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.

... contd.