Indian government planning to lower wheat prices sold under open market sales scheme as nation faces storage space issue ahead of new harvest season

NEW DELHI , January 11, 2013 () – Flour millers and biscuit makers are set to gain with the government planning to lower wheat prices sold under the open market sales scheme (OMSS). It's now the government's turn to hold distress sales as it faces storage space crunch ahead of the new harvest season.

"We had allocated 6.5 million tonne for OMSS, of which the government could find buyers for hardly 3 million tonne. We are working out proposals to lure buyers by cutting down the prices," said a food ministry official.

The government now sells wheat in the open market at a price which covers the minimum support price (MSP) of Rs 1,285 a quintal and state levies in addition to freight charges.

The prices vary between Rs 1,404 and Rs 1,550 a quintal across states. The government has categorised Uttar Pradesh, Madhya Pradesh, Haryana and Punjab as the producing states and others as consuming states. Freight charges will be applicable for consuming states.

Millers, however, are not impressed with the likely move of the government. "Even lower prices will not find buyers as there is no demand right now. The government should have a clear-cut procurement and selling policies so that traders and bulk purchasers can plan their move. These stop-gap measures will only confuse the market," said Naresh Ghai, president, Punjab Roller Flour Mill Association. According to a source, the ministry is considering two options for the fast clearance of the stock. "It may cut down prices to Rs 1,170 a quintal plus freight, absorbing the state levies. Alternatively, it may fix the MSP as the base price plus freight charges freeing away the state levies," the source said.

The government bears Rs 1,910 a quintal for procurement and the decision to sell wheat well below the procurement cost will further bloat the food subsidy bill, which has already crossed Rs 85,000 crore.

"We expect to have yet another bumper crop this season. We need to create storage space for the harvest to prevent any damage to fresh grains. With this offloading, the availability of grains in the market will bring down wheat flour prices easing inflationary pressures," the official said.

The government is sitting on a pile of wheat stock of around 34 million tonne.

"The condition is alarming as the government is likely to procure around 40 million tonne of wheat this season when one looks at the promising crop prospects. Last year, it had purchased a record 39 million tonne," another official said.

At present, the government has a storage capacity of around 75 million tonne, including 18 million tonne of cover and plinth capacity that can't keep the grains intact for more than a few weeks.

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