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The grain glut

Source : BUSINESS_STANDARD
Last Updated: Mon, May 28, 2012 19:50 hrs

Surely the intellect of a high-level inter-ministerial committee is not required to conclude that the subsidised export of wheat and the disposal of grain at discounted rates at home can help ease the current grain congestion. However, this seems indeed to be the conclusion reached by the high-level panel set up by the prime minister under the chairmanship of his Chief Economic Advisor C Rangarajan to suggest ways to relieve pressure on grain storage. The committee has suggested the export of two million tonnes of wheat through government channels, with an estimated subsidy of Rs 1,500 crore, and an additional million tonnes through private exporters with a subsidy of Rs 150 crore. In addition, it has proposed the distribution of eight million tonnes of wheat to the poor and two million tonnes to the non-poor at reduced prices.

The snag in even such an obvious, and elementary, way out of the grain glut is that it will be far from easy to ship out or to dispose of in the domestic market any substantial quantity of wheat in a manner suggested by the committee. While rice is price-competitive in the international market, thanks partly to the weak rupee, wheat exports are unfeasible except at throwaway prices similar to those for animal feed. Moreover, public and political opinion is unlikely to favour such highly subsidised grain exports, given that a large number of Indians are still underfed. Besides, such grain exports can be questioned on other counts as well. Production of one tonne of wheat requires a whopping 1,478 cubic metres of water, besides other inputs. Paddy, of course, consumes even more water. The export of these staple cereals may, therefore, be construed as the export of water, which has already turned scarce in the country’s key grain bowls. This apart, offloading a substantial quantity of additional grain through the public distribution system (PDS) may not be feasible either, given that the PDS is already saturated with highly subsidised grain. The extra allocations to the states made by the food ministry in the recent past have found few takers. Moreover, the government’s present fiscal ill health may not allow it to bear an extra subsidy burden on this account. This is clear from the fact that even before the appointment of the Rangarajan committee, Finance Minister Pranab Mukherjee shot down a proposal to distribute 10 million tonnes of foodgrain in the domestic market citing fiscal constraints.

Thus, thanks largely to flawed food management policies, a situation has been created to which few solutions are on offer. Feeding the poor and the underfed is obviously the ideal solution. But this cannot be done exclusively through PDS outlets, which, despite their countrywide spread, exclude a sizable chunk of population. Channelling more foodgrain through private trade at prices below the minimum support price might be a better option – regardless of justifiable fears that the grain will return to the system – since that would target the people not covered by the PDS. For the longer run, however, a stable, not ad hoc, market-driven grain export policy needs to be put in place.




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