India to Resume Wheat Imports and Remove Import Tax

Context:

India, the world’s second-largest wheat producer, plans to resume wheat imports after a six-year hiatus to replenish depleted reserves and control rising prices, following three consecutive years of disappointing crops. The country is likely to remove a 40% import tax on wheat, permitting private traders to purchase from countries like Russia, albeit in small quantities.

Relevance:

GS III: Agriculture

Dimensions of the Article:

1. Wheat
2. Reasons for India Resuming Wheat Imports
3. Potential Implications of the Decision
4. Food Corporation of India (FCI)

Wheat

Importance:

• Second most important cereal crop in India after rice.
• Main food crop in the north and north-western parts of the country.

Type:

• Wheat is a rabi crop that requires a cool growing season and bright sunshine at the time of ripening.

Historical Impact:

• Success of the Green Revolution significantly contributed to the growth of Rabi crops, especially wheat.

Optimal Growing Conditions:

• Temperature:
  • Sowing: 10-15°C
  • Ripening and Harvesting: 21-26°C with bright sunlight.
• Rainfall: Around 75-100 cm.
• Soil Type: Well-drained fertile loamy and clayey loamy soils, particularly in the Ganga-Satluj plains and the black soil region of the Deccan.

Top Producers:

• World (2021): China, India, and Russia.
• India (2021-22): Uttar Pradesh, Madhya Pradesh, and Punjab.

Indian Wheat Production and Export:

• India is the world’s second-biggest wheat producer after China.
• Despite its large production, India accounts for less than 1% of the global wheat trade as a significant portion is kept for domestic use to provide subsidized food for the poor.
• Top Export Markets: Bangladesh, Nepal, and Sri Lanka.

Reasons for India Resuming Wheat Imports

Production Decline:

• India’s wheat output has decreased over the past three years due to adverse weather conditions, resulting in a significant reduction in wheat yield.
• The government projects this year’s wheat harvest to be 6.25% lower than the 2023 record production of 112 million metric tons.

Reduced Stock Levels:

• By April 2024, government wheat reserves have plummeted to 7.5 million tons, the lowest in 16 years, largely because over 10 million tons were sold to control domestic prices.

Procurement Deficit:

• The government’s wheat procurement target for 2024 was 30-32 million metric tons, but only 26.2 million tons have been acquired so far.

Increasing Prices:

• Domestic wheat prices have remained above the government’s minimum support price (MSP) of 2,275 rupees per 100 kg and have been rising.
• To address this, the government removed the 40% import duty on wheat, enabling private traders and flour millers to import wheat, mainly from Russia.

Potential Implications of the Decision

Domestic Market Effects:

• Removing the import duty is expected to boost wheat supplies in the domestic market, helping to curb price increases.
• Lower import costs can assist the government in replenishing depleted wheat stocks, enhancing food security by providing a buffer against unexpected disruptions in domestic production.

Global Market Effects:

• Although India’s expected import volume (3-5 million metric tons) is relatively small, it could lead to an increase in global wheat prices due to the current situation of high prices driven by production issues in major exporting countries like Russia.
• India’s import needs are unlikely to have a significant impact on the global market, as larger exporters will continue to have a more substantial influence on global wheat price trends.

Food Corporation of India (FCI)

Statutory Basis:

• The FCI was established under the Food Corporations Act 1964.
• It operates under the Department of Food & Public Distribution within the Ministry of Consumer Affairs, Food and Public Distribution.

Primary Functions:

• Procurement: Acts as the nodal agency for procuring wheat and paddy at the government-declared Minimum Support Price (MSP) to protect farmers’ interests and encourage agricultural production.
• Storage: Stores the procured food grains in scientifically managed warehouses across the country to maintain buffer stocks and ensure availability during lean periods.
• Distribution: Efficiently distributes food grains to state governments for further distribution through the Public Distribution System (PDS), ensuring access to essential food items at subsidised prices for vulnerable sections of society.
• Price Stabilisation: Helps stabilise food grain prices in the market by regulating procurement and distribution, preventing undue price fluctuations.
• Monitoring: Closely monitors food grain stocks and their movement throughout the country to identify potential shortages and ensure timely corrective measures.

-Source: The Hindu