PESHAWAR, Aug 4: The State Bank of Pakistan's circular (No. 12, dated May 10) imposing cash margin restrictions on bank advances to private sector for procuring wheat has hit the NWFP's flour mills hard
, official and business circles said on Wednesday.
"We demand that SBP Governor Dr Ishrat Hussain should lift the restrictions which are unjust," NWFP Food Minister Fazal-i-Rabbani said while talking to Dawn. The central bank has imposed a cash margin of 50 per cent on fresh disbursements by banks to private sector for procurement of wheat.
Besides, lending institutions have been asked to ensure that advances given or to be given by them should be adjusted in total by Sept 30, 2004. The move was meant to discourage hoarding of wheat and ensure stability of flour prices. A plea to this effect had also been taken under the SBP circular.
However, the measure seeking to curb hoarding and put prices under control has adversely affected the flour industry of the NWFP that had already been pushed to the wall as a result of a ban on transportation of wheat from Punjab to other provinces.
Similarly, it indicates that the SBP had to take the step when federal and provincial authorities failed to put an end to hoarding and to control prices of flour. The latest restrictions came as amendments to SBP's earlier instructions (April 24, 2004) setting quite lenient guidelines viz-a-viz cash margin on advances.
"The SBP introduced restrictions after the government of Punjab and millers (belonging to Punjab) availed of the facility to dump wheat for grinding in the upcoming lean period," said Mr Rabbani.
The fresh restrictions, he added, were "discriminatory" and "harmful" to the interest of flour millers of smaller provinces, particularly, the NWFP. Under the new rules, said the minister, a borrower would be required to arrange 50 per cent of the amount he would take as advance for the procurement of wheat.
"Earlier, a mill owner was used to arrange Rs1 million on his own in case of procuring wheat of a total value of Rs10 million with the rest coming from bank(s) as an advance, but now a borrower will be required to arrange 50 per cent of the total value on his own," said Naveed Butt, the chairman of the NWFP chapter of the Pakistan Flour Mills Association (PFMA).
He said the fresh restrictions had been introduced at the insistence of the government of Punjab that banned transportation of wheat to outside Punjab nearly three months back.
The provincial minister for food and the PFMA's office-bearer were unanimous in their opinion that the SBP move would adversely affect the NWFP's flour millers. Besides, according to them, it was against the spirit of the open market policy introduced by the military government in 2001 after the country recorded a bumper wheat crop.
"The open wheat market policy does not appear to be on the priority list of the present federal government any more after the country could not achieve a bumper wheat crop this time," said Mr Butt.
He said that instead of introducing restriction across the board the SBP and the federal government should have taken measures to curb wheat hoarding. "Traders and middlemen are responsible for the hoarding of wheat and increasing prices of flour," said the PFMA's office- bearer.
The advances already approved by some banks, he added, would not be of much benefit to the NWFP millers as, under the new SBP rules, advances were to be adjusted by Sept 30, 2004.
"It means we will enjoy this facility only for one month in case the ban on the transportation of wheat from Punjab was lifted in the end of August," said Mr Butt. "It does not make any sense," an official of the provincial food directorate said on condition of anonymity.
Millers said that under the new SBP rules they would be required to lift wheat from Punjab before Sept 30 and keep in their personal godowns which meant that their expenditure would go up. "Overhead cost would go up in case of dumping wheat on our own," said a miller.
