THE government’s decision to raise the wheat release price, or the rate at which provinces issue their grain stocks to flour mills to control retail flour prices, by almost a third to Rs1,950 per 40kg from Rs1,475 last year is consistent with its policy of slashing open-ended food subsidies to lessen the burden on its budget. Also, the government did not have much of a choice but to jack up the issuance price after increasing the commodity’s procurement price to Rs1,800 per 40kg from Rs1,400 for the last harvest earlier this year. Last year alone, the provinces collectively bore a subsidy bill of nearly Rs100bn on account of the expenditure on procurement and storage of their wheat stocks. According to the federal finance minister, the government stood to lose Rs650 per 40kg this year if it did not enhance the wheat release price. Even now, he contended, the provinces would still be ‘bearing nearly Rs100 per 40kg in subsidy’ to hold the retail flour prices.
Given the provinces’ growing accumulation of debt on account of food operations, the need for wheat procurement and pricing reforms cannot be overemphasised. In Punjab alone, the food circular debt has jumped to Rs560bn, equal to its development expenditure target for the current fiscal. Unless the provinces restrict their wheat operations to purchasing minimum quantities for maintaining a reasonable buffer stock for market interventions in times of shortages and start recovering their costs in full, it may become impossible for them to manage their food debt. But such reforms are difficult to implement and sustain in the absence of a strong mechanism to provide targeted food subsidies to low-income households suffering because of rising inflation. The average wheat flour price has shot up by 20pc in the last one year despite government subsidy. Likewise the prices of other kitchen essentials consumed by low-income families have risen by over 13pc in one year, according to official inflation data, at a time when the public’s purchasing power is under stress. Undertaking pricing reforms in such circumstances can prove to be tough and backfire if those who need to be shielded against inflation are not properly protected. The idea to give additional targeted cash subsidies on wheat flour, sugar, ghee and pulses under the Ehsaas programme is commendable but it offers only a temporary respite. It needs to be followed up by concerted steps to alleviate poverty and boost incomes through restructuring of the economy and job creation.
Published in Dawn, September 16th, 2021