India’s zero duty wheat imports move may come with riders

India will likely allow import of wheat at zero Customs duty soon after the new Government takes charge but shipments into the country may come with riders.

“The policy paper is being worked out for the new government to take a decision, particularly when wheat prices have surged to a new high in the country,” said a first source in the know of the development.  Currently, the Government imposes a 44 per cent Customs duty on wheat imports. 

As reported by businessline in August 2023, the imports may be allowed only through southern India ports such as Kochi, Thoothukudi and Krishnapatnam. The main purpose of the imports after a six-year gap is to make up the demand-supply deficit.

“The Government will first try and ensure that the ports have ample facilities to berth the ship without much waiting time, particularly at a time when the north-east monsoon sets in around October. Shipments, if permitted at zero duty, may begin in September,” said another source aware of the developments. 

Global prices at 10-month high

The first source said India needs to import wheat if the foodgrain price has to be kept on leash since the demand-supply balance could be tight around October. 

“There are a few things the Government may try to ensure. One, wheat prices in the global market are near 10-month high. It will not want to spend a huge amount of foreign exchange on such imports,” the second source said. 

Currently, wheat prices on CBOT are ruling at $6.84 a bushel (₹21,000 a tonne), while Russian wheat — which will likely be the importers favourite — is ruling around $235/tonne (₹19,575). 

“Imports of wheat from the Black Sea region could be a feasible option,” said Pramod Kumar, President, Roller Flour Millers Federation of India. 

The weighted average price of wheat currently in the domestic market is ₹2,435 a quintal compared with the minimum support price of ₹2,275. During the same time a year ago, it was ₹2,277. 

In order to ensure a limited forex outgo, the Government could auction the import permit to the lowest bidders, who in turn may hedge their positions on international markets such as the Chicago Board of Trade or Euro Next. 

Other riders

The Centre may, formally or informally, fix a price cap for the imports. It could also ask importers to ensure that vessels that bring the wheat must return with some other commodity. 

Normally, the global wheat market flares up if India opts to import wheat. This time around, the government might not want the situation to recur and hence would be keen to cap the import price, the second source said. 

The imports will also have to meet phyto-sanitary conditions for which port should have the requisite facilities. 

“Wheat prices are on fire. India needs to import wheat at zero duty to make the ends meet,” said Kumar. 

“India may need to import a good quantity to keep open market prices under control,” said a New Delhi-based trader.

Demand-supply scenario

India’s wheat production has been projected by the Ministry of Agriculture and Farmers’ Welfare at a record 112.1 million tonnes (mt) but the problem is that the Food Corporation of India (FCI) had a 16-year low opening stocks on April 1 at 7.5 mt. 

As of May 1, the buffer stocks with FCI was nearly 26 mt, the lowest since 2008 when it was 17.69 mt. This is despite wheat procurement for the central pool increasing to 26.39 mt compared with 26.07 mt a year ago. 

This year’s record production estimate is against 110.5 mt last year, though the trade pegs the figure at around 100 mt. 

Though production is higher this year, farmers are holding back their produce in the expectation of fetching higher prices later in the year, particularly October when the stocks could be low. 

According to the Ministry of Consumer Affairs, the retail price of wheat currently is ₹30.71 a kg against ₹29.12 a year ago, while flour (atta) prices are ₹35.93 versus ₹34.38 last year. 

Sources said with the government requiring 18 mt of wheat for distribution through the ration shops,  it will have stocks of around 7.5 mt only if prices have to be controlled. In addition, the Centre needs to meet the buffer stocks norms of 7.64 mt as of April 1, 2025.

Weather impact

“These are clear indicators of the need to import,” said the trader.

However, the second source said the new Government may look for alternatives to import since it would not want to antognise farmers in Haryana, which goes to polls later this year, and Punjab, who were in the forefront of farmers’ agitation in 2021 and earlier this year.

Last year, when the stocks were low and production did not match expectations, prices flared up. The Centre resorted to open market sale scheme of wheat to curb inflation since rice prices too surged. 

In 2022 and 2023, wheat production was affected due to the vagaries of the weather. In 2022, a heatwave in March affected the crop, while last year untimely rains hit the crop. 

As the crop was affected in 2022, India imposed a ban on wheat exports when they looked like rising to a record on the back of the Ukraine war creating a foodgrain supply crisis.

However, use of waterways and railways in Ukraine helped tide over the situation.