The Hindu : Business : `Buy options to check wheat price'

Online edition of India's National Newspaper
Thursday, Aug 17, 2006

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Business

`Buy options to check wheat price'

Special Correspondent

EAC wants flexible procurement, pricing policy

NEW DELHI: Even as the Prime Minister's Economic Advisory Council (EAC) has projected an overall economic growth of nearly eight per cent for the current fiscal, it has suggested a host of measures to ameliorate the farm sector vagaries as agriculture continues to be a prime area of concern.

In its report, while anticipating a growth of 7.9 per cent in the economy during 2006-07 on the assumption of a 1.5 per cent growth in agriculture, the EAC headed by C. Rangarajan has noted that any uncertainty in the short-term growth prospects will arise mainly from the performance of the farm sector which is still largely dependent on the quantum as well as the distribution — spatial and temporal — of the rainfall.

With the delayed monsoon rains, two per cent below normal for the country as a whole as on August 9, the report has pointed out that if the weather conditions for the winter crop turn out to be adverse and growth in agriculture declines to one per cent, the overall growth rate will then drop to 7.8 per cent. On the other hand, in the event of a good monsoon, leading to a farm sector growth of two per cent, the overall growth can rise to eight per cent.

Advance estimates

The output of foodgrains, as per the fourth advance estimates released by the Agriculture Ministry on July 15, is projected to increase by five per cent from 198.4 million tonnes in 2004-05 to 208.3 million tonnes in 2005-06. The anticipated output — short of the original target of 215 million tonnes — even if fully realised, will still be lower than the peak level of 213.5 million tonnes registered in 2003-04, the report said.

Clearly, the major concern in foodgrain production emanated from stagnation in output. "The gap is most glaring in the case of wheat, followed by coarse cereals and pulses... This clearly points to the need for a vigorous push for new technologies," the EAC report said.

Not surprising, therefore, that what has driven up both the wholesale price index (WPI) and the consumer price index (CPI) this year were the prices of foodgrain, particularly wheat and pulses.

In such a scenario, the EAC has called for sectoral responses for both wheat and pulses.

"Going forward, the Government needs to do two things: First, manage expectations by buying futures options in the international markets, and second, by implementing a strategy for improving production and productivity of wheat by evolving a flexible procurement and pricing policy and through a programme of imports spread over several years aimed at smoothening the domestic supply-demand gap... " the report said.

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