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India’s zero-tariff wheat import deal may come with a clause

by xyonent
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India is likely to allow wheat imports at zero tariffs soon after the new government takes office, but there may be conditions attached to imports into the country.

“Policy documents are being prepared to help the new government take a decision, especially as domestic wheat prices have soared to record highs,” a first source familiar with the matter said.Currently, the government imposes a 44 percent tariff on wheat imports.

Reports say Business Line In August 2023, imports may be allowed only through south Indian ports like Kochi, Thoothukudi and Krishnapatnam. The main aim of imports, the first in six years, is to meet the demand and supply shortfall.

“The government will first try to ensure that ports have adequate facilities to berthe ships without much wait, especially during the onset of the northeast monsoon around October. If traffic is allowed at zero duty, it may start from September,” said another source aware of the developments.

Global prices hit 10-month high

The first source said India would need to import wheat if it has to keep food prices in check as the supply-demand balance is likely to tighten around October.

“There are several things the government will try to ensure. Firstly, wheat prices in the world market are nearing a 10-month high. The government will not want to spend a lot of foreign exchange on such imports,” the second source said.

Currently, CBOT wheat prices are hovering at $6.84 per bushel (Rs 21,000 per tonne), while Russian wheat, likely to be the importers’ favourite, is hovering around $235 per tonne (Rs 19,575 per tonne).

“Importing wheat from the Black Sea region could be a viable option,” said Pramod Kumar, president of the Roller Flour Mills Federation of India.

Currently, the weighted average price of wheat in the domestic market is Rs 2,435 per quintal, lower than the minimum support price of Rs 2,275 per quintal, which was Rs 2,277 during the corresponding period a year ago.

To limit foreign exchange outlays, the government auctions import licenses to the lowest bidder, who can then hedge their positions on international markets such as the Chicago Board of Trade or Euronext.

Other riders

The central government could impose formal or informal caps on import prices and require importers to ensure that ships bringing wheat return with other goods.

Typically, when India chooses to import wheat, it disrupts global wheat markets. This time around, the government may not want the same situation to reoccur and so will be keen to cap import prices, the second source said.

Imported goods must meet phytosanitary requirements and ports must have the necessary facilities.

“Wheat prices are rising. India needs to import wheat duty-free to make ends meet,” Kumar said.

“India may need to import significant quantities to keep market prices in check,” said a New Delhi-based trader.

Demand and supply scenario

India’s wheat production is forecast by the Ministry of Agriculture and Farmers Welfare to be a record 112.1 million tonnes, but the problem is that the Food Corporation of India’s (FCI) opening stocks on April 1 were at 7.5 million tonnes, the lowest in 16 years.

As of May 1, FCI’s buffer stocks stood at about 26 million tonnes, the lowest since 17.69 million tonnes in 2008. This is despite central pool wheat procurement increasing to 26.39 million tonnes from 26.07 million tonnes a year ago.

This year’s record production estimate exceeds last year’s 110.5 million tonnes, but the industry puts the figure at around 100 million tonnes.

Although production is up this year, farmers are holding back in hopes of higher prices later in the year, especially in October when stocks are likely to be low.

According to the Ministry of Consumer Affairs, the retail price of wheat is now Rs 30.71 per kg against Rs 29.12 a year ago, while flour (Atta) is priced at ₹35.93 as against last year’s ₹34.38.

Sources said the government has required 18 million tonnes of wheat for distribution in ration shops, leaving the stock at around 7.5 million tonnes even if prices have to be contained. Besides, the central government has to meet the buffer stock norm of 7.64 million tonnes as on April 1, 2025.

Weather effects

“These are clear indications of the need for imports,” the trader said.

However, the second source said the new government may explore alternatives other than imports as it does not want to antagonise farmers in Haryana, which faces elections later this year, and Punjab, who were at the forefront of the farmers’ movement in 2021 and earlier this year.

Prices soared last year as stocks were low and production did not meet expectations. Rice prices also soared, forcing the central government to resort to an open market sale of wheat to curb inflation.

Weather variability has affected wheat production in 2022 and 2023. Extreme heat in March affected the crop in 2022, while unseasonable rains hit the crop last year.

India has banned wheat exports as the 2022 crop is set to be affected and wheat production was on the verge of rising to a record high following a foodgrain supply crisis caused by the war in Ukraine.

However, Ukraine’s use of waterways and railways helped it get through the situation.

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