The decision to impose a stock limit on wheat is a clear sign of mismanagement in the food economy

- This decision will prove to be detrimental to farmers, traders, processors and consumers all along with creating undue stress in the market

The decision to impose a stock limit on wheat amid record production and abundant supply is a clear indication of how mismanaged the food economy is in the country. The fact is that the rabi marketing season is yet to end and farmers still have unsold stocks of wheat. From this point of view also this step is not only wrong but also anti-farmer. The decision comes at a time when food inflation is at an 18-month low of 2.91 percent and headline retail inflation is at a 25-month low of 4.5 percent. This is largely due to softening food and fuel prices.

While there is no doubt that the rate of inflation based on the Consumer Price Index in wheat has remained relatively high for a long time, this does not mean that action should be taken to affect the entire market. Specifically, out of these, the government is providing free food grains to 81 crore people under various welfare schemes.

Such an exaggerated response sometimes leads to unintended consequences by creating undue stress in the market, which can prove detrimental to farmers, traders, processors and consumers all. The move is also strange as apart from curbing free trade of this staple grain, the government has also expressed its intention to market 1.5 million tonnes of wheat from its stock through e-auction. Interestingly, these grains will be sold at prices higher than the minimum support price.

One of the major shortcomings of the country's food management system is administrative multiplicity. While the Ministry of Agriculture is responsible for determining the production of food grains and its support price. Government procurement, storage and allocation to states is then done by the Ministry of Food and Consumer Affairs.

In addition, state governments work to distribute food grains to two-thirds of the population through fair price shops, all these functions are interlinked. And affect the math of supply and demand. They also affect the price of grains in the open market. which forms the basis of the government's policy decisions.

In the present case, the factor that needs most attention is the government's assessment of wheat production in the recently concluded rabi season. According to the statistics, wheat production was at a record level of 11.7 million tonnes in 2022-23. Which is five million tons more than last year. While last year 7 million tonnes of wheat could be exported without affecting domestic supply and prices.

However, traders believe that the actual production has been between 10 and 10.3 million tonnes. There is no need to worry if wheat production has remained as high as the government figures and stopped in May 2022.

Wheat is not a commodity that can be stored for long periods of time without deterioration or loss of quality. If prices rise, the government has reason to reduce its stock holding. In that situation, the tendency of traders is to withdraw the stock and take profit, and not to retain the stock. Putting a cap on the storage won't help. In such a situation, the government should reconsider its decision.