Since the Indian decision to ban wheat exports may lead to an upward spike in the global price level, several countries and leading global bodies like the G7 have approached India about reconsidering its decision.
By Debashis Chakraborty
In a surprise move, India banned wheat exports on 13 May 2022, in order to ‘manage the overall food security of the country and to support other vulnerable countries’. Earlier it had appeared that India, the world’s second largest wheat producer, held sufficient stocks to meet demand from both domestic markets and from traditional buyers. India was also prepared to meet part of the global supply shortage resulting from Russia’s war against Ukraine.
India is no greenhorn as far as export bans or restrictions on primary commodities are concerned. The country has intervened before for several agricultural products, including wheat and onions. But New Delhi’s most recent wheat decision received global attention due to the rise in per tonne wheat price from US$325 to US$450 after Russia’s decision to invade Ukraine. Increased shipments from India partially offset the supply shortage from Ukraine during April 2022.
Since the Indian decision to ban wheat exports may lead to an upward spike in the global price level, several countries and leading global bodies like the G7 have approached India about reconsidering its decision.
Domestic price stability priority
In support of the policy change, India’s Minister of State for External Affairs Vellamvelly Muraleedharan stressed the role of hoarding in low-income countries’ difficulty accessing food grains. The minister also cited the emerging threats to these countries from the rise in food prices in the aftermath of the Russia–Ukraine war and India’s sincere commitment to helping them. He had Sri Lanka in mind, as India shipped energy products and grain (including wheat) to its debt-stricken neighbour earlier in 2022.
Despite having wheat export restrictions in place, India has also offered exemptions for sending wheat consignments to neighbours including Bangladesh, the Maldives and Nepal in the past. These relaxations offered to South Asian Association for Regional Cooperation member countries underline India’s commitment to maintaining regional stability.
The two main factors likely driving India’s wheat decision are current wheat stock levels and domestic inflation. The opening balance for wheat stocks in January 2022 stood at 330 lakh metric tonnes, which gradually declined to 282, 234 and 190 lakh over February–April 2022 respectively. In May 2022, the stock increased to 303 lakh but the same remained far below the corresponding figures of 526 lakh in May 2021 and 358 lakh in May 2020.
Meanwhile, in April 2022, the inflation rate reached 7.8 per cent, compared to the corresponding figure of around 4 per cent in early 2021. Policymakers are concerned with maintaining domestic price stability, a priority reflected in the Reserve Bank of India’s recent interest rate hike decision.
Chinese support for India
While New Delhi’s wheat export ban may bring price stability to Indian consumers, particularly in a period prior to upcoming state elections, farmers and traders are not placated. The Ukraine crisis has led to a supply crunch and a global rise in wheat prices, creating potential demand for Indian exports. The export ban decision and the corresponding fall in domestic prices will hurt both farmers who hold unsold stocks and traders who already made purchase decisions in anticipation of export opportunities.
India gained support from an unexpected quarter for the wheat export policy change. China, which faced challenges at the WTO earlier on its voluntary export restraint in segments including rare earth materials, has stood behind India’s export ban on wheat by underlining the modest share of India in global exports. Beijing also called on G7 countries to enhance their supply to the global market to stabilise prices. The support needs to be viewed as a subtle overture, as several China-developed apps are still banned in India. Any drastic improvement in Sino-Indian relationship, in light of this Chinese overture, is unlikely.
Agricultural input market reforms
One of the government’s major announcements in 2016 was to double farm income by 2022, which requires stability in production and exports. While the wheat export ban decision does not contribute to this goal, it may secure price stability domestically — a popular political move. But arriving at a market-based solution to secure long-term growth of the sector is the need of the hour.
Indian policymakers need to urgently focus on agricultural input market reforms to reduce the cost of cultivation. Doing so will boost demand and, in turn, agricultural production. At the same time, it will provide Indian players the much-needed price competitiveness, which would limit the need for public stockholding operations and minimum support price reliance, consequently deepening export opportunities.
Otherwise, agriculture will continue to haunt negotiators as the Achilles’ heel during multilateral and regional trade negotiations, and periodic export bans on primary commodities will sadly remain a rule rather than an exception.
Debashis Chakraborty is Associate Professor of Economics at the Indian Institute of Foreign Trade (IIFT).
This piece has been sourced from the East Asia Forum of the Australian National University.
Image: Hippopx
