People's Democracy

WHEAT IMPORTS ISSUE

Who Will Pay For The Loss To National Exchequer?

Brinda Karat Asks Sharad Pawar

The following is the text of the letter written to Sharad Pawar by CPI(M) Polit Bureau member and MP, Brinda Karat on September 18, 2007 regarding wheat imports issue.

I APPRECIATE your detailed letter explaining the government’s position on the management of wheat stocks and wheat imports. It is unfortunate that this important issue could not be discussed in parliament during the monsoon session. I am enclosing herewith a letter that I had earlier written to the prime minister on September 5, 2007 on the issue, requesting him to order an inquiry into the matter.

I agree with the point made in your letter regarding subsidised exports of wheat from 2000-01 to 2004-2005, which cost the government Rs 16,245 crore. It is precisely because of such losses to the national exchequer that the need for a reversal of the food policies pursued under the previous regime was required. What we have witnessed under the present regime is that while wheat exports have come down and was eventually banned earlier this year, the dominance of private players in the procurement and trade in foodgrains, especially wheat, have increased. This has ultimately led to expensive imports and a loss to the national exchequer. I want to raise a few issues on the points made in your letter.

1. It has been stated in your letter that on March 29, 2007, the cabinet had decided on an Action Plan to import up to 5 million tonnes of wheat ‘in case procurement falls short of the requirement’. It is further stated that a specially constituted EGoM in its meeting on April 18 2007 had decided to import wheat in appropriate tranches through the State Trading Corporation. It is known that the rabi crop came into the market this year only around the second week of April. On what basis did the EGoM decide on importing wheat in the third week of April? How could a shortfall in procurement be projected when procurement operations had just commenced? Does it mean that the decision for imports was pre-meditated? The decision to import wheat being arrived upon while procurement operations were on would have certainly sent wrong signals to the public procurement agency.

2. Your letter gives details of the process of wheat imports. The first tender for the import of 10 lakh tonnes of wheat was floated by the STC on April 30, 2007. However, the STC recommended the import of only 3.06 lakh tonnes on the basis of expectations that wheat prices would soften at a later date, on the basis of wheat futures prices in the Chicago Board of Trade and the International Grains Council (IGC) monthly report. The Integrated Finance Division of the Department of Food and Public Distribution had also advised not to import wheat at the rate recommended by the STC. However, such expectations of a fall in international wheat prices were belied after the US Department of Agriculture (USDA) published its estimate of global wheat production, following which the IGC also revised its forecast by about 11 million tonnes on June 12, 2007. The indication in your letter that international wheat prices shot up following the publication of the USDA estimate, confirms the apprehension that the international grain market is not a competitive market and the USDA wields enormous market power in grain trade. Dependence on wheat imports therefore weakens our food security by making it vulnerable to speculation and manipulation of prices in the international market.

3. The government has now imported wheat at much higher prices than what was prevailing in April-May, i.e. $263 per tonne (Rs 10,783). The first tranch of wheat imports (5.11 lakh tonnes) cost $325.59 (Rs 13,349) a tonne and the second tranch (7.95 lakh tonne) cost $389.45 (Rs 15,967) per tonne. If the entire amount of wheat import had taken place at $263 per tonne, the government would have saved over Rs 540 crore. The crux of the matter therefore is that the STC and the government speculated on a softening of wheat prices at a later date and caused a loss to the national exchequer in the process. The question arises, who would take responsibility for this loss? Are we to accept such vagaries in the international grain market and the consequent loss of public resources as fait accompli? Just as your letter claims credit for saving Rs 214.14 crore by not importing wheat at $263 (Rs 10,783) per tonne during May 2007 and rather procuring it domestically at the declared MSP of Rs 8500 per tonne, it should have also taken the responsibility for the loss of Rs 540 crore. The government must also assess whether its decision to announce its full requirement for imports initially and then staggering the process of wheat imports have contributed to pushing up prices in the international market.

4. From the Indian farmers’ point of view the reality is that the government paid to foreign traders exorbitant prices upto nearly Rs 16,000 per tonne while the MSP was only Rs 8500 per tonne. The government has paid around Rs 800 crore more to foreign traders for the 13 lakh tonnes of imported wheat compared to what Indian farmers got by selling it to the public procurement agency. In your letter you have also stated your view in favour of paying higher prices to Indian farmers. Then why was this not implemented? Wasn’t your view shared by the finance ministry and the cabinet? With rising costs of inputs, increasing distress among small and marginal farmers, continuing increase in prices of essential commodities, there is surely a strong case for ensuring a more remunerative price for farmers.

5. In your letter it is stated that increasing the MSP of wheat at this stage will only benefit the traders since the farmers have already sold their produce by now. That may be so, at this stage. But the real issue is at an earlier stage when the government found that private traders were cornering stocks by offering prices marginally higher than the MSP, appropriate steps could have been taken, including announcing a bonus for Indian farmers. This would have benefited Indian farmers and precluded the possibility of expensive imports at a later stage. In contrast, the present policies of the government have benefited the corporates involved in foodgrains trade. At least at this stage the government should inquire and identify the private traders who have cornered wheat stocks precipitating a shortfall in public procurement despite no shortfall in production. The government must also prevent hoarding of wheat by those private players and consider procuring surplus wheat stocks lying with private traders at the declared MSP of Rs 8500 per tonne, by invoking relevant provisions of national laws, rather than importing wheat at Rs 16,000 per tonne.

Since many questions need to be answered it would be appropriate to have a high level inquiry into the matter. It is a fact that there has been a loss to the national exchequer and therefore responsibility needs to be fixed in the matter. I also request you to initiate a reversal of the government policies in order to avoid such losses in future.