FINANCIAL EXPRESS 13.12.2016
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FARMERS TO BENEFIT FROM “ZERO” IMPORT DUTY ON
WHEAT
Tejinder Narang
Contrary to the general perception that zero
import duty on wheat notified by Government on 8th December2016 will
hurt interests of Indian farmers, it will in fact benefit them. In April-June2017,
(at Rabi harvest time), FCI/State agencies have to build up stocks by adding
32-33 million tons (mts) purchases from farmers because reserves are disappearing
rapidly. Thus over-riding emphasis for buying locally will be vital. If this target of 32-33 million tons is not achieved, wheat
import on Government account may have to be considered. Procedurally Government’s import through
tenders is long and cumbersome exercise with concerns of post contractual controversies
on prices and timing, which is avoidable if import is undertaken by private
sector at zero duty. Government can then concentrate on local procurement and
service PDS requirement without resorting to imports –leaving that to the
privates
Zero duty
will be advantageous to consumers, importers and also the Government too.
International prices are cheap (14 pkg landed in south India)—lower than Indian
MSP (16.25pkg ex North India). Thus decision to reduce duty to nil is rational
and timely.
The specifics
as to why duty is made zero, need to be briefly elaborated. Though Government has consistently claimed
Indian wheat output of 2016-17 at 93.50 mts, market players estimated
production not exceeding 84 mts. FCI/State agencies were able to procure only
23 mts against target of 28-29mts. Local prices, immediately after the harvest (in
May-June 2016), started firming up specially in South India where wheat is
relatively more expensive due to high incidence of local handling /freight from
North (Ludhiana-Panjab) to say Cochin/ Mangalore, Tuticorin. Millers in South
also felt that sufficient produce of Madhya Pradesh was not available to meet
their needs. FCI tapered down sale of
the grain in the open market indicating tightness of cereal, with the Centre.
This bolstered the speculative sentiment of bullishness in price.
Import window of wheat on Open General License
(OGL) was available. Importers commenced procurement from Australia initially
around $225-240 cif (landed at East coast Indian ports), and thereafter from
Ukraine/Russia/France/ Bulgaria around $200-210 cif.
Government imposed custom duty of 25% in June
2016 to limit imports, without realizing higher demand pull and lower stocks in
central pool. Imported grain’s cost with 25% duty was estimated at par with
Indian wheat in the South at Rs 19-20 pkg against MSP of Rs 15.25 pkg.
Cargos of about one mts of imported
wheat arrived by August- September 16. (Analysts believe 60% tonnage came from
Ukraine; 30%from Australia and balance 10% from other origins.) They were
warehoused in custom bonded facilities, in anticipation of Government reducing
duty to 10%. This was done in September
16. This dispensation sweetened deals, both for importers and millers with
reasonable margins. Trade also contracted additional one mts after
September 2016 from above stated origins –taking total import to 2 mts,
by November 2016.
LOW STOCKS IN CENTRAL POOL
Private imports softened pressure on FCI/State
agencies to offload their grain in the market. FCI/State agencies continued predominantly to
cater demand of PDS. Stocks in Central pool have depleted to 16.5 mts as of 1st
December 2016. It will touch around 14mts on 1st Jan 2017
--almost equal to the buffer norm on this date—versus approx. 24 mts on 1st
Jan 2016—a decline of 10 mts. (see chart) With 2.5mts consumption per month,
Central pool stocks will be 6.5mts—one mts below 7.5 mts stipulated buffer
reserves as of 1st April2017 which is very critical for a nation
of 1.3 billion populations
Intention behind Government move to finally
reduce duty to Nil in December 2016 is to prompt more imports by private
players because farmers have no grains to sell from Nov16- April 2017 to
millers.
Government to incentivize purchases form
farmers.
Effect of demonetization will linger in the
next two quarters which means that farmers will encounter cash constraint from
market players. Also, wheat output in 2017-18, at best will be around 86-87
mts—given the fact that grain has to mature in a mild winter wherein sowing was
also delayed. (Some marginal fall in yield below 3mt/ha is not ruled out.) Should Government agencies fail to acquire
less than 33 mts wheat; supply-demand matrix of self-sufficiency will be
elusive. To replenish stocks, Government
will like to corner maximum grain for its granaries and farmers too will give
preference to official purchase at MSP of Rs1625/qtl. It is quite possible that authorities may have
to limit privates’ procurement to match its target.
More Imports
During Dec16-March17, additional contracting
of one mts or so could be anticipated that will take total annual imports to 3 mts
by in 2016-17. Government has kept nil duty open ended which implies that
it might impose duty at any time but it is unlikely that a review will be made
before June 2017 when the quantum of official procurement will be clearer. If
Indian prices are competitive, imports will be automatically regulated. In case
prices abroad escalate, imports too will halt.
It is a sad commentary that for the last
3-4years we have been producing less wheat and consuming more, resulting into
disappearance of excess stocks. The possibility of shifting sowing acreage to
other crops like Chana, Mustard etc. is not ruled out. Ministry of Agriculture
need to boost the domestic output to match demand in coming years to contain
rising volume of imports.
