Did Centre scrap wheat import duties to safeguard PDS next year?

Wheat flour prices have jumped ~3-5 a kg in the past two months and might touch ~30 a kg by March-April

The Centre’s decision to cut the import duty on wheat from 10 per cent to zero during the peak sowing season might look like an anti-farmer measure. But, officials and traders say that with stocks in government godowns falling, the move is to prevent any chance of import on government account to run the public distribution system (PDS) next year (2017-18)

India annually requires 2730 million tonnes of wheat to run its PDS, which should not be difficult to procure if private players have adequate stocks in their pipeline.

But, with the Centre selling fewer quantities of wheat through open market sale scheme and lower than estimated crop in 2016-17, private players were left with very little inventories in their pipeline.

According to trade sources, such was the precarious position of private wheat stock that wheat flour prices have jumped ~3-5 a kg in the past two months and might touch ~30 a kg by March April.

Reports of poor condition of the standing wheat crop (2016-17) also contributed to building the sentiment towards a price rise.

Sources said the policy makers were concerned of the prospect of having to import on official account to run the PDS next year, if private players went on an aggressive buying spree, curbing the Centre’s own purchases.

In India, the central government is a monopoly player in wheat market, purchasing 80-90 per cent of the marketable surplus.

The rest is purchased by private players and if they are not able to make those purchases, they have to depend on the stock liquidation by state agencies to run their mills or imports.

In 2016-17, India’s wheat procurement dropped to 23 million tonnes against a targeted 28 million tonnes, but it was not because of any big purchases by private players. It was because of the fact that the actual harvest was much less than government estimates.

However, if the Centre would not have scrapped the import duty bang in the middle of the 2016 sowing season, it might have to face the prospect of another year of below-par purchases, raising the prospect of import on government account to manage PDS next year.