Messing up, the Indian bureaucratic way

The country has to pay a heavy price as the government fumbles again on wheat imports.

If bureaucrats in New Delhi really possess the ability to predict wheat prices in Chicago, they should be given trading limits urgently.

They don't have any such clairvoyance, something proved last week when the Indian government reinstated a tender to import 1 million tonnes of the grain, less than a month after cancelling it. At the time, it judged the price being offered by Archer Daniels Midland and Cargill to be too high.

Between then and now, the price of wheat futures on the Chicago Board of Trade has moved up to $5.7150 a bushel from $5.1075, a 12 per cent jump. On 1 million tonnes, the difference works out to $22 million.

"This is sheer mismanagement,'' economists Sumita Kale and Laveesh Bhandari at New Delhi-based Indicus Analytics, a research firm, wrote this week in their newsletter. "Surely the government should have learned from the last year's experience?''

Last year, the government was caught napping.

Back in October 2005, the state's buffer stocks, which are used to supply the grain to fair price shops, had dipped below 10 million tonnes, the first time in a decade that they had fallen below the level that's considered safe.

Yet, it was only in February 2006 that India first decided to import wheat. In those four months, prices rose 17 per cent in Chicago.

The simple truth is that markets know more than governments.

Any wisdom claimed by bureaucrats is only, as economist Friedrich Hayek termed it, "a pretence to knowledge''.

This basic lesson continues to elude India's officialdom after 50 years of disastrous state planning.

"Efficient management of business and industrial concerns is a highly specialised function and demands qualities which a civil servant is not required to, and in the ordinary course of his training may not, acquire,'' economist B R Shenoy said in a dissent note to India's second five-year plan in 1955. Those were the prophetic words.

Consider the wheat import debacle. On May 31, a day after the government cancelled the tender, its wheat stock was 13.3 million tonnes. It needed about 4 million tonnes between then and July 1 to meet its norm for the required minimum buffer. There was no way this shortfall was going to be met domestically, and that was as well known in Chicago and Kansas City as New Delhi. The bungling of imports is just one aspect of a bigger mess.

The government runs an elaborate food procurement, stocking and distribution business, trying to balance conflicting objectives. It must give a fair return to farmers and at the same time ensure low prices to consumers, especially the poorer sections of society. Bloomberg