India Considers Scrapping Wheat Import Tax to Cool Prices

India, the world's second-biggest wheat producer, may abolish an import tax so that buying from overseas becomes more attractive, a move aimed at cooling domestic prices.

The government is considering cutting or scrapping a 40% duty on wheat imports, Food Secretary Sanjeev Chopra said Friday, confirming an earlier report by Bloomberg News. Wheat futures in Chicago extended gains to as much as 4.2%.

It would be a big move if India were to import wheat. After Russia's invasion of Ukraine, Prime Minister Narendra Modi declared that his country was ready to “feed the world,” but changed course weeks later by restricting wheat exports to protect its own food supplies. Just two weeks ago, India, which dominates the global rice trade, banned the export of some varieties to control domestic food costs, sending rice prices in Asia to a three-year high.

The government was committed to controlling wheat prices, Chopra said. It has a few options under consideration, including lowering or scrapping the import duty or tweaking stockholding limits.

The last time India imported significant amounts of wheat was in 2017-18, to cushion the impact of unfavourable weather.

Any move to scrap import duty will likely benefit flour millers in southern India, especially those located near coastal areas. It would make it cheaper for them to buy overseas wheat such as from the Black Sea, where Russia is expected to ship record volumes for the second year in a row, and Australia.

While global wheat prices have dropped 18% in the past year, it's become more expensive in India. Just months before Modi is due to seek re-election — with rising prices a top concern for voters — retail prices in New Delhi were 17% higher Thursday than a year ago. Soaring food costs pushed inflation to a three-month high in June and may even send it back above the central bank's 6% target ceiling.

There are signs India's most-recent wheat harvest suffered another year of weather damage. Excessive rain in March hit the crop at a vital grain-filling stage. While the farm ministry predicted that production would climb to an all-time high of 11.27 crore tonne, other forecasters were less upbeat. A flour miller group estimated that the harvest was just 10.29 crore tonne.

Separately, Chopra said the government has no plan to import wheat from Russia, refuting an Economic Times report that India was seeking to buy 90 lakh from the top exporter to boost stockpiles.