India Intelligence Report

   Private Sector Wheat, Sugar Imports Allowed



  • Govt allows private players to import wheat, sugar at 0% duty

  • Policy changed to arrest spiraling prices

  • Analysts criticize plan as unworkable

Concerned at rising prices of wheat and sugar, the Cabinet Committee on Prices (CCP) has approved the Government to allow private sector operators to import them and has banned the export of pulses. Low production of wheat in wheat producing states, increased lifestyle patterns in South India, bad management of Government stocks, and wastages in public sector distribution network has seen wheat prices go up sharply by 13.8% at wholesale levels. The increase has been sharper for pulses ranging from 40%-70%.

Announcing this decision, Federal Agriculture and Food Minister, Mr Sharad Pawar said “We have now allowed flour millers, biscuit manufacturers and bread makers to import wheat on the same condition applicable to the State Trading Corporation of India (STC).” Till now, wheat was freely importable at 50 per cent duty, with STC given approval to import up to 3.5 million tons (mt) duty-free for the public distribution system. Today's decision will allow private actual users also to import wheat at zero duty.

In a pure socialist mode, the Government initially tried to solve the problem itself by trying to buy sub-standard wheat from Australia. Faced with increased criticism for sleeping on the switch,  it subsequently, it floated to tenders to import 3 mt of wheat. When it did not get enough bids for the 1st tender in the second round, it tried to lower quality, quarantine, and financial norms  to allow other bids to come through.

With this policy, Pawar did not say if there were quantitative limits for duty-free imports by private players but only to say that this policy will be in vogue till “till the start of the next rabi harvest” expected end-March 2007. Similarly, Pawar did not have a timeframe for the ban on pulses export “We don't want any more exports till Diwali (mid-October).” However, he said that “Further details will be notified by the concerned departments (Commerce and Revenue) by tomorrow.” State-owned PEC Ltd and National Agricultural Cooperative Marketing Federation of India Limited (NAFED) have been asked to import more wheat and sugar to increase supplies.

The Government's announcement to allow the private sector to import wheat and ban exports of pulses had the desired effect—at least for now. Prices of wheat and pulses futures fell on the national exchanges. Surprisingly, there was no change to sugar prices. Chana prices recovered on news that India had cleared bids for companies to bid for a tender from Pakistan.

India exported .24 mt of pulses valued at Rs 553.81 crores (USD 120 million) in 2004-05. On the other hand, imports at 2.2 mt valued at Rs 3,160.16 crores (USD 686 million) in 2001-02 and 1.29 mt valued at Rs 1,718.64 crores (USD 373 million) in 2004-05 were necessary to compensate for stagnant domestic production at 12-14 mt since mid-eighties. The ban on exports comes at a time when Indian pulses, especially Kabuli chana, have been gaining ground in Pakistan and Sri Lanka.

The Government’s decision came in for sharp criticism from many quarters. Sugar millers say that “In the current scenario, sugar imports is not possible as the market is in disparity and even landing cost at the current international rates would not be level than Rs 23 per kg.” Analysts say that the import plan would just result in some panic selling resulting in lower prices where supply stock will outpace demand and lower prices artificially.

The most annoying part of this decision is that the Government has no plan to address long term issues relating to wheat, sugar, and pulses production in India. The issue is seen in demand and supply terms without considering human, environmental, and economic aspects. No questions are being asked nor are answers volunteered for tardy management of supplies. There is no process in place to monitor production, ensure output, and manage stocks—if there is such a process, then it is broken and needs fixing.