The old mistakes again

Two wrongs, they say, do not make a right""a piece of wisdom that can be applied to the government's wheat policy. First, the ill-timed decision in February to import half-a-million tonnes of wheat sent out wrong signals to the market, resulting in a further rise in domestic prices, instead of the intended decline. The imports also irked domestic wheat growers, who threatened to physically block the unloading of wheat shipments at the ports. Now the government has misread the market again, and in seeming panic has announced the further import of 3 million tonnes of wheat. Compounding this ill-considered decision, it simultaneously declared a bonus of Rs 50 per quintal, on top of the wheat support price of Rs 650 a quintal, pushing up the bench-mark for wheat prices in the open market. Thus, contrary to the government's intention of boosting wheat procurement so as to replenish depleted grain coffers, it has ended up raising fears about an impending wheat shortage, prompting both traders and the wheat-based industry to mop up still more stocks. As a result, it now seems almost certain that the Food Corporation of India (FCI) and other state agencies will not be able to procure the anticipated 16.3 million tonnes of wheat for the central grain pool. Why, procurement might not touch even the 15-million tonne mark.

This is of a piece with general mismanagement of the farm economy. For one thing, the depletion of grain stock is not a sudden development but the result of flawed grain distributions policies practised over a long period. In fact, grain inventories had dropped to below the buffer stocking norms as far back as October 2005, when stocks had fallen to 15.1 million tonnes, over a million tonne below the buffer norm of 16.2 million tonnes. The wheat inventory in particular had nose-dived to 10.2 million tonnes, against the buffer norm of 11 million tonnes for October. However, overlooking the writing on the wall, the government went on squandering Central pool grains at subsidised prices, knowing full well that over a third of that was being diverted to unintended destinations. When the government's food managers finally woke up and did a sensible thing in January (cut allocations for the PDS, besides marginally raising the issue prices for non-poor ration card holders), the move was abandoned even before it could be implemented. Not only that, wheat continued to be sold in the open market till as late as March, despite the precarious stock position. As a result, wheat coffers have been drawn down to perhaps the lowest-ever level of below 2 million tonnes by mid-March, on the eve of the fresh wheat marketing season.

The net result of these follies is that the food subsidy burden on the exchequer, which was expected to be contained following the reduction in inventories, will continue to be high. Thus, the government should at least now review its food management policies afresh. The measures like universal PDS and open-ended grain procurement might have been relevant when these were conceived but do not seem to be so any longer. Apart from right-sizing the PDS, the system of procuring supplies for catering to it, too, needs to be revamped.