Why India is trying to tame rising wheat prices

FILE PHOTO: Workers sift wheat before filling in sacks at a market yard on the outskirts of Ahmedabad

By Mayank Bhardwaj and Rajendra Jadhav

NEW DELHI/MUMBAI (Reuters) - Indian officials are considering a raft of measures to boost domestic wheat supplies and cool local prices which surged last week to their highest six months.

Last year, India banned wheat exports after a sharp, sudden rise in temperatures clipped output, even as export demand picked up to meet the global shortfall triggered by the Russia-Ukraine conflict.

The ban on wheat exports failed to stop prices from rising, prompting trade and industry officials to suggest that even this year's crop is lower than the government's estimates of a record 112.74 million metric tons.

After last year's wheat export ban, India in July ordered a halt to its largest rice export category, triggering fears of further inflation on global food markets and reflecting New Delhi's urgency to curb food prices in the world's most populous country.

WHY IS GOVERNMENT CONCERNED ABOUT RISING WHEAT PRICES?

Prime Minister Narendra Modi's ruling Bharatiya Janata Party (BJP) will face a general election early next year. Some key state assembly elections are due before the 2024 parliamentary election. BJP is keen to retain power in certain state assemblies and wrest control of some big heartland states.

Even a moderate rise in food inflation, which accounts for nearly half of the overall consumer price basket, tends to anger voters and gives easy ammunition to opposition parties to attack the government.

Persistently high inflation helped BJP defeat the Congress party-led coalition in 2014 - the year when Modi first took over as prime minister.

Inflation in India, Asia's third-largest economy, has started to accelerate after showing signs of easing early this year. In July, food prices sharply rose 7.75% year-on-year, compared with a fall of 1.24% in June.

Other than rice and wheat, the government is also trying to tame vegetable and pulse prices.

HAS INDIA SUFFICIENT STOCKS OF WHEAT?

Other than supplying wheat to the poor at highly subsidised prices, the government in April 2020 started providing free wheat to the millions of beneficiaries to stave off food shortages during coronavirus lockdowns.

The free distribution of grain led to a drawdown in the government's food stocks, and lower wheat output in 2022 and 2023 meant slower-than-expected replenishment of inventories at state warehouses.

Wheat stocks at government warehouses were at 28.3 million metric tons on Aug. 1, higher than last year's 26.6 million tons but lower than the 10-year average of 35.3 million tons.

The government has offered 5 million metric tons of wheat to bulk consumers such as flour millers and biscuit makers to calm prices. Higher stocks at state warehouses would have helped the government offer bigger quantities to stabilise prices.

WHAT POLICY MEASURES GOVERNMENT COULD CONTEMPLATE TO COOL PRICES?

India needs to import 3 to 4 million metric tons of wheat to plug the shortfall, according to various trade estimates.

The government could drop or lower a 40% import tax on wheat to help flour millers import the grain. But India's imports could stoke global prices, making overseas purchases expensive or unviable for private traders.

New Delhi could also import wheat from top producers such as Russia via government-to-government deals.

Under government-to-government deals, India may import 8 to 9 million metric tons of wheat - far more than its requirement - to shore up wheat stocks and offer more free grain to the poor.

(Reporting by Mayank Bhardwaj and Rajendra Jadhav; editing by David Evans)