Trying to avoid confusing signals and expensive wheat imports, the Indian government is trying to plan better and avoid a demand-supply imbalance in foodgrains.
The cabinet committee on prices has come up with a wish list that includes asking states to raise procurement of wheat in the coming season, negotiate better deals with other countries for import of wheat and edible oils, review duties on edible oils and revisit buffer norms on wheat and edible oils.
Any shortfall in foodgrain procurement leads to inflationary pressures. In May, which is the peak month of the wheat procurement season, food price inflation, measured by the wholesale price index, ruled at over 10%. In comparison, the overall inflation rate was 5.27%.
A note from the cabinet committee on prices, reviewed by Mint, suggests that state governments play a key role in ensuring higher procurement and also check the tendency of foodgrains being sold at prices below the minimum support prices. The note also talks of the possibility of local procurement of foodgrains to be distributed under welfare schemes directly by state governments. All procurement is currently done by the Food Corporation of India, a Central procurement agency.
This year, the Indian government could procure only 11.1 million tonnes (mt) of wheat for the central pool, whereas total production touched 75mt. At least 90% of procurement came from Punjab and Haryana although Uttar Pradesh, Rajasthan and Madhya Pradesh also produce wheat in larger quantities.
The note further says that a rational formula be devised obliging the principal foodgrain producing states to contribute to the Central pool. “We have to strengthen the administrative machinery for procurement in states such as Madhya Pradesh, Uttar Pradesh and Rajasthan for wheat in the coming year,” Sharad Pawar, minister for agriculture, food and public distribution had said on the sidelines of the National Development Council meeting, the high level meeting of Centre and states, in December.
The note also says that the government should explore the best commercial options for buying wheat in the international market. While the cabinet had given a mandate for importing up to 5mt of wheat in 2007-08 because of high international prices, the government could import only 1.8mt since July.
“One way to ensure better import prices is that we hedge. The government is contemplating going in for hedging options up to 1mt of wheat in 2008-09,” said a senior food ministry official who did not want to be named.
The government also wants to play safe in the case of edible oils and the note suggests duties on edible oils be reviewed.
“India imports palm oil from Indonesia and Malaysia, and looking at the domestic demand the government is working on a strategy of bringing down customs duties of refined and crude palm oil to 50% and 40%,” said an official at the agriculture ministry who also didn’t want to be named. The official also said due to high demand and rising prices of edible oil, the duties on refined palm oil were revised downward in July from 60% to 52%.
“Going by the sowing and acreage trends in wheat, the industry is expecting wheat production to hover around 70mt, which means the government will have to take fresh stock of situation in March when the crop is ready for harvest,” said S. Raghuraman, head of trade research at Agriwatch. In edible oils, he said, the situation is even more tricky because lowering of import duties does not help much as there is global shortage.
Meanwhile, the cabinet committee on economic affairs is likely to decide on Thursday the continuation of duty free wheat imports for building buffer stock for the public distribution system.