Inflation: Govt may sell 4mn tonnes of wheat

The government is likely to sell 4 million tonnes of subsidised wheat in the open market beginning this October. The wheat will be sold to both retail consumers as well as bulk users.

The sales, which will involve an expenditure of up to Rs 1,200 crore (Rs 12 billion), are expected to reduce prices of wheat in the coming festival season and help control the inflationary surge that is usually witnessed during the season.

The wholesale price index based inflation rose to 12.44 per cent for the week ended August 2. Wheat has a weight of 1.38 per cent in the index. The department of economic affairs and the department of food and public distribution are in favour of selling 4 million tonnes wheat.

However, the Planning Commission wants it to be 6 million tonnes, a proposal that would entail an additional cost of Rs 600 crore (Rs 6 billion), taking the total cost of the scheme to Rs 1,800 crore (Rs 18 billion).

Sources said the proposal may soon be considered for approval by the Cabinet Committee on Economic Affairs.

There has been a record procurement of 22.5 million tonnes wheat during the current rabi marketing season, nearly double of last year's purchase.

The open market prices of wheat have remained relatively stable during last one year and they continue to remain so. However, due to the record procurement by government agencies, there is a possibility of wheat shortage in the market.

This shortage could drive up prices in the open market towards the end of calendar year.

Under the proposed scheme, the government may allocate wheat to state governments for distribution to retail consumers at a price below the prevailing market rate. 

The Food Corporation of India will fix the sale price for state governments.

This price would not be lower than the minimum support price of wheat, that is Rs 1,000 a quintal plus cost of rail transportation from Ludhiana, the main wheat stocking point in the country, to state capitals.

Accordingly, the minimum price of wheat to be sold under the scheme is expected to be Rs 1,027 a quintal in Delhi, Rs 1,128 in Mumbai, Rs 1,126 in Kolkata and Rs 1,164 in Chennai. Bulk consumers like flour mills and bakeries will be supplied wheat by the FCI through a process of open tendering process at specific locations.

The FCI will be the final authority for deciding the price of such tenders with the rider that the price would not be lower than the price offered to retail buyers.

Inflation, the silent killer