Import duty on wheat not warranted.

Many South India-based wheat processors (roller flour mills) and importers holding outstanding contracts for import of wheat are worried that the Finance Ministry may choose to stop such inflows by imposing a stiff rate of customs duty.

Their fears have been reinforced by statements from New Delhi that levy of duty was under consideration.

An objective assessment of the situation including unabated food inflation, high prices of domestic wheat in southern region, consumer-friendly import prices and potential for a sharp rise in domestic wheat prices after August do not justify levy of import duty on wheat at this point in time.

Perhaps it is for this reason that the Prime Minister's Economic Advisory Council in its recent meeting recommended that zero duty on wheat, rice and sugar should continue until food inflation comes under control.

Importers are hoping that the Finance Ministry will respect the EAC's recommendations and refrain for the time being from tinkering with the duty structure.

In any case, the volumes expected to arrive are minuscule as compared with production of over 800 lakh tons as estimated by the Government.

These imports are not going to hurt growers because they have already marketed the harvested crop.

On the other hand, because of superior quality of imported wheat, food processing units that make bread and cookies as well as consumers will benefit immensely.

While premium wheat from Australia costs Rs 14,600 a tonne, Food Corporation of India (FCI) wheat is on offer at Rs 14,280 a tonne. Premium Australian wheat is most suitable for bread and cookies.

If anything, wheat from Ukraine/Black Sea region is a lot cheaper at Rs 12,900 a tonne. It is well known that offtake of FCI wheat is South India is lukewarm because of high prices and irregular supplies.

The Karnataka Roller Flour Mills Association, in a recent representation to the Government, has sought extension of the zero duty regime for imported wheat till March 31, 2011, and has estimated that import may be about 3 lakh tonne maximum.

It is necessary to emphasise that wheat is an essential food commodity whose consumption is growing the fastest in the four southern States.

It is imperative New Delhi wields the instrument of customs tariff judiciously and cautiously.

Frequent changes in trade and tariff policies have already generated a lot suspicion overseas about the stability of the country's policies. Unwarranted restrictions on cotton exports are a good example.

On wheat imports no tariff restrictions are warranted – in any case not at this point of time.

Any such ill-timed restriction will distort the market and surely hurt roller flour mills and consumers in South India.

There will be little benefit that anyone will derive. New Delhi must clear the cloud of uncertainty over wheat import tariff.

It is vital that import contracts with overseas suppliers are honoured and consumer interests are fully protected.

Source : thehindubusinessline.com