheat and stopped its export. It also made stock declarations compulsory for purchases exceeding 50,000 tonnes by a company or an individual, and empowered state governments to decide stock limits in commodities.

We managed to procure 111 lakh tonnes, which should actually be seen as 115 lakh tonnes as Punjab kept 4 lakh tonnes wheat (purchased at the MSP) for its own Atta-Dal scheme. This 115 lakh tonnes is an increase of 23 lakh tonnes over last year's 92 lakh tonnes. Wheat output is estimated at 73.7 million tonnes, up 4.2 million tonnes from last year. Of this increase, we bought 23 lakh tonnes.

The share of government purchase in the total market arrival of wheat increased from last year's 67.6 per cent to 75.1 per cent. We cannot buy more than this as there are places which grow premium quality wheat (like Madhya Pradesh and Gujarat) and where the private sector does procurement at rates higher than the MSP. Take MP for instance. Of the 13 lakh tonnes wheat arrival in the state mandis, we were able to buy only 57,000 tonnes.

Further, there are states where the market arrival is less than the marketable surplus. In Uttar Pradesh, for instance, of the 40 lakh tonnes marketable surplus of wheat, the market arrival was only 13 lakh tonnes. The huge gap between these two indicates that there has been large trading outside the mandis by lawless traders to evade taxes that are as high as Rs 100 a quintal. A high-level committee from the central government had visited the state and it also reported large-scale evasion of taxes in the state. Apart from constituting a loss for the state government, it contributed to a shortfall in our procurement targets.

Such things are beyond the FCI's purview and the respective state governments should take measures to ensure that there is no evasion of taxes because that spoils the level-playing field and gives an unfair advantage to a certain section of traders.

PRAKASH JAVADEKAR,
National Spokesperson, BJP

Importing at a price higher than that paid to our farmers and the bungling on tenders need to be explained

The biggest scam of the UPA government is unfolding in the form of wheat imports. The bungling started right from the policy framework and continued at every stage of implementation. First, the finance minister is on record preferring imports over procurement. With his mathematical wisdom he thought importing wheat from Australia for south Indian requirements will prove cheaper than procuring and transporting north Indian wheat.

During the NDA regime, the godowns overflowed and we exported foodgrain. The UPA converted this complete food security into a perpetual food insecurity by its wrong policies. It allowed private players to enter the market and purchase directly from the farmers. This one mistake has cost the nation and the poor dearly. Companies like Reliance, Cargil and Monsanto entered the market and lured farmers by paying just Rs 25-50 over the MSP and hoarded large stocks, as a result of which their profits soared. The other effect of this was that the FCI godowns remained empty, and this resulted in a lower availability through the PDS and an increased demand from the market.

As prices soared because of this policy, the government went into a huddle and decided to import wheat "" this is the first time after a gap of eight years that we have imported wheat without any real change in either prices or supply. The low-quality wheat still lies unutilised as people rejected it. This year, instead of adopting a flexible MSP or applying some restrictions on private players, the government committed the same mistakes. In March 2007, declaring an intent to import 5 million tonnes of wheat caused a spiral in international prices. The government invited bids in May and rejected all of them, as the price (quoted at $263) was perceived as high. There were curious developments on the Chicago Board of Trade in June, which saw a jump of 13 per cent in prices, and the UPA invited bids once again. The government which rejected $263 as high in May now accepted bids in the range $320-$360! This is a Rs 1,200 crore loot and must be probed in detail.

Why did the government declare, in March, that it would import 5 million tonnes, when global prices were already high, and it knew this would further trigger prices? And what was the need to import despite the fact that we have increased production of wheat in the country compared to last year? If the government had raised procurement prices, this would have increased procurement and would also have benefited farmers. The government needs to explain why the May tenders were cancelled and why higher prices were accepted in July. Last, why didn't the government wait till August when the world prices are expected to come down with wheat from Ukraine, Russia and other wheat-producing areas hitting the market?