Wheat flour may get Customs relief

The government is planning to do away with import duty on wheat flour from the current 30%. The move is expected to kill two birds with one stone. It will take off some demand pressure on India’s wheat as the festival season approaches. It will also become a gateway for Americans to sell their wheat as a value-added product in the Indian market.

Since wheat flour will not be tested for the same phytosanitary specifications as wheat grain, it will bypass the objections raised by the agriculture ministry against US wheat. The US government has been lobbying extensively to persuade India to relax its phytosanitary norms for wheat.

“Since the largest exporter of wheat (US) may not be able to participate in our tender, an alternative that could be considered would be to reduce the duty on wheat flour to 0% from the present 30%. This would enable the import of wheat flour, particularly to coastal cities,” the food ministry, which is piloting the move, has said in a note to the committee of secretaries, which met recently.

The food ministry is banking on the fact that there may be surplus milling capacity in Sri Lanka and Malaysia from where wheat flour can come to India. In other words, mills there will import US wheat, produce flour and export it to India, thereby bypassing phytosanitary tests for wheat grains.

“This will enable the private sector to import wheat flour economically at internationally competitive rates. This could also reduce pressure on the domestic market for wheat since flour millers require large quantities of wheat and drive up domestic prices, especially during the festive season,” it has added.

Blaming SPS norms squarely for the high price India is now paying for imported grain, the food ministry believes flour imports may be one way to cool the market. “Because of phytosanitary conditions for import of wheat to India, tenders for supply of American wheat have not been received.

Since the US is one of the largest exporters of wheat, its absence has probably contributed to the higher prices received by STC. Wheat prices in the Delhi market have shown a significant increase in the past one month and this could be partly influenced by reports of high international prices,” it has stated.

Reading between the lines, the proposal gives the market a signal the Centre could be expecting wheat flour prices to exceed Rs 18 per kg in the South. At the current US wheat price of $330, flour from Malaysia or Sri Lanka cannot reach India below Rs 17 per kg.

“Therefore, if the food ministry believes there is a good chance of parity, it must be factoring in a local price of over Rs 18 per kg,” said an analyst.

If the duty is slashed and there is price parity between local and imported wheat flour, it will evoke a mixed reaction in the domestic market.