As prices rise, wheat duty cut likely to come under the review again

The recent surge in wheat prices to Rs 2,500 per quintal has rekindled discussions about the potential reduction of import duty from 40% to zero

Wheat prices have once again risen to Rs 2,500 per quintal in the past few weeks, notwithstanding the imposition of stock limits. As a result, traders and market players believe that the long-pending topic of reducing the import duty from 40 per cent to nil is back on the table.

Some traders are also believe that government-to-government deals to import wheat could be under consideration.

However, the quantity might not be substantial, and past experiences have shown that government deals come with various challenges and difficulties, which will all be taken into consideration before any final decisions are made.

The wheat market has been abuzz with rumours about potential measures to control prices, given the sensitivity associated with food inflation.

These discussions gained momentum after the unexpected ban on non-basmati white rice exports by the government. This ban raised eyebrows as India has been a more regular player in the world rice market, exporting rice to nearly 165 countries across the globe compared to wheat.

Traders believe that if the import duty on wheat is reduced soon, shipments could start arriving by the end of September, helping to stabilise prices before Diwali.

Globally, wheat is available at around $280-290 per tonne (cost and freight), which translates into approximately Rs 24,000 per tonne, assuming a dollar exchange rate of Rs 83.

The domestic wheat price is also hovering around the same level. However, the current duty of 40 per cent makes this price unviable for selling in the domestic market.

“That is why we are demanding that the government lower import duty, maybe for a fixed period,” said a senior member of the flour millers’ fraternity to Business Standard.

He added that if imports are allowed now, 2.5-3.5 million tonnes of wheat would come into the country, mainly from Russia, one of the largest suppliers in the market, especially in southern India.

Wheat prices in southern India tend to be higher due to the distance from major producing centres.

“Imports would prevent prices from escalating further and also have a psychological impact on the market. Our estimates indicate that there isn’t a significant wheat shortage in India; rather, it is being locked up,” another flour miller commented.

He mentioned that if there were a severe shortage, buyers would have rushed to purchase wheat through the open market sale of the Food Corporation of India, despite all restrictions. However, the response so far has been rather tepid.