THE government has shelved the proposed system of charging open market price for foodgrain from exporters and later reimbursing the differential with export price terming it as impractical.
“To charge an open market price of Rs 7,000 a tonne and then reimburse Rs 2,650 a tonne a month later is not feasible and will be kept in abeyance till further consultations with the commerce ministry,” food minister Shanta Kumar said.
Last month government had begun selling wheat and rice to exporters at open market price of different zones and reimburse the difference with the ex-granary export price, showing it as WTO compatible subsidy.
The minister said even the current system of selling grains to exporters at prices a little over the rates for Below the Poverty Line families is WTO compatible.
The difference with market prices can be shown as subsidy which is permissible under WTO regulations, he said adding there is no need to initially receive a higher amount from traders only to reimburse the differential.
“Discussions are on with Commerce Ministry on how to tailor the current mechanism itself in line with the WTO rules rather than implement a roundabout procedure,” he said.
Meanwhile, sources said commerce ministry is of the view that direct sale of foodgrain to exporters at a price much below the market rates will invite objections by competing countries in the WTO fora.
This is all the more possible when India has eaten into the grain export market of countries like USA, Argentina and Australia.
Traders, however, are not convinced of the official argument and say exports will be affected by the cumbersome procedures.
They say government can consider alternative measures which are in line with WTO rules.
Food Corporation should prepare an invoice at the open market price level for the sale of foodgrain for exports and deduct the post delivery expenses as applicable to bring the cost down to the present level.
Alternatively, Food Corporation of India can accept a cheque from the exporters for the value of difference between the open market and lower export price which would be encashable in case the exporter fails to honour the export commitment.
The cheque should, however, be returned on presentation of export proof by the exporters.
The proposal to refund the differential on placement of the release order with Food Corporation of India takes anywhere between 15-30 days due to the banking system involved and is not feasible.
Exporters take packing credit from the banks against the value of line of credit at an interest rate of 8.5 per cent.
If the value of foodgrain to be paid to Food Corporation of India doubles compared to line of credit banks would charge an interest rate of 15% for the additional amount, if at all they agree to lend the money.
This will increase the export price of foodgrain and international buyers will be reluctant to purchase at a higher price from India.
Under WTO, expenditure on certain heads was reimbursable and could be classified as ‘green’ subsidies.
These included transport, insurance, handling, cleaning, research and development, fumigation and pesticides.
Government intends to adjust the price differential as subsidy.