India scraps rice import tax

India on Wednesday scrapped its rice import duty as the government took emergency measures to increase food stocks after the worst drought in more than 30 years cut agricultural output.

India is the world’s second-largest producer and consumer of rice after China and has seldom made big purchases of rice on international markets. This year, however, it has been forced to turn to greater imports after one of the worst monsoons since 1972 and flooding damaged the domestic crop in northern India.

Asia’s third largest economy is also confronted by rising food prices and in the past months has put curbs on the export of agricultural commodities.

To ease the purchase of rice on international markets, the Central Board of Customs and Excise said it was lifting the 70 per cent tax for a year in view of the deteriorated weather conditions.

The US Department of Agriculture this week forecast a 15m to 17m tonne decline in India's rice output for 2009-10 from a record 2008-09 production of 99.2m tonnes. India is expected to consume about 90m tonnes this year.

Indian rice exporters said that the country would seek to import about 2m tonnes of rice in the coming months to build up stocks.

Rice importers in countries from the Philippines to Iran and South Africa have been watching the market for fear that India’s poor monsoon could push prices higher.

New Delhi estimates that Indian farmers have planted rice in 30.2m hectares, down 17.5 per cent from last year. With top-producing states such as Uttar Pradesh hit hardest, the monsoon crop could fall as much as 20-25 per cent, analysts said.

The drop in India’s output means that global demand will outpace supply for the first time since 2006, according to the US Department of Agriculture. It estimates the world’s supply at 433.5m tonnes, down 3 per cent from last year, and consumption of 438m, up 1.7 per cent.

The Indian government has assured consumers that it has enough food stocks to feed the country’s population for a year. Other countries, including China and Thailand, also have large stocks after two years of bumper crops, and cheap wheat will encourage a shift to other cereals.

But the Indian government is becoming increasingly worried about rising inflation, in part stemming from higher food prices.

“There are clear signs of rising inflation stemming largely from the supply side, particularly from food prices,” said Duvvuri Subbarao, the governor of the Reserve Bank of India. “Private consumption demand is yet to pick up. Agricultural production is expected to decline.”

Rice is Asia’s staple and governments are wary after export restrictions last year from India and Vietnam triggered panic buying, pushing prices to a record high above $1,000 per tonne. Prices have fallen since but benchmarks remain at about $520 a tonne, double the pre-crisis levels in 2007.

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