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Dear wheat

Print edition : Apr 11, 1998 T+T-

The United Front Government's decision to import two million tonnes of wheat from Australia turns out to be an expensive proposition in a good year for the wheat crop in India.

THERE is as yet no official word on whether or not the Bharatiya Janata Party-led Government will go ahead with the import of two million tonnes of Australian wheat contracted by the previous Government. Food Ministry officials maintain that the imports will proceed as scheduled since the present Government has not issued a directive to the contrary. The State Trading Corporation (STC), the canalising agency for wheat imports, is reported to have hired 15 ships to transport the first consignment of 1.5 million tonnes.

Prime Minister Atal Behari Vajpayee is, however, reported to have called for a status report on the stock, supply and requirement position of wheat. Based on the feedback, the Cabinet is expected to take a decision on the import.

Meanwhile, the rabi crop has started coming in. According to Union Food Secretary N.N. Mookerjee, wheat production this year is expected to be higher than earlier estimates - around 66.5 million tonnes - thanks mainly to increased acreage and favourable spells of rain. Procurement is also expected to be good since market prices, already depressed, are expected to go down further with the arrival of the new crop. As against last year's open market price of Rs. 700 a quintal, the current price is less than Rs. 500 a quintal. Even at last year's minimum support price of Rs. 455 (inclusive of bonus), farmers should find the prospect of pooling attractive. Union Food Minister Surjit Singh Barnala is reported to have asked for an additional bonus of Rs. 40, taking the procurement price to Rs. 495 a quintal.

Mookerjee estimates that the procurement in 1998 will be around nine million tonnes as against 8.3 million tonnes needed for the Targeted Public Distribution System (TPDS). Experts, however, believe that it could be in the region of 10.5 million tonnes. Even if a higher offtake on account of the shortfall in coarse grain production is accounted for, the supply position appears to be comfortable. Buffer stocks are also at a comfortable five million tonnes, well above the normative 3.7 million tonnes.

DOES India still need to import wheat? Imports do not come cheap. Although STC Chairman S.M. Dewan declined to confirm the price at which the wheat has been contracted, press reports put it at $142.50 a tonne free on board. Add to this around $20 for freight and insurance, the landed price will be $160 a tonne (about Rs. 6,320 at the current exchange rate). Two million tonnes at this price will deprive the exchequer of more than Rs. 1,200 crores. In addition to this, there are unloading and storage costs. According to experts, the STC could have driven a harder bargain, especially since it was contracting for a large quantity.

The costs involved would not have mattered if the wheat was meant to help stave off starvation in a lean year or to replenish depleted buffer stocks. Since these circumstances did not exist when the import was contracted in uncharacteristic haste in February end, one must assume that the I.K. Gujral Government wanted to enhance the supply through the Public Distribution System (PDS).

The decision was taken by the U.F. Government during its last days in power, reportedly without any prompting by the Food Ministry. The execution of the decision was stayed until after the elections in Punjab, the home State of Prime Minister Gujral. The STC reportedly concluded the deal with remarkable speed - in a week's time. The questions that are raised now are whether the decision to import was warranted; whether it could have waited until an estimate of the requirement was made after a clear idea of the production and procurement was available; and whether the delivery could not have been scheduled for September-October since the imported wheat was not required urgently.

How much of the import cost will translate into subsidy? As it is, the 83 million tonnes distributed through the TPDS involves a subsidy of Rs. 7,500 crores. Additional quantities supplied through the PDS will involve additional subsidies unless the Central Issue Price (CIP) is raised - a difficult decision for any government. Besides, any increase in the CIP, curtailing the purchasing power of the vulnerable sections, may result in lower off-take and become counter-productive.

Under the circumstances, most of the import cost will directly inflate the subsidy bill. At the Above Poverty Line (APL) price of Rs. 4.50 a kg, the additional two million tonnes of imported wheat, involving an additional subsidy of around Rs. 600 crores, will fetch no more than Rs. 900 crores when sold through the PDS.

In addition, the problem of storage has not been taken into consideration. According to sources, Australian wheat consignments are infested with an exotic weed and therefore cannot be shipped to the wheat-growing northern States. This leaves only the rice-eating South. Since the monthly consumption of wheat in the southern States is not more than one lakh tonnes, the total annual requirement of this region is no more than 1.2 million tonnes. The Food Corporation of India's (FCI) existing storage capacity in the South is reported to be no more than four lakh tonnes. The FCI is reported to have informed the Government that it does not have the capacity to store the imported wheat also because the new crop would start coming in around the same time.

Speaking to Frontline, Dewan said that the Australian wheat was headed for six ports in South India. However, when he was asked about what would happen to the wheat if it could not be unloaded or stored for want of space, Dewan said: "We acted according to the instructions of the Government. Our job is to contract, purchase and transport. Storage is not our concern."

Dewan said that the import was contracted in accordance with the laid-down procedure. According to him, the STC had tendered for the wheat and followed the Government's instructions while placing the order. Dewan maintained that the prices had been competitive at the time of contracting. He denied reports about the STC's board refusing to ratify the "overpriced" contract and said that no intermediary had been engaged to facilitate the import. (The United States Ambassador to India, Richard Celeste, is reported to have expressed his country's unhappiness over the failure of the Government to provide an opportunity to U.S. wheat traders.)

Food Ministry officials were at pains to emphasise that the BJP-led Government had the authority to review the contract entered into by the U.F. Government. Naturally, the cost of cancelling the contract in terms of the expenses incurred on the transshipment of the wheat and the penalty clauses in the contract will have to be weighed against the risk of the inflationary impact of releasing the stock through open market sales on a cost plus basis, especially if the Government does not want to bear the cost of the additional subsidy. There may not be any takers for the wheat at that price. The possibility of staggering the arrival of the wheat and the consequent storage/demurrage costs that may be incurred at the port of loading should also be factored into the final decision. Barnala, who hails from Punjab, is well-equipped to judge the matter.