The government has come under fire for scrapping the earlier tender, under which as it turns out, the price would have been lower than the price at which the government has agreed to import later (that is, around Rs 1500 per quintal). But what if the import price were less than this, say Rs 1200-1300 a quintal? The criticism against the government’s decision would have perhaps been less severe. But it would still be wrong. This policy, to keep food prices down, is what has kept rural India poor. But this central issue has largely been missing from the debate.

The imports of grain by the government have always been plagued by controversy as was the case last year. Isn’t there a simple method to determine the right import price? The fact is, as long as the government is importing, one can never be sure if the import price is appropriate. The issue is not that of corruption. The international market is volatile. And government by its very nature is not equipped to make correct decisions in such volatile situations. The wheat prices indicated by the Chicago Board of Trade (CBOT) indicate only trends in the future international prices. It is important to be aware that most of the wheat consumed in India is not traded there. Therefore, it is intrinsically impossible to know reliable futures prices to make the import decisions.

Why not leave the decision of import to the market forces? Whenever the government fails to procure enough for the Public Distribution System or for maintaining the minimum buffer stock, it surely has to buy from the open market. The bidding should be open for domestic traders as well. The least quoted price should be awarded the contract. It should be immaterial whether the supplier is foreign or Indian. It should also be irrelevant where the supplier sources the grain. This automatically rules out discrimination against Indian farmers because if the price in any part of the country is competitive, the grain will surely be sourced from there. The system will allow domestic trading companies to acquire the skills to compete at the international level.

We should learn from the experience of edible oils imports. We import close to five million tonnes of edible oil annually, but one rarely hears about ‘edible oil scam’. This is because the imports there take place on private accounts. The lesson is, the job of price discovery and bearing risks in a volatile market should be left to the traders.

The ostensible reason for not sourcing the grain from the domestic market is the possibility of a ‘price bubble’ — a steep short-term price rise following the government’s decision to enter the market as a giant buyer. This is the result of speculative hoarding in anticipation of a subsequent sudden increase in market demand as a result of the government entry as a large purchaser. And the price rise, however short, could still hurt poor consumers. But there are two ways to tackle the issue. One, the government should do its procurement in a number of installments rather than in one swoop. Two, the government should declare its intention to procure well in advance so that the market has time to adjust and farmers can decide to wait to sell their grain. The prices, after all, reflect the demand and supply conditions. If the market receives the reliable future demand signal, the prices will be adjusted to this new demand level, avoiding price ‘spike’ or ‘bubble’. The government is better off staying away from a job that it is ill equipped to perform.

It is unfortunate that this debate only revolves around the ‘scam’ theory. The reason is not difficult to see because farmers’ interests are best served by competitive market of buyers.

With the amendments in the APMC acts by the state governments, wheat growers are witnessing a major challenge to the monopoly of the Food Corporation of India. Reports from Madhya Pradesh and Rajasthan show not only the immediate benefit to farmers through higher prices received from private companies; it has also increased land under wheat cultivation. It is indeed ironical that the government, which successfully wooed the state governments to amend their APMC acts, should have to defend itself against the charge of discriminating against farmers.

The writer is a policy analyst associated with Pragati Abhiyan, a developmental NGO based in Nashik.