India considers cutting import duties on pulses to cool prices, sources say

India is considering cutting import tariffs on lentils and yellow peas to increase supplies and curb food inflation after a patchy monsoon left major pulse-producing states with up to 30% below-average rainfall. India produced 25.7 million tons of pulses and imported 7.3 million tons in 2024-25, with imports representing about 23% of consumption; food inflation was 5.95% year-on-year in August. Maintaining chickpea duties could support domestic planting, while lower duties on other pulses would likely benefit overseas suppliers including Australia, Canada, Russia and Myanmar.

Analysis

The investable transmission is primarily through India’s inflation and rates complex rather than the global agricultural supply chain. A credible reduction in retail food-price pressure would modestly improve the probability of RBI easing or prolonged liquidity accommodation over the next 1-3 months, favoring rate-sensitive Indian banks, NBFCs and discretionary consumption through INDA/EPI. The effect should be modest: imported supply can cap spot prices, but it cannot repair a domestic weather-driven crop shortfall, and food-price pass-through is often delayed by inventory cycles and distribution margins.

The second-order risk is that easier import access shifts the burden from inflation to the external account. Higher agricultural imports are individually small, but a broader pattern of food and edible-oil imports alongside softer export growth would be marginally INR-negative; USD/INR upside is therefore a cleaner hedge than a directional bearish India-equity position. For domestic agricultural producers and rural-income proxies, lower realized pulse prices could dampen farm cash flow into the winter season, partially offsetting the consumer benefit.

Consensus may overstate the policy’s disinflationary power. Food inflation will remain vulnerable to subsequent weather, festive stocking and logistics, while a favorable CPI print could already be partly reflected in Indian duration-sensitive assets. The thesis is falsified if the next two food-CPI releases remain elevated despite expanded imports, or if core inflation/reaccelerating services demand prevents RBI from turning more accommodative.

Key Decisions for Investors

• Use INDA or EPI as a tactical 1-3 month long only after formal policy confirmation and a softer food-CPI print; target a 5-8% upside from multiple support for financials/consumer exposure, with a 3-4% stop if headline CPI fails to decelerate.
• Prefer a relative-value expression: long INDA versus short EEM for 1-3 months, sized small. The trade isolates potential domestic disinflation/rates relief from broader EM beta; exit if USD/INR breaks materially higher or RBI communication turns restrictive.
• Buy 3-month USD/INR upside optionality as a hedge against the equity-long thesis rather than shorting India outright. A widening goods-trade deficit, higher energy prices, or renewed food-import demand would make currency depreciation the more immediate market response.
• Do not initiate a direct global agriculture trade without confirmation of import volumes and origin-country allocation. Canadian and Australian logistics/export beneficiaries may see volume upside, but the likely increment is not yet large enough to underwrite a liquid listed-equity position.