Something is wrong in the state of New Delhi’s food management. India is sitting on record stocks of wheat and rice. Yet the prices of these staples, along with everything else Indians eat, are rising inexorably. There is no one reason behind this situation. But the single most important factor is the absurdly high support price given by the United Progressive Alliance government to wheat and rice farmers. It costs a farmer roughly Rs 6,500 to produce a tonne of wheat but the government has been buying it from him at Rs 10,800. On top of that, the Food Corporation of India was forced to buy well beyond its reserve requirements. The country now has five times more wheat and two times more rice in stock than it needs.
This has meant that despite this overproduction, cereal prices have remained high. But one indirect result, admits the Ministry of Agriculture, is that wheat production has increased at the expense of other crops. The farmer cannot be faulted: he is merely responding to a government guaranteed 60 per cent profit margin. However, the fallout has been an inflationary run for almost all other food items ranging from pulses to vegetables. While prices of everything from petrol to cement have fallen recently, the cost of a full plate rises without any signs of abatement. Sugar, for example, has been badly hit by skewed policies that focused on only one segment of the agricultural spectrum. Sugar production may be down over 40 per cent this year. World prices have been shooting upwards in expectation of massive Indian imports. Domestic prices have followed in their wake.
While its wheat policy will guarantee the UPA a landslide in Haryana and Punjab, it will be an enormous migraine for the next government. India is now overstocked and its stocks are overpriced. The government will have a choice: let rats and rot wipe out the excess or dump the wheat at home or overseas. Even the latter will cost the taxpayer another arm and a leg. The support price means this wheat is more expensive than the imported variety and can only be sold with another subsidy attached. The outgoing government’s mixing of crops and politics ensured that its intervention in the market did the opposite of what such intervention is supposed to do: instead of moderating extremes, it made them worse.
{{/usCountry}}While its wheat policy will guarantee the UPA a landslide in Haryana and Punjab, it will be an enormous migraine for the next government. India is now overstocked and its stocks are overpriced. The government will have a choice: let rats and rot wipe out the excess or dump the wheat at home or overseas. Even the latter will cost the taxpayer another arm and a leg. The support price means this wheat is more expensive than the imported variety and can only be sold with another subsidy attached. The outgoing government’s mixing of crops and politics ensured that its intervention in the market did the opposite of what such intervention is supposed to do: instead of moderating extremes, it made them worse.
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