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Mainstream, Vol XLV, No 40

Wheat Imports Lack Rationale

Wednesday 26 September 2007, by Kamal Nayan Kabra

A mammoth foreign exchange outlay is to be incurred by the Government of India as it goes ahead with import of 7.95 lakh m. tonnes (MT) of wheat at the weighted average price of $ 389.45. Statedly, the imports are for meeting the shortfall in the buffer stock at a weighted average price of $ 389.45 by December 2007. This is in addition to the decision to import, again based on international tendering, 5.11 lakh MT in July this year at a price lower by 18 per cent compared to the price accepted currently and after rejecting a few months ago tenders that quoted even lower prices. These two decisions would cost the country a whopping sum of over $ 3 lakh crores and $ 1.66 lakh crores respectively. The combined expenditure in terms of rupees amounts to Rs 195 lakh crores at the exchange rate of Rs 41 per dollar. The major beneficiary of this import is going to be a Swiss firm that has been asked to supply as much as 7.4 lakh MT, while the rest of the order, except a small quantity of 5 thousand MT by a Singapore firm, has been bagged by a German firm. They would make supplies largely at a private port Mundra, with small quantities earmarked for Kandla and Chennai and Mumbai. One may recall the recent reports casting doubts on the suitability of or even of the motives for Mundra deliveries owing to its post-landing, avoidable high cost. This decision to import amounts to buying wheat at about Rs 16 per kilogram, that is almost twice the price (Rs 8.50) that was paid to millions of Indian farmers; for official procurement is not to contribute to food security owing to its fiscal (in terms of huge subsidy bill), forex (due to worsened trade deficit) and wheat market (on account of its inflationary impact) implications.

The current buffer stock level of about six million tonnes of wheat is lower than the level of 11 million tonnes, as the government could procure only 9.2 million tonnes this year, as many big MNCs were permitted to buy directly from the farmers and make the turf tough for the FCI. These are the very MNCs who bought wheat cheap in India, are holding with them at least six lakh tonnes of wheat and are now not ready to make wheat available at anything less than Rs 16 per kg. In any case, with more than comfortable rice buffers and high probability of a bumper kharif crop, there is little reason to press panic buttons and allow the MNCs to indulge in blatant profiteering. This year the wheat harvest has been 74.75 million MT compared to last year’s 69.4 million MT. Hence the market is unlikely to explode with high prices, particularly if the government gives the expatriates the treatment it gives to national traders in times of national contingency.

It may be recalled that the Indian food policy has a long history of compulsory levy for obtaining food for public purposes such as supplying the PDS or building up buffer stocks. Instead of using such an option, a self-destructive policy of imports is resorted to irrespective of the cost and disincentive that it would produce for the Indian farmers who are suffering under an unprecedented crisis. In any case, a market-based policy instrument such as open market operation is in no sense a one-way street making the government hand over its stocks to the private trade. If the situation demands and the supplies are there with the private trade (as surely is the case today), a real national, people-centric policy would not hesitate to make the private trade part with its supplies, even giving them reasonable returns, for as critical a task as ensuring national food security. First permitting the MNC grain traders to pre-empt Indian supplies and then to offer them at exorbitant prices is plain profiteering. From the point of our policy processes this is a case of nothing else but committing a self-goal.

To sum up, there is no shortage of wheat in the national economy as the harvest this year has been plentiful. There is little reason to equate a shortfall in public stocks and national level shortage. As any government can and should make a draft on these domestically available stocks to replenish its buffer stocks needed for meeting national contingencies, especially in view of the unaffor-dable high level of global prices, pushed up, in part, owing to our import-happy policies. This poverty of policy processes reflects either unwillingness or inability to mobilise domestic stocks from the global food trade giants the way a government mobilises from its internal trade. It seems this legitimate and cost-effective method of facing a national contingency counts for little vis-à-vis the freedom of the MNCs to profiteer at the cost of the host country. In any case, given plentiful rice buffer stock, good kharif crop prospects, adequate operational stocks for the PDS and the inexorable negative impact of imports at Rs 16 per kg of wheat, these imports appear to be bereft of any rationale.

A prominent economist, Dr Kabra is a former Professor (now retired), Indian Institute of Public Administration, New Delhi.

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