Government scraps import duty on wheat

The Government of India reduced the import duty of wheat to zero from 10 percent on 8th December. The government has explained that this step has been taken to improve domestic availability and therefore keep the pressure on rising prices of wheat.

The wheat production in the country is expected to be around 93.50 million tonnes in 2016-17 as per the government estimates. The new wheat crop will be harvested in January - February in Karnataka, Andhra Pradesh, M.P., and in West Bengal; during March-April in Punjab, Haryana, U.P. and Rajasthan and during April-May in Himachal Pradesh and J&K.

While the current wheat stock with the state-owned Food Corporation of India (FCI) is 16.5 million tonnes compared with 26.8 million tonnes in the previous year, this is still enough to meet the buffer requirements till such time as the new crop comes in. The fact is that low procurement by the government during the 2015-16 is the reason for the lean stocks at this time. While procurement by the government agency, Food Corporation of India (FCI) has been decreasing in successive years, it is reported that it procured relatively even less in the previous year, while private traders were active.

The present move by the government benefits international trading companies. At this time, international prices of wheat are much lower than the prevailing prices in India. The international trading companies would like to dump the wheat in India. For the Indian trading monopolies who sell it to the flour mills, it is an enormous opportunity to buy the wheat cheap.

The reduction in import duty to zero is also expected to adversely impact the farmers in the new wheat season. As the wheat crop starts coming into the market from February 2017, the release of stock by traders who have bought and hoarded the cheap imported wheat will exert a downward pressure on prices realized by the farmers.

All this begs the question – what should be the role of the government in procurement and distribution of essential food items? Should it wait for private traders to procure and pick up the residual crop left to be procured? Private traders are in the business of food trade with a view to maximize their economic returns. The big trading companies procure with a view to holding the stocks till such time as the prices shoot up so that they can make windfall profits.

The Food Corporation of India is a behemoth enterprise employing lakhs of workers, paying the price for very large storage space and incurring substantial expenses for its operations all of which is paid for by the public. The purpose of this expenditure should be to provide the working population with quality food at affordable prices while the peasants are guaranteed remunerative prices for their output.

To the contrary, the government has followed a policy year after year of decreasing procurement by FCI and leaving the field open to private traders. Decisions on wheat procurement, imports and exports are made with a view to facilitating the profits of such traders, even as the working population faces food inflation. In fact, successive governments have systematically wrecked the Public Distribution System (PDS). If the government is really concerned about making wheat available to the working population at affordable prices, it would implement state procurement of wheat at remunerative prices from farmers, and organize for distribution to the working population through a universal PDS.


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Jan 1-15 2017    Political-Economy    2017   


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