Monday, May 08, 2006

Guns don't kill people; distorted wheat markets kill people

I saw an amazing article in Economic Times, by Nidhi Nath Srinivas, about the present situation with wheat "procurement" by the government. This year, for once, the wheat procurement price is lower than the market price. Under normal circumstances, that should be just fine - government procurement is only supposed to kick in when the market price has collapsed. But in India, the bureaucracy that runs the system is most displeased - they have a "target" of buying 2,400 tonnes. So, in the district of Sitapur in Uttar Pradesh, they are offering a freebie if you sell 25 tonnes of rice to the State - a free gun licence! You can add a decline in law and order to the long list of consequences of distorted policies in agriculture. But then, the gap in prices multiplied by 25 tonnes seems to be too large to justify utilising this offer, given the market price of a gun licence. As the ET article says:
“Initially our offer was that any one who delivers 500 quintals to us will be offered a revolver, rifle or pistol licence. But we did not receive a single application. Farmers told us that they would be willing to consider the offer if the quantity was halved to 250 quintals. So we have agreed to that,” said a senior district official in Sitapur. Ironically, despite guns as a carrot, farmers are saying no deal. There is a price difference of anything between Rs 170-Rs 225 per quintal between FCI and open market prices. That works out to a loss of Rs 50,000 on 250 quintals if farmers choose to supply to FCI. “People say that as they can pick up a gun licence by spending Rs 15,000 in speed money, why should they undergo a loss of Rs 50,000 for it. So the scheme has been a damp squib,” said a leading local businessman.

1 comment:

  1. Very nice blog Ajay.....really liked to read this...would request for your view on stuff from time to time via comments

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