Indian rice exports will hit global markets with a bang, regaining not just market share lost in three years of absence but also challenging the world's top rice exporter Thailand, whose plan to lift prices threatens to stoke food inflation.

India, which has also allowed wheat exports for the first time since 2007, will add to the global oversupply of wheat, pressuring the benchmark US market, although high domestic prices will cap exports.

Last week, India allowed unrestricted exports of two million tonnes each of wheat and common rice, as the country's stocks reach unmanageable levels, forcing the authorities to allow overseas sales.

New Delhi's move to export non-basmati or cheaper grades of rice couldn't have come at a better time for buyers, with benchmark rice climbing to a three-year top last week on expectations of intervention by the new Thai government.

Thailand's plan threatens to bolster global food prices which remained stubbornly high in August, buoyed by a worrying outlook of low grain supplies and stocks, the UN Food and Agriculture Organisation warned last week.

The FAO food index dipped to 231.1 points in August, down less than a point from July, still only 3 percent below an all-time peak hit in February.

India -- which typically sold between two and three million tonnes of non-basmati rice in a year to Asia, the Middle East and Africa before imposing a ban in 2008 -- could ship up to 4 million tonnes as Thailand displaces itself from the market.

"India is well positioned to vastly undercut suppliers in Thailand and Vietnam," said Darren Cooper, senior economist at the International Grains Council in London.

"If Thailand goes ahead with its intervention scheme and farmers sell significant quantities to the Thai government, India will be able to sell a lot in the international market."

Buyers have already started snapping up Indian rice, with at least 100,000 tonnes sold within days of the government move. "Indian rice is very, very competitive," said Vijay Setia, president of industry body the All India Rice Exporters' Association, which groups 82 exporters and producers. "An encouraging response from buyers may see some more exports from India."

The 100,000 tonnes was sold to Nigerian buyers at $470 per tonne, undercutting Thai and Vietnamese competitors in the first deals since the food minister gave a nod for exports last week.

The same company also sold 50,000 tonnes of wheat to Bangladesh. India's wheat exports are likely to remain limited to neighbouring countries where it enjoys a freight advantage, given competition from rival Black Sea suppliers.

"With the news of India allowing 2 million tonnes of wheat exports, the global market will fall further, which is bad for Indian wheat exports," said Amit Takkar, president of Emmsons International, a commodities trading company based in New Delhi.

"At best, only a few containers are going to countries such as Bangladesh."  - Reuters