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Govt mulls imposing 40% Customs duty
April, 26th 2010

Faced with a production glut, the Centre is toying with the idea of imposing a 40 per cent Customs duty on wheat imports. The empowered Group of Ministers on Friday discussed a proposal to this effect.

A note for the meeting said: In view of difference of cost between domestic wheat and imported wheat at Indian ports, the empowered Group of Ministers on Management of wheat and rice stock in the country' may consider imposition of a 40 per cent duty on import of wheat at Indian ports.

No details were available on the group's decision.

A South India-based miller said if imposed, the duty will make imports unviable.

Currently, the landed cost of Australian wheat is $275 (Rs 12,375) a tonne. A 40 per cent Customs duty besides transportation cost will be a drain on the roller flour mills and bulk users. Consignments from the Black Sea region are available at $225.

Some of the mills in South India are getting wheat from Bengal at their units at Rs 13,500 a tonne.

This means they are getting wheat at a price lower than the minimum support price of Rs 1,100 a quintal fixed for this year.

Farmers are resorting to sales of wheat below the support prices in Uttar Pradesh, Bihar and West Bengal in view of poor infrastructure in procuring wheat by the government agencies.

While the Food Corporation of India's procurement operations are in full swing in Punjab and Haryana, the Madhya Pradesh Government is procuring wheat on its own accord offering Rs 1,200 a quintal.

Wheat harvest in Gujarat is almost over (arrivals began in February there) and the produce from the State has fetched good prices this year in view of the quality.

Rising buffer stocks

The main reason for the Government to consider imposing Customs duty on wheat imports is that it already has stocks exceeding 15 million tonnes (mt).

On top of it, it has targeted to procure 26 mt before June 30. Of this, nearly 15 mt have already been mopped with the crop flooding Haryana markets due to early maturing.

Besides, the Centre has also drawn poor response to its open market sale scheme of wheat.

The Centre has tried various measures, including cutting the minimum bid price by Rs 200 a quintal and offering the grain online, to reduce its buffer stocks. The efforts have been in vain.

This year, the Agriculture Ministry has estimated wheat production at 80.28 mt against 80.68 mt last year. Reports, however, say that the output could be lower around 78 mt.

The Government had scrapped a five per cent import duty on wheat when there was a crop shortfall in 2006. The duty was scrapped in February 2006 mainly to facilitate imports by State-owned agencies such as STC, MMTC and PEC.

Subsequently, the concession was extended in September to private trade, leading to imports of over 8 million tonnes between 2006 and 2008.

Though the import duty remained zero despite ample stocks, the Centre had allowed to lapse a change in the phytosanitary rules in 2006 to facilitate wheat imports.

Despite rigid phytosanitary rules, nearly one lakh tonnes of wheat were imported last fiscal as the bulk users found it difficult to get wheat from the open market.

The wheat was mainly imported from Australia through bulk containers with the sellers having to clean the consignment before shipment.

The Customs duty move had its impact on the market on Friday.

May futures contracts on the NCDEX increased to Rs 1,169 a quintal from Rs 1,152 yesterday. Long-term contracts such as for October were up at Rs 1,254.

However, spot prices dropped Rs 5 a quintal to Rs 1,105.

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