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Wheat OMSS: A tale of suspense, comedy of errors...

Harish Damodaran

NEW DELHI, Aug. 13

THE Government's open market sale scheme (OMSS) of wheat from the Food Corporation of India's (FCI) stocks is increasingly resembling a television soap opera, replete with the usual elements of contrived suspense, comedy of errors and predictable finale.

It was not very long ago - the day of the 2000-01 Union Budget, to be precise - that a `landmark' decision was taken to issue grains from the Central pool to the above poverty line (APL) population, including traders and roller flour millers, only at a p rice covering FCI's full economic cost. Any element of subsidy was, henceforth, to be restricted to just the below poverty line (BPL) segment in line with the Government's avowed `pro-poor' proclivity.

In the event, the APL/OMSS prices were raised by 28-32 per cent to a uniform Rs. 900 per quintal with effect from April 1. Ironically, only in early December had the Government actually reduced OMSS prices in a bid to boost wheat offtake from the Central pool. Following the price reduction, lifting by millers indeed rose substantially, with nearly 74 per cent of the total OMSS offtake of 4.42 million tonnes in 1999-200 taking place during the last four months of the fiscal.

Of course, the higher lifting during December-March may have also been on account of this period being the traditional `lean' season, when open market supplies dry up. What was inexplicable, however, was the Government's move to effect a 28-32 per cent i ncrease in APL/OMSS prices from April 1, just prior to the arrival of the new wheat crop in the mandis.

Moreover, the massive price hike was being resorted to at a time when the country was set to harvest an all-time record crop of 74.25 m.t. - a situation where market forces would ordinarily have signalled lower prices.

As it turned out, the markets did signal lower prices; so much so that wheat dara is quoting even now at Rs. 590-600 per quintal in Delhi. With the open market prices ruling almost two-thirds that of the revised OMSS/APL rate, few people would have been surprised by the 21.75 per cent drop in total wheat offtake from the Central pool, from 12.63 lakh tonnes in April-June 2000 to 9.88 l.t. during the same period last year. Worse, under the OMSS, a mere 20,070 tonnes of wheat was lifted in the first quart er.

It took the Government some time to realise the folly of artificially imposing a higher price on the market. But even while conceding defeat, it did so grudgingly and that too in stages. On July 11, it announced a `special Punjab scheme', wherein wheat o ffloaded from FCI's stocks piled up in Punjab alone was offered to millers and the State Governments (for their APL population) at `concessional' rates of Rs. 700 per quintal for July, Rs. 750 per quintal in August and Rs. 800 per quintal in September.

The scheme failed miserably, as the so-called `special' rates were still set way above prices ruling in the northern markets. Neither did it elicit any response from millers in other regions, given the Government's insistence that they themselves foot th e entire expense of transporting the wheat from FCI's Punjab godowns.

On August 9, the OMSS prices were further slashed to Rs. 650 per quintal for the months of August and September, with this lower price applying for wheat sold from all northern sales depots. This was followed by the move on August 11 to slash OMSS prices in other zones as well, perhaps in anticipation of criticism that the reductions in ex-North prices alone betrayed the Government's apparent `northern bias'.

At the end of it all, as can be seen from the accompanying Table, the OMSS prices are today below what they were a year ago. Although the Government has not yet slashed the price of APL wheat correspondingly, the fact that States can fully avail of the O MSS window to cater to their APL requirements shows that even these rates have been reduced de facto, even if not de jure (Incidentally, the Government had, on July 21, formally reduced the APL price of wheat, albeit marginally to Rs. 830 per quintal, fo llowing a downward `reassessment' of FCI's economic cost).

While the OMSS prices have been slashed well below the economic cost, it remains to be seen, however, whether even these would suffice and have come rather late in the day. In fact, since the latest round of reduction, wheat prices in Delhi have fallen b y a further Rs. 20 per quintal. As of now, Southern millers, too, are said to be well-stocked and with the prices ruling at around Rs. 735 per quintal even in a place like Coimbatore, the Government may have to maintain the new OMSS rates well beyond Sep tember.