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DECONSTRUCT, THEN PANIC
- To invite private traders in price-disciplining activities is insane

Anno Domini 2001 is ancient times, and yet not so ancient. Early in that year, an official committee, worried over stocks of foodgrains lying with the Food Corporation of India reaching close to 50 million tons, hit upon a wonderful idea. The carrying costs of such a huge stock were allegedly increasingly difficult for the government to bear; a portion of the stocks, the committee recommended, be dumped in the high seas.

The committee did not suggest releasing more foodgrains through the public distribution system at subsidized prices; it dared not make such a suggestion, for the World Trade Organization would then have pounced upon it. Subsidized supply of food ' or, for the matter, any commodity ' in the view of this august body, goes against the interests of private operators, and thereby befouls the impeccability of the free trade concept. The committee could have recommended distribution of some of the surplus grains as charity to the country's needy population. After all, charity does not quite come under the purview of the WTO; in any case, under Article 282 of our Constitution, the authorities, whether at the Centre or in the states, are entitled to offer a grant to anyone for any purpose. The committee however was not in a charitable mood. It did not even suggest that a portion of the accumulated foodgrains be fed to the rickety livestock roaming the wilderness of our countryside. No, the committee had fallen in love with the Indian Ocean: its recommendation focused on the unloading of surplus grains into the hungry, turbulent waters of the ocean.

The government did not quite dare to act upon the revolutionary proposal of the committee. One cannot fault it though for its various efforts over the past five years to ensure a rapid meltdown of the country's food stocks. And by government one means the continuum from the National Democratic Alliance to the United Progressive Alliance; in terms of class interests, no distinction is possible between the two regimes. The authorities did not quite visit the waters, but otherwise they have been extraordinarily active to do a Houdini of the FCI stocks, including those of wheat. While the local livestock were deprived, they allowed the export of wheat through private agencies, mostly to the United States of America, to feed American pigs. The price charged for such exports was less than what domestic consumers were asked to pay under the public distribution system. This was done via a stratagem: private parties to whom the stocks were initially released were offered a transport subsidy to sell grains overseas. On a rough reckoning, at least 13 million tons of wheat have been exported over the past quinquennium. The government did something else: it brought down drastically the procurement of wheat and other grains. The FCI purchased 20.6 million tons of wheat in 2001-02; procurement was gradually reduced to the level of 14.7 million tons by 2005-06. Annual wheat production in the country was more or less steady, around 72 million tons, in this period; so the lowering of procurement had nothing to do with the state of output. The FCI must have been told sternly; it was sin to procure foodgrains on its account. In many mundis, FCI agents turned into disinterested spectators as private traders bought up grains at prices less than the minimum support price stipulated by the government. These private traders also included representatives of multinational corporations like Cargill India, Continental and the India Tobacco Company.

The multifaceted efforts at reducing public stocks of foodgrains succeeded magnificently. By April of the current year, the deconstruction of public stocks of foodgrains was almost complete; the quantity of wheat lying with the FCI was down to barely 1.8 million tons. It is, in this situation, no surprise that the Centre is unable to meet its commitment to supply grains to sustain the rural employment guarantee scheme.

That is a bother because of all this talk about ensuring food security, but it has been accompanied by another development. Particularly because of the last round of increase in administered prices of petroleum products, the general price level has started spiralling. Inflation angers people across the board and thus affects the political fortunes of those in authority. The powers-that-be have therefore decided to turn the wheel a wee-bit the other way. Outbursts of fake consternation are suddenly frequent at the precarious state of foodgrain stocks, particularly of wheat, at the disposal of the government. The Central cabinet gathered at an emergency meeting, reviewed the situation and took a number of decisions to bring down prices. Unlimited quantities ' in the jargon, 'without cap' of wheat, pulses and sugar are to be imported to replenish the government's foodgrain stocks and reconstruct the public distribution system. Excellent, but what is remarkable is that imports are proposed to take place not only on government account; the private sector is simultaneously being granted permission to import the aforementioned commodities.

This is, to say the least, bizarre. Commodity prices do not spurt on their own; they rise because private traders choose to raise them. In a situation of relative scarcity, it is in the interest of private traders to hold back supplies from the market, jack up prices and expand their profit. It then becomes the duty of the government, in case it is interested in disciplining prices, to augment supplies in the market, if necessary through imports. To allow private agencies to have a part of the planned imports cannot, therefore, but be counter-productive. Private traders do not constitute a philanthropic conglomerate. If they participate in the import business, it is not with the intent to use imports to level down prices. Bulls and bears play their respective roles in the commodity market too. It is in the interest of private parties to increase their influence in the commodity market vis-'-vis that of the government. To invite private trade to come, be a sport and participate in the nation's price-disciplining activities obviously borders on the insane.

But there is an explanation to everything, including this one. Prices need to be rolled back to appease the public. The government cannot however ditch its class brethren in the trading fraternity. Trade, in the form of either export or import, gives rise to the possibility of a cut or commission at different points of the chain: let private traders too get a part of the proceedings. That they might not immediately release in the market the quantities they import is a small matter.

There is conceivably a bit more to it. If newspaper reports are to be believed, there was much discussion at the cabinet meeting on whether the public distribution system is at all an effective means to combat high prices and should not be dismantled altogether. Perhaps it was seriously suggested that, in this era of liberalization, we should dispense with the nuisance of public distribution and depend exclusively on the munificence of private trade to restore price tranquillity. The suggestion was not fully accepted, but a compromise has been worked out.

A comment in parting. Since independence, the national population has grown at least three times, the production of important foodgrains such as rice and wheat has gone up maybe five times, but the output of pulses, which are inferior grains providing protein to the poor, has registered an overall increase of barely 30 to 40 per cent; what do the authorities care if protein does or does not enter the bodies of the poor' It is, in that context, a great thing that some pulses are being imported too. Do not pay heed to rumours, the government is not all that heartless.

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