Govt Wheat Surplus Hits Farmers for Rs 40,000 Cr, Paddy Growers Also Affected

A recent report by the Indian Council for Research on International Economic Relations (ICRIER) has shown staggering losses for Indian farmers, amounting to approximately Rs 40,000 crore. This financial setback is attributed to the government's move to flood the market with surplus wheat as a measure to control the surging food inflation.

The report anticipates a looming crisis for paddy farmers in the imminent procurement season, resulting in the detrimental economic consequences that government restrictions have already inflicted upon wheat growers.

Under the banner of "Tackling food inflation," this report exposes the imposition of constraining measures on pulses and onion farmers. This accumulating body of evidence highlights the imperative to undertake a thorough reassessment of market-restrictive policies.  Furthermore, it stresses the crucial need to compensate farmers fairly, as they have shouldered a significant burden in the transfer of resources from producers to consumers.

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In the fiscal year 2022-23, wheat production reached a staggering 112 million metric tonnes (mmt). Moving into the following rabi marketing season in 2023-24, the government set a minimum support price (MSP) of Rs 2,125 per quintal for wheat. Also, market rates remained notably higher, lingering at around Rs 2,673 per quintal as of January 2023.

To steady domestic wheat prices, the government introduced an Open Market Sale Scheme (OMSS) in February. Wheat was initially priced at Rs 2,350 per quintal, later reduced to Rs 2,150. Strikingly, this OMSS rate was below the wheat's estimated economic cost of Rs 2,654 per quintal in 2022-23. If the intervention would not occurred, farmers could have potentially gained an extra Rs 548 per quintal (Rs 2,673 minus Rs 2,125), marking a substantial loss of around Rs 40,000 crore.

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The report highlights the need for a balanced trade policy to control domestic inflation without harming farmer’s income. Specifically, in the case of wheat, the focus should have been on addressing the perception of lower production than government estimates.

To alleviate this, a more logical approach would have involved improving transparency and communication regarding production estimates while reducing wheat import duties. Ideally, these duties could have been lowered from 40% to 10% or completely removed, prompting the importation of approximately 5-6 million metric tonnes of wheat for effective inflation control.

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