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Trouble for the Centre on the wheat front

Gargi Parsai

Wheat stocks in FCI godowns have touched perilously low levels.

THE CENTRE'S decision to import five lakh tonnes of wheat to augment the domestic availability is expected to have a sobering effect on market prices. Wheat prices are ruling high in Kerala and Karnataka that are due for elections this year. Although they have come down in Tamil Nadu, the situation is still not comfortable.

However, the wheat crisis is far from over. Prime Minister Manmohan Singh's admission during his press conference in New Delhi on Wednesday that wheat stocks were "low" is only the tip of the iceberg. From a position of surplus, India is heading towards a hand-to-mouth situation.

Wheat stocks on April 1 are likely to plummet to 15 lakh tonnes and the retail prices of wheat and flour are on the rise. Despite dwindling stocks — but to check prices — the Government had to release 3.6 lakh tonnes of wheat from the Food Corporation of India stocks into the open market under the Open Market Sale Scheme last month.

According to Food Ministry officials, on April 1, it is estimated the wheat stocks will be about 15 lakh tonnes against the buffer norm of 40 lakh tonnes. On the corresponding date last year, 41 lakh tonnes were available with the FCI. Foodgrain stocks in FCI godowns determine the availability of grains for subsidised sale to Above the Poverty Line and Below the Poverty Line beneficiaries under the Targeted Public Distribution System (TPDS). The availability of stocks also determines the price farmers would get for the rabi wheat they contribute to the Central pool. Procurement of wheat commences in April although the early crop is harvested in Madhya Pradesh from March 15.

Speculation had been rife in the international market about India going in for wheat imports following a drop of about 20 lakh tonnes in wheat procurement last season. Union Food and Agriculture Minister Sharad Pawar was banking on the once-a-year rabi wheat harvest beginning March 15, for the situation to ease. Preliminary reports show a higher coverage under wheat; so far the crop is reported to be good in the major wheat-growing areas of Punjab, Haryana, and western Uttar Pradesh. There has been some drop in the acreage in Madhya Pradesh though, owing to drought in the Malwa region. Even so, the wheat output is expected to be around 76 million tonnes.

To make good the shortfall in wheat procurement for the TPDS last season, the Government resorted to several measures, one of them being re-distribution of the ratio of foodgrains to States. The quantity of wheat and rice to wheat-consuming States was re-distributed in the 70:30 ratio.

Another step in this direction was the recent decision to hike the Central issue price of foodgrains distributed under the TPDS through ration shops and the cut in the allocation for the APL, the BPL, and the Antyodaya Anna Yojna (AAY). The measures had a dual purpose: to reduce the food subsidy burden as well as to save stocks in case the wheat production dwindled. As it happened, they ran into opposition.

The Government maintains it has "postponed" the decision, but it is clear that after the hue and cry raised by various political parties, including the Left and the Congress, and several Chief Ministers, the move has been put on the back burner.

Defending the decision to reduce allocation to TPDS beneficiaries, Food Ministry officials say the increase in allocation from 10 kg in 2000 to 35 kg in 2002 was to liquidate stocks and reduce the FCI's carrying costs that were adding to the subsidy bill. The food subsidy rose from Rs.9,200 crore in 1999-2000 to Rs.26,000 crore this year.

The question uppermost in everybody's mind is what happened to the mounds of wheat in 2002 when stocks rose to an all-time high of 648 lakh tonnes? Faced with criticism of the poor going hungry when stocks were rotting in godowns, the Government took several measures. Among them was the step to give highly subsidised foodgrains to the "poorest of the poor" under the AAY. During the period, allocation to BPL beneficiaries was raised to 35 kg. Also, 206 lakh tonnes of wheat were exported in four years. The grain was also offloaded in the open market for bulk buyers. In addition, the APL population was again included in the TPDS. Foodgrain stocks fell to 151 lakh tonnes in October 2005 and the export of foodgrains from FCI stocks was banned.

Alarm bells started ringing when wheat stocks dropped to 62 lakh tonnes on January 1 this year, about 20 lakh tonnes short of the buffer norm. Fortunately, the ongoing rice procurement is doing well and the rice stock on April 1 is expected to be above the buffer norm of 122 lakh tonnes.

What is worrying the Government is the tight wheat situation it would have to face to meet its commitments for the TPDS as well as the food-for-work, Sampooran Grameen Rozgar Yojna, mid-day meal, AAY and the proposed Grain Bank scheme. Wheat procurement this rabi season is expected to be between 150 lakh tonnes and 160 lakh tonnes. The total annual requirement of wheat (for TPDS and welfare schemes) hovers around 180 lakh tonnes, depending upon the offtake. After taking into account the stock on April 1, 2006, and annual requirement, the buffer stock of wheat next April might be negative. The demand on foodgrain stocks in the interim period, on account of natural calamities, is unforeseen and that is what is causing concern.

Much now depends on the rabi wheat crop. Sowing has been higher than last year and the standing crop looks good. But the weather is crucial. High temperatures near harvest time could be harmful as happened last year.

At the same time, imports in huge quantities will hit farmers because of the price differential. In fact, the last time 2.5 million tonnes wheat was imported in 1998-99, it had a cascading effect leading to a situation of surplus. Skilful management of foodgrain stocks is the need of the hour.

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