India Bans Wheat Exports With Immediate Effect In Policy U-Turn

The government was upbeat of exporting wheat till now, if recent comments made by officials are anything to go by

In a significant policy u-turn, the Government of India, through a notification late on Friday, banned the export of wheat with immediate effect in a bid to tame the galloping prices of food.

Some caveats exist, though. The government has let exports to neighbours continue, to meet food security requirements in India's vicinity and in other "vulnerable developing countries" who would be adversely impacted by this sudden rise in food prices, though the notifications does not explicitly name any neighbouring countries. The exports of wheat would also be allowed with governmental permission upon request of foreign governments.

This in stark contrast to comments made by government officials in the recent past, which indicated that the government remained upbeat on continuing its wheat export policy.

As recently as May 5, Food Secretary Sudhanshu Pandey ruled out curbing exports. "We don't see a case for any control on exports. ....Wheat exports are on and in fact the government is facilitating the traders.", he was quoted telling reporters at a press conference.

Last month, he said that traders have entered into contracts worth 3 million to 3.5 million tons of wheat exports for the April to July quarter, with Commerce Minister Piyush Goyal setting a target of 100 lakh (10 million/1 crore) tons for the entire fiscal in the week before that.

Upbeat comments also came from the highest quarters, Prime Minister Narendra Modi on April 13.

At a virtual inauguration of a hostel and education complex of the Shri Annapurna Dham Trust in Gujarati, Modi remarked that in his recent conversation with U.S. President Joe Biden, India offered to supply food to the world if the World Trade Organisation permits. He was referring to World Trade Organisation rules that restricts exports on food grain from official sources if it has been procured at fixed or subsidised prices.

PM Modi's comments can be seen here.

Modi's comments came in the context of the ongoing conflict between Ukraine and Russia.

Both these countries border the Black Sea and supply wheat through it. Wheat supply through the Black Sea accounts for nearly 23% of the global wheat exports, according to a note by S&P Global on commodities citing the US Department of Agriculture (USDA).

India is the world's second largest holder of wheat stocks, according to the USDA's Foreign Agricultural Services, and has looked to fill in the gap where supplies from Russia and Ukraine have faltered.

In the last one month, India was approved as a wheat supplier to Egypt, which is often world's largest importer of the crop and depends on Black Sea supply for the crop, and Turkey too ordering 50,000 tons of Indian wheat.

It remains unclear how these supplies will be made in the wake of India's latest wheat export ban.

Also Read: Did Nordic Leaders Meet PM Modi In Denmark Due To His Busy Schedule?

Wheat inflation in numbers

Global prices of wheat took a hit at the very onset of the Russia-Ukraine conflict, data show.

The S&P Global note cited above outlines several platforms where the prices of wheat touched multi-year highs (as determined by commodity futures contracts) as early as March 1 and March 2, after the conflict started on February 24, as supplies from the Black Sea and Azov Sea remained stranded.

These inflationary pressures have crept into Indian prices of food too.

According to monthly inflation data released by the Ministry of Statistics and Programme Implementation (MOSPI) for April earlier this week, while India saw retail, or consumer inflation (called the consumer price index) at 7.79%, which was a 8-year high, the data showed that food inflation rose faster than that.

Food inflation in April, made up of 12 categories of food, rose 8.35% in rural areas, 7.72% in urban area and 8.1% pan-India year-on-year.

While driven by double-digit inflation in the prices of spices, vegetables and oils and fats, cereals and associated products saw price rises of 6.38%, 5.28% and 5.96% in rural, urban and pan-India levels respectively.

Data from the Ministry of Consumer Affairs also shows double-digit inflation in the retail prices of wheat and atta, or flour, which goes into the making of staples like bread and rotis, and they have far outpaced the consumer prices index; both food component and retail.

The average retail prices of wheat on May 13 stood at ₹29.62 per kilo, up from ₹26.06 per kilo a year ago: an increase of 13.66%. The retail prices of atta have been in the same range, rising 12.72% year-on-year to ₹33.14 per kilo from May 13 from ₹29.4 a year ago.

Wholesale prices of wheat and atta, which is an indication of the input cost of food, has risen even faster.

On May 13, the data show wheat priced at ₹2,592.60 per quintal on May 13, up 16.47% from ₹2,226.05 a year ago. The price of atta rose 15.46%, from ₹2,421 on May 13, 2021, to ₹2,796.29 right now.

Find this data here.

More food inflation pain lies ahead?

Going ahead, this inflationary trend in food items is likely to persist, according to comments made by Shaktikanta Das, the Governor of the Reserve Bank of India, earlier this month. In an unexpected address, he announced a hike of the benchmark policy repo rate to counter inflation, and food inflation got its fair share of attention in his statement.

"Looking ahead, food inflation pressures are likely to continue. Food price indices of the Food and Agriculture Organisation (FAO) and the World Bank touched historical highs in March and remain elevated. Spillovers from global wheat shortages are impacting domestic prices, even though domestic supply remains comfortable", he said.

The basis of the hike was March's retail and food inflation, which was in itself high at 7%.

Also Read: RBI Hikes Repo Rate, Cash Reserve Ratio In Unscheduled Move

Further, India's wheat harvest season is around April going into May, and a record heatwave has caused some concern on what its impact would be on India's wheat output.

Experts have suggested varying effects. While Harish Damodaran of the Centre for Policy Research puts the impact at 15% to 20% on yields, the response by an economist at the FAO was more tempered, as she forecasted local damages, whose effect would not spillover on the world stage. Their responses can be read here.

Also Read: Explained: Sri Lanka's Foreign Exchange And Economic Crisis

Updated On: 2022-05-14T21:58:29+05:30
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