- Recently, India decided to impose a surprise ban on the exports of wheat
- As it turned out that China was hoarding Indian wheat which led to an artificial increase in the price of wheat
- It is only a temporary ban as after ensuring internal food security, India is expected to restart the export soon
International trade is important and in this globalised world order, it is sometimes a compulsion to stay relevant. But, if you do not have your own house in order, you can’t set out to change the world. It is in this context that India’s decision to stop exporting wheat should be looked at.
India bans wheat export
India has decided to ban exporting wheat with immediate effect. The move was announced on 14th May through a gazette notification dated a day earlier. In its notification, the government pointed out that it is committed to ensure food security for its population and other key partners. The government used its powers under Section 3 and Section 5 of foreign trade development and regulation act 1992 to declare the blanket ban.
The exception to the ban will be allowed in only two cases. Either in cases where irrevocable Letters of credit have been issued or in case the government decides that it a country desperately needs Indian wheat.
To manage the overall food security of the country and to support the needs of the neighbouring and other vulnerable countries, the Central Government bans wheat exports with immediate effect. (1/2) pic.twitter.com/dB4tAViLNk
— ANI (@ANI) May 14, 2022
Modi government’s decision puzzled everyone
India’s decision to prohibit exports of wheat is being seen as anathema to the signals sent out by the government during the last few months. Apparently, the Modi government had been on an advertising spree for the last few months. In the wake of Ukraine-Russia crisis, India was seen as the food basket of the world. Even PM Modi had lamented WTO for not providing his government an opportunity to feed the world.
But the recent jolt has shocked the world as well as experts inside the territory. However, if there is madness, then there is a method of madness. Without understanding the latter, it would not be wise to arrive at any conclusion.
India took on too much responsibility
As it turned out, India’s grain basket was overburdened with responsibilities. Wheat is the staple diet of Indian homes and that is why it became one of the few elements of the type of grains being transported to Indian homes during Covid Pandemic. Wheat, Rice and coarse grain are being transported to 80 crore Indians under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). The scheme which was launched during Corona has been recently extended for six more months. So, the government was already under pressure to provide wheat (along with other elements) for free.
Then came the Ukraine-Russia crisis. Since Russia and Ukraine are also one of the biggest producers of wheat, the world was slated for a wheat shortage. Irrational sanctions by the US and its allies further complicated the problem. Russia being the fourth-largest producer of wheat found it tough to search for a new market. On the other hand, it was not morally correct for other countries to demand wheat from Ukraine, since the country was itself finding it tough to sustain itself.
India’s became bread basket of the world
In the wake of the supply chain getting distorted due to the crisis, the onus was now on India. The increased demand for made-in-India wheat transformed into India exporting 70 million tons of wheat to the world. To put things in perspective, India had exported only 21.55 million wheat in the previous financial year. It was a whopping more than 300 percent increase over the previous year.
The increased pressure sustained in the new financial year as well. The country was slated to export nearly half of 70 million tons in only 4 months of April-July quarters.
Changed climatic conditions created a bit of an issue
The uneven rain, increased heatwave led to a decline in wheat production and complicated the situation for the Modi government. The procurement by the government is at 15 year low as it has been able to buy only 18 million tons this year. Though, it is largely credited to farmers choosing the international market to sell their wheat. At the same time, it can’t be denied that unfavourable conditions have impacted wheat production as its current estimate is pegged at only 105 million tons.
Though, 105 million tons is good enough to feed Indians as well as export the wheat in global market, but there was another problem which forced India to change its policy.
China’s hoarding led to wheat inflation
The rising demand for Indian wheat in the export market led to an increase in the price of wheat, both inside as well as outside the country. Two days ago, the wheat futures price at the Chicago Board was hovering around $407 per tonne, a remarkable 32 percent increase in year to year terms.
Apparently, one of the reasons for this increase in price in the international market is hoarding of Indian wheat by China. According to the sources quoted by CNBC, China is stocking Indian wheat to sell it in the international market at a time when there will be a shortage. The capturing of wheat by China to other countries meant that in spite of enough supply from India, an artificial deficiency got created, which led to increase in price in the futures as well as spot market.
The source quoted by CNBC said, “India wants to ensure fair proper use of Indian wheat stocks to address global needs, particularly of the neediest countries. The move will crush attempts to hoard Indian wheat for price manipulation”
The increasing price which farmers were getting in the export market prompted them to demand more in domestic market. This demand came when the country was already trying to find a way to curb increasing inflation. Compared to the MSP of ₹ 20,150 per tonne set up by the government, wheat prices in the spot market have hit ₹ 25,000 per tonne.
Ban is temporary in nature
Thus in the wake of poor weather and China-induced wheat inflation, it became imperative for the government to impose a ban on wheat export. It was necessary to beat these two devils. Moreover, government was transparent in its approach as it did not take any indirect measures like imposing a minimum export price or putting any other trade barriers.
The government’s message to the international community was simple ‘firstly we need to ensure that we are happy, only then we will take care of you’. It is not as if it’s permanent in nature. As soon as we ensure that everything is fine in the international market, we will be back providing bread to thalis of the world.