The government of the Union is contemplating a reduction in the existing 40% import duty on wheat, along with the implementation of “increased stock-holding limits,” in an effort to alleviate the costs of this essential commodity. This information comes from an official who is knowledgeable about the situation.
Despite numerous attempts to combat inflation over the past several periods, particularly in the realm of cereals, the problem persists. These attempts have included regulations preventing traders from maintaining significant quantities of cereals in stock, referred to as stock-holding limits, in order to compel them to release their supplies.
The second-largest producer of wheat globally had enforced an export ban on the grain in May 2022 due to reduced output caused by extreme temperatures. Consequently, the government’s procurement dropped sharply to 18 million tonnes against a target of 44 million tonnes. Additionally, on July 20, India also prohibited the export of non-basmati rice. This decision by the largest rice exporter globally came just three days after Russia exited a Black Sea grain agreement, which allowed Ukraine to ship wheat and other staples to global markets. This raised concerns about a potential food crisis.
Furthermore, Union food secretary Sanjeev Chopra mentioned that there has been a notable surge in wheat prices in recent weeks. He stated, “All potential measures, including reducing wheat import duties and increasing imports, are currently being evaluated.”
An interministerial committee established by Prime Minister Narendra Modi to monitor the prices, demand, and availability of essential items on a bi-weekly basis is considering these strategies to effectively manage food inflation, as indicated by the source mentioned earlier.
Global wheat prices are slightly lower than domestic prices, making a reduction in tariffs a viable approach to curbing cereal costs. The current wheat import tariff, which stands at 40%, was raised from 30% in April 2019.
Addressing inflation is of paramount importance to the Union government, as elevated prices present a challenge to overall growth and macroeconomic stability. Escalating food prices, particularly for cereals, pulses, and vegetables, have placed strain on household budgets, especially given the upcoming general election in early 2024, along with a series of state elections.
As of June, wheat inflation stood at 12.37%, even after the export ban. In the same month, rice prices experienced an increase of 11.78%. Additionally, it is anticipated that food inflation figures for July, which are pending, will rise further due to an ongoing spike in tomato prices. Notably, the month-on-month inflation rate for tomatoes in June 2023 was recorded at 64.5% compared to May.
