DUTY ON WHEAT IMPORTS A RETROGRADE STEP--FINANCIAL EXPRESS 13.07.2015

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DUTY ON WHEAT IMPORTS –A RETROGRADE STEP.

Tejinder Narang

The Food Ministry’s move to impose 10% import duty on good quality wheat for enabling sale of Government’s poor quality wheat procured this year is laughable to say the least and irrational any way. Apparently the view is that unless market buys lower quality wheat at the official price and policy, Government will block import of good wheat that is being currently imported at a lower price by the trade in southern India.

The greatest single ambiguity is that if Maggi noodles could be banned for non-compliance with specifications, how the sale of low quality wheat is being promoted by virtually denying acquisition of superior cereal from abroad (currently from Australia) at cheaper prices by the millers/ traders especially of southern India. The huge difference in the wholesale prices prevailing in South Zone and the rest of India justifies imports on commercial prudence.

Normally south Indian millers blend the superior good quality wheat with low quality grains as “filler” so that customised flour (atta) for maida/rava/suji /bread/bakery making could be produced. The superior variety has suffered severe shortfall this year due to unseasonal rains in Madhya Pradesh. If the Government decides to clamp down on production of such customised flour (atta), the low quality wheat that could be used as “filler” cannot also be easily consumed. Thus the Government itself disables the consumption of its wheat.

         

 By official admission about 30% of the 27 million tons or 8 million tons, bought this year(2015-16) by the Government is of poor quality. It remains unclear if most of grains procured “Under Relaxed Norms (URN)” is classified as “poor quality” or URN wheat is somewhat superior to the “poor quality”. Does “poor quality” means inedible for human consumption? Out of 4 million tons offered under OMSS till May 2015, only 5000 metric tons could be sold. Is the questionable quality the prime reason for tardy disposal?

A Times of India report of 29^th January 2015, quoting FCI officials mentions that 90% of 27 million tons of wheat procured this year “under relaxed norms (URN)”—about 24 million tons-- equivalent to annual production of Australia carries higher percentages of shrivelled, broken grains and lacks lustre. Such wheat is suitable for chapatti (unleavened flat bread) making while suffers from shorter shelf life and needs to be consumed in less than a year.

To clear the confusion, the Government may come out with facts and figures of availability of (i) good quality,(ii) URN and (iii) inedible grains for human use. Any alternative course of action for their evacuation can be evaluated and planned thereafter.

The government has not notified any differential between the good and lower quality grains. There is no pick and choose option. It is a matter of common sense that a commodity with varying specs cannot be sold at the same price when the authorities themselves have determined a large tonnage as “of lower qualities”.

 Wheat of URN/lower parameters at OMSS price of Rs 1550/qtl plus freight and incidentals cost around 1900/qtl in the south of India versus imported grains at Rs 1850/qtl. Though these two qualities are not mutually comparable –still the value of better type of imported produce is cheaper. Since the WPI wheat inflation is down to about 3%, imposition of 10% implies that government is spurring inflation domestically, simply because holdings stuck with FCI/state governments are to be bailed out due to lack of ideas for their disposal.

Indian wheat consumption sans export is about 85 million tons per annum.  Import of half to one million tons in southern India is not likely to accelerate disposal process of FCI/Govt of about 20 million tons by adding 10% duty component. The government may also have to weigh the political consequences of distributing “poor quality” wheat under PDS. Is there any rationalization for penalising consumers because producers were protected?  And should the PDS consumers become guinea pigs for using sub-standard wheat, simply because it is subsidized.

For the open market sale, Government has to reduce the price for saleability in the market. That can be determined by open auction without any pre-fixation to OMSS of Rs 1550/qtl. The rate of disposal is directly dependent upon the minimum price acceptable in open market for the lower/poor quality grains.

Lustre loss wheat was classified of lower category in 2002-03 and was offered as “feed wheat” for which there is abundant demand in India and abroad. About 4 million tons was exported at discounted values of 20-25% from the normal values. The authorities should have the courage of declaring sub-optimal quality as feed wheat. For example, if OMSS of such wheat is discovered at say Rs 1100/qtl—the rate of disappearance will be phenomenal.

The problem in the bureaucratic set up is that no official agency is prepared to discount the price as the loss will have to be booked with reasonable justifications. But burdening 10% duty on wheat import may mean some action taken on paper even though it may defy the objective.

The government must come out transparently with the various qualities and quantities they have stocked; declare poor quality as feed wheat; apply calibrated discount to lower quality wheat and then sell locally. If still the consumption does not pick up, export 5-6 million tons as feed wheat at the world market price. Let the good grain be distributed under PDS to avoid political complications and shun levy of import duty.