You may soon have to pay more for buying wheat in India

The price of wheat is set to go up following the Indian government’s decision to hike the duty on wheat imports to 30% from a current rate of 20%. The Finance Ministry also raised the duties on a few other commodities, including shelled almond, walnuts and protein concentrate, in a range of 40% to 100%.

The decision is reactionary. A significant portion of these commodity imports come from the US. The Indian government is responding in kind to the US’ decision to impose of a 25% duty on steel and 10% duty on aluminium from all countries other than Canada and Mexico. In fact, it was initially planning to raise customs duties on 20 products, as per a notification to the WTO last week.

As a result, India’s wheat imports, which reportedly totalled 1.5 million tonnes last year, are expected to reduce dramatically. The double whammy of a weakening rupee and higher duties makes wheat unfeasible to import at the current moment and hence, the country’s wheat millers will have to rely on domestic output, which is of a lesser quality and contingent on good rainfall. India’s wheat farmers will gain, while consumers may have to deal with higher prices.

Adding fuel to the fire

The move to hike import duties comes a few weeks after the US issued a counter-notification - the first ever of its kind - against India for violating the WTO’s Agreement on Agriculture. The US government alleged that India’s subsidies for wheat and rice producers were well above the agreement’s 10% cap on market price support as a proportion of total production.

In response, the Indian government called the US’ calculations flawed. It is expected to challenge the notification at the next meeting of the WTO’s Committee on Agriculture, which is scheduled for next month.

Earlier this week, India, along with China, Russia, Japan and Turkey, also launched settlement proceedings against the US in the WTO over its steel and aluminium tariffs, claiming that they violated the body’s agreement on safeguards. The US has until the end of July to respond the complaint.

While a full-blown trade war between the US and India is unlikely given the fact that it would be worse for everyone involved, the tension between the two countries is definitely a reason for concern. The US is India’s largest export destination. Over the course of 2017, the US exported $25.7 billion dollars worth of goods to India while its imports totalled $48.6 billion.

In order to smooth things over, India’s minister of commerce, Suresh Prabhu, will visit the US in the second week of June to meet with US trade representative Robert E Lighthizer and other trade officials. Key talking points will include the tariffs on Indian steel and aluminium and bilateral business opportunities. Hopefully, the two sides will be able to reach a consensus over some issues.