Agri Business

Crop worry: Centre scraps import duty on wheat to ease supply, check prices

Our Bureau New Delhi | Updated on January 16, 2018 Published on December 08, 2016


But release of stocks by FCI will be crucial in curbing price rise, say analysts

The government has scrapped the 10 per cent import duty on wheat with immediate effect in the face of an imminent shortage of the cereal this year.

Trade analysts say that while the move should technically result in checking a rise in domestic prices of wheat, the actual price movement would depend on factors such as the Food Corporation of India’s ability to release stocks in the market, private imports and global prices.

On Thursday, Finance Minister Arun Jaitley informed the Lok Sabha about the government’s decision to scrap the import duty on wheat without an end-date.

This was a long-anticipated announcement as the industry had been raising doubts about the government’s wheat production estimate of 93.5 million tonnes in 2015-16 and had instead pegged it between 80 million tonnes and 84 million tonnes. India’s demand for wheat this year, on the other hand, is likely to be over 94 million tonnes.

Timing is crucial

“If the government wants to ease supply and prevent a rise in prices, FCI has to release substantial stocks of wheat in the open market right away. Simultaneously it has to enter the international market to get its stock replenished,” said agriculture expert Tejinder Narang.

Narang said it was not clear yet whether the government itself wished to import or it would want private parties to import.

“It is not clear what the stock will be this year and what the total sown area is. If the government decides there is abundance, it might not import. But if it takes a realistic position on future production, it would import and be in a better position to release stocks,” he added.

Private traders such as Cargill, Louis Dreyfus, Bunge and Glencore are expected to benefit from the decision as their imports would get cheaper.

Stocks depleting

FCI’s wheat stocks have already started depleting and the agency has restricted wheat sales to bulk users.

Imports are generally much higher if the government steps in because private importers can’t handle very large volumes.

It also has to be seen to what extent private traders import wheat after the scrapping of duties, which in turn would also depend on the prevailing global prices. “If global prices move up a few dollars, it could impact the decision to import,” said Narang.

Private millers have imported 1.72 million tonnes of wheat from Australia, France and the Ukraine this year since duties were reduced to 10 per cent from 25 per cent in September.

Congress members raised objections when Minister of State for Finance Arjun Ram Meghwal placed the notification of scrapping the wheat import duty on the table of the Rajya Sabha.

Senior Congress MP Digvijaya Singh said farmers have already engaged in distress sale of wheat due to non-availability of notes. He said the decision would further harm farmers as the minimum support price could not be put into operation.

“This is a conspiracy,” he said. Singh was supported by members of the Left, JD(U) and the Trinamool Congress.

Published on December 08, 2016
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