Continuing mixed signals from the government on the wheat import front raise larger questions about its approach on management of foodgrain stocks.
The problem exists on two fronts. On the one hand, production has been stagnant, hovering around the level achieved in 2001-02. On the other hand, the ad hocism seen in the Union government’s efforts to control expenditure on procurement for the public distribution system has contributed significantly to the present set of troubles.
It was evident less than a decade back that open-ended procurement of every single grain on the market by the Union government, largely in Punjab and Haryana, was imposing a heavy financial burden. The expenditure reforms commission and other bodies also warned against this. In response, the committee on long-term grain policy led by Abhijit Sen recommended that private players be freely allowed to operate in the sector.
A number of reforms were required, which were put in place: free movement of grains, and easing the hold of the Agricultural Produce Marketing Committees Act and various control orders and licensing requirements. For the last two years, private traders, firms and others have entered these markets with gusto.
Yet, when the two factors, of stagnant production and private traders cornering a large part of the market arrivals, are combined, the spectre of high prices and its political fallout seems to haunt the country. This time, in a knee-jerk reaction, against its own policy of encouraging private trade, the Centre “advised” big players not to buy wheat in large quantities and let the Food Corporation of India meet its needs first. On the face of it and if evidence available is anything to go by, this seems to have worked. In Punjab, the state that supplied 6.75 million tonnes of wheat this year, private trade purchased only 8.8% of the total arrivals, compared to 15% last year. This is what the official statistics say.
There’s more. Both in Punjab and in Haryana, which supply almost 90% of the grain to the Central pool, big farmers have staying power to hold on to their produce and sell it at a later date to private players. Apart from government reforms, they have also been aided by the inability of concerned officials in these states to “police” multiple players in these markets. The amount sold to private players is anybody’s guess.
There was a “saving grace” though. Even in this mess, the Union government was unable to force one change on the Punjab government. The state imposes the highest level of taxes on grains purchase in the country, roughly 11.5% of the value of purchased quantity. This deterred small traders from outside the state entering this market. The latest debate is if the current buffer status warrants importing now at high prices, or waiting till the global prices soften.
But the larger question is whether the government has shown capability in dealing with the little easing of internal market rigidities it has done so far? Is it ready for more easing? Any changes, even if incremental in nature, require careful analysis. And with a number of ministries involved, policy coordination on three fronts—imports, increasing production and on procurement—has not been seen. The reality today is importing in a shortage year and relying on domestic farmers in normal years. But this calls for advance planning and, above all, consistency in signals to all actors in the fray, including farmers and traders.
In doing this, a significant requirement is political coordination with regional parties representing farmers. This is far from easy to achieve: demands for ever higher minimum support prices and greater purchase by government is all that these parties demand. Their universe of reason is rather small.
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