Exportable grain mountain

Editorial, The Hindu Business Line

The government can route grain exports largely through bilateral agreements with countries in West Asia, Africa or even our South Asian neighbourhood.

(This article was published on May 14, 2012)

With its godowns bursting at the seams, the Government has done the right thing by initiating moves for export of grain from the Food Corporation of India's (FCI) stocks. The economic rationale for it is sound. At around 72 million tonnes (mt), the inventory levels projected for July 1 would be more than twice India's normative buffer and strategic reserve requirements of 32 mt at the start of the new agriculture season. The annual ‘carrying' cost of this extra 40 mt, as per FCI's own figure of Rs 5 a kg, would work out to roughly Rs 20,000 crore. Rather than incurring this expense and letting the surplus grain rot or be eaten by rats, one may as well ship it out and earn much-needed dollars at a time of extreme balance of payments stress.

But can there be a moral rationale for exporting out of public stocks? Only if there is a surplus; in this case, FCI has enough grain now to feed the public distribution system (PDS) and much more. But the Government must not allow exports at below-PDS issue prices. The National Democratic Alliance during its regime had done worse: Between 2000-01 and 2003-04 almost 34 mt of grain were issued to exporters at rates equal to, or even below, that for below-poverty-line (BPL) consumers. No wonder much of the FCI wheat went to feed cattle abroad. Forget BPL, grain being made available for less than even the above-poverty-line (APL) issue price is not supportable. In fact, at current realisations of about $400 a tonne for rice and $225 for wheat, the issue price for exports can be fixed at least 50 per cent higher than the corresponding APL rates of Rs 8,300 and Rs 6,100 a tonne respectively. Now that the State Trading Corporation has invited open bids from overseas buyers for wheat from FCI's stocks, these (APL plus 50 per cent) could even be the reserve price below which no exportable grain would be offered. That makes for an economically as well as morally defensible formula.

The other thing the Government can, perhaps, do is to route public grain exports largely through bilateral agreements with countries in West Asia, Africa or even our own South Asian neighbourhood. These deals have the advantage that they can be pushed through silently without impacting world prices the way large-scale exports via regular marketing channels would. Secondly, they can be linked to barter purchases of oil, fertilisers and other minerals from Iran, Morocco or Jordan. The US may have fewer objections to India paying Iran in wheat for oil than in hard currency that can be used for importing nuclear centrifuge components. But whichever way one looks at it, the time has come to do something fast about the country's massive grain mountain before it gets bigger.