India's wheat production is likely to cross the Government's earlier target of 72.5 million tons this year owing to better weather conditions. A bumper crop usually leads to lower imports or no imports. Yet the Agriculture Minister Sharad Pawar has given strong indications that the government will be proactive on imports this year, after scrambling for costly purchases last year as output and stocks fell. India will import up to 3 million tonnes of wheat if necessary this year and has allowed duty-free trade until the end of 2007.

It is said that the firms might start scouting the market by mid-May, when purchases by state agencies from farmers taper off and output estimates become clear.

Lower wheat production last year had led to a 30 per cent rise in global price of wheat on the Chicago Board of Trade. Wheat prices rose to a decade-high in October 2006 partly because India resumed imports in February 2006 after six years.

India's public sector and private traders imported 6.5 million tonnes of wheat last year after production fell to 69.35 million tons. In fact, in mid-March, the Government allowed pubic sector State Trading Corporation (STC) and Food Corporation of India (FCI) to import 3 million tons of wheat by the end of April to boost domestic supply.

The buffer stocks are used to sell grain to the poor at subsidised prices and meet the needs of welfare schemes. But stocks fell last year as the government managed to buy only 9.2 million tonnes from farmers against the targeted 13 million tonnes.

But a higher wheat production this year may help reign in inflation that has stayed above the Reserve Bank of India's (RBI) comfort level of 5-5.5 per cent since September 2006. Inflation accelerated to 6.46 per cent in the week ended March 3. So far, the stress has been on reducing inflation through relaxing import norms.

Also, the stress is on procurement of wheat from farmers. The government will be a stiff contender to private traders in the mandis. The agricultural ministry has raised the price paid to farmers by Rs 1,000 per tonne to Rs 8,500 per tonne for the wheat needed to rebuild its buffer stocks. Through its procuring agencies like the FCI, government is expected to buy 15 million tonnes to raise stocks. It hopes to have stocks of 4-4.5 million tonnes in April made up mainly of imported wheat.

In the second week of April India allowed wheat import from Pakistan. It is reported that the traders have contracted around 35,000 tonnes of wheat from Pakistani suppliers. The total wheat import contract from the neighbouring country could be about 46,000 tonnes.

Last year, Indian authorities suggested bartering their sugar for Pakistani wheat, but the proposal did not go anywhere. Pakistan did buy half its sugar imports from India that year, following the removal of a four-year ban on Indian sugar after an improvement in relations between the countries.

The wheat sale comes after Pakistan's government lifted a two-and-a-half-year ban on all wheat exports in January, on expectations of a bumper harvest of 23 million tonnes this year.

The government, now, will have to move cautiously as the wheat prices will rise sharply if they don't ensure good volumes in the market after procurement. The government would be able to build stocks with purchases but will not be able to check prices if the volume of wheat for sale is not available through proper channels. Also in a buying spree from the domestic market, the government has also perked up the price of wheat by paying the farmers.

However, analysts fear over the rise in global price of wheat is not allayed. India being the second-largest producer of wheat is sending a signal to the world that all is not well with domestic production of wheat. This might have a spiral effect on the prices of wheat across the globe.