India lowers wheat stock limits to fight food inflation

India has lowered the stock limit of wheat that traders and millers can hold to increase the grain's availability and moderate prices, the food ministry's most senior civil servant said on Friday.

Indian authorities are worried about volatility in food prices ahead of general elections due by May. Food prices account for almost half of the retail inflation basket and the government is taking supply side steps to tame food inflation.

It has halved the limit on wheat stocks held by traders and wholesalers to 1,000 tonnes while lowering inventory limits for millers and retailers, said Sanjeev Chopra, secretary at the Ministry of Consumer Affairs, Food and Public Distribution.

"The idea is there should not be any artificial scarcity... Whatever people are holding has to come out in the market so we have given them 30 days' time to adapt to the new stock limits. Additional availability will have cooling effect on the prices."

Chopra also said the government is prepared to release an additional 2.5 million metric tons of wheat in the market if required to rein in prices.

The Reserve Bank of India held its rates for the fifth consecutive meeting on Friday, citing an uncertain outlook for inflation on the back of food price rises remaining above 6%.

After a drop in output, India has banned wheat and non-basmati rice exports. New Delhi capped sugar exports this year and on Thursday directed sugar mills not to use cane juice or syrup to produce ethanol.

India's retail inflation likely picked up in November due to higher food prices after declining for three months, a Reuters poll found.

In September, India had tightened limits on wheat stocks held by millers, traders and retailers.

Leading trade body Indian Sugar Mills Association estimates India's sugar productionwill fall 8% to 33.7 million tons in the 2023/24 marketing year as lower and untimely rains in key producing states dent yields.