Recently the Government announced permission for export of one million tones of rice to African countries, even detailing the quantities for each country. This is a positive gesture, in keeping with tradition. The issue now is the nitty-gritty of exports so that the trade does not get choked by procedures and other restrictions. The domestic price of rice has risen so high that the godowns are brimming with stocks and a stage has come that millers are avoiding purchase of paddy. By constant revisions and bonuses in purchase of paddy by the Government the cost of rice in the market has gone up considerably.
Some of the super-fine non-basmati rice varieties are even quoted around Rs 40 per kg. While, on the one hand, the State governments are vying with each other to sell subsidised rice, the cost of acquisition for the FCI has gone up by leaps and bounds.
Many recent newspaper articles have brought out the various elements that contribute to the increase in acquisition cost, such as mandi levies, freight, cess, baggaging, handling, etc.. One other aspect is the holding cost to the FCI as the grains have been acquired from borrowed funds and there is also the accompanied risk of damage in storage.
Effective incentive
Andhra Pradesh, a huge surplus State for FCI procurement, is ideally situated to export rice from the eastern seaboard while the surplus stocks from Punjab can find their way to Kandla for export to the African countries. It is now for the Ministries of Food and Commerce, with the consent of Finance, to develop an effective incentive for exporters. Mere announcement of sanctions will not be sufficient as the international prices are much lower.
India does not enjoy port infrastructure to the US, Canada or Australia, where large quantities of food-grains can be shipped out fast. Unlike wheat, rice cannot be exported in bulk too. Assuming other things, such as percentage of brokens, infestations and pesticide residues conforming to the purchasing country’s standards, the price too has to be reasonably attractive for both the Indian exporter and buyer abroad. It is in the above context that there is a strong case for an export subsidy, which could be something on the lines of export bonus given by the USDA for export of wheat.
It is customary for the US Department of Agriculture to fix an appropriate bonus, depending on the country to which the exports are being made. A similar benefit can be considered in India too. Once the quantum of subsidy is fixed for each country, the exporters can be asked immediately to quote bids for export prices to different countries on FoB basis, specifying quantities and port locations in India.
It is not necessary for us to replicate the US model as the Food Ministry is hardly equipped for this kind of work. Instead, the concept could be adapted to suit our organisations and procedures. The subsidy so fixed should be valid for a limited duration.
Gains for farmers
There is no need for apprehension that the financial benefits will only flow to select exporters. It will benefit the farmers and millers too as paddy/rice will be procured in larger volumes. Instead of blindly writing off thousands of crores of bank funds, why not use them to subsidise the exports? We do not have adequate demand for the extra grain, nor the space to keep it.
The cheap rice schemes in some States have resulted in widespread diversion/misuse. Maybe many of the African states that are worse off than us would be quite happy to buy somewhat better quality rice at higher prices than the domestic PDS. At least the scheme could be given a try, to see how well it works.
Source : Business Line