India weighs priorities on food exports

For governments across asia that are trying to combat food-led inflation, shipments from India, one of the world’s largest producers of wheat, sugar and rice, would come as a relief but they will wait until India figures out how much to put aside for the food security bill.

“Suppliers to the government’s welfare schemes are more important than allowing exports for private trade,” a senior Food Ministry official said on condition of anonimity because of the political sensitivity of the issue.

“Exports will be allowed after assessing local demand. The food security bill will spell out the demand for food grains.” But there is little clarity on when the food bill, an election promise from the Congres party, could be ratified by Parliament.   

Prime Minister Manmohan Singh wants to introduce the bill in Parliament this year, but members of The National Advisory Council, which is helping the government draft the bill, and Finance Ministry officials think that is too ambitious. The National Advisory Council, headed by Sonia Gandhi has suggested widening subsidies to 75 per cent of the population of 1,21 billion. India currently provides subsidised grains to about 30 pre cent of its people.

The council also wants the poorest of families to be given 35 kilograms of rice at Rs 3, a better off to be given 20 kilograms. But the Finance Ministry and the Planning Commision are seeking a lower number of beneficiaries, mindful of the bill’s effect on the country’s goal of cutting the fiscal deficit to 4.6 per cent in 2011-12.

India will also need to weigh concerns about persistently high food inflation, currently a bit less than 9 per cent, against leaving stores to rot when global prices are near record highs. And then there is the uncertainty of monsoon forecasts. “Betting on a favourable monsoon you may get it right, but what if you get it wrong? Will the opposition spare you if you have to go and buy at current global prices?” asked a senior Congress leader.

A failed monsoon could push India into the international markets as a buyer, as happened in 2009, when India suffered its worst drought since 1972 after initial forecasts had called for normal rains. That year, India had to import sugar, driving up global prices to their highest levels in three decades.

Wheat reserves have swelled to more than double the government’s target of 8.2 million tonnes, and rice ouput is expected to do well above demand, prompting demands that export restrictions be lifted.

Exports of all but small amounts of special quality rice remain restricted, while a decision on wheat is still pending after the farm minister called for lifting the ban. A panel of ministers headed by Finance Minister Pranab Mukherjee, has yet to take a position on whether to allow wheat exports.

But huge domestic stocks are seen by the government more as insurance against high gloabl prices than as an impetus to sell overseas, analysts said. US wheat futures jumped about 47 per cent last year as inclement weather in various places, including the Black Sea region, cut global supplies. This year, prices are down about 8 per cent, but investors have been returning to the market on weather concerns in the United States and Europe.

About 40 per cent of India’s population lives below the UN’s estimated poverty line. India needs about 4 million tonnes of grain every month to sell to the poor at lower rates. The proposed food law could double the nearly $12 billion in the fiscal year that ended in March that India spent to provide low-cost grains and legumes, an amount that represented about 1 per cent of the gross domestic products and 5 per cent of government spending.

“Even within the government there is disagreement. The farm ministry wants exports, the food ministry doesn’t, because it is worried about inflation,” said political commentator Paranjoy Guha Thakurta, adding, “Until you have clarity over the food security bill, you will not have free flowing exports.”