Author: Debashis Chakraborty, IIFT

In a surprise move, India banned wheat exports on May 13, 2022, to “manage the country’s overall food security and support other vulnerable countries”. Earlier it appeared that India, the world’s second-largest wheat producer, held sufficient stocks to meet demand from domestic markets and traditional buyers. India was also prepared to encounter part of the global supply shortage resulting from Russia’s war on Ukraine.

India is not new to export bans or commodity restrictions. The country has intervened before for several agricultural products, including wheat and onions. But New Delhi’s most recent wheat decision has caught the world’s attention due to the rise in the price of wheat per ton from US$325 to US$450 after Russia’s decision to invade the ‘Ukraine. Increase in shipments from India partially compensated shortage of supply from Ukraine in April 2022.

Given that India’s decision to ban wheat exports could lead to a surge in world prices, several countries and leading global organizations like the G7 approached India to reconsider its decision.

In support of the policy change, India’s Minister of State for External Affairs, Vellamvelly Muraleedharan, highlighted the role of hoarding in low-income countries’ difficulty in accessing food grains. The Minister also referred to the new threats hanging over these countries due to the rise in food prices in the aftermath of the Russian-Ukrainian war and India’s sincere commitment to help them. He had Sri Lanka in mind, like India Shipped energy products and grains (including wheat) to its indebted neighbor in early 2022.

Despite having wheat export restrictions in place, India has also offered exemptions for sending wheat shipments to neighbors like Bangladesh, Maldives and Nepal in the past. These flexibilities offered to member countries of the South Asian Association for Regional Cooperation underscore 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 of wheat stocks in January 2022 stood at 330 lakh metric tons, which gradually decreased to 282, 234 and 190 lakh from February to April 2022 respectively. In May 2022, the stock rose to 303 lakh but the same rest well 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%, compared to a corresponding figure of around 4% at the start of 2021. Policymakers are concerned about maintaining domestic price stability, a priority reflected in the Reserve Bank of India’s recent interest rate hike decision.

While New Delhi’s wheat export ban may bring price stability to Indian consumers, especially in a run-up to the upcoming national elections, farmers and traders are not appeased. The Ukraine crisis has led to a supply shortage and a global rise in wheat prices, creating potential demand for Indian exports. The decision to ban exports and the corresponding drop in domestic prices hurt both farmers who hold unsold inventory and traders who have already made purchasing decisions in anticipation of export opportunities.

India gained unexpected quarterly support for the change in wheat export policy. China, which faced challenges at the WTO earlier over its volunteering export restrictions in segments such as rare earths, supported India’s wheat export ban pointing to India’s modest share in world exports. Beijing too called on the G7 countries to improve their supply on the world market in order to stabilize prices. The support should be seen as a subtle overture, as several apps developed in China are still banned in India. Any drastic improvement in Sino-Indian relations, in light of this Chinese opening, is unlikely.

One of the government’s major announcements in 2016 was to double agricultural income by 2022, which requires stable production and exports. Although the decision to ban wheat exports does not contribute to this objective, it can guarantee price stability at the national level – a popular political decision. But arriving at a market-based solution to ensure the sector’s long-term growth is the need of the hour.

Indian policymakers must urgently focus on agricultural input market reforms to reduce the cost of cultivation. This will stimulate demand and, therefore, agricultural production. At the same time, it will provide Indian players with much-needed price competitiveness, which would limit the need for public stockpiling operations and minimum reliance on support prices, thereby deepening export opportunities.

Otherwise, agriculture will continue haunt negotiators as an Achilles’ heel in multilateral and regional trade negotiations, and periodic commodity export bans will unfortunately remain the rule rather than the exception.

Debashis Chakraborty is Associate Professor of Economics at the Indian Institute of Foreign Trade (IIFT).