Duty-free wheat, sugar import not to dampen prices for long

The government's decision to allow duty-free import of wheat and sugar and ban export of pulses are expected to result in a sharp correction in prices of these commodities, experts said on Thursday.

These decisions, however, are not expected to be effective in keeping prices under check in the medium to long term, they said.

The government on Thursday allowed import of wheat and sugar at 0 per cent duty to curb soaring prices of these essential commodities.

Earlier, though import of wheat and sugar by players was allowed, it was uneconomical as it attracted import duty of 50 per cent and 60 per cent, respectively.

A Mumbai-based analyst said the move would see wheat, sugar and pulses prices falling heavily in the coming days.

The bearish trend, however, is expected to last only for about 10 days. "Prices will consolidate after a week," he said.

Pramod Kumar, owner of three flour mills in Karnataka, said in the long run, the decision to import duty-free wheat will only limit further increase in prices.

"Opening up wheat imports for private players will not bring down prices substantially, as the difference between domestic and imported wheat is not much, but at least we will know what is the cap on wheat prices," Kumar said.

D K Joshi, senior economist, CRISIL, said one of the main reasons for the rise in essential commodity prices was hoarding. "By relaxing imports, the government will at least curb speculative hoarding, as there will be no incentive to hold stocks now."

Joshi said even though sugar imports were allowed at zero duty, the long-term impact on domestic sugar prices would be negligible as international prices were much higher than domestic.

A senior industry official said the move to allow duty-free imports would only act as a fear-factor and curb any further upward price movement.

He said sugar prices in the domestic markets had risen primarily in tandem with international prices, rather than a demand-supply mismatch. "Sugar imports, therefore, do not make sense," he said.

Similarly, in the case of pulses, a ban on exports is unlikely to have a long-term impact on prices. A Delhi-based trader said the government has already allowed zero duty import of pulses. A ban on exports will only arrest an unduly rise in prices.

Kishore Narne, chief analyst with Anand Rathi Commodities, also ruled out a long-term impact on prices due to the ban on exports as India's pulses exports are quite marginal at 1.0-1.5 million tonne.

"How banning pulses export can contain prices when India depends heavily on imports," questioned Pulses Importers Association President K C Bhartiya.

India imports nearly 750,000 tonne of pulses from Myanmar, Canada, Tanzania and Australia.

"The ban is not even explicit about whether export of pulses "� whole seeds or processed or both "� are now prohibited," Bhartiya said.

The spurt in prices of essential commodities has started reflecting in inflation rates.

Inflation rates based on Consumer Price Index for Agricultural Labourers and CPI for rural labourers are hovering at about 6.4 per cent, which are much higher than the inflation rate for the overall economy.

Inflation based on CPI for Agricultural Labourers rose sharply to 6.41 per cent in May from 5.57 per cent a month earlier, while that based on CPI for Rural Labourers has jumped to 6.38 per cent in May from 5.23 per cent in April.

Inflation rate based on the wholesale price index, however, was at 4.72 per cent for the week ended June 3 against 4.68 per cent in the week earlier.