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Saturday, 06 December 2014 00:00
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Who’s responsible for poor open market sales?

When the government said it would sell 10 million tonnes of wheat through open market sales—and 5 million tonnes of rice through the ration shops—it wasn’t just an inflation-control measure, though the impact on prices would have been significant. For one, it would help free up storage space that FCI so desperately needs before the next lot of stocks start coming in April—at peak stock levels, FCI has just around 55-60% of the storage it needs; open storage means there is a lot of rotting as well as theft. More important, it would free up valuable funds for the budget. As compared to the 15 million tonnes the government was supposed to liquidate by April, only around 2.5 million has been offloaded so far. The extra stocks are worth R22,000-23,000 crore, a tidy sum especially at a time when the budget is in serious deficit. When you do the same exercise for the 30 million tonnes of extra stock FCI has as compared to what it needs for the buffer, the costs get truly huge.

More important, the government needs to fix accountability. If a target of selling 10 million tonnes of wheat and 5 million tonnes for rice was set, there has to be a plan for achieving it. Right now, the terms set for open market sales of wheat do not include transport costs from Punjab. So, if a buyer wants the stock in Cochin, say, it is cheaper to procure the grain from the open market in Madhya Pradesh. Any policy of disposing grain has to look at the costs of holding on to it, and then pencil in appropriate discounts to make the deal attractive. It was the same lethargic bureaucratic functioning that ensured India lost an opportunity to export wheat. Till a few months ago, global wheat prices were still ruling at $320-330 per tonne as compared to $225 per tonne today. Given India’s current wheat prices are around $267 a tonne, a golden chance to export 15-20 million tonnes has been lost. Not only is that good money that India has lost, the grain will now have to be carried for another few years, adding to costs, especially when the storage losses are taken into account—the average tenure of wheat held by FCI in Punjab is two years.
The government would also do well to look at the results of an ICRIER working paper by Shweta Saini and Marta Kozicka on the distortions created by FCI’s inefficiency—in the case of paddy, for instance, while the MSP is R1,310 per quintal, FCI’s rice costs end up at somewhere between R2,210 and R2,396 per quintal. Based on the National Sample Survey results, the authors point out that, of the states with a poverty ratio of more than 30%, less than 20% of the total consumption is met through the PDS. In other words, while the population of these states benefits from the lower PDS offtake price, it pays a higher price for the remaining 80% of its consumption due to the distortions caused by FCI’s operations. Someone needs to be looking at the larger picture while taking responsibility for it as well.

 

 

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