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Explained: Why ban of wheat exports is knee-jerk reaction, hits farmers and dents policy credibility

The government could have announced a bonus of Rs 200-250/quintal on top of MSP to augment its wheat procurement.

Written by Ashok Gulati , Sanchit Gupta |
Updated: May 17, 2022 12:45:10 pm
If the Government feels that the situation on the wheat front is so dire, it could have calibrated exports by putting some minimum export price (MEP). (Archives)

In a knee-jerk reaction, the government has banned wheat exports with effect from May 13, with some minor exceptions for those who have irrevocable letters of credit or where the governments of importing countries request the Indian government for food security purposes.

This comes as a shock because only a month ago, Prime Minister Narendra Modi had said to US President Joe Biden, in his inaugural address at the 2+2 ministerial on April 11, that if WTO allows us to export grains, India will start exporting from tomorrow to feed the world.

Also in Explained |Behind low wheat procurement

What happened between April 11 and May 13 that such a drastic decision had to be taken?

The only plausible explanation, from the Government’s side, could be that the revised estimates of wheat production are much lower than the estimated 111 mmt (million metric tonnes), and that wheat procurement is likely to end up at around 19 to 20 mmt by June-end against the more than 43 mmt last year. Another factor could be that the April ’22 wheat inflation is at 9.59 per cent (y-o-y) against overall cereal inflation of 5.96 per cent.

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No matter what the rationale, Government babus or the minister concerned gives, it surely hits adversely not only the credibility of our Prime Minister but also of India as a reliable supplier of anything in global markets. It conveys that we don’t have any credible export policy as it can turn its back at the drop of a hat.

More interestingly, it also reflects a deep-rooted consumer bias in India’s trade policies. It is this consumer bias that indirectly becomes anti-farmer. When farmers are getting just 10 per cent higher price than Minimum Support Price (MSP) of wheat, why is the Government not letting them take benefit of improved market conditions? Does the government not want to augment farmers’ incomes? And that, too, when 800 million plus people have been given almost free food (rice and wheat) under NFSA and PMGKAY until September end. Is the government trying to protect the urban middle class at the cost of farmers? It is this urban-consumer bias that has kept our peasantry poor.

In a major work that ICRIER did with OECD on this issue of agricultural price policies, it found that imposition of stocking limits on traders and export restrictions, all act as an implicit tax on farmers. All OECD countries, and other large countries like China, Brazil, Indonesia, etc provide net positive support to their farmers but India still implicitly taxes its peasantry through market and export controls. The export ban also reflects poorly on India’s image in playing its shared global responsibility when the Russia-Ukraine war is creating uncertainty in global commodity markets. Export bans will worsen the situation.

What could have been done even when wheat production and procurement are down?

First, the Government could have announced a bonus of Rs 200-250/quintal on top of MSP to augment its wheat procurement. Even now, farmers who are holding stocks, may like to give it to the Government, if bonus is announced tomorrow. That will make farmers happy and incentivise them to increase area under wheat in the next season.

Secondly, one wonders why the Government announced free food until September-end under PMGKAY. If it wanted to provide extra help on top of PDS supplies, it could have offered cash so that they could buy any food, from eggs to milk to pulses, where inflation is much lower and they are more nutritious. Substitution of rice for wheat in PMGKAY is a step in the right direction.

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Third, if the Government feels that the situation on the wheat front is so dire, it could have calibrated exports by putting some minimum export price (MEP). But instead, it chose the worst policy option of outright ban on exports. It only shows the hollowness of agri-trade policies and dreams of doubling agri-exports. Finally, it may be recognised that inflation is a global phenomenon today caused by excessive liquidity injected by central banks and loose fiscal policies around the world. India’s wheat export ban will not help tame inflation at home.

(Gulati is Infosys Chair Professor for Agriculture and Gupta is a researcher at ICRIER)

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