NEW DELHI (Reuters) - India could impose a 25 percent import tax on wheat by the middle of March, two government sources said on Wednesday, reinstating the tariff after a gap of nearly three months in response to recent large purchases from overseas.
India, the world's second-biggest wheat producer, lowered the import tax on the grain to 10 percent from 25 percent in September 2016 and scrapped the duty on Dec. 8 last year.
The decision encouraged imports from private traders who have sealed deals to buy more than 5 million tonnes of wheat since mid-2016 to meet a supply shortfall left by two years of drought.
Higher imports and expectations of a bumper crop has now prompted the government to consider reinstating the 25 percent tax, two sources directly involved in the decision-making process said.
"The goverment could re-impose the duty within the next fortnight," one of the sources said.
Indian farmers will harvest the new-season crop from this month and Prime Minister Narendra Modi’s government wants to curb imports to avoid a crash in local prices, fearing a backlash from millions of poorer citizens.
Most flour millers, biscuit and confectionary makers in the coastal towns of southern India find it cheaper to import, especially from Australia, than to buy the grain from farmers in the key producing states of Punjab, Haryana and Uttar Pradesh in north India and Madhya Pradesh in central India.
In an ongoing assembly election, Modi's Bharatiya Janata Party is trying to wrest control of Uttar Pradesh, India's biggest wheat-producing state and home to 220 million Indians. The outcome will have significant influence on Modi's chances of clinching a second term as prime minister in 2019.
"The government will bring back the duty to restrict imports during the time of the harvest. And with a duty of 25 percent, imports, even in the current bearish market, will be very difficult for India," said Tejinder Narang, a trade analyst in New Delhi.
The farm ministry last month forecast wheat output at 96.64 million tonnes in 2017, up from 92.29 million tonnes last year.
Editing by David Goodman