Forget disinvestment, think wheat PDF Print E-mail
Tuesday, 27 November 2012 00:00
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The finance minister can get Rs 20,000 crore by exporting 10 mn tonnes of wheat -- the alternative is letting it rot

Finance minister P Chidambaram is understandably focused on disinvestment, but given the relatively easy pickings in other sectors, he would do well to spend a little energy there as well. Just look at the maths, and you realise how compelling the option is.

The government has 70 million tonnes of rice and wheat, a figure that’s more than three times the 21-million-tonne buffer stock it needs to carry. There’s the obvious question of what impact unloading these stocks would have had on dampening foodgrain prices—wheat prices rose 15% in April-October and rice 12%—had the government done the right thing, but leave that aside for the moment. Let’s focus instead on the Arundhati Roy statement on how India seems to have more food for rats than for the poor.

It is unlikely government actions could ever be so cynical, but while the government of India has 70 million tonnes of food stocks, it has only 45 million tonnes of covered storage space. Another 16-17 million tonnes comprises what is called cover and plinth, which basically means the grain is covered by plastic sheets; whether that’s enough is difficult to say. So, even by the government’s own admission, about a tenth of stocks are completely exposed to the vagaries of the weather—this is the stuff that Arundhati Roy says is left to rot or eaten by rats. As compared to the unofficial estimate of 10% of grain rotting each year, the official figure is less than 0.1%. But if this were true, why would the government even want to build more storage, especially given the costs?


What if the government decides to sell 10 million tonnes of this food stock—in July, the Cabinet approved sale of 2 million tonnes but less than half of this has been exported so far. At the current global price of $313 a tonne, this could mean an inflow of R17,200 crore into the government’s coffers. Add to this another R2,400 crore based on the current carrying costs of R2,400 per tonne per year, and we’re talking of a number that’s just under R20,000 crore. Sell 20 million tonnes, and we’re talking of R40,000 crore into the finance minister’s coffers. Given the government doesn’t have storage capacity for around a tenth of its stocks, and we’re not even talking of the grain under cover and plinth, selling off 10 million tonnes will also free up valuable space for the next procurement season. That is, if the government doesn’t export the grain, the chances of it rotting are huge.

Why the government has not been able to get greater interest from exporters is not clear—in July, the CCEA had fixed a floor price of $228 per tonne for exports. Given how global prices have been shooting up, the scope for increased exports seems large. From $232 per tonne at the beginning of June, prices touched $340 by the end of July, fell to $307 by November 16 but are now rising again, to $313 yesterday. But if the government finds the bureaucracy is moving with its customary sloth, why not just allow exporters to lift the grain after bidding for it?

Some argue the delays are on account of the fact that bureaucrats are scared of CAG/CVC censure given how volatile global prices are. That may be true but is, at best, a partial explanation. After all, the Empowered Group of Ministers took a decision to lower the reserve price for the spectrum auction by around a fourth and to offer a 42% discount on the market price of Hindustan Copper shares—in other words, if a reasoned explanation is made, there should be no problem.

Unlike disinvestment where the line ministries are coming up with all manner of objections, presumably to retain full control of their PSUs, this seems pretty much a win-win proposition since, apart from the money it will give the finance minister, it will create more storage space for more procurement and will prevent grain from rotting. The only opposition you can think of will come from the rats who will presumably now get less to eat. Presumably that’s a lobby that doesn’t have too many supporters.


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