India's decision to slash customs duty on wheat is unlikely to rein in prices because the landed cost of imports will be the same as local prices, traders said on Thursday.
The Finance Ministry late on Thursday cut import duty on wheat to 5 percent from 50 percent, after finalising import deals for 2.2 million tonnes of the grain to bridge a shortfall and to arrest spiralling prices.
Earlier this week, Farm Minister Sharad Pawar said the government would not be floating fresh tenders as imports were being opened up for private trade to stabilise prices. Traders said prices had initially dropped after the government indicated last Friday imports would be duty-free.
The duty would ease the pressure on farmers, who have been sitting on stocks in anticipation of an increase in prices, traders said. "If the intention was to reduce prices, how will this measure help," said D.P. Singh, president of the All India Grain Exporters Association.
"It would only push up prices as the government had indicated initially the imports would be allowed duty-free. There was a fall after the announcement, but now prices would rise," he said. He said the spot wheat price in southern India was at 9,500 rupees ($200) per tonne, while international prices were around $180 to $190.
Pawar had said that users like flour mills, biscuit and bread makers would be allowed to import wheat at easier terms, but Thursday's announcement of details allowed imports by any one till the end of December. The July futures at the National Commodity and Derivatives Exchange and the Multi Commodity Exchange were nearly flat at 831 rupees a 100 kg.
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