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Ashok Gulati | Wheat price to crash without intervention

Ashok Gulati | Wheat price to crash without intervention
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First Published: Sun, May 15 2011. 11 16 PM IST
Updated: Sun, May 15 2011. 11 16 PM IST
New Delhi: The chairman of Commission for Agricultural Costs and Prices (CACP), Ashok Gulati, is a well-known proponent of reforms and an agricultural economist with diverse experience. Prior to taking charge of CACP, he was the International Food Policy Research Institute director in Asia. In an interview, Gulati spoke about the urgency for initiating reforms in the agricultural sector and made a strong case for intervention to check falling wheat prices either by allowing exports or purchase of foodgrains by the government agency. Edited excerpts:
Why is the farm sector so slow in undertaking reforms?
This is a very large sector in terms of employment. So we have to be careful in what we are doing, as it can impact not only the farmer, but the agricultural layman.
Secondly, we have a double challenge. On the one hand, we want to give incentives to the farmer, but then we also have a lot of poor people we want to protect. So the policy has one foot on the accelerator and another on the brake. And you wonder if the vehicle is moving forward.
The first thing the government needs to do is separate the two objectives. We want growth and efficiency on one side, and on the other, see who all have to be protected.
My submission would be to use income-based policy to protect the poor. Give them directly, conditional cash transfers. Give a family Rs 500 or Rs 1,000 through the UID (unique identification) route. They can buy 10 commodities out of this. Why only wheat and rice? If tomorrow there is a drought and rice production is not good, you would not be able to deliver rice. People want a variety of food. You can bring eggs, milk, pulses, coarse cereals, edible oils into this income-based approach.
Have wheat prices fallen below the minimum support price (MSP)?
Yes. I am getting daily reports. In Gujarat, my team visited four mandis (wholesale markets) and they interviewed farmers. Eighty per cent said they have sold below MSP. The rates range between Rs 1,000 and Rs 1,050 a quintal, way below the MSP of Rs 1,170. Food Corporation of India (FCI) procurement centres are there, but for some reason, they are not buying. As a result, you have the prices crashing.
If you don’t allow exports, and FCI doesn’t come to buy, prices will crash. The same thing is happening in parts of Bihar and eastern Uttar Pradesh. We hope to write to the minister concerned, and if things don’t move, we will write to the Prime Minister.
Why is the policy for food management not uniform in India?
We are writing to the government saying it needs to sort this out. Agriculture is a state subject. But there has to be some rationalization and some uniformity in taxes.
This is a primary commodity, which the poorest consume. Ideally, there should be zero taxation on this. What they should do is to have a value-added tax.
Mandi taxes should be uniform. If someone wants to put a 2-4% tax as mandi charges, one can still accept it as a charge for service. But a 14.5% tax, as in Punjab, is an anomaly. And I think the Centre needs to talk to the Punjab government and find out an alternative solution where Punjab gets its revenue. High tax drives out the private sector, so you are doing an institutional damage.
Strategic reserves, yes, the government must have. But if the government wants to run as the biggest grain company, then experience all over the world shows that it has not been encouraging.
What is your opinion on wheat exports? Already, Pakistan has been exporting 3 million tonnes (mt) of wheat. Is it spoiling our prospects for exports?
The cabinet has taken a decision to wait and revisit this by the end of this month, looking at the stocking position and better information about the monsoon. So, at present, the government’s decision is to wait and watch, and we respect this decision. Then maybe in another three weeks’ time, we will take a decision.
Do you think we are missing out on our markets by being so late in exporting?
In a democratic set-up, there are many individuals who have different takes on the same issue, and in a way, you have to go by a consensus.
My personal view is we have sufficient stocks and the window to export is normally not open forever because in Ukraine or other countries, where arrivals come in, the prices may come down.
The gap in the prices today is not very big. For instance, buying wheat from Punjab to export, after paying all the taxes, you won’t have any margin left as there is a 14.5% tax. It is only from Gujarat, Bihar or Uttar Pradesh perhaps, which are not imposing those kind of taxes, where a private person can buy and export.
The issue of exports comes from two angles. Because, not only the crop is good, you have so much stock that there is shortage of space. My opinion is that we are on a safe wicket and we should be exporting up to 3 mt of wheat and that could cool down the pressures on the international market also.
At what price do you think it will be feasible for India to export?
India is not looking at profit from exports. India is looking at what the commitments under the national food security legislation is going to be. If that Bill is coming and we have to pass it, and next year if we are to implement it, we need to know what is the commitment you are making to the people to deliver food? Will it be 60 mt, 70 mt? At present, we don’t have an exact number for that. So the cabinet has decided to be a little cautious on exports.
Which is a good market for wheat for us now?
Wheat’s biggest importers are Egypt and the Gulf. There is demand in the international markers. If you are going to be sending 3 mt, it can easily be absorbed in the international markets. If Punjab doesn’t turn out to be feasible, you can export it from Gujarat on private accounts.
How can food inflation be lowered?
One of the solutions is to rationalize the taxes on agri commodities. You must reform the APMC (Agricultural Produce Market Committees) Act to make sure the farmer gets a good price, and there are not high commissions charged by the intermediaries. This requires institutional changes. The Centre can give incentives to states to carry out these reforms.
Monetary policy is headed in the right direction. There had to be a little tightening. The government’s expenditure has been huge with such big welfare schemes. So that much money is let loose, which could be curtailed.
Also, you have excess stocks. At least a Rs 50,000 crore of extra inventory are kept after buffer stock norms. So if it is unloaded, there would be an increase in commodity supply and prices could come down.
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First Published: Sun, May 15 2011. 11 16 PM IST