The Government of India requires more than 17 million tonnes (mt) of wheat at its peak requirements to maintain buffer stocks for running of the public distribution system and manage the price line to ensure that the prices of wheat in the open market do not increase to alarming levels. It usually arranges to procure this wheat from farmers through state-run agencies by offering them a minimum support price.
We have had a favourable wheat harvest this year with the production going up to 75mt, up from 69.4mt in the previous year. Even so, against a procurement target of 15mt, the government could only procure 11.1mt of wheat directly from farmers. Faulty procurement policies of the government are to blame for this. The minimum support price offered to farmers this year for wheat procurement was Rs850 per quintal, which was 20% lower compared with what the farmers could get from the open market.
To maintain sufficient buffer stock in anticipation of shortfall in wheat procurement, the government called for tenders to import wheat in the month of June. It rejected the tenders which offered wheat at $263 (Rs10,704) per mt in June saying the prices quoted were too high. Barely two weeks later, the government ordered the import of 0.57mt of wheat at $325 per mt. And earlier this month, the government called for a third tender and has placed an order for nearly 0.8mt at $390 per mt.
India being the world’s second biggest consumer of?wheat, whenever India decides to import wheat, prices rise in the international markets. This happened earlier in 2006 when prices shot up by 18% within four months of India deciding to import wheat. This time again, wheat prices have surged 54%?in the international markets over the past three months, ever since India first floated tenders for the import of wheat.
Would any company allow its procurement and finance mangers to indulge in such a dereliction of duty? The person concerned would be sacked instantly and at even the whiff of a scam. Not so in politics, especially in this coalition era. Against the Rs850 per quintal offered to Indian farmers, the government is now paying Rs1,600 per quintal for its imports—almost twice that of the minimum support price paid to farmers.
Last year, the Congress party blamed the Union government’s failure in containing inflation in food articles as a major reason for a string of electoral reverses in the assemblies of Punjab, Uttarakhand and Uttar Pradesh. The ruling coalition will face the wrath of the electorate once again if wheat prices rise in the run up to the widely expected midterm elections to Lok Sabha early next year.
The government is now faced with a Hobson’s choice. It will be doomed if it doesn’t increase its buffer stocks for that is sure to result in higher wheat prices and make its aam aadmi (common man) constituency very unhappy. Having exercised the option of imports at prices much higher than prices offered to Indian farmers, the government is likely to antagonize the latter.
Farmers are already angry and upset at being left out of India’s continuing growth story and at their lands being grabbed by governments at low cost to hand them over to industrialists for setting up special economic zones. The wheat import issue will make the UPA (United Progessive Alliance) government very unpopular with them. Farmers are a major voting bloc today. They may belong to different states, speak different languages, and come from different castes, but their psyche is similar. No government has ever survived making farmers unhappy. The present government will not be an exception to this trend.
Is the government likely to procure wheat domestically to meet the shortfall in buffer stocks and obviate the need for imports and risk a raise in domestic open market prices? The deferral of the GoM (group of ministers meeting)— scheduled to discuss floating of a fresh global tender for wh-eat import to replenish the country’s buffer stocks—is a possible indication of the government’s rethink on the subject.
Whatever decision the ruling coalition takes for future wheat requirements, the damage has been done. If the Opposition parties rake up the issue, this will have a far greater impact than the Indo-US nuclear deal for it concerns the livelihoods of millions of farmers. No wonder, the CPM (Communist Part of India [Marxist]) has latched on to the issue as it finds that the nuclear deal isn’t generating enough fission among the poor and the farmers.
In this country, you can get away cheaply by letting an Ottavio Quattrocchi (an Italian businessman sought in India for charges related to bribes and kick-backs in the Bofors scandal) run away with millions of taxpayer’s money, but believe me, you cannot displease farmers and survive politically. Or, is it that politicians have found innovative ways of “public” funding of elections, if not directly, then through whatever means possible?
G.V.L. Narasimha Rao is a political analyst and managing director of Development & Research Services, a research and consulting firm. Your comments on this Monday column, which will alternate between the intersection of business and politics, and pure politics, are welcome at firstname.lastname@example.org