No. 42, December 2006
Wheat Imports – A Tool for Re-shaping India’s Agriculture
Let us briefly recapitulate our earlier account5 of how the Government managed to hand over the vast stock of foodgrains to private interests. In July 2002 the Food Corporation of India’s (FCI) foodstocks were 63 million tonnes (of which wheat stocks were 41.1 million tonnes) as against a minimum foodgrains buffer stock norm for July 1 of 24.3 million tonnes (14.3 million tonnes for wheat alone).
Even if we took the value of these stocks very conservatively at Rs 6/kg, they would be worth Rs 378 billion. Much of this huge capital could have been used as wages in food-for-work schemes to create rural assets – thus increasing the country’s productive base, its storage of farm products, its rural roads, and its education and health infrastructure. However, only a small portion of the total was used in such a fashion. Instead, the Government did the following:
(i) Subsidised exports: Between 2000-01 and 2004-05, 29.9 million tonnes of the FCI’s foodgrains stocks was exported at a heavy subsidy. During November 2000 to February 2004, the FCI subsidised wheat and rice exports by Rs 141.35 billion.6 In fact, from 2000-01 to 2003-04, the grains were exported at considerably below the Minimum Support Price paid to the peasants. The beneficiaries were giant foreign agricultural traders such as Cargill and large domestic trading firms who bought the grain for export.
(ii) Handed over to traders at a subsidy: Further, a huge quantity of wheat and rice – 18.7 million tonnes – was sold, largely at subsidised prices, to domestic traders under the open market sales scheme (OMSS) between 1999-2000 and 2003-04.(iii) Plundered with official collusion: Finally, giant quantities appear to have been stolen, in an operation that could only have been organised at the top levels. Between April 2002 and October 2003, 14.7 million tonnes simply disappeared from the FCI’s foodgrain stocks and are unaccounted for.7 If we value these stocks at Rs 6/kg, the loss on this account is Rs 88 billion.
Since the UPA government came into office on the back of massive rural discontent, it has had to revive, to some extent, the rural employment schemes and welfare schemes, which were in a coma during the preceding years. As a result the offtake of foodgrain for these schemes has picked up somewhat, requiring higher foodgrain stocks with FCI.
For all these reasons the stocks drew down rapidly, as the result of conscious policy. Wheat stocks as on April 1 (ie before procurement) fell from 26 million tonnes in 2002 to 15.6 million tonnes in 2003 to 6.9 million tonnes in 2004 to 4 million tonnes in 2005. The figure for April 1, 2005, was thus 0.1 million tonnes below the buffer stock norm for that date.
Deliberate under-procurement in April-May 2005
Thus it was crystal clear at the start of the procurement that the Government would need to energetically carry out procurement. Nevertheless, it procured only 14.7 million tonnes in the 2005-06 marketing season (April-May 2005).
The Government has made out that this merely “happened”, as if by accident. Union Food Secretary, S.K. Tuteja, “hedged questions on why procurement was less this year, saying there is no procurement target and the government is quite happy if private players are paying farmers more than the minimum support price. After all, he said, the objective of the procurement exercise is to ensure farmers get the MSP and the government can meet its welfare commitments.”8
Tuteja’s statement is false in two respects: first, the shortfall in procurement was deliberate; and secondly, peasants received less than the MSP. The shortfall occurred for two reasons.
The Government tells peasants: “Reduce your grain production”
This has been the explicit policy of the Government for some time now. In March 2001 then Prime Minister Vajpayee told peasants at a meeting in Haryana to “Look beyond wheat and paddy” and to switch to “horticulture, floriculture, oilseeds and vegetable production and have a good export potential.” With the removal of restrictions on imports under the World Trade Organisation, he said, Indian farmers would have to grow less food and more of other crops. Thus it became official Government policy to discourage foodgrains growth and thus ensure dependence on imports.
This policy was also defended by falsely claiming that Indian peasants were growing too much grain, more than Indian consumers could consume. The Food and Agriculture Minister, Sharad Pawar, declared on February 20, 2005, (almost exactly a year before deciding to import wheat) that “the days of importing foodgrains were over.” He boasted: “Punjab, Haryana and parts of U.P. are satisfying the country’s hunger. I want Punjab and Haryana to reduce their production of wheat and rice, which is in abundance.” (emphasis added) He said this on the occasion of announcing a Rs 150 billion National Horticulture Mission, underlining the new direction that the Government wants peasants to take. Most of the little increase in the allocation to agriculture in the 2005-06 and 2006-07 Union Budgets has been devoted to horticulture and micro-irrigation (the latter largely for horticulture).
Government freezes Minimum Support Price
This virtual freezing of MSPs was intended to dampen wheat production and procurement. Consequently, as can be seen from col. 4, procurement fell sharply between 2000-01 and 2004-05, by 5.84 million tonnes; as a percentage of the crop (col. 5), procurement fell by 9 percentage points.
Table 4: Wheat Minimum Support Price and Procurement
Government tells FCI: don’t procure
None other than the Union Secretary for Agriculture, Radha Singh, confirmed that such instructions were issued by the FCI. She stated that “Procurement [in the 2005-06 marketing season] has declined mainly because government agencies did not make requisite purchases in states like UP.” She said wheat output in U.P. was estimated at nearly 25 million tonnes, making it the largest producer of the crop in the country. Yet the government procurement in the state was a dismal 0.56 million tonnes, as against a normal 2.5 million tonnes. “Nothing stops government-run agencies like FCI from procuring wheat in UP. If procurement in UP would have been in proportion to the output, the stock position would have been much more comfortable.” On the other hand, she noted, “Private players including multinationals are estimated to have purchased around 4-5 million tonnes of wheat in Uttar Pradesh.”10 This demolishes Food Secretary Tuteja’s claim that the shortfall in procurement occurred spontaneously.
The Commission for Agricultural Costs and Prices (CACP) called attention to the dangerous consequences of this withdrawal by the state agencies. It noted that corporate groups had been staying out of procurement in Punjab and Haryana because of restrictions on licensing, payment of tax, etc, but
The Commission further remarked on the failure to procure in U.P., resulting in lower prices for the peasant and lower procurement:
Thus the evidence is clear: There was a decision to procure less, and to leave the field open for the multinational corporations and other grain speculators, at the expense of both peasants and consumers. It is worth noting that the amount of shortfall in procurement from U.P. – two million tonnes – is roughly the same as the shortfall in the buffer stocks on April 1, 2006.
6. The Comptroller and Auditor General estimated the economic cost (i.e., all costs incurred by the Food Corporation, including transport, storage, and interest) of wheat and rice exported at Rs 339.27 billion; the sale value was Rs 197.92 billion. – Business Standard, 9/5/05. (back)
8. Times of India, 10/6/05. (back)
9. The Government’s official Economic Survey 2005-06, claims that large Government procurement hurt private traders and discouraged them from expanding in the field of agricultural marketing: “Reduction of private trade in wheat and rice in the northern states of Punjab and Haryana also possibly led to the ‘crowding out’ of private investment in agricultural marketing channels.” So the Government wants to encourage private investment in agricultural marketing by keeping the MSPs low, and diverting more grain into the hands of private trade. (back)
10. Business Standard 17/6/05; emphasis added. (back)
11. CACP, Profile of Rabi Crops under Price Support of 2005-06 Season; emphases added. (back)
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