Govt may consider wheat import as shortage, rising inflation worries loom

Indian Prime Minister Narendra Modi boldly declared that his country was ready to “feed the world” after Russia’s invasion of Ukraine. Less than four months later, the government needs to consider grain imports.

Even before Modi made his pledge, a record-breaking heat wave that started in March was threatening Indian wheat output. That cut production and pushed up local prices, making everyday life more expensive for hundreds of millions of Indians that use the grain to make staple foods like naan and chappatis.

Indications that a bumper wheat harvest wasn’t going to eventuate prompted the government to restrict exports in mid-May. State reserves have declined in August to the lowest level for the month in 14 years, according to Food Corp. of India, while consumer wheat inflation is running at close to 12%.

The looming shortage and rising prices now have authorities making preparations to buy from overseas. Government officials are discussing whether to cut or abolish a 40% import tax on wheat to help flour millers in some regions to import grain, people familiar with the matter said, asking not to be identified as the talks are private. This was first reported by Reuters.

The finance ministry didn’t respond to an email seeking comment. A spokesperson for the food and commerce ministries declined to comment.

Indications that a bumper wheat harvest wasn’t going to eventuate prompted the government to restrict exports in mid-May. State reserves have declined in August to the lowest level for the month in 14 years, according to Food Corp. of India, while consumer wheat inflation is running at close to 12%.

The looming shortage and rising prices now have authorities making preparations to buy from overseas. Government officials are discussing whether to cut or abolish a 40% import tax on wheat to help flour millers in some regions to import grain, people familiar with the matter said, asking not to be identified as the talks are private. This was first reported by Reuters.

The finance ministry didn’t respond to an email seeking comment. A spokesperson for the food and commerce ministries declined to comment.

Despite being the world’s second-biggest wheat grower, India has never been a major exporter. It also never imported much, with overseas purchases at about 0.02% of production annually. The country was pretty much self-sufficient.

Authorities now expect the 2021-22 harvest to come in at around 107 million tons, down from a February estimate of 111 million. That may still be too optimistic as traders and flour millers forecast 98 million to 102 million tons.

Government purchases of wheat for the country’s food aid program, the world’s largest, are expected to be less than half of levels last year, according to the food ministry. That prompted authorities to distribute more rice in some states, and also to restrict exports of wheat flour and other products.

Consumer wheat inflation has held above 9% year-on-year since April and surged to 11.7% in July. Wholesale prices were up even more, by 13.6% in July, official data show. That’s creating a headache for the central bank, which is trying to bring overall inflation, currently near 7%, back under its 6% target.

Wheat is India’s biggest winter crop, with planting happening in October and November and harvesting in March and April. There are also concerns about its rice production, which could be the next challenge for global food supply.

“Cereal inflation is a concern on the back of lower paddy sowing,” said Sameer Narang, an economist at ICICI Bank in Mumbai. The rising cereal prices are likely to continue for a while, he said.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor