Move to delink MSP, purchase price yields little

For the first time, the government has attempted to separate, in practice, the minimum support price from the price at which grain is procured for the public distribution system (PDS). This was welcome in principle but its execution has been in a fashion that has left the government’s stocks sadly deficient.

Similarly, allowing the private sector a much larger role in grain purchase and distribution has been another sound idea that has suffered in implementation. A shortage of wheat supplies globally, leading to a sharp reduction in global stocks, has diluted the potential of cheap imports to discipline the pricing behaviour of private trade.

The first warning signals of an impending food shortage came early last year. For all of 2005-06, the Centre supplied less than two-thirds of the grain needed for two key welfare programmes — SGRY and NFFWP. Wheat production had already stagnated for three years from 2001-04 and welfare consumption alone had gone up by over 20%.

In mid-May 2005, with kharif prospects unsure, a jittery food ministry told a shocked rural development ministry (MRD) the hard truth: it had no food for the foodgrain-linked welfare programmes. Not surprisingly, a worried Centre quickly decided to pay only by cash for NREGP.

It also canned any proposal to extend the humongous Antyodaya Anna Yojana programme in the coming year, given that its three extensions already ate up a whopping 430 lakh tonnes of grain. Worse, both ORG and the Planning Commission came out with reports that said a good 58% of PDS grain for those above the poverty line (APL) was being leaked to the open market.

Stocks in the central pool, which peaked at 648 lakh tonnes in June 2002, fell to 151 lakh tonnes by October 2005, compared to minimum norm of 162 lakh tonnes. Enthused by the government’s efforts to boost private trade buying, UP had already put a spoke in the Centre’s procurement efforts one season, scaring the food ministry. But nothing prepared it for the impending fiasco in the rabi marketing season of ‘05-06. With kharif 2005-06 precarious on production, the onus was now on rabi ‘05-06 to deliver. And bountifully. The Centre had its red alert on a possible grain supply crisis in 2006-07.

By January 2006, more than two years after the Centre exported “excess” grain from the PDS at throw-away par prices in order to cut down huge carrying costs, the government’s own prognosis on wheat was grim for the January-April period. By April 1, the Centre held wheat stocks of 20 lakh tonnes — only half of the prescribed buffer of 40 lakh tonnes. Ministry officials were now openly, if not officially, accepting that stocks weren’t there to meet the July 1 buffer of 171 lakh tonnes. The stage was set for imports, the first time in six years.

Initially, the Centre came up with a ostensibly normal production estimate of 73.06 million tonnes for wheat in ‘05-06, a good 1.06 million tonnes over 2004-05 (the USDA didn’t buy that, though). In March, before the peak procurement season — May 15-June 15 — food minister Sharad Pawar used shortage in the southern states to announce duty-free import of half-a-million tonnes of wheat through STC, ignoring the logic that government imports would jack up prices in the global market.

Just before peak season, states started reporting shocking low arrivals at mandis. By the time the season was over, UP gave the Centre virtually nil against 20 lakh tonnes last year. By June, the Centre had managed procurement of only 92 lakh tonnes while at least 130 lakh tonnes were needed for comfort.

Food Corporation of India hiked the procurement price by Rs 50 to Rs 700 per quintal. It was too little, too late. The shortfall was assessed at 7.2 million tonnes in all.