Fiscal strain to stop govt from cutting wheat price for traders

The idea of absorbing statutory charges like states levies, freight for bulk consumers has been shelved

Burdened by a resource crunch, the government has shot down any move to sell wheat under the Open Market Sale Scheme (OMSS) to bulk consumers at cheap rates for 2013-14. The earlier idea of absorbing statutory charges like states levies, freight etc for bulk consumers has been shelved.

Officials said this would surely make the price of wheat to be sold from government stocks dearer at over Rs 1,600 a quintal during 2013-14. The price was less than Rs 1,500 a quintal in 2012-13.

The quantity sold might remain flat at 6.5-7.0 million tonnes in 2013-14, they added.

"The central government has little option other than passing on the transportation and freight charges to consumers of government wheat, as the fiscal burden is high," a senior official said. He said in 2013-14, almost 6.5-7.0 million tonnes of wheat is expected to be sold in the open market, the same as last year.

In 2012-13, the government sold wheat from central stocks to liquidate its inventories and also to keep the prices of wheat and flour stable in the open market. The sale was necessitated as the government had to purchase more than 85 per cent of the total marketable surplus of wheat, leaving very little for private traders. The grain was purchased at the prevailing minimum support price of Rs 1,285 per quintal.

"The central government is already working on the Food Security Bill, which will lead to higher allocations under the Targeted Public Distribution. Hence, it might be possible that the quantity available for open market sale in future might not be huge," the official said.

He said all bulk consumers of wheat are therefore advised to purchase wheat directly from farmers during the peak harvest months of April to June and not wait for the government's stocks.

Since the last few years, the government has been purchasing almost 90 per cent of the total marketable surplus of wheat and rice as the price paid by it is much higher and not matched by private traders.

However, this has led to massive shortage of wheat stocks with private traders, mainly the bulk consumers. The price of wheat flour in the retail markets had also moved up because of low availability of wheat.

As a result of this, flour mill owners have to entirely depend upon the government to meet their annual raw material requirement.

In 2012-13, the government purchased over 38 million tonnes of wheat, while the production was a record 95 million tonnes. In 2012-14, the government has fixed a target to purchase 46 million tonnes of wheat, almost 21 per cent more than last year, while the production this year is estimated to be around 93 million tonnes.

The government has targeted to contain the Centre's fiscal deficit at 4.8 per cent of GDP for the current financial year against estimated 5.2 per cent in 2012-13. The fiscal consolidation plan is a key parameter for India to convince rating agencies not to downgrade its sovereign rating to junk.