The wheat export ban reflects a deep-rooted anti-producer bias in Indian trade policy.
As Ukraine and Russia, producers of one-fourth of the world’s wheat, are engaged in a bitter war disrupting global wheat supply, the world has turned to India – another major wheat producer – to address the global wheat shortages. To capitalise on this development, the government initially planned to export around 10 million tonnes of wheat this year. However, things seem to have taken a different turn.
Just weeks after drum-beating grand plans to export record amounts of wheat, the government imposed a ban on the exports of wheat itself. Government officials claim that the drastic measure is driven by the need to lower domestic wheat prices, which are likely to be accentuated because of a lower wheat harvest of 105 million tonnes instead of the earlier projected 111 million tonnes. This is due to the early arrival of summer in March, which has negatively affected wheat output, especially in north-western India.
Instead of pursuing the less severe paths of Minimum Export Prices (MEP) or export tariffs, the government has chosen the most severe of all – a blanket ban. This sudden policy change is not new, but it reflects the endemic problem that has long been plaguing Indian agriculture.
Firstly, it reflects the deep-rooted pro-consumer, anti-producer bias within trade policies where authorities always prioritise consumers’ interests over that of farmers. Instead of letting farmers export their produce and reap profits from high global wheat prices, authorities sacrificed their interests to reign in inflation for the domestic consumers. This is also reminiscent of export bans on onions that usually kick in every year around September-November when prices reach their peaks, and export bans are imposed to provide relief to domestic consumers at the expense of farmers.
A 2017 joint study by The World Bank and Delhi-based Indian Council for Research on International Economic Relations (ICRIER) also supports this view. It found that India’s agriculture trade policy has a pro-consumer bias that implicitly taxes farmers through measures like export bans, MEP, stock limits, movement restrictions and so on. Because of this, Ashok Gulati, who was then the agriculture chair professor at ICRIER, called for the banning of the export bans. The study also estimated that from 2000-01 to 2016-17, the various restrictions were equivalent to an implicit tax of Rs 2.65 lakh crore per annum (at 2017-18 prices). Thus, farmers were taxed around Rs 45 lakh crore in a seventeen-year period.
Secondly, the ban negatively impacts India’s credibility as a reliable global supplier. It is difficult to trust nations where governments engage in knee-jerk reactions and policy changes at the drop of a hat. There has already been a global backlash, as agriculture ministers of the G7 nations have criticised India’s moves and called upon India to lift the ban.
Government’s wheat procurement figures have also fallen to a 15-year-low, as only 18 million tonnes have been procured so far in the 2022-23 marketing season, against 43.3 million tonnes in 2021-22. It is likely that the Government procured less in the anticipation that private players would step in to buy wheat at above MSP, exporting it for higher prices. If so, the arbitrary ban would hurt them too.
It was precisely in view of circumstances like these that the Government passed the Essential Commodities (Amendment) Act in 2020, to check arbitrary policy interferences. The Act stipulated that regulation and restrictions on production, supply and distribution of food commodities would only kick in during extraordinary events like exceptional price rises, wars, famines and grave natural calamities. Unfortunately, the much needed progressive law, along with two others in the reform package, was withdrawn by the government in the face of year-long protests by farmer groups.
The official intention behind the amendment as quoted by government officials themselves was that bringing interventions under a well defined framework would minimise the earlier uncertainties associated with the imposition of abrupt restrictions. This would thus lead to transparency and better governance. However, engaging in arbitrary policy interventions like the wheat ban betrays the government’s own stated intentions. The ban also runs contrary to this government’s own claims to augment farmer incomes.
While the rationale behind the ban seems somewhat reasonable, less severe measures such as export disincentives could have been considered. Knee-jerk responses and policy ad-hocism could also impact future efforts to expand international markets for Indian agricultural goods. It is important to rid trade policies of consumer bias to bring about stability and predictability.
A month since the ban, India is now considering wheat import requests worth more than 1.5 million tonnes from various governments.
The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.