Needless intervention

Enforcement of stock limits on wheat is puzzling

The imposition of stock limits on wheat, even while claiming abundant supplies, seems to be a clear indication of misadministration in the country’s food economy. The fact that the rabi marketing season is not yet over, and the farmers still have unsold stocks with them, makes this move unwelcome, as also anti-farmer. Moreover, the decision has come at a time when food inflation has cooled down to an 18-month low of 2.91 per cent and the overall retail inflation has eased to a 25-month low of 4.25 per cent, largely on account of the softening of prices for food and fuel. Although, no doubt, the consumer price index-based inflation rate in wheat has remained relatively high over a long period, it does not warrant strangulating the whole market, especially considering that 810 million people are provided free grains by the government under various welfare schemes. 

Over-reactions, such as this, can prove counterproductive by needlessly creating a scarcity scare in the market to the detriment of all stakeholders, including growers, traders, processors and consumers. The move also seems strange because, even while restraining free trade of this staple cereal, the government simultaneously announced its intention of offloading 1.5 million tonnes of wheat in the market from its own inventories through electronic auctioning. Interestingly, these grains would be offered at prices higher than the minimum support price (MSP) at which the government buys wheat from farmers.

One of the major causes of the malfunctioning of the country’s food management system is the multiplicity of administrative authorities. While the production of food grains and fixing their support prices are the responsibility of the agriculture ministry, the procurement, stocking, and allocation to states are done by the Ministry of Consumer Affairs, Food and Public Distribution. Further, the distribution of grains to nearly two-thirds of the population through fair-price shops is handled by state governments. All these operations, obviously, are inter-related and have a bearing on the demand-supply dynamics and the prices of grains in the open market, which form the basis for government’s policy decisions.

In the present case, the foremost factor that needs to be looked into is the government’s assessment of wheat production in the just-concluded rabi season. While the official data puts wheat output in 2022-23 at a record 112.7 million tonnes, which is around 5 million tonnes higher than last year, when India managed to export 7 million tonnes of wheat without impacting domestic supplies and prices, the trade circles believe that it is an overestimate. The actual production was, perhaps, much lower — between 100 and 103 million tonnes. If the wheat output was as high as the government claims, and exports were discontinued in May 2022, there should not be a cause for concern. Wheat is not a commodity that can be stored for long without incurring heavy losses or quality deterioration. In any case, if the prices are on the rise, as the government asserts and cites as a reason for putting stockholding curbs, then the natural tendency among traders would be to book profits by off-loading stocks, rather than holding on to them. Placing inventory caps would hardly serve any useful purpose. It would, therefore, be prudent for the government to revisit its decision and refrain from needlessly intervening in the grain market.