Farm min says policy flaw makes govt biggest wheat buyer, seeks CCI probe

Nov 24 2012, 01:14 IST
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SummaryA key technical wing of the agriculture ministry has blamed the Centre’s open-ended grain procurement policy for the government becoming “the single largest procurer and hoarder” of wheat even as private trade is starved and prices flare up, and recommended that the Competition Commission of India look into this anti-competitive practice.

A key technical wing of the agriculture ministry has blamed the Centre’s open-ended grain procurement policy for the government becoming “the single largest procurer and hoarder” of wheat even as private trade is starved and prices flare up, and recommended that the Competition Commission of India (CCI) look into this anti-competitive practice.

Explaining how the public sector Food Corporation of India (FCI) was suffering from “diseconomies of scale” due to higher procurement incidentals like hefty state levies and largesse, the Commission for Agricultural Costs and Prices (CACP) has said in a recent note that the “FCI’s operations need to be contained, not expanded”.

While wheat production has risen from 78.6 million tonnes in 2007-08 to 94 million tonnes in 2011-12 (which in an undistorted market would have been more than enough for supply to match demand), the wholesale price of this key grain in the open market rose 20% year-on-year as per the October inflation data. Rampant procurement by FCI and other government agencies have created artificial scarcity in the market while also dissuading farmers, with the lure of the high minimum support prices (MSP), from cultivating other crops in demand like oilseeds, the rising imports of which have become a big burden on the exchequer and is fuelling inflation.

“Public monopoly is as bad as private one... This (unbridled procurement at inflated costs and keeping stocks well above the buffer level while infrastructure is decrepit) is not sustainable in the long run and could lead to a complete collapse of competition in wheat markets,” CACP chairman Ashok Gulati told FE.

A CCI official said the CACP’s proposal is under consideration. “There could be a case (for a CCI probe into the matter). We will study it,” he said.

What adds to FCI’s procurement cost are various taxes and levies imposed by three of the largest wheat producing states: Punjab, Haryana and Madhya Pradesh.

Including market fee, agent commission, value-added tax and rural/infrastructure development cess, the tax incidence in Punjab is the highest at 14.5%, followed by 11.5% in Haryana and 9% each in Uttar Pradesh and Uttarakhand. A special bonus of R100 per quintal (about 8% of the MSP) given by Madhya Pradesh enabled it to become the second biggest wheat procurer in the marketing year 2012-13, only to cause an acute storage crunch and wastage of the grain.

“Around Rs 7,000 crore or 10% of the food subsidy in 2011-12 has been collected in the

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