The center prohibits state governments from selling rice and wheat on the open market through the FCI

The decision to bar state governments from selling wheat by the Food Corporation of India fell through and the e-auction met with muted response from dealers.

Traders snagged just 290 tons of rice at the auction – the Open Market Sale System or OMSS – on July 12, while 3.63 lakh tons were offered.

The July 5 auction offered 170 tonnes versus 3.88 lakh tonnes.

In wheat, the FCI was bidding 4.18 lakh tonnes on July 12, but traders bought about 1.75 lakh tonnes, or 42 percent.

The FCI was only able to sell 1.29 lakh tons of wheat on July 5, while it had offered traders 4.07 lakh tons.

In order to control retail prices of food grains, the Modi government has decided to sell wheat and rice from the central pool to retailers, processors and traders on the open market under OMSS.

States have been excluded from the e-auction to allow more dealers to participate in the auction.

Several state governments clashed over the move with the centre, with the opposition Congress accusing the center of playing politics with the poor after losing the parliamentary polls in Karnataka.

The Karnataka government claimed the center made this decision to stop its subsidized Anna Bhagya Yojana program. The state government claims the FCI is willing to supply rice at Rs.34 per kg.

The Jharkhand government has also criticized the center’s decision, as the unavailability of rice from the central pool forced the state to buy rice for its welfare programs at a higher price.

Food Ministry officials said the move was made in the greater interest of the people.

They argued that sufficient stocks needed to be maintained to respond to the market in a timely manner given concerns about monsoons, climate change and the geopolitical situation.

The move to stop passing grain to state governments under OMSS was taken with these uncertainties in mind.

The center is also considering banning most rice varieties as food inflation soars.

The center previously banned all exports of non-basmati rice between 2008 and 2011.

Consumer price inflation (CPI) rose to 4.8 percent in June after falling to a 20-month low of 4.3 percent in May. Food inflation rose to 4.5 percent from 3 percent, driven by grains, milk, spices, legumes, cooking oils and vegetables.

Grain inflation was stable but high at 12.7 percent in June.

For grain, the rate of inflation for rice rose to 11.8 percent from 11.5 percent, while for wheat it fell slightly from 12.6 percent to 12.4 percent.

The government continues to ban the export of wheat.

“As the world’s largest rice exporter, India accounts for about 40 percent of global exports. An export ban would have a serious impact on global rice prices and India would risk the wrath of the international community. But a ban would likely help cool domestic prices at a politically inopportune time as campaigning for the 2024 general election begins in the next few months,” said Shilan Shah, deputy chief emerging market economist at CapitalEconomics.

He said daily retail sales data showed that the price of rice rose slightly in July, with some states seeing more significant price increases.

Madan Sabnavis, chief economist at the Bank of Baroda, said: “While the overall monsoon is above normal, 15 meteorological departments have reported poor progress. In terms of acreage, rice, corn and legumes remain a concern. El Nino is likely to hit the country somewhere in the middle of the monsoon and so the next 30 days or so will be crucial.”

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