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If
bureaucrats in
New Delhi
really possess the ability to predict wheat prices in
Chicago,
they should be given trading limits urgently.
They
don’t have any such clairvoyance, something proved last
week when the Indian government reinstated a tender to
import 1 million tons of the grain, less than a month
after canceling it. At the time, it judged the price
being offered by Archer Daniels Midland Co. and Cargill
Inc. to be too high.
Between
then and now, the price of wheat futures on the Chicago
Board of Trade has moved up to $5.7150 per bushel from
$5.1075, a 12-percent jump. On 1 million tons, the
difference works out to $22 million.
“This is
sheer mismanagement,” economists Sumita Kale and Laveesh
Bhandari at New Delhi-based Indicus Analytics, a
research firm, wrote this week in their newsletter.
“Surely, the government should have learned from last
year’s experience?”
Last
year the government was caught napping.
Back in
October 2005, the state’s buffer stocks, which are used
to supply the grain to fair-price shops, had dipped
below 10 million tons, the first time in a decade that
they had fallen below the level that’s considered
safe.
Yet it
was only in February 2006 that India first decided to
import wheat. In those four months, prices rose 17
percent in Chicago.
The
simple truth is that markets know more than governments.
Any wisdom claimed by bureaucrats is only, as economist
Friedrich Hayek termed it, “a pretense to
knowledge.”
This
basic lesson continues to elude India’s officialdom
after 50 years of disastrous state planning.
Know-all
mindset
“Efficient management of business and industrial
concerns is a highly specialized function and demands
qualities which a civil servant is not required to, and
in the ordinary course of his training may not,
acquire,” Indian economist B.R. Shenoy said in a dissent
note to India’s second five-year plan in 1955.
Those
were prophetic words.
Consider
the wheat-import debacle.
On May
31, a day after the government canceled the tender, its
wheat stock was 13.3 million tons. It needed about 4
million tons between then and July 1 to meet its norm
for the required minimum buffer. There was no way this
shortfall was going to be met domestically; and that was
as well-known in
Chicago
and Kansas City as New Delhi.
The
bungling of imports is just one aspect of a bigger
mess.
Food
business
The
government of
India
runs an elaborate food procurement, stocking and
distribution business, trying to balance conflicting
objectives. It must give a fair return to farmers and,
at the same time, ensure low prices to consumers,
especially the poorer sections of society.
Farmers
don’t exactly need the government’s support in the
commodity bull run. They should simply be allowed to
sell to whomever they want and permitted to hedge their
price risk by buying options, which remain banned.
As for
consumers, the government can easily achieve the goal of
helping them—minus the wastage, leakage and
corruption—by monetizing its subsidy and getting out of
the actual business of delivering cheap grain, sugar and
kerosene.
A plan
for issuing food stamps, which can be used in the open
market, is going to be tested in a few districts, the
Times of India reported this week. However, the report
added that the government was trying to ensure that a
parallel market in trading food coupons doesn’t
emerge.
Cash
subsidies
That,
once again, shows a control mentality. There is no way a
secondary market in food coupons can be avoided by
diktat.
The
entitlements will represent money in another form;
however much the government may try to make them
nonnegotiable, people will trade them for cash to
satisfy other needs.
If India
wants to copy Brazilian President Luiz Inacio Lula da
Silva’s “zero hunger” program, it should issue
stored-value magnetic cards. Such a program will cost
more initially, but it will be more efficient and
effective in the long run.
The
federal government spent $13 billion from its budget on
subsidies in the year ended in March.
If this
money were to be directly transferred to the people who
need help, it would surely alleviate poverty. However,
that isn’t how bureaucrats like to do things. They
simply don’t believe people can be trusted to know
what’s good for them.
The
bureaucrats know everything, including the exact time
when El Niño is going to turn into La Niña and an
Australian wheat bounty is going to flood the
international market.
In fact,
they know it better than weather gurus at Australia’s
Bureau of Meteorology.
Since
they are really that good, maybe India’s bureaucrats
should demand trading limits so they can blow taxpayers’
money in style. |
