Abolishing wheat import duty raises questions on production estimates

The agriculture ministry had pegged India’s wheat production in 2015-16 at 93.5 million tonnes, a sharp rise of 8% from 86.5 million tonnes the year before


The next wheat harvest will hit markets only in April, and there are apprehensions that demonetisation may impact planting and yields. Photo: HT
The next wheat harvest will hit markets only in April, and there are apprehensions that demonetisation may impact planting and yields. Photo: HT

New Delhi: The centre’s move on Thursday to abolish the import duty on wheat may help boost domestic supply and tame retail prices, but it raises questions about the government’s earlier estimates of robust production.

In August, the agriculture ministry had pegged India’s wheat production in 2015-16 at 93.5 million tonnes, a sharp rise of 8% from 86.5 million tonnes the year before.

The estimates were put out despite a widespread drought during 2015-16, leading to delayed and lower planting of wheat, the main winter crop.

The estimates were also higher than the 86-88 million tonnes estimated by private traders and the commodity experts.

Clearly, the food ministry, which monitors retail prices, was not convinced about the agriculture ministry’s robust production numbers. In September, the centre cut import duty to 10% from 25%. The latest move to abolish the duty comes in the wake of retail wheat prices touching record highs and government stocks depleting.

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Moreover, the next harvest will hit markets only in April, and there are apprehensions that the cash crunch in rural India, following the surprise move to scrap high-value currency notes (on 8 November), may impact planting and yields of the winter harvest.

Traders in India have imported and signed contracts for more than 3 million tonnes of wheat since April, and after the duty slash, imports could cross 5 million tonnes—the highest in a decade.

“Government estimates of a robust wheat output (in 2015-16) despite back-to-back droughts in 2014 and 2015 and lower planting last year raises the question on how one can trust the data anymore,” said Himanshu, associate professor at Delhi’s Jawaharlal Nehru University and a Mint columnist.

Himanshu added that the duty-free imports were akin to dumping as global prices of wheat fell sharply in the past months, and warned higher imports could hurt farm incomes in India. “The government has procured 5 million tonnes less from farmers this year (compared to the year before) and is making good the gap through imports, thereby impacting future price realization by farmers,” he said.

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Data from the consumer affairs ministry shows retail prices of wheat flour increased by about 25% between April- end and early December, with prices crossing Rs30 per kg in southern India (as on 7 December).

The Reserve Bank of India (RBI) had in its monetary policy review earlier this week also expressed concern about the firming up of wheat prices. Noting that compression in demand due to the withdrawal of currency notes could push down the prices of perishables, RBI said that the fall would be countered by the firming up of the prices of wheat, gram and sugar. RBI decided to hold policy rates to ensure retail inflation stayed at 5% by the fourth quarter of 2016-17.

India’s inflation based on consumer price index (CPI) eased to a 14-month low of 4.2% in October. Food inflation also declined to 3.32% during the month. However, wholesale price index (WPI) numbers show that wheat prices have been rising sharply over the last few months.

Wheat prices rose 6% in October, 7% in September and 10.3% in August.

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