The Government has levied a 50-per cent import duty on common and durumwheat with immediate effect. Why it did not do so earlier is a mystery. Itwas common knowledge that roller flour mills (RFMs) along the coastal citiesfound it cheaper to buy imported wheat (at zero duty) than to tap suppliesfrom bloated Government stocks under the open market sale scheme (OMSS). Domestic wheat is dear because the Government has been lavishly raising itsprocurement price to pamper the farm lobby. Wheat prices have been boostedto a stiff high, reflected in declining offtake from the public distributionsystem. The Government has now woken up to the problem; it has reduced thezonal OMSS prices per quintal by Rs 2 (north), Rs 42 (south), Rs 49 (east)and Rs 28 (south).
With this reduction, zonal OMSS prices will range between Rs 688 and Rs 705per quintal, or well below the economic cost of Rs 819.85 per quintalincurred by the official procurement agencies (as estimated by the 1999-00budget). Thus, subsidised wheat will go not only to the public distributionsystem (PDS), whose average sales realisation, according to the budget, isRs 469.17 per quintal, but to the open market as well. In the case of PDS,the consumer subsidy is Rs 350.68 per quintal (budget estimate); subsidy tothe open market works out to Rs 114-135 per quintal. The much-touted idea ofconfining the foodgrain subsidy to the genuinely poor has gone for a six.
But not pushing sales through subsidies also puts the exchequer into a heavyloss. As announced by finance minister Yashwant Sinha, the annual carryingcost (of unsold wheat in Government godowns) is Rs 160 per quintal. Thiscost for an average holding of 10.6 million tonnes will make a draft of Rs563 crore on the budget during December-March. (Thus, OMSS prices could takea cut of Rs 25 a quintal).
Sinha's estimate of average holding quantum is way above the wheat bufferrequirement of 8.4 million tonnes on January 1 and 4 million tonnes onApril. Note that consumer affairs minister Shanta Kumar has estimated thecurrent wheat stocks with the Government to be 8.8 million tonnes in excessof the buffer norm. The country is slated to reap a wheat bumper. Excessstocks will burgeon. Lavish procurement prices have become unsustainable inthe absence of a foodgrain consumption strategy. Subsidised sales will atbest pare excess stocks at the margin. What is now required is a massive,countrywide food-for-work programme to promote consumption and rural wages.The alternative is to let foodgrain rot in Government godowns.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.