Panic on wheat

The government's announcement of the highest ever bonus of Rs 100 a quintal for wheat, on top of a similar hike in the minimum support price (MSP) for the grain, reflects its continuing (though somewhat misplaced) concern with regard to wheat procurement to feed the public distribution system. The effective cost of wheat purchase has therefore gone up by about 30 per cent in one year, from Rs 650 per quintal to Rs 850. The fact that the government has taken this extraordinary decision unprompted, without any demand from the farm lobby, and at a time when inflation is still a worry, tells its own story. If the price hike and bonus are not clear signals to the market that the government anticipates difficulty in managing its wheat supplies, Food and Agriculture Minister Sharad Pawar has also announced that the State Trading Corporation (STD) will be asked to prepare to import 3 million tonnes of wheat, should the need arise for that. In tandem with this, the government has extended the deadline for duty-free imports of wheat, which expired in February, to the end of the calendar year in December.

These moves raise eyebrows because the evidence points to normalcy in wheat supplies this year. The expectation so far is of a good wheat harvest, rising above 73 million tonnes, against last year's 69.5 million tonnes. This is regardless of some damage to the standing crop due to late-season thundershowers and hail. Besides, the opening stock of wheat with the Food Corporation of India (FCI) on April 1 is expected to be above the minimum buffer stocking norm of 4 million tonnes, which compares with the actual level of only a million tonnes at this time last year. With enough by way of opening stocks and a good harvest expected, the government should be able to mop up the wheat required to replenish its grain coffers. The import window is, in any case, available for augmenting supplies if needed, and there was no need to talk about it well before the wheat procurement season. It would seem that the right lessons have not been learnt from last year's experience, when an ill-timed announcement of wheat imports created a scarcity psychosis, pushing up wheat prices in both domestic and international markets. Similar signals are being emitted to the global bazaar again, with the official announcement of 3 million tonnes of import.

The fiscal implications of the government's moves are not to be dismissed lightly. The Rs 100 per quintal bonus translates into an additional outflow of Rs 1,500 crore on the intended purchase of 15 tonnes. This, together with the additional expenses due to the hike in minimum support price and the consequential increase in mandi charges and other incidentals, will raise the total procurement cost by more than Rs 3,000 crore, thus adding to the food subsidy. Moreover, since the effective bench-mark price for wheat has now been moved up to Rs 850 a quintal, market prices that might have dropped to below Rs 800 a quintal during the peak wheat marketing season in April, will now stay pegged at a higher level, contributing to inflation. All this seems to have been disregarded by the government, either because of mis-reading the ground reality or due to political considerations in view of the elections in Uttar Pradesh, which is the country's largest producer of wheat.