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Evaluation of waiving off the import duty from wheat (Relevant for GS Prelims and Mains Paper II)

Centre's decision to waive off import duty from wheat attracts criticism: 
The Centre’s decision to waive import duty on wheat has predictably attracted a strong criticism. Opposition parties have questioned the move, which comes days after the government’s assertion that demonetisation of high-value currency notes did not impact the sowing of the rabi crop, with a greater area being cultivated compared to the same time a year ago.

Assembly polls are due soon in Uttar Pradesh and Punjab, both large wheat- producing States, making this a plausible rallying point for the Opposition.

Potential impact of waiving the import duty:
1. Dumping of wheat stock in India at a time when the minimum support price (Rs.1,625 a quintal) is higher than international prices.
2. With imports remaining duty-free, it is now clear to traders that hoarding reserves and profiteering from the systemic stress won’t pay for long, even though it will take a couple of months or so for the first such shipments to arrive from overseas.

Farmer’s Viewpoint:
Farmers argue, this could lead to distress sales when the current crop is harvested over March-April.

Govt.’s Viewpoint:
The government, on its part, has noted concerns about the warmer winter forecast, which could affect wheat output and trigger inflation.This February, when prices of food articles that make up 46 per cent of the consumer price index were cooling off, the government expected the trend to continue if the monsoon was normal after two years of drought.

Now at year-end, following a normal monsoon, inflation remains under control but wheat prices have been moving up swiftly.

Frequent changes in import duty rates:
There is no doubt that fiddling too often with wheat import duties — from 10 per cent to 25 per cent, then back to 10 per cent and finally to zero, all within 500 days — sends mixed signals to farmers and traders, though the latter group will be pleased with the duty-free regime.

But equally, it is necessary to change one’s mind when the situation so demands, which it currently does.

 



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