The commerce ministry has tightened the scrutiny of letters of credit (LCs) submitted by traders seeking exemption from a ban on wheat exports, as it fears that many of these bank guarantees may turn out to be fake, trade sources told FE.
Exporters have submitted LCs to seek permits for despatches of over one million tonne (MT of wheat, way above the initial trade estimate of just about 0.4 MT, leading to suspicions of attempts by unscrupulous elements to abuse the LC route. “Some of the banks that have issued the LCs are calling customers to check if the LCs are based on actual contracts firmed up before the ban,” a wheat trader said.
The closer scrutiny also indicates the government is in no hurry to relax the export ban, said another source.
While prohibiting wheat export on May 13 to control spiralling prices, the government had made it clear that supplies that are backed by LCs issued before the ban was announced would be allowed. Moreover, officials have stressed that India would also cater for the genuine need of neighbouring countries and food-deficit nations through government-to-government deals and honour supply commitments already made.
Subsequently, the commerce ministry partially eased the order and permitted despatches of wheat consignments that were either handed over to the customs authorities for examination or registered in their systems by May 13. This relaxation alone was estimated to facilitate clearance of about 0.35 MT of wheat, on top of the initial expectation of LC-backed exports of another 0.4 MT. These will still be about a third of the estimated 2-2.2 MT currently at various ports or in transit. Before the ban was slapped on May 13, about two million tonne of wheat was already exported this fiscal.
The ban surprised the commodity market, as it came just weeks after the government was targeting exports of at least 10 mt of wheat to partly fill in a gap created by the conflict between Russia and Ukraine. However, an expected crash in wheat harvest due to intense heatwave since late March forced the government to resort to the ban.
Although the farm ministry has now trimmed the wheat harvest forecast at 106 MT for the crop year through June from 111 MT estimated in February, analysts expect the output to be much lower – about 90-95 MT.